UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


          (Mark one)
              [X] Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                 For the Quarterly Period Ended January 31, 2001

                                       or

              [ ] Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                         For the transition period from
                                     -------
                                       to
                                   -----------

                         Commission File Number: 0-13351


                                  NOVELL, INC.
             (Exact name of registrant as specified in its charter)

                Delaware                                     87-0393339
    (State or other jurisdiction of                       (I.R.S. Employer
     incorporation or organization)                      Identification No.)

                             1800 South Novell Place
                                Provo, Utah 84606
              (Address of principal executive offices and zip code)

                                 (801) 861-7000
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days.

                                    YES X NO
As of February 28, 2001 there were 317,576,897 shares of the Registrant's Common
Stock outstanding.


<PAGE>


PART I.  FINANCIAL INFORMATION, ITEM 1.  FINANCIAL STATEMENTS


                                  NOVELL, INC.
                      CONSOLIDATED CONDENSED BALANCE SHEETS

<TABLE>
<S>                                                                   <C>                           <C>
                                                                      JANUARY 31, 2001              OCTOBER 31, 2000
                                                                      ----------------              ----------------
Amounts in thousands, except share and per share data                      (Unaudited)
ASSETS
CURRENT ASSETS:
Cash and short-term investments                                           $    655,449                 $    698,193
Receivables,  less allowances ($42,461 - January; $33,469
- October)                                                                     161,095                      196,672
Inventories                                                                      1,898                        2,621
Prepaid expenses                                                                25,458                       26,120
Deferred and refundable income taxes                                            56,996                       60,109
Other current assets                                                            25,179                       23,644
                                                                          ------------                 ------------

Total current assets                                                           926,075                    1,007,359

Property, plant and equipment, net                                             282,937                      290,104
Long-term investments                                                          397,876                      383,583
Other assets                                                                    38,566                       31,300
                                                                          ------------                 ------------

Total assets                                                              $  1,645,454                 $  1,712,346
                                                                          ============                 ============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable                                                          $     94,286                 $     85,050
Accrued compensation                                                            56,849                       54,546
Accrued marketing liabilities                                                   12,500                       13,632
Other accrued liabilities                                                       58,786                       59,644
Income taxes payable                                                            26,145                       39,043
Deferred revenue                                                               220,154                      203,163
                                                                          ------------                 ------------

Total current liabilities                                                      468,720                      455,078

Minority interests                                                              11,457                       12,183

SHAREHOLDERS' EQUITY:
Common stock, par value $.10 per share
Authorized - 600,000,000 shares
Issued -  317,653,609 shares-January
         327,618,192 shares-October                                             31,766                       32,762

Retained earnings                                                            1,250,626                    1,319,853
Accumulated other comprehensive income (loss)                                 (101,797)                     (84,427)
Other                                                                          (15,318)                     (23,103)
                                                                          -------------                -------------

Total shareholders' equity                                                   1,165,277                    1,245,085
                                                                          ------------                 ------------

Total liabilities and shareholders' equity                                $  1,645,454                 $  1,712,346
                                                                          ============                 ============
</TABLE>

See notes to consolidated unaudited condensed financial statements.


<PAGE>


                                  NOVELL, INC.
            CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<S>                                                                              <C>                          <C>

                                                                                           FISCAL QUARTER ENDED
                                                                                -------------------------------------------
                                                                                 JAN. 31, 2001                JAN. 31, 2000
Amounts in thousands, except per share data
NET SALES                                                                         $   245,035                   $   316,043
Cost of sales                                                                          65,862                        78,727
                                                                                  -----------                   -----------
GROSS PROFIT                                                                          179,173                       237,316

OPERATING EXPENSES:
Sales and marketing                                                                   121,747                       113,656
Product development                                                                    49,488                        57,937
General and administrative                                                             21,222                        19,193
                                                                                  -----------                   -----------

Total operating expenses                                                              192,457                       190,786

Income (loss) from operations                                                         (13,284)                       46,530

OTHER INCOME (EXPENSE)
Investment income                                                                      17,287                        17,551
Other, net                                                                                544                        (1,810)
                                                                                  -----------                   ------------

Other income, net                                                                      17,831                        15,741

Income before taxes                                                                     4,547                        62,271

Income taxes                                                                            1,273                        17,436
                                                                                  -----------                   -----------
Net income before cumulative effect of change in accounting
principle                                                                               3,274                        44,835

Cumulative effect of change in accounting principle (Note K)                          (11,048)                           --
                                                                                  ------------                  -----------

NET INCOME (LOSS)                                                                 $    (7,774)                  $    44,835
                                                                                  ============                   ==========

NET INCOME (LOSS) PER SHARE
BASIC:
Before cumulative effect of change in accounting principle                        $     0.01                    $     0.14
Cumulative effect of change in accounting principle (Note K)                           (0.03)                           --
                                                                                  -----------                   ----------
                                                                                  $    (0.02)                   $     0.14
                                                                                  ===========                   ==========
DILUTED:
Before cumulative effect of change in accounting principle                        $     0.01                    $     0.13
Cumulative effect of change in accounting principle (Note K)                           (0.03)                           --
                                                                                  -----------                   ----------
                                                                                  $    (0.02)                   $     0.13
                                                                                  ===========                   ==========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic                                                                                 322,183                       326,906
Diluted                                                                               322,183                       342,105

PRO FORMA AMOUNTS ASSUMING THE ACCOUNTING CHANGE IS APPLIED RETROACTIVELY
Net Income                                                                        $     3,274                   $    37,419
                                                                                  ===========                   ===========
Net income per share (diluted)                                                    $      0.01                   $      0.11
                                                                                  ====+======                   ===========
</TABLE>
See notes to consolidated unaudited condensed financial statements.


<PAGE>


                                  NOVELL, INC.
            CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS


<TABLE>
<S>                                                                         <C>                       <C>
                                                                                       THREE MONTHS ENDED
                                                                            JAN. 31, 2001             JAN. 31, 2000
Dollars in thousands
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                                            $   (7,774)                $   44,835

ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization                                                    19,421                     18,505
Stock plans' income tax benefits                                                     --                     29,677
Decrease in receivables                                                          35,577                     47,653
Decrease (increase) in inventories                                                  723                       (275)
Decrease in prepaid expenses                                                        662                      3,784
Decrease in deferred and refundable income taxes                                  4,439                     19,442
(Increase) decrease in other current assets                                      (1,535)                    10,480
Increase (decrease) in current liabilities, net                                  13,642                    (33,264)
                                                                             ----------                 -----------

   Net cash provided from operating activities                                   65,155                    140,837

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock, net                                                     4,314                     37,164
Repurchase of common stock                                                      (64,910)                   (88,781)
                                                                             -----------                -----------

   Net cash used by financing activities                                        (60,596)                   (51,617)

CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment                                   (7,252)                   (10,674)
Purchases of short-term investments                                            (285,812)                  (294,999)
Maturities of short-term investments                                            213,259                    280,750
Sales of short-term investments                                                  58,336                    163,507
Expenditures for other long-term investments                                    (13,712)                  (130,009)
Increase in restricted cash                                                          --                    (16,629)
Other                                                                           (15,505)                    15,594
                                                                             -----------                ----------

   Net cash provided (used) by investing activities                             (50,686)                     7,540

TOTAL INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                          (46,127)                    96,760

Cash and cash equivalents - beginning of period                                 289,537                    274,269
                                                                             ----------                 ----------

CASH AND CASH EQUIVALENTS - END OF PERIOD                                       243,410                    371,029

Short-term investments - end of period                                          412,039                    576,486
                                                                             ----------                 ----------

CASH AND SHORT-TERM INVESTMENTS - END OF PERIOD                              $  655,449                 $  947,515
                                                                             ==========                 ==========

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Issuance of restricted stock for acquisitions                                $       --                 $   10,656
</TABLE>

See notes to consolidated unaudited condensed financial statements.


