Network Associates Restructuring Reflects Changing Security Market

Network Associates's decision to sell off its network management and analysis tools to focus on its security business reflects the intense competition among vendors scrambling for market share as companies look for software to fight off spam, viruses and other threats.

The Santa Clara, Calif., company said Thursday that it would sell the Sniffer product line to Silver Lake Partners and Texas Pacific Group for $275 million in cash. In addition, the company planned a major restructuring that included changing its name to McAfee, the brand name for many of its security products.

In a news conference, Network Associates Chairman and Chief Executive Officer George Samenuk said the company's reorganization represented "the most aggressive and important transformation" in the company's history.

"These changes will transform us into a more powerful, more profitable and more competitive company for the future," Samenuk said.

Experts agreed Friday that Network Associates will need all it has to compete in the hot security market, but how successful it will become remains to be seen. The company will be competing against formidable rivals such as Symantec, Trend Micro, Computer Associates and a slew of smaller software makers and companies offering hosted security services."It's such a hot market that there's a real scramble going on for market share," Jan Sundgren, analyst for Forrester Research, said.

Hackers, viruses, spam and other threats have made security the No. 1 priority in many corporations. Worldwide spending on security, as well as technology to keep a company operating after a major disaster, such as the Sept. 11, 2001, terrorist attack, is expected to grow twice as fast as spending on other information technology over the next several years. As a result, the market is expected to reach more than $116 billion by 2007, according to International Data Corp.

For security companies, the time to grab market share is now, while many companies are still choosing key security vendors.

"At some point you'll get market saturation," Sundgren said. "Most companies will have bought something, and you'll start to see consolidation among vendors."

Network Associates is expected to focus on an emerging product category called security management, which is also the focus of rivals Symantec and Computer Associates, Peter Firstbrook, analyst for market researcher Meta Group said.Security management usually involves a central console from which a company can monitor routers, firewalls, email servers, intrusion detection systems and other key targets of malware and attackers, and get alerts when there's a possible security breach. Vendors developing these consoles see them as an entry point for selling a host of security products that could all be monitored and managed from the same interface.

"It's a race to get all these pieces stitched together with a management console that reduces the complexity of security," Firstbrook said.

Network Associates's Samenuk said the company may use its nearly $1 billion in cash to buy additional security products. "We are still looking for acquisitions that would bolster our security business and fill in some holes," he said.

The restructuring follows Network Associates's restatement last year of financial statements from 1998 to 2000 to "properly recognize revenue on sales to distributors and resellers on the sell through basis," which is how the company has reported sales since Jan. 1, 2000. The company expects first quarter net revenue to be $217 million, with pro forma net earnings of 10 cents per share and GAAP net earnings of 32 cents per share.

The company's name change will occur after it completes the sale of Sniffer later this year. The new McAfee will consist of the enterprise anti-virus and intrusion prevention security businesses, the McAfee Labs research organization and the consumer security business.0