27




                                  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 April 30, 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 May 31, 2001, there were 319,214,379 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>

                                                                        April 30, 2001              October 31, 2000
                                                           -            --------------              ----------------
Amounts in thousands, except share and per share data                      (Unaudited)
ASSETS
Current assets:
Cash and short-term investments                                           $    638,607                 $    698,193
Receivables, less allowances ($37,177 - April; $33,469 -
October)                                                                       138,882                      196,672
Inventories                                                                      1,465                        2,621
Prepaid expenses                                                                28,091                       26,120
Deferred and refundable income taxes                                            55,473                       60,109
Other current assets                                                            19,303                       23,644
                                                                          ------------                 ------------

Total current assets                                                           881,821                    1,007,359

Property, plant and equipment, net                                             276,291                      290,104
Long-term investments                                                          362,695                      383,583
Other assets                                                                    48,216                       31,300
                                                                          ------------                 ------------

Total assets                                                              $  1,569,023                 $  1,712,346
                                                                          ============                 ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable                                                          $     75,837                 $     85,050
Accrued compensation                                                            63,374                       54,546
Accrued marketing liabilities                                                   12,876                       13,632
Other accrued liabilities                                                       55,887                       59,644
Income taxes payable                                                            15,136                       39,043
Deferred revenue                                                               200,282                      203,163
                                                                          ------------                 ------------

Total current liabilities                                                      423,392                      455,078

Minority interests                                                              27,982                       12,183

Shareholders' equity:
Common stock, par value $.10 per share
Authorized - 600,000,000 shares
Issued -  319,281,283 shares-April
         327,618,192 shares-October                                             38,403                       32,762

Retained earnings                                                            1,099,271                    1,319,853
Accumulated other comprehensive (loss)                                          (8,047)                     (84,427)
Other                                                                          (11,978)                     (23,103)
                                                                          -------------                -------------

Total shareholders' equity                                                   1,117,649                    1,245,085
                                                                          ------------                 ------------

Total liabilities and shareholders' equity                                $  1,569,023                 $  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>

                                                                                           Three Months Ended
                                                                                -------------------------------------------
                                                                                April 30, 2001               April 30, 2000
Amounts in thousands, except per share data
Net sales                                                                         $   240,755                   $   302,349
Cost of sales                                                                          66,192                        83,742
                                                                                  -----------                   -----------
Gross profit                                                                          174,563                       218,607

Operating expenses:
Sales and marketing                                                                   118,206                       125,392
Product development                                                                    54,563                        60,248
General and administrative                                                             23,779                        24,728
                                                                                  -----------                   -----------

Total operating expenses                                                              196,548                       210,368

Income (loss) from operations                                                         (21,985)                        8,239

Other income (expense)
Investment income                                                                      11,414                        37,020
Investment impairment                                                                (142,047)                           --
Other, net                                                                             (1,558)                       (2,175)
                                                                                  ------------                  ------------

Other income (expense), net                                                          (132,191)                       34,845

Income (loss) before taxes                                                           (154,176)                       43,084

Income tax expense (benefit)                                                           (2,865)                       12,064
                                                                                  ------------                  -----------

Net income (loss)                                                                 $  (151,311)                  $    31,020
                                                                                  ============                  ===========

Net income (loss) per share
Basic:                                                                            $    (0.48)                   $     0.09

Diluted:                                                                          $    (0.48)                   $     0.09

Weighted average shares outstanding:
Basic                                                                                 317,873                      326,788
Diluted                                                                               317,873                      341,546

Pro forma amounts assuming the accounting change is applied retroactively
Net income (loss)                                                                 $        --                   $   49,452
                                                                                  ===========                   ==========
Net income (loss) per share (diluted)                                             $        --                   $     0.14
                                                                                  ===========                   ==========

</TABLE>
See notes to consolidated unaudited condensed financial statements.


<PAGE>


                                  NOVELL, INC.
            CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<S>                                                                             <C>                          <C>
                                                                                             Six Months Ended
                                                                                -------------------------------------------
                                                                                April 30, 2001               April 30, 2000
Amounts in thousands, except per share data
Net sales                                                                         $   485,790                   $   618,392
Cost of sales                                                                         132,054                       162,469
                                                                                  -----------                   -----------
Gross profit                                                                          353,736                       455,923

Operating expenses:
Sales and marketing                                                                   239,953                       239,048
Product development                                                                   104,051                       118,185
General and administrative                                                             45,001                        43,921
                                                                                  -----------                   -----------

Total operating expenses                                                              389,005                       401,154

Income (loss) from operations                                                         (35,269)                       54,769

Other income (expense)
Investment income                                                                      28,701                        54,571
Investment impairment                                                                (142,047)                           --
Other, net                                                                             (1,014)                       (3,985)
                                                                                  ------------                  ------------

Other income (expense), net                                                          (114,360)                       50,586

Income (loss) before taxes                                                           (149,629)                      105,355

Income tax expense (benefit)                                                           (1,592)                       29,500
                                                                                  ------------                  -----------
Net income before cumulative effect of change in accounting
principle                                                                            (148,037)                       75,855