<PAGE>


                                  NOVELL, INC.
         NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS


A.   QUARTERLY FINANCIAL STATEMENTS

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the amounts  reported in the financial  statements
     and accompanying  notes.  Actual results could differ from those estimates.
     The accompanying consolidated unaudited condensed financial statements have
     been prepared in accordance  with the  instructions to Form 10-Q but do not
     include all of the information and footnotes required by generally accepted
     accounting  principles and should,  therefore,  be read in conjunction with
     the  Company's  fiscal 2000  Annual  Report on Form 10-K.  These  financial
     statements  do include all normal  recurring  adjustments  that the Company
     believes  necessary for a fair presentation of the statements.  The interim
     operating results are not necessarily  indicative of the results for a full
     year. Certain  reclassifications,  none of which affected net income,  have
     been made to the prior  years'  amounts in order to conform to the  current
     year's presentation.

B.   CASH AND SHORT-TERM INVESTMENTS

     The Company  considers all highly liquid debt instruments  purchased with a
     term to maturity of three months or less to be cash equivalents. Short-term
     investments  are widely  diversified,  consisting  primarily of  short-term
     investment  grade  securities,  substantially  all of which  either  mature
     within  the  next  12  months  or  have   characteristics   of   short-term
     investments.  Municipal securities included in short-term  investments have
     contractual  maturities  ranging  from one to  seven  years.  Money  market
     preferreds  have  contractual  maturities  of less than 180 days.  No other
     short-term investments have contractual maturities. All marketable debt and
     equity securities that are included in cash and short-term  investments are
     considered  available-for-sale  and are carried at fair market  value.  The
     unrealized  gains and losses  related to these  securities  are included in
     shareholders' equity, net of tax and after applicable valuation allowances.
     Fair market values are based on quoted market  prices where  available;  if
     quoted market prices are not  available,  then fair market values are based
     on quoted market prices of comparable  instruments.  The cost of securities
     sold is based on the specific  identification  method.  Such securities are
     anticipated to be used for current operations and are therefore  classified
     as current assets, even though some maturities may extend beyond one year.

     The following is a summary of cash and short-term investments, all of which
are considered available-for-sale.
<TABLE>
<S>                                                 <C>              <C>             <C>            <C>

                                                                        GROSS          GROSS         FAIR MARKET
                                                       COST AT       UNREALIZED      UNREALIZED       VALUE AT
                                                    JAN. 31, 2001       GAINS          LOSSES       JAN. 31, 2001
                                                    -------------       -----          ------       -------------
(Amounts in thousands) Cash and cash equivalents:
  Cash..............................................   $  126,095       $     --      $      --        $  126,095
  Corporate debt....................................       70,165              7             --            70,172
  Money market funds................................       90,512             --             --            90,512
                                                       ----------       --------      ---------        ----------
          Total cash and cash equivalents...........      286,772              7             --           286,779
Short-term investments:
  State and local government debt...................      158,452          2,153             --           160,605
  Corporate debt....................................       34,575            912             --            35,487
  Money market preferreds...........................       98,600             --             --            98,600
  Mutual funds......................................       55,491             --         (8,541)           46,950
  Equity securities.................................       29,861          6,746         (9,579)           27,028
                                                       ----------       --------      ----------       ----------
          Total short-term investments..............      376,979          9,811        (18,120)          368,670
          Total cash and short-term investments.....   $  663,751       $  9,818      $ (18,120)       $  655,449
                                                       ==========       ========      ==========       ==========
</TABLE>


<PAGE>


<TABLE>
<S>                                                 <C>             <C>              <C>            <C>

                                                                        GROSS          GROSS         FAIR MARKET
                                                       COST AT       UNREALIZED      UNREALIZED       VALUE AT
                                                    OCT. 31, 2000       GAINS          LOSSES       OCT. 31, 2000
                                                    -------------       -----          ------       -------------
(Amounts in thousands) Cash and cash equivalents:
  Cash..............................................$  137,968        $      --     $       --      $  137,968
  Corporate debt....................................    54,514                1             --          54,515
  Money market funds................................    97,054               --             --          97,054
                                                    ----------        ---------     ----------      ----------
          Total cash and cash equivalents...........   289,536                1             --         289,537
Short-term investments:
  State and local government debt...................   221,565               --         (1,274)        220,291
  Corporate debt....................................    48,257              238             --          48,495
  Money market preferreds...........................    57,000               --             --          57,000
  Mutual funds......................................    54,082               --         (8,543)         45,539
  Equity securities.................................    25,221           20,267         (8,157)         37,331
                                                    ----------        ---------     ----------      ----------
          Total short-term investments..............   406,125           20,505        (17,974)        408,656
          Total cash and short-term investments.....$  695,661        $  20,506     $  (17,974)     $  698,193
                                                    ==========        =========     ==========      ==========
</TABLE>

     During the first three months of fiscal 2001, the Company realized gains of
     $6.4 million and realized  losses of $2.8 million on the sale of securities
     compared to realized  gains of $6.7  million  and  realized  losses of $0.9
     million in the first three months of fiscal 2000.  In addition,  during the
     first quarter of fiscal 2001, the Company wrote off $2.6 million related to
     investments  that had  become  impaired.  The  Company  reviews  all of its
     short-term  investments for impairment and recognizes  impairment losses as
     necessary.

C.   OTHER ASSETS

     The primary  components  of other assets as of January 31, 2001 and October
     31, 2000 were  long-term  investments  related to  restricted  cash for the
     Company's  off-balance-sheet  financing  of  its  buildings  in  San  Jose,
     California  and Provo,  Utah,  investments  made through the Novell Venture
     Fund, and strategic long-term equity  investments,  including the Company's
     investment in marchFIRST.

     The Company  marks its public  equity  securities  to market each month and
     records the related unrealized gain or loss as a component of comprehensive
     income.  The Company also reviews its  investments in long-term  public and
     private  equity  securities and venture funds for impairment and recognizes
     losses as necessary.  As of January 31, 2001,  unrealized  losses on public
     long-term equity  securities  totaled $91 million,  all of which related to
     the investment in marchFIRST.

D.   INCOME TAXES

     The  Company's  estimated  effective  tax rate,  before  the  effect of the
     cumulative  change in accounting  principle,  for the first three months of
     fiscal  2001 was  28.0%,  the same as in the first  three  months of fiscal
     2000. The Company paid cash amounts for income taxes of $1.0 million in the
     first three months of fiscal 2001 and $2.0  million  during the same period
     of fiscal 2000.

