Network Associates said it is selling its unprofitable Sniffer network management and analysis product line as part of a sudden restructuring and is changing its name to McAfee.
The changes are part of a cost reduction plan aimed at accelerating sales and profits by focusing solely on security products and services, said Network Associates Chairman and CEO George Samenuk.
'This company is engaged in the most aggressive and important transformation in its history,' said Samenuk. 'These changes will transform us into a more powerful, more profitable and more competitive company for the future.' Network Associates shares closed up 3 percent on Thursday to US$19.75.
The Sniffer product line will be sold to Silver Lake Partners and Texas Pacific Group for US$275 million in cash. As part of the deal, approximately 450 to 500 employees will move to a new company that the acquirers intend to form called Network General.
Network General will continue to develop, support and sell Sniffer products. Network Associates will officially change its name to McAfee when the sale of Sniffer is completed later this year.
Allan Bell, Asia-Pacific marketing director at McAfee, claimed there would be no initial changes to existing distribution arrangements as a result of the restructure. 'We think that there will be no issues for customers or the channel – we're talking about a business that's going really well. McAfee will be a pure security company through our anti-virus, firewall, forensic and intrusion detection technology,' he said.
He declined to talk about Sniffer sales in Australia claiming that the company didn't break out sales numbers for individual product lines.
In a conference call with analysts, Samenuk said the company may also use its nearly US$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.
'This is a great move by Network Associates,' said Harry Hill, chief executive of HillCom Computer Center, a US-based McAfee reseller. 'McAfee antivirus is an outstanding product. If this gets them to focus more on cybersecurity issues than network maintenance issues that is where we need them to be as solution providers. Cybersecurity is big business today.'
Hill called Sniffer a 'cumbersome and time consuming networking' product. 'If they are trying to streamline and focus on security this could mean improved pricing and support for VARs,' he added.
Samenuk said the company is making good progress with selling its antivirus and security products through solution providers targeting small and medium businesses. 'We are bringing out new SMB products and really concentrating on partners,' he said.
The restructuring comes after Network Associates last year completed its restatement of financial statements from 1998 to 2000 to 'properly recognise revenue on sales to distributors and resellers on the sell through basis (which is how the company reported these sales since Jan. 1, 2000).
Network Associates also said it expects first quarter net revenue to be US$217 million with proforma net earnings of US10 cents per share diluted and GAAP net earnings of 32 cents per share diluted.
The new McAfee, which consists of the enterprise anti-virus and intrusion prevention security businesses, the McAfee Labs research organization, and the consumer security business, grew 11 percent year over year in revenue, while bookings grew 32 percent year over year.
The company's goal is to deliver a 25 percent operating margin by mid year 2005. It is taking several steps to hit that target including what it called 'fundamentally redesigning internal back office systems, strategically modifying product designs, and modifying Web services to the company's reseller and distribution partners, among other initiatives.'