SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                    Form 10-Q



              [X] Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                   For the Fiscal Quarter Ended July 31, 1999

                                       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.)


                               122 East 1700 South
                                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 August 31, 1999 there were 333,066,484  shares of the Registrant's  Common
Stock outstanding.


<PAGE>






Part I.  Financial Information, Item 1.  Financial Statements


                                  NOVELL, INC.
                 CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS

<TABLE>
<S>                                                                              <C>                   <C>
                                                                                     July 31,              Oct. 31,
Dollars in thousands, except per share data                                            1999                  1998
-------------------------------------------------------------------------------------------------------------------

ASSETS
Current assets
   Cash and short-term investments                                                $   992,201           $ 1,007,167
   Receivables, less allowances ($31,880 - July; $47,921 - October)                   233,302               246,577
   Inventories                                                                          2,945                 3,562
   Prepaid expenses                                                                    48,205                63,165
   Deferred and refundable income taxes                                                75,958                95,343
   Other current assets                                                                18,704                19,886
--------------------------------------------------------------------------------------------------------------------

Total current assets                                                                1,371,315             1,435,700

Property, plant and equipment, net                                                    344,750               346,196
Long-term investments                                                                 210,835               114,815
Other assets                                                                           36,681                27,401
--------------------------------------------------------------------------------------------------------------------

Total assets                                                                      $ 1,963,581           $ 1,924,112
====================================================================================================================


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
   Accounts payable                                                             $      74,636         $      77,987
   Accrued compensation                                                                61,543                52,348
   Accrued marketing liabilities                                                       16,708                16,383
   Other accrued liabilities                                                           53,226                62,206
   Income taxes payable                                                                45,083                64,057
   Deferred revenue                                                                   149,338               141,714
--------------------------------------------------------------------------------------------------------------------

Total current liabilities                                                             400,534               414,695

Minority interests                                                                     10,108                15,919

Shareholders' equity
   Common stock, par value $.10 a share
   Authorized - 600,000,000 shares
   Issued -     333,995,071 shares-July
                337,592,460 shares-October                                             33,400                33,759
   Additional paid-in capital                                                         124,422               200,897
   Retained earnings                                                                1,407,274             1,290,337
   Unearned stock compensation                                                         (7,664)               (5,396)
   Cumulative translation adjustment                                                   (2,574)               (1,753)
   Unrealized (loss) on investments                                                    (1,919)              (24,346)
--------------------------------------------------------------------------------------------------------------------

Total shareholders' equity                                                          1,552,939             1,493,498
--------------------------------------------------------------------------------------------------------------------


Total liabilities and shareholders' equity                                        $ 1,963,581           $ 1,924,112
====================================================================================================================
</TABLE>

See notes to consolidated unaudited condensed financial statements.


<PAGE>


                                  NOVELL, INC.
              CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME

<TABLE>
<S>                                                  <C>               <C>              <C>               <C>
                                                        Fiscal Quarter Ended                Nine Months Ended
Dollars in thousands,                                 July 31,          July 31,         July 31,          July 31,
except per share data                                   1999              1998             1999              1998

Net sales                                            $ 326,808         $ 272,016        $ 928,266         $ 786,308
Cost of sales                                           73,514            63,069          213,845           179,434
-------------------------------------------------------------------------------------------------------------------

Gross profit                                           253,294           208,947          714,421           606,874

Operating expenses
   Sales and marketing                                 108,806            96,986          320,598           302,621
   Product development                                  57,183            57,048          169,271           178,136
   General and administrative                           24,866            24,827           76,271            76,751
-------------------------------------------------------------------------------------------------------------------

Total operating expenses                               190,855           178,861          566,140           557,508
-------------------------------------------------------------------------------------------------------------------

Income from operations                                  62,439            30,086          148,281            49,366

Other income (expense)
   Investment income                                    10,260             7,390           30,676            37,245
   Other, net                                           (4,211)             (592)         (16,546)           (3,337)
-------------------------------------------------------------------------------------------------------------------

Other income, net                                        6,049             6,798           14,130            33,908
-------------------------------------------------------------------------------------------------------------------

Income before taxes                                     68,488            36,884          162,411            83,274
Income taxes                                            19,177            10,328           45,476            23,317
-------------------------------------------------------------------------------------------------------------------
Net income                                          $   49,311         $  26,556        $ 116,935         $  59,957
===================================================================================================================

Weighted average shares outstanding
   Basic                                               334,488           353,436          335,735           352,076
   Diluted                                             350,951           362,083          351,196           357,213
===================================================================================================================

Net income per share
   Basic                                          $      0.15        $      0.08     $       0.35        $     0.17
   Diluted                                        $      0.14        $      0.07     $       0.33        $     0.17
===================================================================================================================
</TABLE>

See notes to consolidated unaudited condensed financial statements.