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

Net income (loss)                                                                 $  (159,085)                  $    75,855
                                                                                  ============                   ==========

Net income (loss) per share - Basic:
Before cumulative effect of change in accounting principle                        $    (0.46)                   $     0.23
Cumulative effect of change in accounting principle (Note K)                           (0.04)                           --
                                                                                  -----------                   ----------
                                                                                  $    (0.50)                   $     0.23
                                                                                  ===========                   ==========

Net income (loss) per share - Diluted:
Before cumulative effect of change in accounting principle                        $    (0.46)                   $     0.22
Cumulative effect of change in accounting principle (Note K)                           (0.04)                           --
                                                                                  -----------                   ----------
                                                                                  $    (0.50)                   $     0.22
                                                                                  ===========                   ==========

Weighted average shares outstanding:
Basic                                                                                 320,028                      326,847
Diluted                                                                               320,028                      341,826

Pro forma amounts assuming the accounting change is applied retroactively
Net income (loss)                                                                 $        --                   $   86,871
                                                                                  ===========                   ==========
Net income (loss) per share (diluted)                                             $        --                   $     0.25
                                                                                  ===========                   ==========
</TABLE>

See notes to consolidated unaudited condensed financial statements.


<PAGE>


                                  NOVELL, INC.
            CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<S>                                                                        <C>                       <C>
                                                                                      Six Months Ended
                                                                           April 30, 2001            April 30, 2000
Dollars in thousands
Cash flows from operating activities
Net income (loss)                                                          $   (159,085)                $   75,855

Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization                                                    41,869                     39,961
Stock plans' income tax benefits                                                     --                     56,398
Loss on impaired investments and fixed assets                                   147,806                         --
Decrease in receivables                                                          57,790                     45,308
Decrease in inventories                                                           1,156                        162
(Increase) decrease in prepaid expenses                                          (1,971)                     8,986
Decrease in deferred and refundable income taxes                                  6,095                     29,457
Decrease in other current assets                                                  4,341                      6,763
Decrease in current liabilities, net                                            (31,686)                   (73,251)
                                                                             -----------                -----------

   Net cash provided from operating activities                                   66,315                    189,639

Cash flows from financing activities
Issuance of common stock, net                                                     8,391                     70,608
Repurchase of common stock                                                      (64,954)                  (301,011)
                                                                             -----------                -----------

   Net cash used by financing activities                                        (56,563)                  (230,403)

Cash flows from investing activities
Expenditures for property, plant and equipment                                  (18,338)                   (28,140)
Purchases of short-term investments                                            (435,054)                  (484,530)
Maturities of short-term investments                                            415,788                    507,785
Sales of short-term investments                                                  67,330                    287,585
Expenditures for other long-term investments                                    (32,849)                  (150,349)
Increase in restricted cash                                                          --                    (27,217)
Proceeds from Volera minority shareholders                                       25,975                         --
Other                                                                           (15,752)                       444
                                                                             -----------                ----------

   Net cash provided by investing activities                                      7,100                    105,578

Total increase in cash and cash equivalents                                      16,852                     64,814

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

Cash and cash equivalents - end of period                                       306,389                    339,083

Short-term investments - end of period                                          332,218                    307,626
                                                                             ----------                 ----------

Cash and short-term investments - end of period                            $    638,607                 $  646,709
                                                                           ============                 ==========

Supplemental disclosures of non-cash financing and investing activities:
Issuance of restricted stock for acquisitions                              $         --                 $   17,366

</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 materially 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 (loss), 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 tax 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
                                                    Apr. 31, 2001       Gains          Losses       Apr. 31, 2001
                                                    -------------       -----          ------       -------------
(Amounts in thousands) Cash and cash equivalents:
  Cash..............................................   $   92,157       $     --      $      --        $   92,157
  Corporate debt....................................       64,162             --             --            64,162
  Money market funds................................      150,070             --             --           150,070
                                                       ----------       --------      ---------        ----------
          Total cash and cash equivalents...........      306,389             --             --           306,389
Short-term investments:
  State and local government debt...................      155,202          1,907             --           157,109
  Corporate debt....................................       64,619            990             --            65,609
  Money market preferreds...........................       48,800             --             --            48,800
  Mutual funds......................................       56,825             --        (11,658)           45,167
  Equity securities.................................       16,086          1,926         (2,479)           15,533
                                                       ----------       --------      ----------       ----------
          Total short-term investments..............      341,532          4,823        (14,137)          332,218

          Total cash and short-term investments.....   $  647,921       $  4,823      $ (14,137)       $  638,607
                                                       ==========       ========      ==========       ==========
</TABLE>
<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 six months of fiscal 2001, the Company realized gains of
     $5.3 million and realized losses of $0.1 million on the sale of securities.
     During the first six months of fiscal 2000, the Company realized gains of
     $33.2 million and realized losses of $1.6 million from the sale of
     securities.

     In addition, the Company recorded impairment losses of $142.0 million
     during the second quarter of fiscal 2001 and $144.7 million year-to-date
     fiscal 2001 for short and long-term investments whose decline in market
     value was determined to be other than temporarily. The Company reviews all
     of its short-term investments for impairment and recognizes impairment
     losses as appropriate.

