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Technology Stocks : Network Associates (NET)
NET 197.44+0.4%Dec 16 3:59 PM EST
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To: Ali Shahbaz who wrote (5348)6/4/1999 8:34:00 AM
From: Edwarda   of 6021
 
Ali, just for a quick recap, when the company announced the first quarter results in April, Larson said that demand had pretty much dried up. The reasons cited were Y2K concerns, which were lowering ASPs because of smaller pilots rather enterprise-wide rollouts; an aggressive new product introduction ahead, which was causing customers to "wait and see"; and the dramatic increases in deal size, which tend to have longer selling cycles.

To clean out the channel, the company was completely halting sales to its distributors as a one-time adjustment. It looks to me as though the company had been stuffing the channel and was carrying about 140 days of inventory rather than its stated target of 90 days, which is still too high.

So it looks as though the only revenue the company will be recognizing is consulting and training, around $25 million, and the company will be burning cash. Look for a loss of over a dollar in earnings per share this quarter and a loss for the year as a whole as the recovery is likely to be slow.

The bit of good news for next year is that the company has been moving more of its business to term-based licenses that come up for renewal every two years. These renewals have a lower cost of sales than new licenses and should help the earnings recovery.

Hope this helps.
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