Calypso and Ron: FYI
Tom D.
Friday October 12, 7:44 pm Eastern Time
Analysts laud Network Associates plan to sell PGP unit
By Elinor Mills Abreu
SAN FRANCISCO, Oct 12 (Reuters) - Analysts on Friday hailed Network Associates Inc.'s (NasdaqNM:NETA - news) plan to sell off its PGP encryption business, saying there is limited growth potential in the market for scrambling digital communications.
``It's a dead end business,'' said Israel Hernandez of Lehman Brothers. ``There's not a lot of growth in encryption. All the encryption vendors are struggling,'' including RSA Security Inc. (NasdaqNM:RSAS - news) and Certicom Corp. (Toronto:CIC.TO - news)
Despite that outlook, Network Associates has received some calls from potential buyers, according to Michael Callahan, director of PGP product marketing.
``We're actively looking for a buyer and people are asking us for information,'' Callahan said, declining to elaborate.
Network Associates, the only pure-play security company whose stock price has been steadily rising since the beginning of the year, has changed management and taken other action this year to improve earnings, as well as customer and investor confidence, analysts said.
Selling off the PGP business will allow it to even better focus on its core products, they said.
``This was long overdue,'' Hernandez said. ``It's a prudent strategy to get out of what's probably a money losing business.''
``The PGP business has struggled for the last two years,'' said Matt Barzowskas of FAC/Equities. ``It's been a drag on the net business from an operating standpoint.''
NETWORK ASSOCIATES TO SAVE $50 MILLION
The company expects to save $50 million in 2002 as a result of getting rid of the PGP business unit, Callahan said.
Callahan wouldn't say exactly what the PGP business unit's impact on results were, but did say some products were profitable. The division represented only 7 percent to 9 percent of the company's overall revenue, he said.
Network Associates will sell off the PGP brand, its ``tens of thousands'' of customers, the PGP desktop encryption application and a server firewall product called ``Gauntlet,'' Callahan said.
The company will keep and roll into its McAfee antivirus business other technologies under the PGP mantle, including desktop firewall software, a vulnerability assessment tool and a few other security-related products, he added.
Network Associates will also try to find jobs for as many of the approximately 250 PGP workers as it can, Callahan said.
Barzowskas speculated that a company like Computer Associates International Inc., (NYSE:CA - news) which is trying to expand its security offerings, might be interested in the PGP business.
PGP might not be making waves as a commercial product but a free version available on the Internet remains overwhelmingly the most popular encryption software in use, analysts said.
``For 10 years now PGP has been an institution that has transcended any single company,'' said Phil Zimmermann, the creator of PGP.
Zimmermann sold his Pretty Good Privacy company to Network Associates for about $35 million in 1997 and served as a senior fellow at Network Associates until resigning early this year citing differences in opinion over the future of the commercial version of PGP.
Network Associates announced its plans to get rid of the PGP business during its earnings announcement on Thursday. The company reported a third-quarter net loss of 8 cents per share, and pro forma earnings of 5 cents per share, excluding one-time charges.
Shares in the company have surged by some 338 percent so far this year,
erforming a slumping market for technology stocks by a wide margin. |