E.   LINE OF CREDIT

     The Company  currently has a $10 million  unsecured  revolving bank line of
     credit,  with  interest  at the prime rate.  The line of credit  expires on
     February 28, 2002 and can be renewed at the option of the Company. The line
     can be used for either letter of credit or working  capital  purposes.  The
     line is  subject  to the  terms of a loan  agreement  containing  financial
     covenants  and  restrictions,  none of which are expected to  significantly
     affect the Company's  operations.  At January 31, 2001,  there were standby
     letters of credit of $1.5 million  outstanding  under this  agreement.  The
     Company also has an  additional  $10 million  credit  facility with another
     bank, which is not subject to a loan agreement.  At January 31, 2001, there
     was $0.4  million  of  standby  letters  of credit  outstanding  under this
     arrangement.

F.       RESTRUCTURING

     During  the  fourth  quarter  of  fiscal  2000,  the  Company   recorded  a
     restructuring  charge of  approximately  $48.0  million  as a result of the
     Company's  plan to change its business  strategy to address  changes in the
     market  due  to  technology  changes,  customer  demands,  and  methods  of
     distribution.  Specific  actions  taken  included  reducing  the  Company's
     workforce  worldwide by approximately  700 employees  (approximately  13%),
     consolidating  facilities and disposing of excess fixed assets,  abandoning
     and writing off  technologies  that no longer fit within the  Company's new
     strategy,  discontinuing  unprofitable  products  and  closing  offices  in
     unprofitable locations. The following table summarizes the activity related
     to restructuring costs and activities in the first quarter of fiscal 2001.

<TABLE>
<S>                                               <C>              <C>               <C>          <C>
                                                   BALANCE AT                                     BALANCE AT
                                                   OCTOBER 31,        CASH          NON-CASH      JANUARY 31,
                                                      2000          PAYMENTS        CHARGES           2001
                                                   ----------       --------        -------        ----------
                                                                     (AMOUNTS IN THOUSANDS)
  Severance and benefits                             $   6,139      $  (3,505)             --       $   2,634
  Abandoned technology                                     286             --              --             286
  Redundant facilities and fixed assets                  4,726           (261)           (474)          3,991
  Other restructuring related costs                      2,616           (671)             --           1,945
                                                     ---------      ----------      ---------       ---------
                                                     $  13,767      $  (4,437)      $    (474)      $   8,856
                                                     =========      ==========      ==========      =========
</TABLE>

     As of January 31, 2001, the remaining portion of the  restructuring  charge
     included  in  accrued   liabilities  related  to  severance  and  benefits,
     abandoned  technology,  and other restructuring  related costs will be paid
     during fiscal 2001.  Amounts  related to redundant  facilities will be paid
     over the respective remaining lease terms.

G.       COMMITMENTS AND CONTINGENCIES

     The Board of  Directors  has  established  the Novell  Venture  Fund within
     Novell's  investment  portfolio  for the purpose of making  investments  in
     private   companies,    mainly   small   capitalization   stocks   in   the
     high-technology  industry sector, and funds managed by venture capitalists.
     These  investments  are  intended to promote  the  Company's  business  and
     strategic  objectives.  As of January 31, 2001, the Company had investments
     of $53.9 million in various  venture  capital funds and had  commitments to
     contribute an additional $108.7 million to these funds over the next two to
     three years, as requested by the fund managers.

     In fiscal 1997,  the Company  entered into  agreements  to lease  buildings
     being constructed on land owned by the Company in San Jose,  California and
     in Provo,  Utah. The lessor has funded $223 million for construction of the
     buildings.  The leases  are for a period of seven  years and can be renewed
     for two additional  five-year periods, by either the lender or the Company,
     subject to the  approval of the other  party.  Rent  obligations  commenced
     during the second  quarter of fiscal  1999 for the San Jose  buildings  and
     during the second  quarter of fiscal 2000 for the Provo  buildings.  Annual
     rent under  each  agreement  is  determined  by taking  the  funded  amount
     multiplied by the secured  interest  rate. If the Company does not purchase
     the buildings,  or arrange for the sale of the buildings, at the end of the
     lease,  the  Company  will  guarantee  the  lessor  no more than 85% of the
     residual value of the buildings.  The guaranteed  residual value at January
     31, 2001, was approximately $190 million. In addition,  the agreement calls
     for the Company to maintain a specific level of restricted cash to serve as
     collateral for the leases and maintain  compliance  with certain  financial
     covenants.  The value of restricted  cash held as collateral at January 31,
     2001  was  approximately  $223  million,   and  is  included  in  long-term
     investments.

     In February 1998, a suit was filed in the U.S. District Court,  District of
     Utah,  against Novell and certain of its officers and  directors,  alleging
     violation  of federal  securities  laws by  concealing  the true  nature of
     Novell's financial condition.  The lawsuit was brought as a purported class
     action on behalf of  purchasers  of Novell  common  stock from  November 1,
     1996,  through April 22, 1997.  The Federal  District  Court  dismissed the
     original  complaint  November 2, 2000;  however,  the  plaintiffs  filed an
     amended complaint November 22, 2000 in an effort to remedy  inadequacies in
     the original  complaint.  Novell  intends to seek  dismissal of the amended
     complaint  and  believes  that  the  case is  without  merit.  If the  case
     continues,  Novell intends to vigorously  defend  against the  allegations.
     While  there can be no  assurance  as to the  ultimate  disposition  of the
     lawsuit,  Novell does not believe that the  resolution  of this  litigation
     will have a material adverse effect on its financial  position,  results of
     operations, or cash flows.

     In January 2001,  Novell began a jury trial in a suit filed against  Novell
     by Lantec,  Inc. in the U.S. District Court,  District of Utah, for alleged
     anti-trust  violations  arising from Novell's  acquisition of the GroupWise
     technology.  The judge ruled in favor of Novell and  dismissed the original
     complaint;  however,  the  plaintiffs  have the  opportunity  to appeal the
     decision.  Novell does not believe that the  resolution of this  litigation
     will have a material adverse effect on its financial  position,  results of
     operations, or cash flows.

     The Company is a party to a number of legal claims  arising in the ordinary
     course of business.  The Company  believes the ultimate  resolution  of the
     claims will not have a material  adverse effect on its financial  position,
     results of operations, or cash flows.

 H.   SEGMENT INFORMATION

     The Company operates in one business segment,  directory-enabled networking
     software and services. Company's products are sold throughout the world; in
     the  U.S.  via  direct,  OEM,  reseller,   and  distributor  channels,  and
     internationally through distributors who sell to dealers and end users. The
     Company is organized into four business units,  based on product or service
     type. Novell's business units are as follows:

     o Net Management Services, which includes  Directory-Enabled OS, management
     and collaboration  products,  and UNIX royalties o Net Directory  Services,
     which includes NDS Directory  Services and other  directory  products o Net
     Content  Services,  which  includes  Internet  Caching  services  o  Novell
     Customer Services

     Performance  of the Company is evaluated by the  Company's  chief  decision
     makers,  the  Chief  Executive  Officer  and  Executive  Council,  based on
     evaluation of revenue results by business unit and geographic  region,  and
     expense results on a total company level. Separate financial information is
     not  available  by business  unit in regards to asset  allocation,  expense
     allocation, or profitability.
<TABLE>
<S>                                                                    <C>                        <C>

     REVENUE BY PRODUCT CATEGORY                                                  FISCAL QUARTER ENDED
     ---------------------------                                       -------------------------------------------
                                                                       JANUARY 31, 2001           JANUARY 31, 2000
                                                                       ----------------           ----------------
     DOLLARS IN THOUSANDS
     Net Management Services                                               $   186,860               $   259,528
     Net Directory Services                                                      7,632                     6,099
     Net Content Services                                                        1,858                     1,265
     Novell Customer Services                                                   48,685                    49,151
                                                                           ------------              -----------
       Total net sales                                                     $   245,035               $   316,043
                                                                           ===========               ===========
</TABLE>

     Sales outside the U.S. are comprised of sales to international customers in
     Europe, the Middle East,  Canada,  South America,  and Asia Pacific.  Other
     than sales in Ireland,  international sales were not material  individually
     in any other international location.

