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Network Associates reports 2Q in line with estimates

Network Associates Inc. (Nasdaq: NETA) lost as much in the second quarter as analysts expected, but the company says the worst is over.

In results released after market close Wednesday, the provider of network security and management software posted a net loss of almost $146 million, or $1.05 a share, excluding charges for non-cash interest, amortization, stock options compensation, and an incremental reserve to cover potential channel payment defaults. The $1.05 loss was in line with the figure predicted by First Call's survey of 18 analysts.

Second quarter revenue plunged to $25.2 million from $249.3 million a year ago. The company had previously said it would limit distributor orders to clear its channel inventories. Network Associates now has between eight and 12 weeks of product in the channel, the company said.

During a Wednesday afternoon conference call with analysts, company executives said they see several opportunities for growth, especially in Europe on a geographic basis, and for Sniffer and Magic suites on a product basis. "Network Associates is back," said Bill Larson.

Including costs for a reserve created to cover possible channel defaults, Network Associates lost almost $177.8 million, or $1.28 per share. Including charges for non-cash interest, amortization and options compensation, Network Associates lost $195.8 million, or $1.41 per share.

The company began seeing problems in the first quarter as it shifted its emphasis to suites of security software, rather than individual products, for the corporate market. Although the suite approach has resulted in longer sales cycles, Network Associates executives on Wednesday reiterated their belief that the suite approach is the superior one, although some analysts disagree.

Network Associates has seen its number of transactions growing, although few are large ones, executives said, during a Wednesday conference call with analysts. Because of corporate spending slowdowns in the face of Y2K problems, Network Associates maintains a conservative outlook for the second half of this year, the company said.

Shares of Network Associates fell 1 to 17 1/16 in Wednesday's trading prior to the quarterly report. Among 22 analysts surveyed by Zack's Investment Research, 11 maintain the equivalent of a "hold" rating, six have "moderate buy" ratings on the stock, three recommend it as a "strong buy", and two have "strong sell" advisories.>