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Network Associates loses $US11.3m, will restructure

Network Associates loses $US11.3m, will restructure

Network Associates announced yesterday that it lost nearly $US11.3 million for the third quarter of 2001 and that it would embark on a restructuring plan that would strip Network Associates (NAI) of its Gauntlet security device products, its PGP encryption software and more.

The quarter, which ended on September 30, saw NAI bring in revenue of $209 million, including McAfee.com, or $193 million without. Including McAfee.com's results, this translated into a loss of approximately $11.3 million, or $0.08 per share. Without McAfee.com's results, NAI earned $8.5 million, or $0.05 per share. Estimates by Thompson Financial/ First Call had the company breaking even for the quarter. The company ended the quarter with $956.8 million in cash and securities.

NAI also said it would begin a search for buyers to acquire its Gauntlet firewall appliances and its PGP encryption software. The PGP business unit, and its remaining products, will be integrated into the McAfee business unit (which is distinct from the McAfee.com business unit) and the Sniffer business unit, said Network Associates chief executive officer George Samenuk on a conference call held yesterday.

This integration signals that "security is no longer a separate unit of Network Associates," he said.

The Gauntlet and PGP encryption products will be put into "maintenance mode", which includes full support for existing customers, until buyers are found, Samenuk said. These changes will save NAI $50 million for 2002, he said. Restructuring costs will run between $9 million and $11 million, to be taken in the fourth quarter of 2001, the company said. About 250 employees will lose their jobs because of the moves, and an additional 150 will be shifted within NAI, Samenuk said.

The Gauntlet line is being shed because it is unable to achieve either the No. 1 or No. 2 position in the market, said Michael Callahan, marketing director of McAfee.

"It's a war that's been fought and we didn't win at the firewall," Callahan said. "That battle's over. Check Point's (Software Technologies) done a great job there."

Just because McAfee couldn't achieve market dominance with the Gauntlet line doesn't mean the company that buys the products will meet with the same fate, Callahan said.

"I'd be very surprised if someone who comes and buys that technology can't make it work if they focus on that," he said.

The decision to unload the PGP encryption software stemmed from different causes, Callahan said. The process of educating consumers about what PGP was and how it worked, and getting them to use it, was simply too difficult to make the software worth maintaining, he said. Additionally, as PGP originated as free software, it was difficult to convince some users to pay for it, he said. Political concerns about government regulation of encryption played no role in NAI's decision, Callahan said.

The Code Red and Nimda worm outbreaks have been major issues for NAI and its customers, which will translate into increased IT budgets at many companies, Samenuk said.

For the fourth quarter of 2001, the company expects revenue, excluding McAfee.com, to come in between $200 million and $215 million. Including McAfee.com, that figure is projected to be between $217 million and $233 million. Earnings per share are expected to be between $0.07 and $0.10.


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