Network Associates reports strong first quarter

Despite a soft market for technology products, overseas revenue and continued strong demand for key products boosted Network Associates Inc.'s first-quarter 2002 financial results up over first-quarter 2001 results, the company announced Thursday.

Profit topped expectations, despite "the quarter (turning) out to be more of a challenge than most of us in the industry expected," according to Chief Executive Officer George Samenuk, speaking on a conference call early Thursday.

For the quarter, Network Associates' (NAI) consolidated net earnings, including its McAfee.com Corp. subsidiary, were US$15.8 million, up from a loss of $47.3 million in the same quarter 2001. Those figures translate to earnings of $0.10 per share on a diluted basis, up from a loss of $0.35 on a diluted basis in the same quarter last year, and topping estimates by Thomson Financial/ First Call of $0.07 per share for the quarter.

Excluding McAfee.com, NAI reported $15.9 million, or $0.09 per share, in pro forma earnings for the quarter, up from a loss of $20.3 million, $0.14 per share, for the same quarter 2001.

Those earnings were based on $220.7 million in consolidated net revenue for the quarter, which ended March 31, 2002, up from $167.1 million for the first quarter 2001. Excluding the company's McAfee.com subsidiary, Network Associates posted $201.9 million in consolidated net revenue, up from $154.3 million in the same quarter last year. NAI beat estimates by Thomson Financial/ First Call which had the company bringing in $197.4 million in revenue for the quarter.

The company ended the quarter with $1.08 billion in cash and securities on hand. For the quarter and excluding McAfee.com, NAI spent $31 million on research and development, down from $36.2 million in the first quarter of 2001.

The numbers were largely the result of increased sales in Europe and Asia, as well as continued strong sales of the company's ePolicy Orchestrator management console and WebShield e250 security appliance, Samenuk said.

Overseas business grew faster than business in the U.S. for the quarter, he said, with particular gains coming in Asia, where the company saw 143 percent growth since the first quarter 2001 in China, 100 percent growth over the same period in Taiwan and 70 percent growth in Singapore.

Samenuk also said that the proposed buyout of the McAfee.com subsidiary, which gained momentum Wednesday when McAfee.com board recommended that shareholders approve Network Associates' offer, would help the company compete and gain market share [See "UPDATE - McAfee.com accepts new Network Associates bid," April 10]. Part of the motivation for the deal was to eliminate customer confusion between the McAfee.com subsidiary and the McAfee unit of Network Associates, he said.

The path to the buyout was a rocky one, however, with McAfee.com's board originally rejecting NAI's offer as "inadequate" and NAI putting the move on hold the next day after announcing that the U.S. Securities and Exchange Commission (SEC) was investigating the company's accounting practices.

Network Associates later resumed the bid and, after upgrading its offer to McAfee.com Wednesday, gained the approval of the board. Shareholders are set to decide on the deal by April 25.

Though Samenuk had no new information about the SEC investigation, he said that he did not expect that it would interfere with the McAfee.com deal.

Network Associates expects that the rest of 2002 will follow the positive example set in the first quarter, though the second quarter may be a little down, Samenuk said. The company expects to post second quarter revenue of between $210 million and $220 million, excluding McAfee.com, or $230 million to $240 million with the subsidiary. The company expects to tally pro forma earnings per share for the quarter, minus McAfee.com, of between $0.11 and $0.13.

For the full year and excluding McAfee.com, NAI is projecting between $875 million and $900 million in revenue and pro forma earnings per share of between $0.50 and $0.55. Guidance would be adjusted if the McAfee.com deal is completed, the company said.

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