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BRAND IN TROUBLE: NOVELL FALTERS IN A MARKET WHERE MOMENTUM IS KEY

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Novell, the king of computer networking, had every reason to extend its rule to the Internet. But three years of strategic missteps, management turmoil and inconsistent communication have branded Novell a loser.

New management candidly admits the mistakes, but insists Novell can build off its strength -- 55 million Novell software users -- to rebuild the brand around the Internet and corporate intranets.

"We can't be in denial," said Carol Manning, director of worldwide advertising, who joined Novell a year ago. "We have a new team of people; we have a new attitude. We're in the midst of turnaround."

REBUILDING TASK IS FORMIDABLE

Novell faces a formidable task to rebuild in a market where business tech buyers favor brands with momentum. Novell's revenues are just half the $2 billion level of 1995; the company lost money in the first three quarters of fiscal 1997, ended in October.

Its problems began in 1994, when Novell Chairman-CEO Ray Noorda, riding high with the NetWare software that networked office PCs, bought WordPerfect Corp. and began a head-on assault on Microsoft Corp.'s dominance in office applications software. Mr. Noorda retired that year.

REFOCUSING ON NETWORKING

A year later, Novell -- admitting it had made a mistake in trying to take on Microsoft in software applications and not keeping its longtime focus on network software -- announced a plan to unload WordPerfect and refocus on networking. Around that time, rival Microsoft, admitting its failure to embrace the Internet, restaged itself to focus on the Net.

In 1996, Novell Chairman-CEO Robert Frankenberg exited amid complaints Novell was floundering and failing to articulate its Internet strategy.

The company stumbled on the ad front. Novell and Y&R Advertising, San Francisco, a year ago announced the marketer's biggest-ever global campaign and followed with high-styled, brash creative themed, "Rock the Net."

But Novell quickly killed the campaign, which Ms. Manning said "was hip and cool" but "wasn't very believable coming from Novell at that time."

A turnaround now is up to the marketing team assembled by Eric Schmidt, an engineer who left Sun Microsystems to join Novell as chairman-CEO in April.