Information Age: News, analysis & insight for IT & business leaders

For the past few months, IT infrastructure software maker Novell has been under attack from its own shareholders. Following a series of lacklustre quarterly results, the investors have been demanding that Novell's management team takes urgent action to rationalise the company's disparate software portfolio, create a coherent strategy around a remaining product core, and so reverse the company's performance. And their calls have not been totally ignored.

In September the first salvo was fired by an analyst at Credit Suisse First Boston, the investment bank which owns 1% of Novell's common stock. In an open letter to Novell's directors, CSFB analyst Jason Maynard wrote: "In our opinion, the company has the requisite assets to be a much more profitable enterprise, but it lacks the vision, strategy and execution."

Just days later another letter arrived, this time from Blum Capital Partners, which owns more than 5% of Novell's stock. "Our conviction is firm in the future promise of the company," wrote Blum managing partner Colin Lind and partner Greg Jackson. "The question is whether the current management and board will execute."

The Blum partners urged Novell to sell off several groups - they estimated its operational consultancy, Celerant, is worth $175 million; the Groupwise collaboration suite $100 million; the Zenworks remote management software $150 million; and the IT services unit, Cambridge Technology Partners, $75 million - and use the proceeds to buy back stock from shareholders.

Although it has not sold any of those units yet, Novell has reacted to the call to action by buying back $200 million of its own shares - "just one of the elements of a plan," insists Novell's chairman and CEO Jack Messman.

Other elements of the strategy were revealed by Messman at Novell's Brainshare partner event in Barcelona in September. Under the banner 'Software for the Open Enterprise', he says Novell will now focus on five core areas: the desktop, data centre, security and identity management, resource management and workgroups. Much of that is open source or open standards based, and that is the appeal Messman is counting on: "Organ-isations worldwide are asking for flex- ibility, for freedom from vendor lock-in."

And he has some examples in mind. He expects Microsoft customers will baulk at the prohibitive cost of migrating from Windows XP to Vista - the next generation of the operating system expected to ship in the second half of 2006. For customers looking for an alternative, "Novell can free you from the hold of Microsoft," he promises.

To date, Novell's investment in that alternative - its Linux suite acquired with the takeover of Suse for $210 million in 2004 - has yet to pay off. But Novell executives feel their revamped line up positions the company to take advantage of largescale corporate adoption of Linux.

Analysts at Gartner predict Linux will have the strongest growth of any server operating system during the next five years, with revenue rising from $6.5 billion to $11.5 billion over the period, giving Linux a 20% market share.

With software sales in its latest quarter falling by a fifth to $45.6 million, and now accounting for just 16% of its total revenues, the question looms over Novell: will shareholders have the patience to see if the new strategy can catch that open software wave.