Chuz:
Below is a quote from the Steet.com. I think they share my opinion about the accounting at NETA and my disappointment with the lack of change in DSO's. How is it that 90-100 days is an improvement over 107? I think what they will end up doing is pumping up the revenue line in the next few quarters to substantiate the "smooth sailing" prediction. This can be done quite easily but at the cost of failing to solve the inventory problem.
Of course, another way to view this is to believe that Larson and friends are actually quite bullish on their prospects. Perhaps they really believe that they have made the transition to an enterprise company and the high DSO's are a normal consequence of longer selling cycles. In that case they are right to keep the DSO's up because the market generally does not reward companies for being conservative with the numbers.
'Smooth Sailing' at Network Associates Is Not Likely
By Adam Lashinsky
Silicon Valley Columnist
Shares of Network Associates (Nasdaq:NETA - news) surged 2, or 12%, to 19 1/16 Thursday after the company told investors Wednesday it expected "smooth sailing" for the rest of the year. The enterprise software company, best known for its McAfee antivirus software, until earlier this year was on track to have $1 billion in annual sales. Then the real world of long sales cycles and millennium-bug concerns caught up with Network Associates. Its second-quarter sales were all of $25 million, making it a $100-million company.
But while sales shrunk at Network Associates, inventory didn't slim down commensurately. The company reported about $200 million in receivables, meaning it has shipped to wholesalers roughly two years of merchandise for which it hasn't collected. In accountant talk, this is called days sales outstanding, or DSOs, of roughly 740 days. Anything over 90 to 100 days, or three months, is considered more inventory than one company can prudently handle.
Christopher Shilakes, software analyst with Merrill Lynch, notes that the DSO figure for the quarter is meaningless because Network Associates basically stopped shipping to its distribution channel. Network Associates plans to reduce DSOs to 100 days in the third quarter and below that in the fourth quarter, he notes. Still, says Shilakes, "we do not believe it is back to business as usual for" Network Associates. He rates the stock a neutral, displaying the wait-and-see approach Wall Street tends to take on this "broken" stock for the foreseeable future.
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