     For the first  three  months  of  fiscal  2001 and  fiscal  2000,  sales to
     international  customers  were  approximately  $106.4  million  and  $150.3
     million,  respectively. In the first three months of fiscal 2001 and fiscal
     2000, 29% and 31%,  respectively,  of international  sales were to European
     countries.  No one foreign  country  accounted for 10% or more of total net
     sales in either period.

     There  were no  customers  accounting  for more  than 10% of total  revenue
     during the first three months of fiscal 2001.  During the first  quarter of
     fiscal 2000, one multi-national  distributor accounted for 10% of total net
     revenue.

I.   NET INCOME (LOSS) PER SHARE
<TABLE>
<S>                                                                      <C>                        <C>
                                                                                  FISCAL QUARTER ENDED
                                                                         ----------------------------------------
     AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA                         JAN. 31, 2001             JAN. 31, 2000
     -------------------------------------------                         -------------             -------------
     BASIC NET INCOME PER SHARE COMPUTATION
     Net income (loss)                                                     $    (7,774)              $    44,835
                                                                           ------------              -----------
     Weighted average shares outstanding                                       322,183                   326,906
                                                                           -----------               -----------
     Basic net income (loss) per share                                     $     (0.02)              $      0.14
                                                                           ============              ===========
     DILUTED NET INCOME PER SHARE COMPUTATION
     Net income (loss)                                                     $    (7,774)              $    44,835
                                                                           ------------              -----------
     Weighted average shares outstanding                                       322,183                   326,906
     Incremental shares attributable to exercise of
      outstanding options (treasury stock method)                                   --                    15,199
                                                                           -----------               -----------
     Total                                                                     322,183                   342,105
                                                                           -----------               -----------
     Diluted net income (loss) per share                                   $     (0.02)              $      0.13
                                                                           ============              ===========
</TABLE>

J.   COMPREHENSIVE INCOME

     The components of comprehensive income (loss), net of tax, for the quarter
     ended January 31, 2001 and 2000 were as follows:
<TABLE>
<S>                                                                       <C>                        <C>
                                                                                   FISCAL QUARTER ENDED
                                                                          ----------------------------------------
     DOLLARS IN THOUSANDS                                                 JAN. 31, 2001            JAN. 31, 2000
     --------------------                                                 -------------            -------------
     Net income (loss)                                                     $    (7,774)              $    44,835
     Change in net unrealized gain on investments                              (18,084)                   74,646
     Change in cumulative translation adjustment                                   714                      (550)
                                                                           -----------               ------------
     Comprehensive income (loss)                                           $   (25,144)              $   118,931
                                                                           ============              ===========
</TABLE>

     The components of accumulated other  comprehensive  income,  net of related
     tax, at January 31, 2001 and October 31, 2000, are as follows:
<TABLE>
<S>                                                                       <C>                        <C>
                                                                          JAN. 31, 2001            OCT. 31, 2000
                                                                          -------------            -------------
     DOLLARS IN THOUSANDS
     Net unrealized gain (loss) on investment:                             $   (99,278)              $   (81,194)
     Cumulative translation adjustment                                          (2,519)                   (3,233)
                                                                           ------------              ------------
     Accumulated other comprehensive income (loss)                         $  (101,797)              $   (84,427)
                                                                           ============              ============
</TABLE>




<PAGE>


K.    RECENT ACCOUNTING PRONOUNCEMENTS

     REVENUE RECOGNITION

     The  Company  previously  recognized  revenue  related to product  sales to
     distribution  channel  partners upon shipment to the partner and provided a
     reserve for contractual  return  obligations  and other  estimated  product
     returns.  Effective  November 1, 2000,  the  Company  changed its method of
     accounting  for revenue  related to these product  sales to recognize  such
     revenues  upon  the  sell-through  of  the  respective   product  from  the
     distribution  channel  partner to the end user.  The Company  believes  the
     change in accounting  principle is preferable based on guidance provided in
     SEC Staff  Accounting  Bulletin No. 101,  Revenue  Recognition in Financial
     Statements.  The $11.0  million ($.03 per share)  cumulative  effect of the
     change  (after  reduction  for income taxes of $6.1 million) is included in
     income of the first quarter of fiscal 2001.

     For the three months ended January 31, 2001,  the Company  recognized  $6.8
     million in revenue that was included in the cumulative effect adjustment at
     November 1, 2000.  The effect of that  revenue on the first  quarter was to
     increase income by $4.9 million ($0.01 per share). Had the Company reported
     under its previous method of accounting for revenue recognition, the effect
     on earnings without  consideration  of the cumulative  effect of the change
     would be a decrease in earnings of  approximately  $1.8 million or $.01 per
     share.  The pro  forma  amounts  presented  in the  unaudited  consolidated
     statements of income were  calculated  assuming the  accounting  change was
     made retroactively to prior periods.

     DERIVATIVE INSTRUMENTS

     During the first quarter of fiscal 2001, the Company adopted  Statements of
     Financial  Accounting Standards No. 133 and 138, "Accounting for Derivative
     Instruments  and  Hedging  Activities"  (SFAS 133 and SFAS  138).  SFAS 133
     established accounting and reporting standards for derivative  instruments,
     including certain derivative  instruments embedded in other contracts,  and
     for hedging activities requiring all companies to recognize  derivatives as
     either assets or  liabilities  in the  statement of financial  position and
     measure those  instruments at fair value.  SFAS 138 is an amendment to SFAS
     133,  which  amended or  modified  certain  issues  discussed  in SFAS 133.
     Implementation  of SFAS 133 and SFAS 138 did not have a material  impact on
     the  Company's  statement of financial  position,  results of operations or
     cash flows.

L. SUBSEQUENT EVENTS

     On March 12,  2001,  the Company  announced  that they had  entered  into a
     definitive  agreement to acquire  Cambridge  Technology  Partners,  Inc., a
     global information technology services and eSolutions provider. Novell will
     exchange  .668 shares of its common  stock for every  outstanding  share of
     Cambridge.  The transaction is valued at approximately $266 million,  based
     on the March 9,2001 closing price of $6.06 per share.  The acquisition will
     be accounted  for as a purchase  and is expected to be complete  during the
     third quarter of fiscal 2001.

     Upon closing,  Novell Board member Jack Messman,  who is also the president
     and chief  executive  officer of  Cambridge,  will assume the role of chief
     executive officer at Novell.  Eric Schmidt will continue as chairman of the
     board of directors  of Novell and will assume the role of chief  strategist
     of the Company.



<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS



    This Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") and other parts of this Form 10-Q contain forward-looking
statements that involve risks and uncertainties.  All forward-looking statements
are based on  information  available to the Company on the date hereof,  and the
Company assumes no obligation to update any such forward-looking statements. The
Company's  actual results may differ  materially  from the results  discussed in
such  forward-looking  statements  as a result  of a number  of  factors,  which
include,  but are certainly not limited to, those set forth below in the section
titled "Risk Factors Affecting Future Results of Operations."


