UPDATE: McAfee 3Q Net Climbs 27% As Revenue Rises; View Cautious

McAfee Inc.'s (MFE) third-quarter earnings rose 27%, beating its own forecasts, as the antivirus software maker benefited from strong demand for its products from both corporations and consumers.

McAfee has posted strong results for the past couple quarters, helped by revenue growth in North America, though margins have fallen slightly. The antivirus giant is in the process of being bought by tech behemoth Intel Corp. (INTC), which announced the deal in August to buy McAfee for $7.68 billion as it moves into the software sector to support its expansion outside of the PC market. The two companies are hoping to develop technology that embeds security software onto silicon, making devices more secure.

President and Chief Executive Dave DeWalt said that McAfee's business wasn't disrupted following the merger agreement. He said in an interview with Dow Jones Newswires that customers signed contracts for longer time periods, and discounting was at the lowest levels of the year. He also said the company took share from rival Symantec Corp. (SYMC) and other security providers.

He attributed the strength with customers in part to McAfee's strategy, as well as the impending merger with Intel.

"People believe in Intel and McAfee," DeWalt said. "I think they see McAfee in the home of a strong, innovative company that looks permanent to them," while the future of other security companies is less certain.

"It really gives customers confidence to work with us," he added.

DeWalt said the acquisition is on track to close by the middle of 2011, while Intel has said the deal could close as early as this quarter.

Meanwhile, Chief Financial Officer Jonathan Chadwick said on McAfee's conference call that the company will continue making small and medium acquisitions.

For the fourth quarter, the company said it expects earnings of 67 cents to 71 cents a share, compared with analysts' expectations for 70 cents. Revenue is projected to be $530 million to $550 million, versus Wall Street estimates of $550 million.

"There's never really any reason to be aggressive with guidance," DeWalt told Dow Jones Newswires. "We want to make sure we're cautious and careful but at the same time see momentum in the business."

McAfee reported a profit of $46.6 million, or 30 cents a share, up from $36.8 million, or 23 cents, a year earlier. Excluding items such as stock-based compensation and acquisition-related charges, earnings rose to 67 cents from 62 cents.

Revenue rose 7.8% to $523 million, climbing 14% in North America. It fell 0.4% abroad.

The company had projected earnings of 62 cents to 66 cents on revenue of $505 million to $520 million.

Operating margin jumped to 12.2% from 8.8% as revenue outpaced cost increases.

Meanwhile, DeWalt said on the company's conference call that McAfee sees significant opportunity in the smartphone and tablet market, though he noted traditional antivirus for mobile devices is not yet a focus for consumers and it's not the first thing corporations are asking for. Instead, businesses are looking for management products to help them securely connect devices to their network.

Antivirus "will be a laggard, clearly, so far," DeWalt said, though he noted that as the devices have more robust storage, antivirus will be needed like it is for traditional PCs.

Shares were little changed after hours, slipping 3 cents to $47.30, as they are tied to Intel's offer price of $48 a share.

-By Shara Tibken, Dow Jones Newswires; 212-416-2189; shara.tibken@dowjones.com

(Nathan Becker contributed to this article.)

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