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Technology Stocks : Network Associates (NET)

NET 200.30

+2.1%

10:43 AM EST

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To: HTO who wrote (5538)	7/22/1999 1:29:00 AM
From: Conan	Read Replies (3) of 6021

Here are my thoughts on the conference call: 1. The purpose of reporting only $25M in revenue was supposed to be to lower DSO's and clear out the channel inventory. Yet Larson and the CFO hedged on predicting future DSO's. They claimed inventories are now between "8-12 weeks" and are targeted at 90+ days in future quarters due to the "enterprise" nature of their sales. This is extremely distressing. DSO's were 107 days last quarter when they admitted an inventory problem. So what they are really saying is that the big revenue hit HAS NOT cleared out the channel like we had all hoped. That means we could see another "channel clearing" quarter in the near future if sales don't pick up. 2. The large "enterprise-like" sales they mentioned were both Sniffer deals. This doesn't support the enterprise security vision. And Larson simultaneously claims to be "enterprise" when explaining high future DSO's while touting the advantage of smaller deals in "smoothing out the lumps" when talking about the real nature of sales. 3. The company is betting on the security space for future growth. Yet they keep talking about helpdesk and Sniffer product lines. You have to wonder how focused they really are. 4. Larson stomped all over a European distributor when explaining a reserve of about $30M for uncollected receivables. A more likely explanation for the charge is stale inventory that NETA refused to take back. This is just a sneaky way to write off previously overstated revenues as a one time charge. Overall assessment: Low confidence about the next 2-3 quarters. Continued difficulties with inventory. I suspect that the street will not like these numbers and that any remaining air that got pumped into the tires on buyout rumors will whoosh out Thursday. I think that they were probably in serious negotiations with a suitor up to last week but were unable to agree on price. The potential acquirer(s) are no doubt aware of NETA's continued difficulties and will hope to see the stock punished by these weak results before they resume talks. Crush your enemies, drive them before you... Conan

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