INTRODUCTION

Novell,  Inc.,  is a leading  provider of Net services  software  that  delivers
services to secure and power all types of networks--the Internet, intranets, and
extranets;  wired to wireless;  corporate and  public--across  leading operating
systems.  Novell's Net services  software provides the foundation for one Net--a
single  global  network that  supports new  applications  and forms of business.
Worldwide channel,  consulting,  education and technical support programs, along
with strategic alliances,  combine Novell Net services software with third-party
products and services to form complete Net solutions.

RESULTS OF OPERATIONS

NET SALES
<TABLE>
<S>                                                       <C>                <C>             <C>
                                                            Q1 2001          Change          Q1 2000
                                                    ---------------- --------------- ----------------
   Net sales (thousands)                                  $ 245,035          (22.5)%        $ 316,043
</TABLE>

Novell's  products are organized  around the following four business units,  all
within the directory-enabled networking software services segment.

     o Net Management Services, which includes  Directory-Enabled OS, management
     and collaboration  products,  and UNIX royalties o Net Directory  Services,
     which includes NDS Directory  Services and other  directory  products o Net
     Content  Services,  which  includes  Internet  Caching  services  o  Novell
     Customer Services

Revenue from Net Management  Services products decreased $72.7 million or 28% in
the first  quarter of fiscal 2001  compared to the first quarter of fiscal 2000.
Sales in the first  quarter of fiscal 2001 were lower than the first  quarter of
fiscal 2000  primarily  due to "Year 2000"  related  sales that  occurred in the
prior  year as  companies  purchased  additional  software  to become  Year 2000
compliant.  In  addition,  sales were also lower in first  quarter  fiscal  2001
compared to fiscal 2000 due to the continued  decline in the Company's  packaged
software business, which saw a decline in sales of 67% from the prior year first
quarter, lower UNIX royalties, and continued weak sales performance in Europe.

Revenue  from Net  Directory  Services  products  was $7.6  million in the first
quarter of fiscal 2001  compared to $6.1 million in the first  quarter of fiscal
2000.  The 25%  increase  was mainly  due to  increased  unit sales of  products
introduced  during  fiscal 2000,  such as Single  Sign-on,  DirXML,  and iChain,
slightly offset by a decrease in NDS Directory Services sales.

Revenue from Net Content Services products was $1.9 million in the first quarter
of fiscal 2001 compared to $1.3 million in the first quarter of fiscal 2000. The
47%  increase  was mainly due to growth in the Internet  caching  market,  which
resulted in higher unit sales.

Revenue from Novell  Customer  Services  revenues  were $48.7  million and $49.2
million in the first quarter of fiscal 2001 and fiscal 2000,  respectively.  The
slight decrease was a result of decreased education  revenues,  offset by higher
consulting and service revenue.

The  Company   previously   recognized  revenue  related  to  product  sales  to
distribution  channel  partners  upon  shipment to the  partner  and  provided a
reserve for contractual  return obligations and other estimated product returns.
Effective  November 1, 2000,  the Company  changed its method of accounting  for
revenue  related to these  product  sales to recognize  such  revenues  upon the
sell-through of the respective product from the distribution  channel partner to
the end user.  The  Company  believes  the  change in  accounting  principle  is
preferable based on guidance provided in SEC Staff Accounting  Bulletin No. 101,
Revenue Recognition in Financial Statements.  The $11.0 million ($.03 per share)
cumulative  effect of the  change  (after  reduction  for  income  taxes of $6.5
million) is included in income of the first quarter of fiscal 2001.

For the three months ended January 31, 2001, the Company recognized $6.8 million
in revenue that was included in the cumulative  effect adjustment at November 1,
2000. The effect of that revenue on the first quarter was to increase  income by
$4.9  million  ($0.01 per share).  Had the Company  reported  under its previous
method of accounting  for revenue  recognition,  the effect on earnings  without
consideration  of the  cumulative  effect of the change  would be a decrease  in
earnings of approximately  $1.8 million or $.01 per share. The pro forma amounts
presented in the unaudited  consolidated  statements  of income were  calculated
assuming the accounting change was made retroactively to prior periods.

International  sales represented 43% of total sales in the first three months of
fiscal 2001 compared to 48% in the first three months of fiscal 2000. During the
first three months of fiscal 2001,  international  revenue  decreased  29% while
domestic  revenue  decreased  16%  compared to the same  period of fiscal  2000.
Internationally,  the Company experienced weakened sales in Europe, Japan, Latin
America and Canada in fiscal 2001.

The  Company is  currently  addressing  the decline in sales,  particularly  the
decrease in channel sales,  in an effort to improve  results in future  periods.
During fiscal 2000, the Company  reorganized  its sales force and product groups
to better  service its customers and to focus its resources on taking  advantage
of new  opportunities.  The Company has continued  these efforts in fiscal 2001,
and anticipates  that it will take a couple of quarters to fully implement these
changes and realize the benefits from them.

GROSS PROFIT
<TABLE>
<S>                                                       <C>                <C>             <C>
                                                            Q1 2001          Change          Q1 2000
                                                    ---------------- --------------- ----------------
   Gross profit (thousands)                                $179,173         (24.5)%          $237,316
   Percentage of net sales                                   73.1%                            75.1%
</TABLE>

Gross  profit as a  percentage  of sales  decreased  in the first  quarter  2001
compared  to the same  period of fiscal  2000 due  primarily  to the  effects of
decreased  product  sales levels and higher  costs for  services  related to the
Company's  consulting  business.  The mix between  software  sales and services,
education and consulting revenue continues to shift with software sales becoming
a smaller percentage of total sales.



<PAGE>


OPERATING EXPENSES
<TABLE>
<S>                                                       <C>                <C>             <C>
                                                           Q1 2001          Change          Q1 2000
                                                    ---------------- --------------- ----------------
   Sales and marketing (thousands)                        $ 121,747           7.1%         $ 113,656
   Percentage of net sales                                   49.7%                            36.0%
   Product development (thousands)                       $   49,488         (14.6)%       $   57,937
   Percentage of net sales                                   20.2%                            18.3%
   General and administrative (thousands)                $   21,222          10.6%        $   19,193
   Percentage of net sales                                    8.7%                             6.1%
   Total operating expenses (thousands)                   $ 192,457           0.9%         $ 190,786
   Percentage of net sales                                   78.5%                            60.4%
</TABLE>

Sales and marketing  expenses  increased by $8.1 million in the first quarter of
fiscal  2001  compared to the same period of fiscal  2000.  Sales and  marketing
expenses  fluctuate  in any given  period due to timing of  product  promotions,
advertising or other discretionary expenses.  Also, beginning in the second half
of fiscal 2000 and  continuing in fiscal 2001,  the Company  increased its sales
and  marketing  expenditures,  where  appropriate,  in an  effort  to  focus  on
improving  future sales growth.  The increased  expenditures  included costs for
advertising  and  promotion,   as  well  as  sales  force  training.   Increased
expenditures  and lower sales  during  fiscal 2001  caused  sales and  marketing
expenses as a percentage of sales to increase.

Product  development  expenses  decreased  $8.4 million in the first  quarter of
fiscal  2001  compared  to the same  period  of  fiscal  2000 due  primarily  to
decreased  headcount as a result of the  restructuring  in the fourth quarter of
fiscal 2000. Product development expenses increased as a percentage of net sales
in the first quarter of 2001 due to lower sales levels.