<PAGE>


                                  NOVELL, INC.
            CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS



<TABLE>
<S>                                                                             <C>                   <C>
                                                                                         Nine Months Ended
                                                                                     July 31,              July 31,
Dollars in thousands                                                                  1999                  1998
-------------------------------------------------------------------------------------------------------------------

Cash flows from operating activities

   Net income                                                                   $     116,935         $      59,957

Adjustments to reconcile net income to net cash
provided by operating activities
   Depreciation and amortization                                                       47,519                59,353
   Stock plans' income tax benefits                                                    46,972                 3,408
   Decrease in receivables                                                             13,275                  (711)
   Decrease in inventories                                                                617                 6,382
   Decrease (increase) in prepaid expenses                                             14,960               (10,483)
   Decrease in deferred and refundable income taxes                                    20,711                39,522
   Decrease in other current assets                                                     1,182                 3,848
   (Decrease) increase in current liabilities, net                                    (14,161)               33,518
-------------------------------------------------------------------------------------------------------------------

Net cash provided from operating activities                                           248,010               194,794
-------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities
   Issuance of common stock, net                                                       79,832                26,349
   Repurchase of common stock                                                        (203,638)              (12,427)
-------------------------------------------------------------------------------------------------------------------

Net cash (used) provided from financing activities                                   (123,806)               13,922
-------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities
   Expenditures for property, plant and equipment                                     (50,988)              (42,617)
   Purchases of short-term investments                                             (1,567,172)           (1,574,104)
   Maturities of short-term investments                                             1,190,733               964,366
   Sales of short-term investments                                                    537,878               456,464
   Expenditures other long-term investments                                           (96,021)              (59,387)
   Other                                                                              (14,588)               16,773
   ----------------------------------------------------------------------------------------------------------------

Net cash used by investing activities                                                    (158)             (238,505)
-------------------------------------------------------------------------------------------------------------------

Total increase (decrease) in cash and cash equivalents                          $     124,046         $     (29,789)
Cash and cash equivalents - beginning of period                                       177,083               208,543
-------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents - end of period                                             301,129               178,754
Short-term investments - end of period                                                691,072               969,171
-------------------------------------------------------------------------------------------------------------------

Cash and short-term investments - end of period                                 $     992,201           $ 1,147,925
===================================================================================================================
</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 1998 Annual Report to  Shareholders.  These statements
     do include all normal  recurring  adjustments  which 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

     All  marketable  debt  and  equity  securities  are  included  in cash  and
     short-term investments and are considered available-for-sale and carried at
     fair  market  value,  with the  unrealized  gains and  losses,  net of tax,
     included in  shareholders'  equity.  Fair market values are based on quoted
     market prices at end of period,  where  available;  if quoted market prices
     are not  available,  then fair  market  values  are based on quoted  market
     prices  of  comparable   instruments.   Municipal  securities  included  in
     short-term  investments have contractual  maturities from 1-5 years.  Money
     market  preferreds  have  contractual  maturities of less than 180 days. No
     other  short-term  investments  have  contractual  maturities.  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
                                                       Cost at        Unrealized       Unrealized   Market Value at
 (Dollars in thousands)                          July 31, 1999             Gains           Losses     July 31, 1999
 ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
     Cash                                           $  224,346      $          -     $         -         $  224,346
     Taxable money market fund                          39,283                 -               -             39,283
     Municipal securities                               37,500                 -               -             37,500
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents                           $  301,129      $          -     $         -         $  301,129
---------------------------------------------------------------------------------------------------------------------

Short-term investments
     Municipal securities                           $  417,668      $      1,242     $       (196)       $  418,714
     Money market preferreds                           141,405                 -               (5)          141,400
     Mutual funds                                      120,612                 -           (1,828)          118,784
     Equity securities                                  14,510             4,083           (6,419)           12,174
-------------------------------------------------------------------------------------------------------------------
Short-term investments                              $  694,195      $      5,325     $     (8,448)       $  691,072
---------------------------------------------------------------------------------------------------------------------
Cash and short-term investments                     $  995,324      $      5,325     $     (8,448)       $  992,201
-------------------------------------------------------------------------------------------------------------------
</TABLE>


