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

To: AlienTech who wrote (4821)	4/8/1999 12:59:00 AM
From: Chuzzlewit	Read Replies (2) \| Respond to of 6021

Alien, I believe that you have raised a series of important questions. Certainly, these issues cannot be lightly ignored. In an earlier post Edwarda mentioned that Chuck Phillips had lowered his growth estimates to 15%, but she also said that this estimate came from scratchings on the back of an envelope. This is a critical issue, and one that needs closer attention. I believe your analysis is correct with respect to product transition. I also believe that there are two other factors slowing sales: Y2K lockdowns and a greater proportion of foreign sales. The Y2K lockdown came as a surprise to analysts covering NETA, but should it really have been all that surprising? Don't network security purchases come from the same IT budgets as hardware, software and Y2K remediation? And if so, doesn't it make sense that companies that are not compliant will have shifted much of their budgets to remediation? That translates into slowing sales for the time being, but the gradual realization of the potential of more Melissas must also come into play. Therefore, I believe that the slowdown is temporary. Maybe through the third quarter, or maybe through the first quarter of next year. But since the market is a discounting mechanism, we can't predict when the market will move in anticipation of increased business activity. Second, the shift in to European markets and bigger deal sizes is undoubtedly dislocating some sales and closing some deals. I had stated earlier that this was a one-time issue, but Edwarda correctly pointed out that it is better to think of this as a transitional period. Again, if this is true we may look forward to a resurgence of growth later in the year. Our best view will come from examining deferred revenues. You go on to say: So, the stock is trading at under 2.5x sales, 10x EBITDA, and 10x earnings. I don't care what anyone says, that's value. Yes, but that assumes that current levels are sustainable. I believe that the argument can easily be made that they are. Furthermore, on the basis of the arguments you have made I believe that Chuck Phillips' growth estimates are too low if he meant them for the long term. If he meant them for the short term they might be too optimistic. We would need to get a feeling for where IT budgets are to answer that. Also, it is my understanding that European Y2K remediation is lagging that of US companies. TTFN, CTC