General and  administrative  expenses  increased  $2.0 million  during the first
quarter  of fiscal  2001  compared  to the first  quarter  of fiscal  2000.  The
increase was  primarily due to costs  incurred for the formation of Volera,  the
Company's new internet  content  subsidiary,  offset somewhat by lower operating
costs from decreased  headcount as a result of the  restructuring  in the fourth
quarter of fiscal 2000. Decreased sales levels in fiscal 2001 caused general and
administrative  expenses  as a  percentage  of sales to  increase  in the  first
quarter of fiscal 2001 compared to the same period of fiscal 2000.

RESTRUCTURING
During the fourth quarter of fiscal 2000, the Company  recorded a  restructuring
charge of approximately  $48 million as a result of the Company's plan to change
its  business  strategy  to address  changes  in the  market  due to  technology
changes,  customer demands, and methods of distribution.  Specific actions taken
included  reducing  the  Company's  workforce  worldwide  by  approximately  700
employees  (approximately 13%), consolidating facilities and disposing of excess
fixed assets,  abandoning and writing off technologies that no longer fit within
the  Company's  new strategy,  discontinuing  unprofitable  products and closing
offices  in  unprofitable   locations.   The  following  table   summarizes  the
restructuring costs and activities as of the first quarter of fiscal 2001.

<TABLE>
<S>                                              <C>                <C>             <C>         <C>
                                                   BALANCE AT                                     BALANCE AT
                                                   OCTOBER 31,        CASH          NON-CASH      JANUARY 31,
                                                      2000          PAYMENTS        CHARGES           2001
                                                  -----------       --------        -------      -----------
                                                                     (AMOUNTS IN THOUSANDS)
  Severance and benefits                             $   6,139      $  (3,505)             --       $   2,634
  Abandoned technology                                     286             --              --             286
  Redundant facilities and fixed assets                  4,726           (261)           (474)          3,991
  Other restructuring related costs                      2,616           (671)             --           1,945
                                                     ---------      ----------      ---------       ---------
                                                     $  13,767      $  (4,437)      $    (474)      $   8,856
                                                     =========      ==========      ==========      =========
</TABLE>



<PAGE>


As of January  31,  2001,  the  remaining  portion of the  restructuring  charge
included in accrued  liabilities  related to severance and  benefits,  abandoned
technology,  and other  restructuring  related  costs will be paid during fiscal
2001.  Amounts related to redundant  facilities will be paid over the respective
remaining lease terms.
<TABLE>
<S>                                                         <C>                <C>             <C>
                                                              Q1 2001           Change          Q1 2000
                                                      ---------------- ---------------- ----------------
   Employees at end of period                                   4,794          (10.2)%           5,338
   Annualized    revenue   per   average    employee
     (thousands)                                               $  202           (14.0)%          $  235
   Annualized  net  income  per  average   employee,
     before accounting change (thousands)                      $  2.7           (91.9)%          $ 33.3
</TABLE>

Headcount decreased from the first quarter of 2000 to the first quarter of 2001,
primarily due to the reduction in force that occurred  during the fourth quarter
of fiscal 2000 as a part of the restructuring.

OTHER INCOME, NET
<TABLE>
<S>                                                           <C>                <C>             <C>
                                                              Q1 2001           Change          Q1 2000
                                                      ---------------- ---------------- ----------------
   Other income, net (thousands)                              $17,831            13.3%          $15,741
   Percentage of net sales                                       7.3%                            5.0%
</TABLE>

The primary component of other income, net is investment income, which was $17.3
million in the first  quarter of fiscal 2001  compared  to $17.6  million in the
first  quarter of fiscal  2000.  The  Company  realized  capital  losses of $2.8
million and realized capital gains of $6.4 million during the first three months
of fiscal 2001, compared to realized capital losses of $0.9 million and realized
capital  gains were $6.7 million  during the same period of fiscal  2000.  First
quarter 2001 realized losses  included a $2.6 million  impairment loss on one of
the Company's short-term investments.

INCOME TAXES
<TABLE>
<S>                                                            <C>               <C>             <C>
                                                               Q1 2001           Change          Q1 2000
                                                       ---------------- ---------------- ----------------
   Income taxes (thousands)                                     $1,273          (92.7)%       $ 17,436
   Percentage of net sales                                       0.5%                             5.5%
   Effective tax rate                                           28.0%                            28.0%
</TABLE>

 The effective tax rate for fiscal 2001,  before cumulative effect of accounting
 change, is estimated to be 28%, the same as fiscal 2000.

NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE
<TABLE>
<S>                                                          <C>           <C>                 <C>
   (dollars in thousands, except per share data)              Q1 2001            Change         Q1 2000
                                                       ---------------- ---------------- ----------------
   Income before accounting change                           $   3,274      (92.7)%            $  44,835
   Percentage of net sales                                        1.3%                             14.2%
   Net income (loss)                                         $  (7,774)    (117.3)%            $  44,835
   Percentage of net sales                                      (3.2)%                             14.2%
   Income per share, before accounting change - basic
                                                             $   0.01                          $   0.14
   Net income (loss) per share - basic                       $  (0.02)                         $   0.14
   Income  per  share,  before  accounting  change  -
   diluted                                                   $   0.01                          $   0.13
   Net income (loss) per share - diluted                     $  (0.02)                         $   0.13
</TABLE>



<PAGE>



LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<S>                                                           <C>               <C>             <C>
                                                               Q1 2001           Change          Q4 2000
                                                       ---------------- ---------------- ----------------
   Cash and short-term investments (thousands)                $655,449         (6.1)%           $698,193
   Percentage of total assets                                   39.8%                              40.8%
</TABLE>

Cash and short-term  investments decreased by $42.7 million to $655.4 million at
January 31, 2001, down from $698.2 million at October 31, 2000. During the first
three months of fiscal 2001, cash and short-term investments decreased primarily
due to cash outflows of $64.9 million for the repurchase of common stock,  $40.0
million for net purchases of long-term investments and other long-term investing
activities and $7.3 million to purchase  property,  plant and  equipment.  These
cash outflows were offset by $65.2 million  provided from  operating  activities
and $4.3 million from the issuance of common stock.

The Company's investment portfolio is diversified among security types, industry
groups, and individual issuers. To achieve potentially higher returns, a portion
of the  Company's  investment  portfolio  is invested in equity  securities  and
mutual  funds,  which incur  market risk.  The  Company's  investment  portfolio
includes equity securities with gross unrealized gains of $9.7 million and gross
unrealized  losses of $109.0  million as of January  31,  2001.  Included in the
Company's  unrealized losses at January 31, 2001 were the Company's  investments
in  marchFIRST,  Inc.,  which had unrealized  losses of $91.0 million,  Entrust,
which had unrealized losses of $7.6 million,  and Caldera,  which had unrealized
losses of $1.8  million.  Because  of the  decline  in the stock  price of these
investments,  the Company is  monitoring  their status and will record a loss if
their decline is other than temporary. No other individual security had material
unrealized losses as of the end of the first quarter 2001.