<PAGE>


<TABLE>
<S>                                              <C>                  <C>              <C>          <C>
                                                                           Gross            Gross              Fair
                                                       Cost at        Unrealized       Unrealized   Market Value at
(Dollars in thousands)                           Oct. 31, 1998             Gains           Losses     Oct. 31, 1998
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
     Cash                                          $    98,444          $      -        $       -       $    98,444
     Repurchase agreements                               8,092                 -                -             8,092
     Money market fund                                  55,957                 -                -            55,957
     Municipal securities                               14,590                 -                -            14,590
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents                          $   177,083          $      -        $       -       $   177,083
-------------------------------------------------------------------------------------------------------------------

Short-term investments
     Municipal securities                          $   448,195          $  8,027        $       -       $   456,222
     Money market mutual funds                          95,631                 -                -            95,631
     Money market preferreds                           181,719                 -              (19)          181,700
     Mutual funds                                       15,340                 -                -            15,340
     Equity securities                                 128,837            30,159          (77,805)           81,191
-------------------------------------------------------------------------------------------------------------------
Short-term investments                             $   869,722          $ 38,186        $ (77,824)      $   830,084
-------------------------------------------------------------------------------------------------------------------
Cash and short-term investments                    $ 1,046,805          $ 38,186        $ (77,824)      $ 1,007,167
-------------------------------------------------------------------------------------------------------------------
</TABLE>

     During the first nine months of fiscal 1999 the  Company  realized  gains
     of $49 million and realized losses of $56 million on the sale of securities
     compared to realized  gains of $11  million and  realized  losses of $9
     million in the first nine months of fiscal 1998.

C.   Income Taxes

     The  Company's  estimated  effective  tax rate for the first nine months of
     fiscal 1999 was 28.0%, the same as in the first nine months of fiscal 1998.
     The  Company  paid cash  amounts for income  taxes of $5.5  million and $11
     million, in the first nine months of fiscal 1999 and 1998, respectively.

D.   Commitments and Contingencies

     The Company  currently has a $10 million  unsecured  revolving bank line of
     credit,  with  interest at the prime rate.  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 July 31, 1999 borrowings,  letter of credit  acceptances or
     commitments of approximately $1.3 million were outstanding under such line.

     The Company has an  additional  $5 million line of credit with another bank
     which is not subject to a loan agreement.  At July 31, 1999 standby letters
     of credit of  approximately  $400,000 were  outstanding  under this line of
     credit.



<PAGE>


     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  committed  to fund up to $272 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,  subject to the
     approval  of the lender and the  Company,  at the sole  discretion  of each
     party. Rent obligations  commenced during the second quarter of fiscal 1999
     for San Jose and will commence  upon the Company's  occupation of the Provo
     building in fiscal 2000.  Annual rent under each agreement is determined by
     taking the portion of the committed amount actually utilized and associated
     capitalized interest accrued during the construction period and multiplying
     this amount 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 July 31,
     1999, was approximately $218 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 July 31, 1999
     was approximately $172 million, and is included in long-term investments.

     In 1993, a suit was filed due to a failed  contract  against a company that
     Novell subsequently acquired. The plaintiff obtained a jury verdict against
     the acquired  company in 1996. In May 1999, the Company  settled this legal
     matter. The resolution of this legal matter did not have a material adverse
     effect on the Company's financial position,  results of operations, or cash
     flows.

     In  February  1998,  a suit was filed  against  Novell  and  certain of its
     officers and directors,  alleging violation of federal securities laws. 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 case
     is in its  preliminary  stages.  Novell  believes  that the case is without
     merit,  and intends to vigorously  defend  against the  allegations.  While
     there  can be no  assurance  as to the  ultimate  disposition  of the case,
     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.

E.   Put Warrants

     In connection with the Company's stock repurchase program, the Company sold
     put  warrants  on 15 million  shares of its common  stock  during the third
     quarter of fiscal  1998,  giving a third  party the right to sell shares of
     Novell common stock to the Company at contractually  specified prices.  The
     put warrants are  exercisable  only at  maturity,  expire at various  dates
     through July 1999, and can only be settled in shares. All 15 million of the
     Company's put warrant obligations expired worthless in July 1999.