C.   Other Assets

     The primary components of other assets as of April 30, 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.

     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 long-term investments in public and
     private equity securities and venture funds for impairment and recognizes
     losses as appropriate. During the second fiscal quarter of 2001, the
     Company wrote off its long-term investment in marchFIRST due to the change
     in its market value, which is believed to be other than temporary. As of
     April 30, 2001, there were no unrealized losses on public long-term equity
     securities.

D.   Income Taxes

     The Company's effective tax rate for fiscal 2001, before cumulative effect
     of change in accounting principle and investment impairment, is estimated
     to be 21%, compared to 28% in fiscal 2000. The rate differs from the
     effective tax rate for fiscal 2000 and the first quarter of fiscal 2001
     primarily as a result of changes in the forecasted income before taxes for
     fiscal 2001. The second quarter tax provision includes an adjustment to
     bring the year-to-date effective rate to 21%. There is no tax benefit for
     the investment impairment because corporations can only use capital losses
     to offset capital gains. The Company cannot be assured at this time that it
     can generate sufficient capital gains during the five-year carry-over
     period to recognize the tax benefit of this capital loss. Accordingly, a
     valuation allowance has been established.

     The Company paid cash amounts for income taxes of $2.9 million in the first
     six months of fiscal 2001 and $19.6 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 April 30, 2001, there were standby
     letters of credit of $2.7 million outstanding under this agreement. A
     subsidiary of the Company has a Letter Agreement and stand-by letters of
     credit valued at $1.2 million at April 30, 2001 with the same bank. The
     Letter Agreement is subject to financial covenants and restrictions, none
     of which are expected to significantly affect the Company's operations. The
     Company also has an additional credit facility with another bank, which is
     not subject to a loan agreement. At April 30, 2001, there was $0.5 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 six months of fiscal 2001.
<TABLE>
<S>                                                <C>              <C>             <C>            <C>

                                                   Balance at                                      Balance at
                                                   October 31,        Cash          Non-Cash       April 30,
                                                      2000          Payments        Charges           2001
                                                      ----          --------        -------           ----
                                                                     (Amounts in thousands)
  Severance and benefits                             $   6,139      $  (5,342)             --       $     797
  Abandoned technology                                     286             --              --             286
  Redundant facilities and fixed assets                  4,726           (233)           (699)          3,794
  Other restructuring related costs                      2,616           (321)             --           2,295
                                                     ---------      ----------      ---------       ---------
                                                     $  13,767      $  (5,896)      $    (699)      $   7,172
                                                     =========      ==========      ==========      =========
</TABLE>

     As of April 30, 2001, the remaining portion of the restructuring charge
     included in accrued liabilities related to severance and benefits,
     abandoned technology, and other restructuring related costs, which will
     largely be paid during fiscal 2001. Amounts related to redundant facilities
     and other fixed contracts will be paid over the respective remaining
     contract 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 April 30, 2001, the Company had investments of
     $55.1 million in various venture capital funds and had commitments to
     contribute an additional $105.2 million to these funds over the next two to
     three years, as requested by the fund managers.



<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 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 April 30,
     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 April 30,
     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. On April 19, 2001, 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, which includes education, consulting and technical
     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.



<PAGE>


     Revenue by product category
<TABLE>
<S>                                                 <C>            <C>             <C>             <C>
                                                        Three Months Ended               Six Months Ended
                                                      -----------------------------------------------------------
     Amounts in thousands                           Apr. 30, 2001  Apr. 30, 2000    Apr. 30, 2001   Apr. 30, 2000
     --------------------                           -------------  -------------    -------------   -------------
     Net Management Services                          $  180,891     $  239,350       $  367,751      $  498,878
     Net Directory Services                                7,983          7,307           15,615          13,406
     Net Content Services                                  1,850            992            3,708           2,257
     Novell Customer Services                             50,031         54,700           98,716         103,851
                                                      ----------     ----------       ----------      ----------
       Total net sales                                $  240,755     $  302,349       $  485,790      $  618,392
                                                      ==========     ==========       ==========      ==========
</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 six months of fiscal 2001 and fiscal 2000, sales to
     international customers were approximately $214.3 million and $275.5
     million, respectively. In the first six months of fiscal 2001 and fiscal
     2000, 66% and 67%, 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 six months of fiscal 2001 or fiscal 2000.

