Network Associates posts Q2 profit on strong sales

Thanks to strong sales of antivirus software and other products in the United States, and despite weakness in Europe, security firm Network Associates posted a profit for the second quarter of 2002.

For the quarter ending June 30, Network Associates (NAI) earned US$21.2 million on a consolidated basis, or $0.12 per share on $233 million in revenue. The per share earnings met expectations of analysts polled by Thomson Financial/First Call. In the year-ago quarter, NAI posted revenue of $193 million and a loss of $0.27 per share.

Excluding the company's Corp. subsidiary, NAI had pro forma net earnings of $20.5 million, or $0.12 per share, on $212.3 million in revenue. In the second quarter 2001, NAI tallied $178.1 million in revenue and a loss of $0.02 per share, excluding

NAI saw 56 percent of its revenue for the quarter come from its McAfee Security division, which is distinct from the subsidiary, said George Samenuk, NAI chief executive officer on a conference call Thursday. accounted for 9 percent of the company's revenue, with NAI's Sniffer and Magic Solutions business units rounding out the picture, Samenuk said.

The company ended the quarter with $1.1 billion in cash on hand, up from $1.08 billion in the first quarter 2001. For the quarter, NAI spent $33.4 million on research and development, down from $34.8 million in the same quarter last year.

Despite meeting Wall Street's earnings per share forecast, NAI experienced slow sales in Europe for the quarter, with international business accounting for 35 percent of the company's revenue, Samenuk said. Problems with the company's sales force in Europe and high turnover in the region contributed to weakness there, he said.

The company, based in Santa Clara, California, expects to continue adding to its European sales force over the coming quarters, having added the bulk of its 100 new hires for the second quarter in that region, Samenuk said.

Samenuk also touted NAI's partnerships in managed security services and intrusion detection. NAI announced a partnership in early May with intrusion detection leader Internet Security Systems Inc. (ISS) which will see the companies work together on developing new products and integrating existing ones. NAI is "very pleased with the progress we have made so far" thanks to that deal, Samenuk said.

Fruits of the deal will become public starting in early 2003 when NAI releases its own intrusion detection line, based on ISS technology, built into its Sniffer products, he said. Later in the first half of the year, a new version of NAI's ePolicy Orchestrator management console will be released that is able to administer both Sniffer and ISS intrusion detection products, he said.

Adding new capabilities to ePolicy Orchestrator will continue to be a priority in the near future, with added support for desktop firewalls and antivirus products from NAI competitor Trend Micro Inc. added, Samenuk said.

At the beginning of July, NAI recommenced its stock tender offer to buy out the remaining 25 percent of that it does not already own. NAI is offering 0.78 shares of its stock for each remaining share of The deal is the same one offered by the company in an earlier bid for which had to be abandoned after NAI discovered accounting issues that forced it to restate its earnings for 1998, 1999 and 2000. In a mild surprise,'s special board of directors advised shareholders to take no action on the new NAI offer before the board made its recommendation. The board has yet to make its recommendation.

Samenuk also said that he had "no new updates or information on the SEC (U.S. Securities and Exchange Commission) formal investigation" into the company. The SEC is investigating the company's books for 2000. The current NAI management team took over after the previous administration resigned en masse at the end of 2000.

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