352 lines
15 KiB
Plaintext
352 lines
15 KiB
Plaintext
Date: Thu, 21 Jan 93 16:02:51 PST
|
|
Reply-To: <surfpunk@osc.versant.com>
|
|
Return-Path: <cocot@osc.versant.com>
|
|
Message-ID: <surfpunk-0032@SURFPUNK.Technical.Journal>
|
|
Mime-Version: 1.0
|
|
Content-Type: text/plain
|
|
From: surfpunk@osc.versant.com (jnyyf vzcrqr zl cebterff)
|
|
To: surfpunk@osc.versant.com (SURFPUNK Technical Journal)
|
|
Subject: [surfpunk-0032] UNIX: analysis of the acquisition of usl by novell
|
|
Keywords: surfpunk, novell, USL, unix, Ray Noorda
|
|
|
|
* | What is the refusal of *Art*? The "negative
|
|
| gesture" is not to be found in the silly nihilism
|
|
| of an "Art Strike" or the defacing of some famous
|
|
| painting -- it is to be seen in the almost
|
|
| universally glassy-eyed boredom that creeps over
|
|
| most people at the very mention of the word.
|
|
|
|
|
| -- Hakim Bey, TAZ
|
|
|____________________________________________________
|
|
|
|
|
|
<keith@cc.gatech.edu> called this analysis to my attention.
|
|
It had several factoids I hadn't seen/realized,
|
|
and derives some scary conclusions.
|
|
--strick
|
|
________________________________________________________________________
|
|
________________________________________________________________________
|
|
|
|
Newsgroups: comp.unix.questions
|
|
Subject: The Novell/AT&T agreement to sell Unix
|
|
From: harley@engrhub.ucsb.edu (Harley Hahn)
|
|
Date: 13 Jan 93 05:20:09 GMT
|
|
|
|
Last week I posted an article describing the impending deal
|
|
between AT&T and Novell under which AT&T will sell Unix System
|
|
Labs to Novell.
|
|
|
|
I said that I would be writing an analysis for Unixgram-X
|
|
(a worldwide Unix newsletter, published in London and New York
|
|
each week and widely read by executives/analysts/managers etc).
|
|
|
|
I asked for people comments about the deal. Thank you to the
|
|
many people who contributed their thoughts. In this article,
|
|
I am posting the analysis that I wrote, as it was published in
|
|
last Friday's Unixgram-X.
|
|
|
|
Before you read it I have two quick things to say:
|
|
|
|
(1) In the newsletter, they changed the title to:
|
|
|
|
"AT&T, Novell and the Shrink-Wrapped Sellout".
|
|
|
|
(2) The American publisher told me afterwards that the reaction
|
|
from USL and others was swift and that I "hit a nerve".
|
|
|
|
----- start -----
|
|
|
|
ANALYSIS OF THE ACQUISITION OF USL BY NOVELL
|
|
===========================================
|
|
|
|
by Harley Hahn and Rick Stout
|
|
|
|
The recent letter of intent signed by AT&T and Novell in which
|
|
they revealed their plans for AT&T to sell Unix System
|
|
Laboratories (the home of System V Unix) is of enormous
|
|
importance. No one doubts that the move will have significant
|
|
lasting effects on the world of Unix and its relations. The big
|
|
question is, what is likely to happen?
|
|
|
|
In this analysis, we will look at this acquisition from both
|
|
financial and technical viewpoints. We will show you some
|
|
startling figures and elucidate some of the hidden motivations
|
|
behind the scenes. In addition, we will discuss the trepidations
|
|
in the technical community and offer our opinions as to whether
|
|
these reservations are well founded.
|
|
|
|
RECAPPING THE DETAILS
|
|
=====================
|
|
|
|
To start, let's quickly recap the details. In early 1990, AT&T
|
|
consolidated its Unix operations into a division called Unix
|
|
System Operation. In April 1991, they spun off this division
|
|
into a separate company named Unix System Laboratories. At
|
|
first, all the USL stock was owned by AT&T, but, later in the
|
|
year, AT&T sold a minority interest to other carefully selected
|
|
companies. At this time, AT&T owns 77% of the outstanding stock,
|
|
Novell owns 5%, and 11 other companies (including Sun
|
|
Microsystems) own the other 18%.