     Additionally,  during  the  third  quarter  of  fiscal  1998,  the  Company
     purchased call options on 10 million shares of its common stock, giving the
     Company  the  right  to  purchase   shares  of  Novell   common   stock  at
     contractually  specified  prices.  The call options are exercisable only at
     maturity  and expire at various  dates  through  July  1999.  The  premiums
     received  from the sale of the put warrants  offset in full the cost of the
     call options.  During the first nine months of 1999, the Company  exercised
     all of its call  options to  purchase  10 million  shares of Novell  common
     stock in connection with the Company's stock repurchase program.

F.   International Sales

     The Company  operates in one business  segment and markets  internationally
     both directly to end users and through distributors who sell to dealers and
     end users.  For the first nine months of fiscal 1999 and fiscal 1998, sales
     to  international  customers  were  approximately  $421  million  and  $333
     million,  respectively.  In the first nine months of fiscal 1999 and fiscal
     1998, 71% and 66%,  respectively,  of international  sales were to European
     countries.  No one foreign country accounted for 10% or more of total sales
     in  either  period.  Except  for  one  multi-national  distributor,   which
     accounted for 11% of total revenue in the first nine months of 1999 and 13%
     of total  revenue  in the first nine  months of fiscal  1998,  no  customer
     accounted for more than 10% of total revenue in any period.



<PAGE>


G.   Net Income Per Share
<TABLE>
<S>                                                 <C>               <C>               <C>               <C>
                                                         Fiscal Quarter Ended                Nine Months Ended
                                                       July 31,          July 31,         July 31,         July 31,
Amounts in thousands, except per share data              1999              1998             1999              1998
-------------------------------------------------------------------------------------------------------------------
Basic net income per share computation
     Net income                                     $   49,311         $  26,556        $ 116,935         $  59,957
-------------------------------------------------------------------------------------------------------------------
     Weighted average shares outstanding               334,488           353,436          335,735           352,076
-------------------------------------------------------------------------------------------------------------------
         Basic net income per share                 $     0.15         $    0.08        $    0.35         $    0.17
===================================================================================================================

Diluted net income per share computation
     Net income                                      $  49,311         $  26,556        $ 116,935         $  59,957
-------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding                    334,488           353,436          335,735           352,076
Incremental shares attributable to exercise of
     outstanding options (treasury stock method)        16,463             8,647           15,461             5,137
-------------------------------------------------------------------------------------------------------------------
     Total                                             350,951           362,083          351,196           357,213
-------------------------------------------------------------------------------------------------------------------
         Diluted net income per share                $    0.14         $    0.07        $    0.33          $   0.17
===================================================================================================================
</TABLE>

H.   Comprehensive Income

     In the first quarter of 1999,  the Company  adopted  Statement of Financial
     Accounting Standards No. 130 (SFAS 130), "Reporting  Comprehensive Income."
     SFAS  130  establishes  new  rules  for the  reporting  and  displaying  of
     comprehensive  income.  SFAS 130 requires unrealized gains or losses on the
     Company's  available-for-sale  securities,  unearned stock compensation and
     cumulative  translation  adjustments,  which  prior to  adoption  were only
     reported   separately   in   shareholders'   equity,   to  be  included  in
     comprehensive  income. The components of comprehensive  income, net of tax,
     for the three  months and nine months ended July 31, 1999 and July 31, 1998
     were as follows:
<TABLE>
<S>                                                 <C>               <C>             <C>              <C>

                                                         Fiscal Quarter Ended                Nine Months Ended
                                                      July 31,          July 31,         July 31,         July 31,
Dollars in thousands                                    1999              1998             1999             1998
------------------------------------------------------------------------------------------------------------------
Net income                                           $  49,311         $  26,556       $  116,935        $  59,957
Unrealized gain/(loss) on investments                    1,554            (5,436)          22,427           (9,033)
Unearned stock compensation                             (1,241)              131           (2,268)           1,163
Cumulative translation adjustment                         (732)             (843)            (821)            (675)
-------------------------------------------------------------------------------------------------------------------
Comprehensive income                                 $  48,892         $  20,408       $  136,273        $  51,412
==================================================================================================================
</TABLE>

<PAGE>




Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Introduction

Novell is the world's leading provider of directory-enabled networking software.
Novell solutions give businesses total control of their private networks and the
Internet,  simplifying  the  management  of user access and  identity.  Novell's
worldwide  channel,  consulting,  developer,  education,  and technical  support
programs are the most extensive in the network computing industry.

