Network Associates reports Q1 loss

Network Associates reports Q1 loss

Already plagued by questionable accounting practices and a US federal investigation, Network Associates said it lost $US3.7 million in the first quarter of 2003, after earning $15.7 million in the same quarter 12 months ago.

Revenue was down for the network security company, which reported revenue of $215.2 million for the quarter, after pulling in $220.7 million in the year-ago quarter.

Disappointing as those numbers may be, the extent of Network Associates' financial troubles is not yet understood. In March, the company said that it would restate financial results for fiscal years 1998, 1999 and 2000, citing information uncovered in a federal investigation of its accounting practices. Results from those years will be modified to reflect revenue on sales to distributors recorded on a sell-through basis, in addition to other issues raised by federal investigators.

Under sell-through methodology, sales into distribution channels should not be counted as revenue until the products have been sold by the distributors to their customers.

Network Associates, which sells the popular McAfee antivirus software, also said in March that it would delay filing its 2002 Form 10-K, the detailed annual report filed with the US Securities and Exchange Commission so it can restate those results for prior years.

Despite its financial troubles, Network Associates made two large investments in intrusion detection and prevention (IDP) technology in recent weeks.

On April 1, the company announced it was buying IntruVert Networks, a maker of hardware-based firewalls and intrusion detection systems, for $100 million. Days later, Network Associates said it would purchase host-based IDP maker Entercept Security Technologies for $120 million cash.

"Unexpected challenges" in some business areas were cited as the cause for the disappointing first quarter by company chairman and chief executive officer George Samenuk in a statement. However, the recent intrusion prevention acquisitions have positioned Network Associates for growth, Samenuk said.

Network Associates is predicting that revenue will remain flat in the second quarter at about $215 million to $220 million. For the year, the company said it will have revenue of between $930 million and $950 million.

But the earnings picture for the second quarter and 2003 remains murky. Network Associates did not provide projected quarterly or 2003 earnings information on a GAAP (generally accepted accounting principles) basis, saying that future earnings depend largely on the performance of its stock.

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