Network Associates moves to stem bleeding

SANTA CLARA -- Network Associates has a steep climb ahead to regain customer and investor confidence in the wake of a recent financial stumble that precipitated a lashing by Wall Street and an executive purge.

That's the rough consensus of industry experts, who also say the security software vendor took a meaningful first step up that mountain last week with the swift appointment of a new boss.

The company named George Samenuk its president and CEO. He replaces former Chairman and CEO William Larson, who announced his departure Dec. 26 after Network Associates warned Wall Street it will report up to $140 million in fourth-quarter losses. Wall Street whacked Network Associate's shares the following day, dropping the stock from $11.75 to $4.50. The company was also hit by several lawsuits from investors charging that Network Associates issued misleading statements about its financial status.

"They kept the uncertainty to a minimum by naming [Samenuk] as quickly as they did, and that should be seen as a good sign," says Eric Hemmindinger, an analyst at Aberdeen Group.

Prior to joining Network Associates, Samenuk served as CEO of TradeOut, a Valhalla, N.Y. online exchange, and held several senior management positions with IBM.

Analysts say Samenuk and Network Associates, which makes the McAfee antivirus software, will have to work on regaining credibility with Wall Street, reassuring customers and protecting its customer base.

The new leadership needs to go beyond a "clever strategy," says Steve Hunt, an analyst at Giga Information Group. "Healing is needed for employees, customers and shareholders."

Network Associates' new executive team -- which now includes Terry Davis as acting chief financial officer -- will have to shape and sell a strategy that gets executed, Hunt says.

Analysts say Network Associates will likely be able to keep customers from bolting. But they add more setbacks could send customers into the arms of competitors such as Symantec, Sophos and Computer Associates International.

Network Associates attributes its expected fourth-quarter shortfall to distributors reducing their inventory and to the slowing economy. However, this isn't the first time Network Associates has been bitten by such problems. It reported sharp earnings shortfalls in the first and second quarters of 1999 when the company erred in forecasting sales.

"[Misreporting their income] tainted them, and investors and Wall Street stopped paying attention to them," Hunt says. "Network Associates became a pariah. It killed them."

Analysts also said Network Associates was hurt by Larson's failed effort to bundle software products, as well as employee turnover after the company's January 2000 reorganization.

Samenuk says his top priorities will be restoring investor and Wall Street confidence, keeping key executives, and a "maniacal focus on customers."

This story, "Network Associates moves to stem bleeding" was originally published by Network World.

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