I.   Net Income (Loss) Per Share
<TABLE>
<S>                                                    <C>              <C>            <C>             <C>
                                                              Three Months Ended            Six Months Ended
                                                        ------------------------------------------------------------
     Amounts in thousands, except per share data        Apr. 30, 2001 Apr. 30, 2000    Apr. 30, 2001  Apr. 30, 2000
     -------------------------------------------        ------------- -------------    -------------  -------------
     Basic net income per share computation
     Net income (loss)                                  $  (151,311)    $    31,020    $  (159,085)    $     75,855
                                                        ------------    -----------    ------------    ------------
     Weighted average shares outstanding                    317,873         326,788        320,028         326,847
                                                        -----------     -----------    -----------     -----------
     Basic net income (loss) per share                  $     (0.48)    $      0.09    $     (0.50)    $      0.23
                                                        ============    ===========    ============    ===========
     Diluted net income per share computation
     Net income (loss)                                  $  (151,311)    $    31,020    $  (159,085)    $     75,855
                                                        ------------    -----------    ------------    ------------
     Weighted average shares outstanding                    317,873         326,788        320,028         326,847
     Incremental shares attributable to exercise of
      outstanding options (treasury stock method)                --          14,758             --          14,979
                                                        -----------     -----------    -----------     -----------
     Total                                                  317,873         341,546        320,028         341,826
                                                        -----------     -----------    -----------     -----------
     Diluted net income (loss) per share                $     (0.48)    $      0.09    $     (0.50)    $      0.22
                                                        ============    ===========    ============    ===========
</TABLE>

J.   Comprehensive Income (Loss)

     The components of comprehensive income (loss), net of tax, for the three
     and six months ended April 30, 2001 and 2000 were as follows:
<TABLE>
<S>                                                     <C>             <C>             <C>            <C>

                                                              Three Months Ended            Six Months Ended
                                                        -----------------------------------------------------------
     Amounts in thousands                               Apr. 30, 2001 Apr. 30, 2000    Apr. 30, 2001  Apr. 30, 2000
     --------------------                               ------------- -------------    -------------  -------------
     Net income (loss)                                  $  (151,311)    $    31,020     $  (159,085)   $    75,855
     Change in net unrealized gain (loss) on
     investments                                             93,939         (94,427)         75,855        (19,781)
     Change in cumulative translation adjustment               (189)            473             525            (77)
                                                        ------------    -----------     -----------    ------------
     Comprehensive income (loss)                        $   (57,561)    $   (62,934)    $   (82,705)   $    55,997
                                                        ============    ============    ============   ===========
</TABLE>



<PAGE>


     The components of accumulated other comprehensive income (loss), net of
     related tax, at April 30, 2001 and October 31, 2000, are as follows:
<TABLE>
<S>                                                                       <C>                        <C>

                                                                          Apr. 30, 2001             Oct. 31, 2000
                                                                          -------------             -------------
     Dollars in thousands
     Net unrealized gain (loss) on investment:                             $    (5,339)              $   (81,194)
     Cumulative translation adjustment                                          (2,708)                   (3,233)
                                                                           ------------              ------------
     Accumulated other comprehensive income (loss)                         $    (8,047)              $   (84,427)
                                                                           ============              ============
</TABLE>

K.   Change In Accounting Principle - 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 reseller or 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 ($0.03 per share) cumulative effect
     of the change (after reduction for income taxes of $6.1 million) was
     included in income in the first quarter of fiscal 2001. Also, during 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
     net 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 increase in earnings of
     approximately $5.6 million or $.02 per share during the second quarter of
     fiscal 2001 and $3.8 million or $0.1 per share during the first six months
     of fiscal 2001. The pro forma amounts presented in the unaudited
     consolidated statements of income were calculated assuming the accounting
     change was made retroactively to prior periods.

L.   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.

M.   Joint Venture

     In April  2001,  Novell  completed  the  formation  of Volera,  Inc. a
     majority owned joint venture between Novell,  Inc.,  Nortel Networks Corp.,
     and Accenture Ltd. The Company  contributed cash, fixed assets and products
     and  technologies in exchange for a 89.8%  ownership in Volera.  Nortel and
     Accenture  contributed  $26.0  million  in  cash  for the  remaining  10.1%
     ownership.



<PAGE>


N.   Acquisitions

     On March 12, 2001, the Company announced that it had entered into a
     definitive agreement to acquire Cambridge Technology Partners, Inc., a
     global information technology services and eSolutions provider. Upon
     closing, the Company will exchange 0.668 shares of its common stock for
     every outstanding share of Cambridge. The transaction is valued at
     approximately $251 million, based on the an average closing price for the
     seven day period beginning three days before the announcement date, of
     $5.907 per share. The acquisition will be accounted for as a purchase and
     is expected to close July 11, 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 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, help to 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>           <C>          <C>           <C>
                                             Q2 2001      Change      Q2 2000     Ytd 2001       Change     Ytd 2000
                                         ------------ ----------- ------------ ------------ ------------ ------------
Net sales (thousands)                     $ 240,755     (20.4)%   $ 302,349     $  485,790     (21.4)%    $  618,392
</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, which includes education, consulting, and technical
     services

Revenue from Net Management Services products decreased $58.5 million or 24% in
the second quarter of fiscal 2001 compared to the second quarter of fiscal 2000
and decreased $131.1 million or 26% year-to-date fiscal 2001 compared to the
same period of fiscal 2000. Sales in the second quarter of fiscal 2001 were
lower than the second quarter of fiscal 2000 primarily due to a one time $35.5
million royalty from Caldera, Inc. received during the second quarter of fiscal
2000, lower UNIX royalties, and continued weak sales performance
internationally. Year-to-date fiscal 2001 sales were also lower than the same
period of the prior year due to "Year 2000" related sales that occurred in the
first quarter of the prior year as companies purchased additional software to
become Year 2000 compliant, and the continued decline in the Company's packaged
software business.

