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Technology Stocks : Network Associates (NET) -- Ignore unavailable to you. Want to Upgrade?

To: Drake who wrote (4419)	3/21/1999 11:41:00 AM
From: mrknowitall	Respond to of 6021

Drake, from what I gathered in the past year, "software" products (the McAfee "division") are still the bulk of the business. If you consider the Dr. Solomon product line, I suspect AV is a larger percentage of the overall business now. The former Network General products are almost exclusively non-retail, unless you consider 1-of web-based sales of the very low-end, software only Sniffer (was Net X-Ray). The problem in looking at any of these numbers is that in the case of the Sniffer products there are so many ways to price point-products vs. suites vs. subscriptions vs. purchases with support, etc., etc., such that a sale today may, or may not, have down-stream revenue attached to it. For example, if you buy a product outright, you have the option to get different levels of service with it each year. If you subscribe to it, you get to use it for two years and then you're supposed to re-subscribe - again, basic service is included but what Sniffer users were accustomed to cost more. One problem may be that no one seems to know what the churn is going to be like. And if customers aren't getting the kind of service they think they're paying for (it's a pretty good percentage on top of the selling price) the churn could be higher than anticipated - we may now be seeing a drop in anticipated revenue as the first year service agreements are terminating and not getting re-upped due to customer service and support issues. I don't know if they're ever going to break out numbers - there was talk at the SEC that software companies were going to have to start itemizing revenues instead of burying them in "suites" with long-life revenue/support streams, but I don't know if anything came of that. Mr. K.

To: Drake who wrote (4419)	3/21/1999 1:32:00 PM
From: Just_Observing	Respond to of 6021

NETA's Retail Sales I've listened to many of NETA's conference calls and have never been able to get an estimate of their retail sales. Here are some PC Data numbers which might help you. Please keep in mind that PC Data claims to represent 80% of the US market. Assuming the US Market is about half of NETA's retail market, one can multiply PC Data numbers by 2.5 to get a reasonable estimate of their worldwide retail sales. However, this does not include the direct sales made from their web site nor does it include the substantial revenue from users upgrading the AV software. Unlike Symantec which sells virus definitions for $4 per year, NETA expects users to upgrade to their new version of AV for about $30. With those clarifications, here are the PC Data numbers in millions: June 98 12.40 Worldwide approx = 12.4 *2.50 = 26 July 98 14.7 Aug 98 6.20 Sep 98 7.25 Oct 98 5.68 Nov 98 5.46 Dec 98 8.22 Jan 99 6.87 As a reference, NETA had revenues of 240 million in the quarter ending Sept 98, 272 million in the quarter ending Dec 98 and is expected to make 285 to 287 million in this quarter. Retail pricing for NETA fluctuates a lot. In the summer, they were cleaning out their inventory of Viruscan version 3.0. Here is the average pricing for Viruscan July $29 Aug $23 Sep. not known Oct $44 (Ver 4) Nov $44 Dec $43 Jan $41 Feb $41. There is one product in the Mcafee collection which may be giving NETA a major headache. The product is McAfee Office. NETA had very high hopes for this product during the Christmas season. This product has all ten of NETA's products and was priced at around $99. For a variety of reasons (and there are many), this product did not sell well at this price. NETA really loaded the channel with this. In January SAM's clubs began selling this product for $29.99 after $30 rebate while CompUsa and Best Buy were selling for $89 to $99. My guess is that up to 1 million copies of this product were shipped and a substantial amount still remain in inventory. Now some online retailers are selling it for $50 and lower. When I check the inventory level at some online retailers, a single one has 48,300 copies of this product. If the DSOs at the end of December were carrying McAfee Office at a price of $70 to $80, then this single product at a single online retailer was worth $3.5 to $4.0 million. Now one can begin to see the problem. If there are nearly a million copies of Office in the retail channel and the price is about to be slashed form $70-$80 to $40-$50, then you are looking at $30 million write-off of inventory. Even if there are only 100,000 copies of Office in the retail channel, it is still a write-off of $3 million. When you integrate these write-offs over all the retail products, one can come up with write-offs ranging from $10 to $50 million (the price of Nuts and Bolts has fallen from $46 in Aug 98 to as low as $25 today). Is this fear of retail inventory write-offs driving down the stock price of NETA? My hypothesis is that the shorts are seeing this picture and are waiting for the inevitable word on write-offs. Please be aware that what I am proposing is just a hypothesis. It is possible that the numbers of units in inventory that I see at online stores are wrong. Then my hypothesis has absolutely no merit. But apart from this explanation, I have no reason to explain the more than 5 billion dollars of market cap that has been lopped off from this equity since its highs earlier this year.