Results of Operations
<TABLE>
<S>                                                    <C>      <C>           <C>        <C>      <C>          <C>
Net Sales                                                 Q3                    Q3        YTD                   YTD
                                                        1999     Change       1998       1999     Change       1998
-------------------------------------------------------------------------------------------------------------------

Net sales (millions)                                    $327        20%       $272       $928         18%      $786
===================================================================================================================
</TABLE>

Novell's  products can be categorized  into four areas,  all within the software
industry.  They are directory-enabled  server platforms;  network infrastructure
and   management   applications;   service,   education  and   consulting;   and
pre-directory products. The increase in revenue in the third quarter of 1999 and
for the first nine months of fiscal 1999  compared to same periods of 1998, is a
result of growth in directory-enabled  server platforms;  network infrastructure
and management  applications;  and service,  education and consulting,  slightly
offset by decreases in pre-directory products.

Revenue from the  directory-enabled  server platforms  category,  which includes
NetWare 4 and NetWare 5,  increased  $37 million or 27% in the third  quarter of
1999 compared to the third quarter of 1998, and $106 million or 28% in the first
nine months of fiscal 1999 compared to the first nine months of 1998.  The third
quarter  and  year-to-date  increase  in  revenue  is  due  to  strong  customer
acceptance of NetWare 5, which is Internet Protocol based.

The network infrastructure and management applications product category includes
NetWare for SAA host connectivity products,  BorderManager,  NDS integration and
high  availability  service  products as well as  collaboration  and  management
products including  GroupWise,  ManageWise,  and Z.E.N.works.  Revenue from this
product  category was $75 million in the third  quarter of 1999  compared to $56
million  in the  third  quarter  of 1998.  This 34%  increase  was  driven by an
increase  in sales of  management  and  collaboration  products,  including  new
product  revenue  from  Z.E.N.works,  and an increase in network  infrastructure
products including BorderManager and NDS for NT and Solaris,  somewhat offset by
a decrease in mobile/remote  connectivity  products. In the first nine months of
fiscal  1999  compared  to  the  first  nine  months  of  fiscal  1998,  network
infrastructure  and management  applications  revenue was up $61 million or 39%.
This year-to-date  increase was driven by strong sales of each of the management
and  collaboration  products,  BorderManager,  NetWare  SAA  and  NDS for NT and
Solaris.

Service,  education and consulting,  revenue,  generated from customer  service,
educational products and courses, and consulting for network solutions, were $49
million and $34 million in the third quarter of 1999 and 1998, respectively. The
increase  in the third  quarter  of 1999 was a result  of new  directory-related
consulting  revenue,  increased  service  revenue as a result of increased  site
licenses,  and  growth in  education.  In the first nine  months of fiscal  1999
compared  to the first  nine  months of fiscal  1998,  service,  education,  and
consulting  revenue  increased  by $38  million  or 41% due to the same  factors
driving the quarter over quarter revenue growth.

Pre-directory  products  revenue  consists  of NetWare 3, non  directory-enabled
infrastructure  products and UNIX royalties.  Revenue in this category decreased
to $28 million in the third quarter of 1999 compared to $44 million in the third
quarter of 1998.  Revenue in for the first nine months of 1999  decreased to $88
million  compared to $151 million for the same period of 1998.  These  decreases
were primarily the result of shrinking NetWare 3 and host  connectivity  revenue
and the  elimination  of Tuxedo  revenue,  which ended in the fourth  quarter of
fiscal 1998.  Revenue  from this  category is expected to continue to decline as
sales of  directory-enabled  products continue to increase and newer versions of
non-directory products are introduced.

International  sales  represented 45% of total sales in the first nine months of
1999 compared to 42% in the first nine months of 1998. This change is the result
of  stronger  sales  growth in the  international  markets  where they saw a 27%
increase in  revenues  compared  to a 12%  increase in domestic  revenues in the
first nine  months of fiscal  1999  compared  to the first nine months of fiscal
1998.


<TABLE>
<S>                                                     <C>     <C>          <C>        <C>      <C>           <C>
Gross Profit
                                                          Q3                    Q3        YTD                   YTD
                                                        1999     Change       1998       1999     Change       1998
-------------------------------------------------------------------------------------------------------------------
Gross profit (millions)                                 $253        21%       $209       $714         18%      $607
Percentage of net sales                                   78%                   77%        77%                   77%
===================================================================================================================
</TABLE>

Gross profit as a percentage of sales increased slightly in the third quarter of
fiscal 1999 compared to the third quarter of fiscal 1998 due to lower  inventory
variances  and  decreased  royalties,  offset by increased  expenses,  both as a
percentage of net sales and in absolute dollars,  associated with the ramping up
the  Company's  consulting  business.  In the first nine  months of fiscal  1999
compared to the first nine months of fiscal 1998,  the gross  margin  percentage
remained flat.  Improvements  in inventory  variances and training and education
costs were offset by higher service, consulting and royalty costs.