Revenue from Net Directory Services products was $0.7 million or 9% higher in
the second quarter of fiscal 2001 compared to the second quarter of fiscal 2000
and $2.2 million or 16% higher year-to-date fiscal 2001 compared to the same
period of fiscal 2000. The increases were 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.



<PAGE>


Revenue from Net Content Services products was $0.9 million or 86% higher in the
second quarter of fiscal 2001 compared to the second quarter of fiscal 2000 and
$1.5 million or 64% higher year-to-date fiscal 2001 compared to the same period
of fiscal 2000. The increases were mainly due to growth in the Internet caching
market, which resulted in higher unit sales.

Revenue from Novell Customer Services was $4.7 million or 8% lower in the second
quarter of fiscal 2001 compared to the second quarter of fiscal 2000 and $5.1
million or 5% lower year-to-date fiscal 2001 compared to the same period of
fiscal 2000. The decreases were a result of lower education revenues, offset
somewhat 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 reseller or 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
($0.03 per share) cumulative effect of the change (after reduction for income
taxes of $6.1 million) was included in income in the first quarter of fiscal
2001. Also, during 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 net 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 increase in earnings of approximately $5.6
million or $.02 per share during the second quarter of fiscal 2001 and $3.8
million or $0.1 per share during the first six months of fiscal 2001. 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 45% of total sales in the second quarter of
fiscal 2001 compared to 41% in the second quarter fiscal 2000 and 44%
year-to-date fiscal 2001 compared to 45% during the same period of fiscal 2000.
During the second quarter of fiscal 2001, international revenue decreased 14%
while domestic revenue decreased 25% compared to the same period of fiscal 2000.
The decrease in domestic sales was partially due to the one-time time $35.5
million royalty from Caldera, Inc. received during the second quarter of fiscal
2000. Internationally, the Company has 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>           <C>          <C>           <C>
                                             Q2 2001      Change      Q2 2000     Ytd 2001       Change     Ytd 2000
                                         ------------ ----------- ------------ ------------ ------------ ------------
Gross profit (thousands)                  $  174,563     (20.1)%   $  218,607   $  353,736     (22.4)%    $  455,923
Percentage of net sales                       72.5%                    72.3%        72.8%                     73.7%
</TABLE>

Gross profit as a percentage of sales increased slightly in the second quarter
of 2001 and decreased as a percentage of sales year-to-date compared to the same
periods of fiscal 2000. The year-to-date decrease is due primarily to the
effects of decreased product sales levels and higher costs for services related
to the Company's consulting business and the effect of the $35.5 million
one-time royalty from Caldera, Inc.. 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>           <C>          <C>           <C>

(dollars in thousands)                       Q2 2001      Change      Q2 2000     Ytd 2001       Change     Ytd 2000
----------------------
                                         ------------ ----------- ------------ ------------ ------------ ------------
Sales and marketing                       $ 118,206       (5.7)%   $ 125,392    $ 239,953        0.4%     $ 239,048
Percentage of net sales                       49.1%                    41.5%        49.4%                     38.7%
Product development                      $   54,563       (9.4)%  $   60,248   $   104,051     (12.0)%   $   118,185
Percentage of net sales                       22.7%                    19.9%        21.4%                     19.1%
General and administrative               $   23,779       (3.8)%  $   24,728   $   45,001        2.5%    $   43,921
Percentage of net sales                        9.9%                     8.2%         9.3%                      7.1%
Total operating expenses                  $ 196,548       (6.6)%   $ 210,368    $ 389,005       (3.0)%    $ 401,154
Percentage of net sales                       81.6%                    69.6%        80.1%                     64.9%
</TABLE>

Sales and marketing expenses decreased by $7.2 million in the second quarter of
fiscal 2001 compared to the same period of fiscal 2000 and remained relatively
flat year-to-date 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 through the first quarter of fiscal
2001, the Company increased its sales and marketing expenditures, where
appropriate, in an effort to focus on improving future sales growth. These
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 $5.7 million in the second quarter of
fiscal 2001 and decreased $14.1 million year-to-date fiscal 2001 compared to the
same periods 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 due to lower sales levels.

General and administrative expenses decreased $1.0 million during the second
quarter of fiscal 2001 and increased $1.1 million year-to-date 2001 compared to
the same periods of fiscal 2000. The decrease in second quarter 2001 expenses
was primarily due to reduced headcount as a result of the restructuring in the
fourth quarter of fiscal 2000, and lower consulting and bad debt expense, offset
by costs related to the formation of Volera, Inc. a majority owned joint venture
between Novell, Nortel Networks, Corp. and Accenture Ltd.. The increase
year-to-date 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
fiscal 2001 compared to the same periods of fiscal 2000.

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.