|
|
|
|
Novell proposes to buy out all the USL stockholders in order to
|
|
own USL outright. But, rather than pay cash, Novell will issue
|
|
about 1.1 million new shares of Novell stock and trade them for
|
|
existing USL stock. No real money will change hands (we will see
|
|
why in a moment). But when all is said and done, AT&T will be
|
|
left sitting with stock valued at $100m more than its current USL
|
|
holdings.
|
|
|
|
AT&T will own 3% of Novell's common stock but, according to
|
|
Robert Kavner (AT&T Group Executive for Communications Products),
|
|
they have "no plans to be involved in USL or Novell's operations
|
|
or business decisions."
|
|
|
|
WHAT NOVELL PROMISES
|
|
====================
|
|
|
|
Novell promises not to change the fundamental orientation of USL.
|
|
The official Novell/AT&T press release says: "Novell recognizes
|
|
and values the importance of UNIX as an open accessible
|
|
technology to OEM partners and customers around the world. As
|
|
part of Novell, USL's commitment to fair and neutral access to
|
|
UNIX technology will not change."
|
|
|
|
On the other hand, in another part of the press release, Ray
|
|
Noorda (the President and CEO of Novell) makes a conflicting
|
|
observation: "This acquisition is being done at the urging of
|
|
customers who have asked us to support the UNIX system directly
|
|
and integrate it more fully within the Netware environment."
|
|
|
|
(Is there anyone who actually believes that Novell decided to buy
|
|
USL at the urging of Novell's customers? If so, we have some IBM
|
|
stock options that you might like to buy.)
|
|
|
|
THE USL NUMBERS
|
|
===============
|
|
|
|
AT&T is fond of saying that USL has annual revenues "in excess of
|
|
$80 million dollars." In fact, the 1992 revenues were $91m. But,
|
|
revenues are not profit. How much, if anything, does USL make
|
|
from that $91m? Is Unix is a profitable business?
|
|
|
|
USL is not a public company and they have chosen not to release
|
|
their financial figures. However, we were able to obtain the
|
|
results for 1989 through 1991, and they do not paint a pretty
|
|
picture.
|
|
|
|
The annual net revenues increased from $58m (1989), to $70m
|
|
(1990) to $77m (1991). However, during the same time, expenses
|
|
increased dramatically. Research and development went from $28m
|
|
(1989), to $30m (1990), to $45m (1991), while sales and marketing
|
|
expenses increased even more: $14m (1989), $17m (1990) and $26m
|
|
(1991).
|
|
|
|
The most revealing numbers are the net income. In 1989, USL made
|
|
$4m on revenues of $58m. In 1990, they made only $3m on revenues
|
|
of $70m. And in 1991, the last year for which we have data, USL
|
|
sunk deeply into the red, losing $29m dollars on revenues of
|
|
$77m.
|
|
|
|
The retained earnings (cumulative profit and loss) were $4.7m at
|
|
the end of 1990 and -$24m at the end of 1991.
|
|
|
|
On Dec 31, 1991, USL had $100m in assets, of which $46m was cash.
|
|
Whatever is left of these assets will, of course, be taken over
|
|
by Novell.
|
|
|
|
Although the 1992 results are not public, a highly-placed source
|
|
at USL tells us that they did make a small profit last year (on
|
|
revenues of $92m). Moreover, they still have more than $40m in
|
|
cash.
|
|
|
|
THE NOVELL NUMBERS
|
|
==================
|
|
|
|
By just about any standard, Novell is a strong company. At the
|
|
end of their 1992 fiscal year (Oct 31), they had total assets of
|
|
$1097m, of which $260m was cash.
|
|
|
|
Moreover, their liabilities were low. The total current
|
|
liabilities were $149m, the minority interest was $8.9m, while
|
|
the long-term debt was, remarkably, only $0.5m.
|
|
|
|
All this yields a shareholder's equity of $938m (about 86% of
|
|
total assets) which gives a low debt to equity ratio of 17%.