<TABLE>
<S>                                                     <C>      <C>          <C>        <C>      <C>          <C>
Operating Expenses                                        Q3                    Q3        YTD                   YTD
                                                        1999     Change       1998       1999     Change       1998
-------------------------------------------------------------------------------------------------------------------
Sales and marketing (millions)                          $109        12%        $97       $321          6%      $303
Percentage of net sales                                   33%                   36%        35%                   39%
-------------------------------------------------------------------------------------------------------------------
Product development (millions)                         $  57         0%      $  57       $169         -5%      $178
Percentage of net sales                                   18%                   21%        18%                   23%
-------------------------------------------------------------------------------------------------------------------
General and administrative (millions)                  $  25         0%      $  25      $  76         -1%     $  77
Percentage of net sales                                    8%                    9%         8%                   10%
-------------------------------------------------------------------------------------------------------------------
Total operating expenses (millions)                     $191         7%       $179       $566          1%      $558
Percentage of net sales                                   58%                   66%        61%                   71%
===================================================================================================================
</TABLE>

Sales and marketing expenses  increased by $12 million,  in the third quarter of
fiscal 1999  compared to the third  quarter of fiscal 1998 and by $18 million in
the first nine months of fiscal 1999 compared to the first nine months of fiscal
1998. At the same time  however,  sales and  marketing  expenses  decreased as a
percentage  of net sales in each period of 1999.  Sales and  marketing  expenses
fluctuate  as a  percentage  of net sales in any  given  period  due to  product
promotions, advertising or other discretionary expenses.

Product  development  expenses remained flat in the third quarter of fiscal 1999
compared to the third quarter of fiscal 1998 and decreased by $9 million,  or 5%
in the first nine  months of fiscal  1999  compared  to the first nine months of
fiscal 1998. Product development  expenses also decreased as a percentage of net
sales in both  comparative  periods  due to  increased  sales  levels and a more
efficient product  development  organization  focused on delivering new products
consistent with the Company's strategy.

General and administrative expenses remained flat in the third quarter of fiscal
1999 compared to the third quarter of fiscal 1998 and decreased  slightly in the
first nine  months of fiscal 1999  compared  to the same period of fiscal  1998.
General and  administrative  expenses  decreased as a percentage of net sales in
both comparative  periods as well, due to a higher revenue base and an increased
focus on controlling costs.

<TABLE>
<S>                                                               <C>                  <C>                    <C>
                                                                    YTD                                         YTD
                                                                   1999                Change                  1998
-------------------------------------------------------------------------------------------------------------------
Employees                                                         5,204                    -                  4,502
Annualized revenue per employee (000's)                            $253                    7%                  $226
===================================================================================================================
</TABLE>



<PAGE>


<TABLE>
<S>                                                     <C>      <C>          <C>        <C>      <C>         <C>
Other Income, Net                                         Q3                    Q3        YTD                   YTD
                                                        1999     Change       1998       1999     Change       1998
-------------------------------------------------------------------------------------------------------------------
Other income, net (millions)                          $    6       -11%       $  7    $    14        -58%     $  34
Percentage of net sales                                    2%                    3%         2%                    4%
===================================================================================================================
</TABLE>

The primary component of other income, net is investment  income,  which was $10
million in the third  quarter of fiscal 1999 compared to $7 million in the third
quarter of fiscal  1998.  The  increase  is the  result of higher  net  realized
capital losses on the disposal of certain equity securities in the third quarter
of  fiscal  1998.  In  addition  to  investment  income,  the  Company  incurred
immaterial   losses  on  foreign  currency  and  wrote  off  certain   long-term
investments  in the  third  quarter  of 1999.  Year-to-date  other  income,  net
decreased  primarily  due to lower  investment  income and net realized  capital
losses  associated  with certain equity  securities  disposed of in fiscal 1999.
Investment  income was $31  million  compared  to $37  million in the first nine
months of fiscal 1999 and 1998,  respectively,  and net realized  capital losses
were $7 million  compared to net realized  gains of $2 million in the first nine
months of fiscal 1999 and 1998, respectively.

