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

To: AlienTech who wrote (4901)	4/11/1999 1:45:00 AM
From: Elephant	Read Replies (1) \| Respond to of 6021

Don't forget - it was really a revenue miss, not earnings Of course they did miss earnings, but only because they missed revenue. Here's why. Beginning of quarter management discussion: What will this quarters revenue be ($290m) What is our net profit margin (30% or so) How much can we spend this Q (70% of 290m, including taxes) Ok, we can spend 70% which is about $200m Now, lets do the Q1 budget. We know how much we will spend ($200m) and we know what we need to spend it doing (selling $290m). How do we divvy it up. Having had this discussion, they will merrily spend the $200m trying to sell $290m of s/w. Usually (ie the last 21 quarters) it has worked for them. This quarter, it didnt. They didnt sell enough software, but they spent the predicted amount anyway. So, earnings suffers, and it suffers proportionally more than the revenue miss. As per my previous post, the $45m miss, if it were added to earnings, would have brought earnings in line with expectations. It all makes sense if you realize that they spent the amount they thought they would spend, trying to make the amount of sales they thought they could make. The spending was "correct". The only thing wrong was the sales. Why am I babbling on about this? Because the way the stock has tanked would make someone think that the entire company operating model had gone down the toilet, which it HASNT. Notice that Bill said there would be no layoffs in the conf call. Thats because he knows that the companys operating model remains sound, and he just has to fix sales. The worst thing for him to do now would be to say "well, we will have to lay off to control costs so that our continuing reduced sales will still produce a 30% margin" Instead, he has to figure out how to get sales to be 18% more successful. Simple? No. But a hell of a lot simpler than fixing the entire way the cmopany works, which is what the current stock price would have you believe. I cant wait for the 19th. People want to hear from Bills lips that HE believes sales can be made that 18% more effective. Despite the loss of trust,people want to hear him say it, and will believe him if he does so. Babble babble babble, another late night post (groan) Elephant

To: AlienTech who wrote (4901)	4/11/1999 1:59:00 AM
From: Elephant	Read Replies (2) \| Respond to of 6021

Also dont forget the other stuff happening behind the scenes. For example, the Vulcan fund established by NETA last year. This venture capital fund is presumably investing in various interesting technologies. Sooner or later, one of them might pay off, either in a public offering or in a product that NETA can buy or license, and then flog. Its obvious that the link between DirectWeb and NETA is a strong one (ownership??, executive team, etc.), and perhaps there are others. Hopefully the 10K/Q will tell all! Anyway, my point is that all the stuff we actually know about this company more or less works, and if the 18% hiccup in sales can be fixed, we will have no complaints. BUT there is also all the stuff about the company that has not been announced yet, yet forms part of the 14% of sales they spend on R and D, or the balance sheet stuff like the Vulcan fund. The McAfee.com IPO, and so on. Do I know what it all means? No. But this is not a company likely to fade into some sort of third rate non-existance just because of a 1 quarter miss. AT: on another note, you have complained about financial shenanigans like stock options instead of salaries, and hiding of IPR&D. How about moving R&D expenses from the income statement to the balance sheet by forming a "startup" to do it and funding it from the Vulcan fund? Just a thought. I am now asleep. If you have been reading my babblings, perhaps you are too! Elephant.