|
|
|
|
Or, to put it in plain English, Novell is a wealthy company with
|
|
negligible long-term debt and almost $260m cash.
|
|
|
|
WHY IS THE DEAL STRUCTURED THE WAY IT IS?
|
|
=========================================
|
|
|
|
A company like Novell, with such tremendous assets, has several
|
|
choices when it comes to an acquisition. They can pay cash, out
|
|
of their own reserves or by borrowing. In fact, Novell has the
|
|
leverage to do just about anything it wants. Why then, did they
|
|
choose to issue new stock to buy USL?
|
|
|
|
Our answer is that they bought it for no money down because there
|
|
were able to. Although they could afford to pay real money for
|
|
USL, they were well aware that it was losing money and AT&T was
|
|
highly motivated to make the sale.
|
|
|
|
You may remember that AT&T's original intention in setting up USL
|
|
was to one day spin it off as a separate company. It seems that
|
|
USL could not stand on its own and AT&T's only alternative was
|
|
sell it. Now, how many companies can afford to buy an ailing
|
|
operating system concern? Although Novell could have depleted
|
|
its reserves to make the purchase, why should they? By simply
|
|
issuing new shares (which, in turn, diluted the equity of the
|
|
current Novell shareholders), they could have their cake, eat it,
|
|
and keep their wealth.
|
|
|
|
From AT&T's side the Novell offer is a godsend. True, they do
|
|
not get any cash, but they get a big chunk of valuable stock and,
|
|
most important, they get to leave the Unix business and stop
|
|
supporting the big white Unix elephant.
|
|
|
|
Do you think it bothers AT&T to jettison Unix? Remember Kavner's
|
|
remark: AT&T has "no plans to be involved in USL or Novell's
|
|
operations or business decisions." In our minds, AT&T wanted out
|
|
and Novell was the White Knight. And when White Knights offer
|
|
stock instead of cash, you don't quibble.
|
|
|
|
CONCERNS
|
|
========
|
|
|
|
The technical community that uses Unix on a day to day basis has
|
|
some valid concerns. For example, much of the Unix community is
|
|
used to flexible networking under the openness of the TCP/IP
|
|
umbrella. Although Novell does support TCP/IP in its UnixWare
|
|
offering, the mainstay for its networking (and the bulk of its
|
|
business) is provided by Netware's IPX/SPX protocols. Moreover,
|
|
NFS, widely used in the world of Unix for resource sharing, can
|
|
be viewed as a competitor to Netware.
|
|
|
|
The main concern, however, is an overriding apprehension that
|
|
what's good for Netware may not be good for Unix. True, Novell
|
|
seems to be promising that life will go on much as usual. But
|
|
there is no gainsaying the fact that Novell is a publicly-owned
|
|
company whose primary responsibilities are to its shareholders.
|
|
Novell has no compelling reason (nor should it have) to keep on
|
|
paying for the fuel that burns in the Unix flame. In the long
|
|
run, Novell must make a profit with USL and, if past performance
|
|
is any indication, they will make a profit, no matter what it
|
|
takes.
|
|
|
|
As Larry Lytle, the main spokesman for USL puts it: "USL
|
|
understands that it is naive to believe that in any merger
|
|
nothing changes. The question is what will change and what will
|
|
remain unchanged? ...You can expect that Novell is going to run
|
|
this as a business and is going to want USL to be profitable.
|
|
They are going to have a great deal of influence on the future of
|
|
Unix because they are going to influence, for example, how we
|
|
spend our money on research and development."
|
|
|
|
STRANGE CONFLICTS OF INTEREST
|
|
=============================
|
|
|
|
All of which create some interesting conflicts of interest. For
|
|
instance, what about all the companies that use Unix to build
|
|
products that compete against Novell? They will now have to
|
|
license Unix from Novell in order to compete against them. For
|
|
example, the Vines operating system from Banyan, a direct
|
|
competitor of Netware, is based on Unix. Every time Banyan sells
|
|
an operating system, some of the money will go to Novell.
