2nd UPDATE: McAfee 2Q Net Jumps 38% On Strong North American Revenue Growth
July 29 2010 - 6:08PM
Dow Jones News
McAfee Inc.'s (MFE) second-quarter profit jumped 38% as the
antivirus-software maker posted strong revenue growth in North
America, although margins fell slightly.
The results mark a sharp improvement over the first quarter,
when McAfee's profit dropped despite an increase in revenue, as the
security-software maker was hit by currency fluctuations and delays
in deal closings.
"It's a good quarter when you consider the speed bump last
quarter," said Daniel H. Ives, an analyst with the investment bank
FBR Capital Markets. "It feels like they are back on the road to
growth. From an investor perspective this gives you
confidence."
The Santa Clara, Calif.-based company, which reported mixed
results compared to its weak April estimates, sees third-quarter
earnings of 62 cents to 66 cents a share on revenue of $505 million
to $520 million. Analysts surveyed by Thomson Reuters projected 64
cents and $523 million, respectively.
Also Thursday, McAfee announced its acquisition of privately
owned tenCube, which makes a security service for mobile devices.
This follows the company's May acquisition of the privately owned
Trust Digital, another mobile security-software firm.
Financial details were not announced for either deal, which come
as mobile security grows in importance. In March, data tracker IDC
forecast worldwide mobile-security license and maintenance revenue
would more than double, to $2.7 billion by 2014 from $1.3 billion
in 2009.
The tenCube acquisition "highlights the knotty problem of mobile
security," said Don More, a partner at the investment bank Updata
Advisors Inc. Mobile security. He added it "is more complicated
than desktop security but could potentially represent a bigger
market."
Meanwhile, earlier this month, the company released its first
security products for consumers who use Apple Inc.'s (AAPL)
Macintosh computers. Macs have been less inviting as virus targets
than personal computers that use Microsoft Corp.'s (MSFT) Windows
software, but that could change as usage grows.
McAfee posted a profit of $39.4 million, or 25 cents a share, up
from $28.7 million, or 18 cents a share, a year earlier. Excluding
stock-based compensation and other costs, earnings climbed to 63
cents a share from 60 cents.
Revenue grew 4.4% to $489.2 million, as it climbed 8% in North
America. Internationally, revenue was flat, but up 2% in constant
currency terms.
In April, McAfee projected a profit of 58 cents to 62 cents a
share on revenue of $500 million to $520 million, a view that
missed Wall Street's then expectations.
Gross margin narrowed to 73.3% from 75.4% as costs grew.
Currently, McAfee is "very focused on margin expansion," said
Jonathan Chadwick, who McAfee named as chief financial officer in
May.
During the quarter, McAfee closed 30 deals worth more than $1
million each, compared with 28 a year earlier.
Shares rose 0.8% to $30.50 in after-hours trading. At the close,
stock is down 25% this year.
Shares in Symantec Corp. (SYMC), McAfee's close competitor, fell
more than 11% to 13.03 on Thursday, and are down more than 27% this
year. On Wednesday, Symantec announced quarterly results that
missed analyst expectations, and on Thursday several analyst firms
downgraded the stock to "market perform" from "outperform."
Standard & Poor's maintained its "hold" rating for the Mountain
View, Calif.-based company.
"We think the IT spending environment has weakened given the
economic uncertainty," wrote analyst Jim Yin in a research note.
"We also believe Symantec is losing market share due to increased
competition."
In discussing the company's enterprise business during the
earnings call, Chief Executive Dave DeWalt said "We are taking
market share and winning against our competition."
-By Jeanette Borzo, Dow Jones Newswires; 415 765 8230;
jeanette.borzo@dowjones.com
(John Kell contributed to this article.)
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