McAfee stock falls after strong earnings

Shares of antivirus software maker McAfee fall in morning trading, even though the company beat Wall Street's expectations for its second quarter.

2 min read
Antivirus software maker McAfee (MCAF) fell today, even though the company beat Wall Street's expectations for its second quarter earnings when it reported yesterday after the market closed.

Shares closed at 69-3/4 today, down 7-1/2 or 9.7 percent from yesterday's close of 77-1/4.

Investor doubt comes on the heels of a strong quarter when the security and management software maker staked out new markets, made plans to expand overseas, and began trying to attract enterprise clients.

Net earnings for the quarter rose to $23.7 million, or 44 cents a share, up from year-ago figures of $9.4 million, or 18 cents a share, excluding a one-time acquisition write-off.

Analysts were expecting the company to report earnings of 41 cents a share, according to First Call, which tracks analyst estimates.

Peter Rogers, an analyst with Bear Stearns said McAfee posted a strong quarter.

"The overall level of competition is intensifying, but there is no question that McAfee is an advantageous position," Rogers said. "They have dominant market share, a large installed base, stronger momentum than their competitors. I don't expect any market share erosion."

Revenues came in at $86.2 million, 112 percent higher than the 40.8 million they reported for the year-ago period, according to the company.

On the enterprise front, the company introduced VirusScan Security Suite, which it says is the will tackle important desktop security issues such as Java and Active X applet blocking, desktop crash protection, and desktop and network encryption. McAfee also signed a deal to supply antivirus software to 2 million desktops for the U.S. military over the next five years and introduced WebScanX, which protects desktop PCs from hostile ActiveX controls and Java applets.

But the quarter also brought some troubles the company's way. Rivals Symantec and Trend Micro took McAfee to court. Symantec filed a copyright infringement suit in April, alleging that McAfee had "knowingly stolen" code from Symantec's CrashGuard product for its PC Medic software. Trend Micro alleged that McAfee--and Symantec, for that matter--had infringed on its patent for computer virus detection techniques. Yesterday the company amended the complaint saying that an independent third party had confirmed that McAfee had used additional code copied from Symantec in other McAfee products, including VirusScan, the company's flagship product.

Today, McAfee fired back, saying it will file a suit against Symantec for defamation and tort of business interference. The company said it will seek compensatory and punitive damages. Furthermore, McAfee will file a contempt of court motion against Symantec for engaging in bad faith negotiations.

But Bear Stearns' Rogers seemed unfazed by the accusations.

"There has been a higher level of litigation activity, but so far it doesn't seem to have impacted their results. There are issues to watch any time price competition heats up, but [McAfee] has much more effective sales and marketing efforts, a broader product line, and a more competitive product line than any of their competitors."