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McAfee reports high marks

A chief enemy of computer viruses beats analysts' earnings expectations for its first quarter.

McAfee (MCAF), a chief enemy of computer viruses, beat analysts' earnings expectations for its first quarter.

Wall Street got what it was expecting: another quarter of growth, attributable to the strong need for antivirus protection and the expansion of McAfee's other businesses.

Net income for the quarter rose to $19.7 million, or 37 cents a share, up from $1.1 million, or 18 cents a share, in the same period a year ago, and up from 29 cents in the previous quarter.

Financial analysts were expecting the company to report earnings of 33 cents a share, according to FirstCall.

Revenue for the first quarter more than doubled to $73.4 million, up from $33.9 million reported in the same period a year ago.

John Powers, an analyst with Robertson, Stephens, cited three main factors behind the company's growth: its help-desk business, its antivirus products, and its network management business.

"The company has seen unanticipated growth in the antivirus business because the Internet continues to be a hothouse for viruses...The network management area has seen increasing good growth as corporations take them seriously. They were the only antivirus company two years ago, and they are reintroducing themselves to companies as providers of networking management solutions," Powers said.

Steve Higgins, an analyst with Bear, Stearns, said antivirus products contribute 60 percent of revenue for McAfee, which holds 60 percent of the market. He added that network management has contributed 25 percent of revenue, while the help desk business, only two quarters old, already makes up 15 percent of the company's revenue.

Research and development costs grew to $9.7 million, up from $3.8 million last year.

The company said that those additional costs paid off in the form of VirusScan 3.0, the latest version of the company?s flagship desktop antivirus software. McAfee also announced two groupware antivirus products: GroupScan 3.0 and GroupShield 3.0, antivirus software for the Lotus Notes Domino web server.

More companies are entering the antivirus arena. But because of McAfee's head start, new competitors have yet to make a dent in market share, Higgins said.

During the quarter, the company's stock leaped over its own records time and again to trade as high as 65-1/2, more than 20 points from its value when the quarter opened. Midway through the three-month period, however, the stock lost steam and all of its gains for the quarter. In trading today, the stock lost 5 percent to close at 42-1/2, down from Friday's close of 44-11/16.

The company also acquired Jade KK, a Japanese-owned antivirus company. McAfee said the acquisition provides a solid base of operations to market its entire line of network security and management products throughout Asia.

McAfee also introduced SecureCast, the company's service that automatically sends customers monthly antivirus updates, virus alerts, white papers, technical notes, and other virus prevention information.

McAfee reported its earnings after the markets closed today.

The company also announced its Desktop Security Suite, which includes a variety of encryption, antivirus, and security products. The company also named former Oracle executive Zach Nelson to head its network management software business. And, the Commerce Department granted McAfee a license to export 56-bit encryption in its desktop security products.