The Company's principal source of liquidity has been from operations. At January
31, 2001, the Company's  principal unused sources of liquidity consisted of cash
and short-term investments and available borrowing capacity of approximately $18
million  under  its  credit  facilities.   The  Company's  liquidity  needs  are
principally for the Company's financing of accounts receivable,  capital assets,
strategic  investments,  product  development  and  flexibility in a dynamic and
competitive operating environment.

During the first three months of fiscal 2001, the Company  continued to generate
cash from  operations.  The Company  anticipates  being able to fund its current
operations and planned  capital  expenditures  for the  foreseeable  future with
existing cash and  short-term  investments  together with  internally  generated
funds.   The  Company  believes  that  borrowings  under  the  Company's  credit
facilities or public offerings of equity or debt securities are available if the
need arises.  Investments  will continue in product  development  and in new and
existing  areas  of  technology.  Cash may  also be used to  acquire  technology
through  purchases and strategic  acquisitions.  Capital  expenditures in fiscal
2001 are anticipated to be  approximately  $65 million,  but could be reduced if
the growth of the Company is less than presently  anticipated.  The Company also
intends  to commit an  additional  $60  million  during  fiscal  2001 to venture
capital funds.

During the fourth quarter of fiscal 2000, the Board of Directors  authorized the
use of up to $500 million for the repurchase of additional outstanding shares of
the  Company's  common stock  through  October 31, 2001. As of January 31, 2001,
$82.4 million had been spent to repurchase  12.4 million  shares under this plan
at an average price of $6.67 per share.

SUBSEQUENT EVENTS

On March 12, 2001, the Company announced that they had entered into a definitive
agreement to acquire Cambridge Technology  Partners,  Inc., a global information
technology services and eSolutions provider. Novell will exchange .668 shares of
its common stock for every  outstanding  share of Cambridge.  The transaction is
valued at approximately $266 million, based on the March 9,2001 closing price of
$6.06 per share.  The  acquisition  will be  accounted  for as a purchase and is
expected to be complete during the third quarter of fiscal 2001.

Upon closing,  Novell Board member Jack  Messman,  who is also the president and
chief  executive  officer of Cambridge,  will assume the role of chief executive
officer at Novell.  Eric  Schmidt  will  continue  as  chairman  of the board of
directors of Novell and will assume the role of chief strategist of the Company.

RISK FACTORS AFFECTING FUTURE RESULTS OF OPERATIONS

The  Company's  future  results  of  operations  involve  a number  of risks and
uncertainties.  Among the  factors  that could  cause  actual  results to differ
materially from historical  results are the following:  business  conditions and
the general  economy;  competitive  factors,  such as rival  operating  systems,
directories and  applications;  acceptance of new products and price  pressures;
availability of third-party  compatible products at below market prices; risk of
nonpayment  of accounts  or notes  receivable;  risks  associated  with  foreign
operations;  risk of product  line or  inventory  obsolescence  due to shifts in
technologies or market demand; timing of software product introductions;  market
fluctuations of investment securities; and litigation.

Other factors may also adversely affect the Company's  earnings and stock price,
including  but  not  limited  to:  o  competition  for  qualified   employees  o
competition  from  competitors  o delays in the  introduction  of new products o
success of new products or technologies o stock market fluctuations unrelated to
Company performance

Our Financial Results May Vary

The Company often experiences a higher volume of sales at the end of the quarter
and during the fourth quarter. Because of this, fixed costs that are out of line
with sales  levels may not be  detected  until late in any given  quarter.  As a
result,  results of operations could be adversely  affected,  and even produce a
loss.

Operating results have been and may also be affected by other factors including,
but not limited to:
o  timing of orders from customers and shipments to customers
o product mix, a shift from higher margin products,  such as licensing, to lower
margin  products or services,  such as boxed  products
o delays or problems with our fulfillment  agents
o impact of foreign currency exchange rates on the price of our  products in
international  locations
o our  inability to respond to the decline in sales  through the  distribution
channel
o our  inability  to derive benefits from the restructuring and new corporate
strategy

We Face Intense Competition for Attracting and Retaining Qualified Personnel in
the Computer Industry

The ability of the Company to maintain its  competitive  technological  position
will  depend,  in large  part,  on its  ability  to attract  and  retain  highly
qualified development and managerial  personnel.  Competition for such personnel
is intense and there is a risk of departure due to the  competitive  environment
in the software industry. The loss of a significant group of key personnel would
adversely affect the Company's performance.  Over the past year, the Company has
lost several of its vice  presidents.  The failure to  successfully  promote and
hire  suitable  replacements  in a timely  manner could have a material  adverse
effect on the Company's business.

We compete in the highly competitive market for computer software

Novell believes that the principal  competitive factors are technical innovation
to meet dynamic market needs, marketing strength,  system/performance,  customer
service and support, reliability, ease of use, security, and price/performance.

The market for  computer  software  remains  competitive  due to such factors as
Microsoft's  presence in all sectors of the software business.  The Company does
not have the product breadth and market power of Microsoft.  Microsoft's ability
to ship networking products with features and functionality that are competitive
with  Novell,  together  with its ability to offer  incentives  to  customers to
purchase  certain products in order to obtain favorable sales terms or necessary
compatibility or information with respect to other products,  may  significantly
inhibit the Company's  ability to grow its business.  In addition,  as Microsoft
creates new operating systems and  applications,  there can be no assurance that
Novell will be able to ensure that its products will be compatible with those of
Microsoft.

Additionally,  the Company may face competition  from other industry  companies,
which could introduce  competitive  products. If any of these competing products
achieves market acceptance, Novell's business and results of operations could be
materially adversely affected.

We Have Experienced Delays in the Introduction of New Products Due to Various
Factors

As is common in the computer software industry, Novell has experienced delays in
the  introduction  of new products due to: the complexity of software  products,
the need for  extensive  testing  of  software  to ensure  compatibility  of new
releases with a wide variety of application  software and hardware devices,  and
the need to "debug" products prior to extensive distribution. Significant delays
in developing,  completing or shipping new or enhanced  products would adversely
affect the Company.

Moreover, the Company may experience delays in market acceptance of new releases
of its products as the Company  engages in marketing  and  education of the user
base regarding the advantages and system  requirements  for the new products and
as customers evaluate the advantages and disadvantages of upgrading. The Company
has  encountered  these  issues on each major new release of its  products,  and
expects that it will  encounter such issues in the future.  Novell's  ability to
achieve  desired  levels  of  sales  growth  depends  at  least  in  part on the
successful  completion,  introduction  and sale of new versions of its products.
There can be no assurance  that the Company will be able to respond  effectively
to technological  changes or new product  announcements  by others,  or that the
Company's  research and  development  efforts will be successful.  Should Novell
experience  material  delays or sales  shortfalls  with  respect to new  product
releases, the Company's sales and net income could be adversely affected.

We May Not Be Successful at Introducing New Technologies

Another goal of the Company is to achieve widespread  acceptance and adoption of
Novell's Net Services and e-solutions  products,  Directory  Services (NDS), and
the products and  applications  that take advantage of directory  services.  The
Company's  ability to achieve success with its Net Services and NDS solutions is
dependent  on a number of factors  including  but not limited to the  following:
development  of key Net  Services  and  directory  products  and  upgrades,  the
acceptance of those products by large industry partners,  the marketing of those
products through  appropriate  channels of  distribution,  and the acceptance of
those products in major  accounts.  The Company has only had limited  success in
introducing new  technologies  and there can be no assurance of success with Net
Services or NDS solutions.