<PAGE>


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

                                                   Balance at                                      Balance at
                                                   October 31,        Cash          Non-Cash       April 30,
                                                      2000          Payments        Charges           2001
                                                      ----          --------        -------           ----
                                                                     (Amounts in thousands)
  Severance and benefits                             $   6,139      $  (5,342)             --       $     797
  Abandoned technology                                     286             --              --             286
  Redundant facilities and fixed assets                  4,726           (233)           (699)          3,794
  Other restructuring related costs                      2,616           (321)             --           2,295
                                                     ---------      ----------      ---------       ---------
                                                     $  13,767      $  (5,896)      $    (699)      $   7,172
                                                     =========      ==========      ==========      =========
</TABLE>

As of April 30, 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 largely be paid during fiscal 2001.
Amounts related to redundant facilities and other fixed contracts will be paid
over the respective remaining contract terms.

Employee Headcount
<TABLE>
<S>                                            <C>                  <C>                  <C>

(dollars in thousands)                                Q2 2001              Change             Q2 2000
----------------------
                                              -------------------- ------------------- -------------------
Employees at end of period                               4,790                (10.9)%             5,373
Annualized revenue per average employee
                                                     $     201                (11.0)%         $     226
</TABLE>

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

Other Income (Expense), Net
<TABLE>
<S>                                         <C>          <C>         <C>           <C>          <C>           <C>

(dollars in thousands)                         Q2 2001      Change       Q2 2000      Ytd2001      Change     Ytd 2000
                                           ------------ ----------- ------------- ------------ ----------- ------------
Other income, net                           $(132,191)    (479.4)%   $  34,845     $(114,360)    (326.1)%   $  50,586
Percentage of net sales                       (54.9)%                    11.5%        (23.5)%                    8.2%
Other income, net  w/o impairment           $   9,856      (71.7)%   $  34,845     $  27,687        (45.3)% $  50,586
Percentage of net sales                         4.1%                     11.5%          5.7%                     8.2%
</TABLE>

The primary component of other income (expense) is related to investment income
or losses. During the second quarter of fiscal 2001, investment income of $11.4
million was offset by investment impairment losses of $142.0 million. Investment
income during the second quarter of fiscal 2000 was $37.0 million. Year-to-date
2001, investment income was $28.7 million excluding $144.7 million of investment
impairment losses compared to investment income of $54.6 million during the same
period of fiscal 2000. The $144.7 million investment impairment relates to
certain investments in the Company's portfolio, whose declines in market values
was determined to be other than temporary. Included in the impairment loss was
the Company's investment in marchFIRST.

During the first six months of fiscal 2001, the Company realized gains of $5.3
million and realized losses of $0.1 million on the sale of securities, excluding
impairment losses of $147.3 million. During the first six months of fiscal 2000,
the Company realized gains of $33.2 million and realized losses of $1.6 million
from the sale of securities.



<PAGE>


Income Taxes Expense (Benefit)

<TABLE>
<S>                                         <C>          <C>         <C>           <C>          <C>           <C>
                                               Q2 2001      Change       Q2 2000      Ytd2001      Change     Ytd 2000
                                           ------------ ----------- ------------- ------------ ----------- ------------
Income tax expense (benefit) (thousands)      $(2,865)    (123.7)%    $  12,064      $(1,592)    (105.4)%    $  29,500
Percentage of net sales                         (1.2)%                     4.0%        (0.3)%                     4.8%
Effective tax expense (benefit) rate            (1.8)%                    28.0%        (1.1)%                    28.0%
Effective tax expense  (benefit)  rate on
income   before   change  in   accounting
method and asset impairment                    (23.6)%                    28.0%       (21.0)%                    28.0%
</TABLE>

The Company's effective tax rate for fiscal 2001, before cumulative effect of
change in accounting principle and investment impairment, is estimated to be
21%, compared to 28% in fiscal 2000. The rate differs from the effective tax
rate for fiscal 2000 and the first quarter of fiscal 2001 primarily as a result
of changes in the forecasted income before taxes for fiscal 2001. The second
quarter tax provision includes an adjustment to bring the year-to-date effective
rate to 21%. There is no tax benefit for the investment impairment because
corporations can only use capital losses to offset capital gains. The Company
cannot be assured at this time that it can generate sufficient capital gains
during the five-year carry-over period to recognize the tax benefit of this
capital loss. Accordingly, a valuation allowance has been established.

Net Income (Loss) and Net Income (Loss) Per Share


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

(dollars in thousands, except
 per share data)                                 Q2 2001      Change      Q2 2000      Ytd2001      Change     Ytd 2000
                                              ------------- ----------- ------------ ------------ ----------- ----------
Income (loss) before accounting change         $(151,311)     (587.8)%    $31,020     $(148,037)   (295.2)%    $  75,855
Percentage of net sales                           (62.8)%                    10.3%       (30.5)%                   12.3%
Net income (loss)                              $(151,311)     (587.8)%    $ 31,020    $(159,085)   (309.7)%    $  75,855
Percentage of net sales                           (62.8)%                    10.3%       (32.8)%                   12.3%
Income (loss) without impairment charge        $  (9,264)     (129.9)%    $ 31,020    $  (5,990)   (107.9)%    $  75,855
Percentage of net sales                            (3.8)%                    10.3%        (1.2)%                   12.3%
Income (loss) per share, before accounting
change - basic                                 $   (0.48)                 $   0.09    $   (0.46)               $    0.23
Net income (loss) per share - basic            $   (0.48)                 $   0.09    $   (0.50)               $    0.23
Income (loss) per share, before accounting
change - diluted                               $   (0.48)                 $   0.09   $    (0.46)              $     0.22
Net income (loss) per share - basic            $   (0.48)                 $   0.09   $    (0.50)              $     0.22
Net income (loss) per share without
impairment charge - basic and diluted          $   (0.03)                 $   0.09   $    (0.02)              $     0.22
</TABLE>


