Network Associates CEO: Strong 2Q For All Three Product Lines

But poor execution in Europe produced disappointing results there and weighed on the software maker's growth prospects, casting a pall over its plan to re-absorb online spin-off McAfee.com.

Investors punished the Santa Clara, Calif., company's shares, taking them down $3.51, or 20 percent, to $14.19 in afternoon trading on the New York Stock Exchange.

"Expectations are being tempered right now," said Bob Lam, an analyst at Bear Stearns, who called Network Associates' estimate of flat results in the third-quarter "pretty weak."

The maker of security and antivirus software earned $21.2 million, or 12 cents per share, in the second quarter, compared with a loss of $37.2 million, or 27 cents, a year earlier. The sum included a $31,000 loss on redemption of debt, while the year-earlier quarter included a write-down of investments of $13.1 million.

Revenue rose to $233 million from $192.6 million a year ago.

Excluding McAfee.com, Network Associates earned $20.5 million, or 12 cents a diluted share, on revenue of $212.3 million. That compares to a loss of 2 cents a share in the year-ago quarter, on revenue of $178.2 million. Analysts expected Network Associates to earn 12 cents a share, according to Thomson First Call.

International sales accounted for 35 percent of revenue. Europe brought in 27 percent of total revenue, but Network Associates had much higher expectations for sales abroad, said CFO Steve Richards. Europe accounted for nearly 30 percent of sales in the first quarter.

The vendor predicted a relatively flat third quarter, putting revenue at $205 million to $215 million (excluding McAfee.com) and earnings at 11 cents to 13 cents per share.

The company held its full-year earnings-per-share projection steady at 50 cents to 55 cents, excluding McAfee.com, but it said revenue would be at the low end of its estimated range of $875 million and $900 million.

On July 1, Network Associates said it would resume a tender offer for McAfee.com, which it canceled April 25 when it revealed accounting irregularities in its 1998, 1999 and 2000 financial reports.

Network Associates restated results for the three years on June 28 and renewed its offer of 0.78 of a share of Network Associates for each share of McAfee.com.

In Thursday afternoon trading, shares of McAfee.com were down $2.36, or 11.5 percent, at $11.49.

"The deal is getting worse and worse for shareholders of McAfee.com," said Richard Williams, an analyst at Summit Analytics, who said McAfee.com stock would have traded higher Thursday if it weren't being held hostage by the Network Associates offer.

McAfee.com reported solid second-quarter results and subscriber gains late Wednesday. Net income was $6.4 million, or 13 cents a share, compared with a loss of $134,000, or break-even on a per-share basis, a year ago. Excluding charges, it earned 10 cents a share, 3 cents better than company and analyst predicted.

Revenue was in line with expectations at $20.7 million, up from $14.4 million a year ago.

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