<TABLE>
<S>                                                   <C>       <C>          <C>        <C>       <C>         <C>
Income Taxes
                                                          Q3                    Q3        YTD                   YTD
                                                        1999     Change       1998       1999     Change       1998
-------------------------------------------------------------------------------------------------------------------
 Income taxes (millions)                               $  19        86%      $  10      $  45         96%     $  23
 Percentage of net sales                                   6%                    4%         5%                    3%
 Effective tax rate                                       28%                   28%        28%                   28%
 ==================================================================================================================
</TABLE>

The  effective  tax rate for fiscal 1999 is  estimated  to be 28%,  the same as
fiscal 1998.

<TABLE>
<S>                                                    <C>       <C>          <C>       <C>       <C>          <C>
Net Income and Net Income Per Share
                                                          Q3                    Q3        YTD                   YTD
                                                        1999     Change       1998       1999     Change       1998
-------------------------------------------------------------------------------------------------------------------
Net income (millions)                                  $  49        86%       $ 27       $117         95%      $ 60
Percentage of net sales                                   15%                   10%        13%                    8%
Net income per share - basic                           $ .15                  $.08       $.35                  $.17
Net income per share - diluted                         $ .14                  $.07       $.33                  $.17
===================================================================================================================
</TABLE>

Liquidity and Capital Resources
<TABLE>
<S>                                                                <C>                 <C>                   <C>
                                                                     Q3                                          Q4
                                                                   1999                Change                  1998
-------------------------------------------------------------------------------------------------------------------
Cash and short-term investments (millions)                         $992                 -1%                  $1,007
Percentage of total assets                                           51%                                         52%
===================================================================================================================
</TABLE>

Cash and short-term  investments  decreased by $15 million at July 31, 1999 from
$1 billion at October 31, 1998.  During the year, the Company spent $204 million
of cash for the repurchase of common stock,  $72 million to increase  collateral
associated with certain long-term investments, $51 million to purchase property,
plant and equipment,  and $14 million for purchases of other assets in the third
quarter  of 1999.  These  cash  expenditures  were  offset  by the $248  million
provided by operating activities and the $80 million from the issuance of common
stock.

The Company's  investment  portfolio  includes  securities with gross unrealized
losses of $3 million  as of July 31,  1999.  The only  remaining  security  with
material  unrealized  losses is Corel common stock,  which was obtained in March
1996 upon the Company's sale of its personal  productivity  applications product
line. It is the  Company's  intention to continue to dispose of the Corel shares
over the coming periods.

The investment  portfolio is diversified among security types,  industry groups,
and individual issuers. To achieve potentially higher returns, a limited portion
of the Company's  investment  portfolio is invested in mutual funds, which incur
market  risk.  The Company  believes  that the market  risk has been  limited by
diversification  and by use of a funds management  timing service which switches
funds out of mutual funds and into money market funds when preset signals occur.

The Company's  principal source of liquidity has been from  operations.  At July
31, 1999, the Company's  principal unused sources of liquidity consisted of cash
and short-term investments and available borrowing capacity of approximately $14
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 nine  months of fiscal  1999,  the  Company  has  continued  to
generate cash from operations.  The Company  anticipates  being able to fund its
current operations and capital  expenditures  planned 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
1999 are anticipated to be  approximately  $60 million,  but could be reduced if
the growth of the Company is less than presently anticipated.

In June 1998, the Company announced its intent to repurchase and retire up to 10
percent,  or  approximately  35 million shares,  of Novell common stock over the
next  twelve  months.  During  the  first  nine  months  of  1999,  the  Company
repurchased  and  retired  approximately  13.5  million  shares  at  a  cost  of
approximately  $204 million.  During fiscal 1998,  the Company  repurchased  and
retired approximately 21 million shares at a cost of approximately $245 million.
In July 1999,  the Board of  Directors  authorized  up to $500  million  for the
repurchase  of  additional  outstanding  shares of the  Company's  common  stock
through October 31, 2000.

Future Results

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,
acceptance  of new products and price  pressures;  availability  of  third-party
compatible  products at  reasonable  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.

In the past, many information  technology  products were designed with two digit
year codes that did not recognize  century and millennium  fields.  As a result,
these  hardware  and software  products  may not function or may give  incorrect
results   beginning  in  the  year  2000.  The  year  2000  issue  is  faced  by
substantially  every company in the computer industry,  as well as every company
which relies on computer systems.