Liquidity and Capital Resources

<TABLE>
<S>                                                    <C>               <C>              <C>
                                                               Q2 2001           Change          Q4 2000
                                                       ---------------- ---------------- ----------------
   Cash and short-term investments (thousands)                $638,607         (8.5)%           $698,193
   Percentage of total assets                                   40.7%                              40.8%
</TABLE>

Cash and short-term investments decreased by $59.6 million to $638.6 million at
April 30, 2001, down from $698.2 million at October 31, 2000. During the first
six 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, $74.6
million for net purchases of long-term investments and other long-term investing
activities and $18.3 million to purchase property, plant and equipment. These
cash outflows were offset by $63.8 million provided from operating activities,
$26.0 million received from Volera minority investors, and $8.4 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 $4.8 million and gross
unrealized losses of $14.1 million as of April 30, 2001. The majority of the
unrealized losses pertained to the Company's investments managed externally. The
Company monitors its investments and records losses when a decline in the
investment's market value is determined to be other than temporary.

The Company's principal source of liquidity has been from operations. At April
30, 2001, the Company's principal unused sources of liquidity consisted of cash
and short-term investments and available borrowing capacity of approximately
$7.3 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 six 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 $50 million, but could be reduced if
the growth of the Company is less than presently anticipated. The Company also
intends to fund an additional $105 million over the next couple of years 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 April 30, 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.

Acquisitions

On March 12, 2001, the Company announced that it had entered into a definitive
agreement to acquire Cambridge Technology Partners, Inc., a global information
technology services and eSolutions provider. Upon closing, the Company will
exchange 0.668 shares of its common stock for every outstanding share of
Cambridge. The transaction is valued at approximately $251 million, based on the
an average closing price for the seven day period beginning three days before
the announcement date, of $5.907 per share. The acquisition will be accounted
for as a purchase and is expected to close July 11, 2001.

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 and
results of operations could be adversely affected.

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

The Current Economic Climate and Outlook in the Technology Sector is Very Weak

The weakened economic climate, particularly in the technology sector, has had an
effect on Novell's stock price and operations. Future economic projections for
this sector do not aticipate a quick recovery. A continuation of the weakened
economy could have further negative effects on the Company's stock price and
operations in the future.

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. Although revenues from Net
Directory Services and Net Content Services increased during the first half of
fiscal 2001, revenues from Net Management Services decreased by 26% resulting in
overall declines in net sales by 21.4% in the first half of fiscal 2001 compared
to the same period of fiscal 2000.

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, 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 other than temporarily
impaired in the future requiring the Company to record investment losses. During
the first six months of fiscal 2001, the Company had investment impairment
losses of $144.7 million, due primarily to the Company's investment in
marchFIRST.

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.

Risk Factors Associated with the Acquisition of Cambridge Technologies Partners

If the conditions to the merger between Novell and Cambridge Technologies
Partners ("merger") are not met, the merger will not occur.

Several conditions must be satisfied or waived to complete the merger. These
conditions are described in the Merger Agreement (see Exhibit 2.1). Novell
cannot be assured that each of the conditions will be satisfied. If the
conditions are not satisfied or waived, the merger will not occur or will be
delayed, and Novell may lose some of all of the intended benefits of the merger.

If the merger is not completed, Novell's stock price and future business and
operations could be harmed.

If the merger is not completed, Novell may be subject to the following material
risks: o the price of Novell common stock may decline o Novell will incur
significant costs related to the merger, such as legal,
     accounting and other financial advisor fees. These costs must be paid even
     if the merger is not complete, which would affect its operating results

The merger will result in substantial costs whether or not completed.

The merger will result in significant costs including costs associated with
combining the operations of the two companies, severance benefits and other
costs associated with discontinuing redundant business activities, direct
transaction costs, etc. The aggregate amount of these costs may be greater than
currently anticipated and a substantial portion will be incurred whether or not
the merger is completed.



<PAGE>


Although the merger is intended to result in benefits to the combined company,
those benefits may not be realized. Additionally, neither Novell nor Cambridge
is experienced in organizing an integration of businesses of this scale.

Achieving the benefits of the merger will depend in part on the integration of
the two company's personnel, operations and technology. The integration of the
two companies will be a complex, time consuming and expensive process and may
disrupt Novell's business if not completed in a timely and efficient manner.

