Network Associates Posts Solid 1Q Results, Raises Estimates

Network Associates

For the period ended March 31, Network Associates reported revenue of $220.7 million and net income of $15.8 million, or 10 cents per share. On a pro forma basis, which excludes McAfee.com, the company recorded $201.9 million in revenue and earned $15.9 million, or 9 cents per share. Network Associates had predicted it would earn 4 cents to 6 cents per share, on a pro forma basis.

In the same period last year, Network Associates reported revenue of $154.4 million, prior to McAfee.com, and pro forma earnings of $20.3 million, or 14 cents per share.

"Our January guidance was based on the assumption the economy would not rebound and there would be no major viruses," said George Samenuk, chairman and CEO of Network Associates in a Thursday morning conference call. "That turned out to be true, but with our conservative forecasting, we were able to beat our estimates. We will continue to be conservative until it is clear the economic conditions have improved."

Still, company executives were optimistic enough to raise their full-year projections. The company now expects 2001 revenue to come in between $875 million and $900 million. Pro forma earnings, excluding McAfee.com, is projected to be between 50 cents and 55 cents per share.

For the current quarter, Network Associates expects revenue between $210 million and $220 million, and pro forma earnings of between 11 cents and 13 cents per share.

Network Associates is in the process of trying to buy the remaining outstanding shares of McAfee.com, and it increased its bid by 15 percent earlier this week. Samenuk said the company would revise its financial guidance if the deal is completed.

Samenuk said the international business continued to grow faster than the U.S. business in nearly all product categories, and the company continued to make progress toward its goal of seeing 50 percent of its business come from international markets. In the most recent quarter, 39 percent of revenue came from outside the United States, he said.

Samenuk also said the company saw extreme pricing pressures around the world during the first quarter, but that did not have any material impact on its results. "We're just going to stick to our best-of-breed products and customers can see the benefits from that," he said.

The government continues to offer a large opportunity for Network Associates, Samenuk said. "We expect to see increased spending levels in the second half of the year from the government," he said. "We see this as a second-half opportunity. We are under-penetrated in the government space as an industry."

About 10 percent of Network Associates' business currently comes from the government market, he added.

Last month, Network Associates said the Securities and Exchange Commission had launched a formal investigation into the way it booked revenue in 2000, but on the conference call Thursday Samenuk said he had no additional information on that investigation.

Separately, Network Associates said it named Liane Wilson to its board of directors. Wilson currently runs her own consulting firm, after retiring from Washington Mutual, where she held a variety of senior management positions. Most recently, she served as vice chairman, responsible for corporate technology and managing integration activity relating to mergers and acquisitions, Network Associates said.