The Company has created a  company-wide  Year 2000 team to identify  and resolve
Year 2000 issues  associated  either with the Company's  internal systems or the
products and services sold by the company.  As part of this effort,  the Company
has  communicated  with its main  suppliers of technology  products and services
regarding  the Year 2000 status of such  products or  services.  The Company has
identified and tested its main internal  systems.  Most  significant Y2K updates
have been installed.  In 1999 the Company expects to complete  implementation of
needed year 2000-related  modifications to its information  systems. The Company
has  also  assessed  its  internal  non-information   technology  systems.  Most
significant Y2K updates have been installed, and the Company expects to complete
needed modifications to these systems in 1999.

The Company's  total cost relating to these  activities  has not been and is not
expected  to be  material  to  the  Company's  financial  position,  results  of
operations,  or cash flows.  The Company  believes that necessary  modifications
will be made on a timely basis.  However,  there can be no assurance  that there
will not be a delay in, or increased costs associated  with, the  implementation
of such  modifications,  or that the Company's suppliers will adequately prepare
for the year 2000 issue. It is possible that any such delays,  increased  costs,
or  supplier  failures  could have a material  adverse  impact on the  Company's
operations  and  financial  results,  by, for example,  impacting  the Company's
ability to deliver products or services to its customers.  The Company has begun
contingency   planning  and  finalized  in  mid-1999  its  main   assessment  of
contingency  planning for potential critical operational or performance problems
related to year 2000-related issues with its information systems.

The  Company's  year 2000 effort has  included  testing  products  currently  or
recently  on the  Company's  price  list for year 2000  issues.  Generally,  for
products that were  identified  as needing  updates to address year 2000 issues,
the Company has  prepared or is  preparing  updates,  or has removed the product
from its price list. Some of the Company's  customers are using product versions
that the  Company  will not  support  for  year  2000  issues;  the  Company  is
encouraging these customers to migrate to current product versions that are year
2000 ready.

For third party products,  which the Company distributes with its products,  the
Company has sought  information  from the product  manufacturers  regarding  the
products' year 2000 readiness status. Customers who use the third-party products
are  directed  to  the  product  manufacturer  for  detailed  year  2000  status
information. On its year 2000 web site at www.novell.com/year2000/,  the Company
provides  information  regarding  which of its  products are year 2000 ready and
other  general  information  related to the  Company's  year 2000  efforts.  The
Company's  total  costs  relating  to these  activities  has not been and is not
expected  to be  material  to the  Company's  financial  position  or results of
operations.

The Company  believes its current  products,  with any applicable  updates,  are
well-prepared for year 2000 date issues,  and the Company plans to support these
products for date issues that may arise related to the year 2000. However, there
can be no  guarantee  that one or more current  Company  products do not contain
year 2000 date issues that may result in material costs to the Company.  Because
it is in the business of selling software products,  the Company's risk of being
subjected to lawsuits relating to year 2000 issues with its software products is
likely  to be  greater  than  that of  companies  in other  industries.  Because
computer  systems  may  involve  different   hardware,   firmware  and  software
components from different manufacturers,  it may be difficult to determine which
component  in a computer  system may cause a year 2000 issue.  As a result,  the
Company may be subjected to year  2000-related  lawsuits  independent of whether
its products and services are year 2000 ready. The outcomes of any such lawsuits
and the impact on the Company cannot be determined at this time.

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, as well as risks described in
detail in the Company's fiscal 1998 report on Form 10-K.

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 D of the Company's financial  statements contained in Part I, Item 1 of
this Form 10-Q.

Item 4. Submission of Matters to a Vote of Security Holders

None

<PAGE>

Item 6.  Exhibits and Reports on Form 8-K.

(a)  Exhibits

Exhibit
Number                         Description
  27*                          Financial Data Schedule

(b) Reports on Form 8-K.

No reports on Form 8-K were filed by the  Registrant  during the  quarter  ended
July 31, 1999.



*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:  September 10, 1999                /s/ Dr. Eric Schmidt
                                         -----------------------------------
                                         Dr. Eric Schmidt
                                         Chairman of the Board and
                                         Chief Executive Officer
                                         (Principal Executive Officer)



Date:  September 10, 1999                /s/ Dennis R. Raney
                                         -----------------------------------
                                         Dennis R. Raney
                                         Chief Financial Officer
                                         (Principal Financial Officer)



Date:  September 10, 1999                /s/ Ron Foster
                                         -----------------------------------
                                         Ron Foster
                                         Vice President and Corporate Controller
                                         (Principal Accounting Officer)


<PAGE>