|
|
|
|
There are many more companies that depend on their Unix licences
|
|
just to build their products. It would be unrealistic to not
|
|
expect to pay higher royalties in the foreseeable future. After
|
|
all, USL has trouble making money but USL under Novell will have
|
|
to make money. Moreover, we should assume that future decisions
|
|
about Unix will have to take into account what is good for
|
|
Novell.
|
|
|
|
Does this mean that System V-based companies should be concerned
|
|
about their future? Absolutely. Maybe not today, or even six
|
|
months from now, but somewhere down the road the interests of
|
|
Novell will not coincide with the Unix world at large. It is
|
|
unrealistic to expect Novell to spend money to develop Unix for
|
|
the good of everybody at the expense of their own company.
|
|
|
|
NEW OPPORTUNITIES
|
|
================
|
|
|
|
Much has been made of the threat that Microsoft and NT might pose
|
|
to Unix. The combination of Novell and Unix, the refrain goes,
|
|
has a much better chance of countering this threat than USL by
|
|
itself. However, such observations ignore the fact that a small
|
|
but significant share of the marketplace is best served by Unix
|
|
no matter what Microsoft is up to. The many Unix VAR's and
|
|
resellers should probably be more concerned with the loss of a
|
|
stable, independent source for Unix than with an imaginary NT
|
|
monster.
|
|
|
|
What we see is a brand new opportunity for OSF who, after all,
|
|
offers the only large-scale alternative for a vendor-independent
|
|
Unix-like operating system. It would be prudent for those Unix
|
|
vendors who have not already made the switch to take a strong
|
|
look at OSF.
|
|
|
|
There is also an important opportunity for the Mark Williams
|
|
company, who sells their Unix-like operating system (Coherent)
|
|
for $99. Coherent can run System V binaries and may provide a
|
|
viable, inexpensive basis for VAR's who sell vertical
|
|
applications.
|
|
|
|
THE WINDS OF CHANGE
|
|
===================
|
|
|
|
Although we can't predict the future in detail, we can say that
|
|
the winds of change are blowing ever more strongly. Novell is so
|
|
rich that the Unix acquisition is relatively small potatoes. One
|
|
way or the other, they can afford to do whatever they want.
|
|
|
|
The financial results for USL seems to indicate that supplying
|
|
System V to the world is not a good way to make money. If so,
|
|
there is no reason to expect Novell to keep subsidizing Unix out
|
|
of altruism.
|
|
|
|
The trouble is that we live in a part of the world in which many
|
|
people depend on Unix -- not to fight Microsoft and NT, but to
|
|
earn their living -- and there are too many unknowns. As we see
|
|
it, the onus falls squarely on the shoulders of Ray Noorda. As
|
|
Novell consummates the deal with AT&T, there should be guarantees
|
|
made as to the future of Unix. These guarantees should be in
|
|
writing and should be made public. Moreover, Noorda must finally
|
|
set up a line of succession and give us some indication of how
|
|
Novell (and Unix) will function when he bows out.
|
|
|
|
It's not that Novell has any moral or financial obligation to be
|
|
the keeper of the Unix flame. It's just that people have to make
|
|
plans. Vague, contradictory statements of intent are not enough.
|
|
It certainly behooves companies dependent on System V to
|
|
reevaluate their future.
|
|
|
|
----- end -----
|
|
________________________________________________________________________
|
|
________________________________________________________________________
|
|
|
|
The SURFPUNK Technical Journal is a dangerous multinational hacker zine
|
|
originating near BARRNET in the fashionable western arm of the northern
|
|
California matrix. Quantum Californians appear in one of two states,
|
|
spin surf or spin punk. Undetected, we are both, or might be neither.
|
|
________________________________________________________________________
|
|
|
|
Send postings to <surfpunk@osc.versant.com>, subscription requests
|
|
to <surfpunk-request@osc.versant.com>. MIME encouraged.
|
|
Xanalogical archive access soon. Atonal punk reggae scored for gamelan.
|
|
________________________________________________________________________
|
|
________________________________________________________________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFBIG 27 File too large
|
|
The size of a file exceeded the maximum file size
|
|
(1,082,201,088 bytes).
|
|
|
|
|