Our Existing Product Sales May Deteriorate More Rapidly than Sales of Our New
Products Increase

The  Company  has  several  existing  products,  which it has been  selling  and
upgrading for many years.  Technology  shifts or competition could occur causing
sales of these  products to decline at a faster rate than the Company is able to
increase sales of new products or technologies.

We Face Productivity and Financial Risks Due To The Power Crisis In California

The Company  conducts  operations  in San Jose,  California,  which is currently
experiencing an energy crisis.  If the state of California is not able to remedy
this problem,  the Company  could suffer work  stoppages,  loss of data,  and/or
higher operating costs due to significantly higher utility costs.

We Face Risks from Our International Operations

The Company has sales offices in countries  worldwide.  It also has  significant
operations  in Ireland and Japan,  and conducts  product  development  in India.
International  operations  are  subject to  inherent  risks  including,  but not
limited  to:  fluctuating   currency  exchange  rates,  longer  payment  cycles,
difficulties in managing  multiple  offshore  operations,  increased tariffs and
duties, price controls,  restrictions on foreign currencies, trade barriers, and
political  unrest.  These factors could have a material  impact on our financial
condition in the future.

Our Long-term and Venture Capital Fund Investments Could Become Impaired

Included  in  the  Company's  investment  portfolio  are  investments  made  for
strategic business  purposes,  such as marchFIRST,  and investments  through the
Novell Venture Fund.  Novell Venture Fund investments are in private  companies,
generally small  capitalization  stocks in the high-technology  industry sector,
and funds  managed by venture  capitalists.  The value of these  investments  is
dependent on the  performance,  successful  acquisition,  and/or  initial public
offering  of the  investees.  Some  or all of  these  investments  could  become
permanently  impaired in the future  requiring the Company to record  investment
losses.

Our Stock Price Will Fluctuate

The Company's  future  earnings and stock price could be subject to  significant
volatility,  particularly on a quarterly basis. Due to analysts' expectations of
continued  growth,  any such  shortfall  in earnings  can be expected to have an
immediate and significant adverse effect on the trading price of Novell's Common
Stock in any given  period.  Revenue  fluctuations  may also  contribute  to the
volatility of the trading price of Novell Common Stock in any given period.

In addition,  the market prices for  securities of software  companies have been
very volatile  recently and historically  they have also shown to be volatile as
well. The market price of Novell Common Stock,  in particular,  has been subject
to wide fluctuations in the past. As a result of the foregoing factors and other
factors that may arise in the future,  the market price of Novell's Common Stock
may be subject to significant  fluctuations within a short period of time. These
fluctuations  may be due to  factors  specific  to the  Company,  to  changes in
analysts' earnings  estimates,  or to factors affecting the computer industry or
the securities markets in general.

Novell believes that it has the product offerings,  facilities,  personnel,  and
competitive and financial  resources for continued business success,  but future
revenues,  costs,  margins,  product  mix, and profits are all  influenced  by a
number of factors, such as those discussed above.





<PAGE>


ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to financial market risks,  including changes in interest
rates, foreign currency exchange rates and marketable equity security prices. To
mitigate some of these risks,  the Company utilizes  currency forward  contracts
and currency options. The Company does not use derivative financial  instruments
for speculative or trading  purposes,  and no derivative  financial  instruments
were outstanding at January 31, 2001.

INTEREST RATE RISK
The primary  objective of the  Company's  investment  activities  is to preserve
principal while maximizing yields without significantly increasing risk. This is
accomplished  by  investing  in  widely  diversified   short-term   investments,
consisting primarily of investment grade securities,  substantially all of which
either  mature within the next 12 months or have  characteristics  of short-term
investments.  A  hypothetical  50 basis point  increase in interest  rates would
result in an approximate  $5.1 million decrease  (approximately  1%) in the fair
value of the Company's available-for-sale securities.

MARKET RISK
The Company also holds  available-for-sale  equity  securities in its short-term
investment  portfolio.  As of January 31, 2001,  unrealized losses on short-term
public equity securities totaled $8.3 million,  which pertained primarily to the
Company's  investments in Entrust ($7.6 million) and Caldera ($1.8  million).  A
10% adverse change in prices of these short-term  equity securities would result
in an  approximate  $3  million  decrease  in the fair  value  of the  Company's
short-term investments.

In addition,  the Company  invests in long-term  equity  securities  and venture
capital funds,  included in its portfolio of  investments,  for the promotion of
business  and  strategic  objectives.  The  investments  are  generally in small
capitalization  stocks in the  high-technology  industry sector, both public and
private.  Because of the nature of these investments,  the Company is exposed to
equity  price  risks.  The  Company  typically  does not  attempt  to  reduce or
eliminate  its market  exposure on these  securities.  As of January  31,  2001,
unrealized losses on long-term public equity  securities  totaled $91.0 million,
which pertained to the Company's investment in marchFIRST.  A 10% adverse change
in equity prices of long-term  equity  securities,  including  those held in the
venture capital funds,  would result in an approximate  $14 million  decrease in
the fair value of the Company's  long-term  equity  security and venture capital
investments.

FOREIGN CURRENCY RISK
The  Company  hedges  currency  risks  of  investments  denominated  in  foreign
currencies with currency  forward  contracts.  Gains and losses on these foreign
currency investments would generally be offset by corresponding losses and gains
on the related hedging instruments,  resulting in negligible net exposure to the
Company. A substantial  majority of the Company's  revenue,  expense and capital
purchasing activities are transacted in U.S. dollars.  However, the Company does
enter into transactions in other currencies,  primarily Japanese yen and certain
other Asian and European currencies.  To protect against reductions in value and
the volatility of future cash flows caused by changes in foreign exchange rates,
the Company has established  balance sheet hedging  programs.  Currency  forward
contracts  and currency  options are  utilized in these  hedging  programs.  The
Company's  hedging programs reduce,  but do not always entirely  eliminate,  the
impact of foreign currency exchange rate movements. If the Company did not hedge
against  foreign  currency  exchange rate movement,  an adverse change of 10% in
exchange rates would result in a decline in income before taxes of approximately
$6 million.

All of the  potential  changes  noted  above are based on  sensitivity  analyses
performed  on the  Company's  financial  position  at January 31,  2001.  Actual
results may differ materially.


<PAGE>


PART II. OTHER INFORMATION

Except as listed below, all information  required by items in Part II is omitted
because the items are inapplicable or the answer is negative.

ITEM 1.  LEGAL PROCEEDINGS.

The  information  required by this item is  incorporated  herein by reference to
Footnote G of the Company's financial  statements contained in Part I, Item 1 of
this Form 10-Q.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)  Exhibits

Exhibit
NUMBER                         DESCRIPTION
None

(b)  Reports on Form 8-K.

    Notice of Novell's  scheduled  report of fourth quarter  results and related
    conference  call to be held on November  21,  2000,  as filed on November 8,
    2000 under Item 5.

    Announcement  of the formation of Novell's  Executive  Management  Group, as
filed on November 13, 2000 under Item 5.


*Filed herewith.


<PAGE>


                                   SIGNATURES



Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.


                                  Novell, Inc.
                                  (Registrant)



Date: March 15, 2001             /S/ DENNIS R. RANEY
                                 -----------------------------------
                                 Dennis R. Raney
                                 Chief Financial Officer
                                 (Principal Financial Officer and
                                 Principal Accounting Officer)




<PAGE>