Neither Novell nor Cambridge has experience in integrating operations on the
scale presented by the merger. The integration process will be complicated and
will involve a number of special risks and challenges, including the possibility
that management may be distracted from regular business operations. It is not
certain that Novell and Cambridge can be successfully integrated in a timely
manner or at all or that any of the anticipated benefits will be realized.
Failure to effectively complete the integration could materially harm the
business and operating results of the combined company.

Client and employee uncertainty related to the merger could harm the Company.

Novell's customers may, in response to the announcement of the merger, delay,
defer or cancel purchasing decisions or terminate their relationship with the
Company. Delays, deferrals or cancellations of purchasing decisions or any
termination of their relationship with Novell by its customers could seriously
harm the business of the Company. Similarly, Novell employees may experience
uncertainty about their future role with the combined company. This may
adversely affect the Company's ability to attract and retain key management,
sales, marketing, technical, services and administrative personnel.



<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 April 30, 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 $6.0 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 April 30, 2001, unrealized losses on short-term
public equity securities totaled $0.3 million, which pertained primarily to the
Company's external portfolio. A 10% adverse change in prices of these short-term
equity securities would result in an approximate $1.6 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 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 April 30, 2001, there were no unrealized losses on long-term public equity
securities as the Company had written off its long-term investment in marchFIRST
due to a change in its market value believed to be other than temporary. 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 $13.7 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
$6.1 million.

All of the potential changes noted above are based on sensitivity analyses
performed on the Company's financial position at April 30, 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 4. Submission of Matters to a Vote of Security Holders

The Company held its Annual Meeting of Shareholders on April 17, 2001 for the
following purposes:

1.  To elect eight directors.
2.  To approve a proposal to amend the 1989 Employee Stock Purchase Plan to
    increase the reserve by 6 million shares.
3.  To ratify the appointment of Ernst & Young LLP, as independent auditors for
    Novell, Inc.
4.  To consider a Shareholder Proposal to amend the by-laws.

The following tables set forth the outcome of the matters voted upon at the
meeting:

    Proposal #1
    Election of Directors
                                             Votes For             otes Withheld
      Eric. E. Schmidt                      264,468,562              3,843,340
      John A. Young                         264,404,299              3,907,603
      Elaine R. Bond                        264,379,895              3,932,007
      Reed E. Hundt                         264,470,652              3,841,250
      William N. Joy                        255,940,816             12,371,086
      Jack L. Messman                       264,490,812              3,821,090
      Richard L. Nolan                      264,507,257              3,804,645
      Larry W. Sonsini                      254,680,131             13,631,771

    Proposal #2
    To approve an amendment to the 1989 Employee Stock Purchase Plan
<TABLE>
<S>            <C>                         <C>                    <C>                     <C>

                Votes For                  Votes Against          Votes Abstained         Broker Non-votes
               240,406,381                   26,259,446              1,643,675                 2,400
</TABLE>

    Proposal #3
    To ratify the appointment of Ernst & Young LLP, as independent auditors for
Novell, Inc.
<TABLE>
<S>            <C>                         <C>                    <C>                     <C>
                Votes For                  Votes Against          Votes Abstained         Broker Non-votes
               258,213,956                   8,790,174               1,307,772                   --
</TABLE>

    Proposal #4
    To consider a Shareholder Proposal to amend the by-laws

<TABLE>
<S>            <C>                         <C>                    <C>                     <C>
                Votes For                  Votes Against          Votes Abstained         Broker Non-votes
               42,443,578                   104,543,724              5,047,414              116,277,186

</TABLE>


<PAGE>


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

(a)  Exhibits

Exhibit
Number                         Description
2.1  Agreement  and Plan of  Reorganization  dated as of March 12, 2001,  by and
     among Novell, Inc., a Delaware corporation,  Ceres Neptune Acquisition
     Corp.,  a Delaware  corporation  and a wholly owned  subsidiary  of Novell,
     Inc., and Cambridge Technology Partners  (Massachusetts),  Inc., a Delaware
     corporation,  incorporated by reference to Exhibit 2.1, filed as an exhibit
     in the Registrant's Report on Form 8-K, filed March 16, 2001.

(b)  Reports on Form 8-K.

     Notice of Novell's scheduled report of second quarter results and related
     conference call to be held on February 15, 2001, as filed on February 6,
     2001 under Item 5.

     Agreement and Plan of Reorganization  (Merger  Agreement) dated as of March
     12,  2001, by and among Novell, Inc., a Delaware corporation, Ceres Neptune
     Acquisition   Corp.,  a  Delaware   corporation  and  a  wholly  owned
     subsidiary  of  Novell,   Inc.,  and  Cambridge   Technology  Partners
     (Massachusetts),  Inc., a Delaware corporation,  as filed on March 16,
     2001 under Items 5 and 7.



<PAGE>


                                   SIGNATURES



Pursuant to the requirements of the Securities 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: June 14, 2001              /s/ Dennis R. Raney
                                 --------------------
                                 Dennis R. Raney
                             Chief Financial Officer
                         (Principal Financial Officer and
                           Principal Accounting Officer)