Latest woes at Network Associates come a year after major restructuring

Bad news at NAI sees major executives step down, blaming economic uncertainty for smaller volumes shipped.

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By  Colin Browne Published  December 28, 2000

Bad news at NAI sees major executives step down, blaming economic uncertainty for smaller volumes shipped.

A year after a major restructuring, Network Associates warned that it expects to report a fourth-quarter loss and will replace its top executives, including Chairman and CEO Bill Larson.

Shares of the security-software maker tumbled on the news, which the company released Tuesday afternoon. Network Associates, based here, said it expects a fourth-quarter loss of between $130 million and $140 million on revenue of $55 million to $65 million.

Larson, who has run the company since 1993, will step down as a company officer and director when the board announces a new CEO, the company said. The board expects to complete its search for a new CEO, which began last month, in the next 60 days.

Meanwhile, Edwin Harper, a company director, was named board chairman.

President Peter Watkins will leave the company on December 31, and CFO Prabhat Goyal will step down when a new CFO is named.

"Network Associates' revised expectations are explained principally by the decision of key distributors to dramatically reduce their inventory levels and by a reduction in fourth-quarter demand induced by a slowing overall economy," the company said in a statement.

"In light of the unpredictability of the distribution channel, Network Associates will transition its revenue recognition policy in the channel from a sell-in to a sell-through model," the company said.

In a conference call Tuesday, Larson said the lower fourth-quarter demand was not due to the company losing out to competitors but rather to general budget-tightening and economic uncertainty.

"These onetime events will not adversely affect the future of the company," he said.

Larson also emphasised the importance the company places on its solution providers and said it will work to automate its relationship with them via the Web.

"[Solution providers] are still very important to this company," he said.

Tuesday's gloomy news comes just a few weeks after the company held its first analysts' day, when Larson provided an upbeat report on the company's restructuring. Nearly a year ago, Network Associates broke up into four business units, a strategy Larson said put the company back on track with focused product development and sales.

The restructuring was a significant shift from its previous strategy of offering an integrated product suite based on technologies acquired through a string of buyouts or mergers, he said.

Network Associates' attempt to shift gears over the past year reflects a lack of success to date, says Eric Hemmendinger, an analyst at Aberdeen Group. While Network Associates shifted away from trying to sell product suites, it doesn't mean the new strategy was a winner, he said.

The company's fourth-quarter inventory backlog in the channel is a repeat of a problem it had when it stumbled in the first quarter of 1999, Hemmendinger said.

"Essentially, they're saying the channel's stuffed again," he said. "This would suggest [that] from a channel management standpoint, they have a fundamental problem that hasn't been solved."

An Ingram Micro spokeswoman said the distributor does not comment on its vendor relationships.

An industry source, who requested anonymity, said Network Associates suffers from poor morale under Larson.

The company expects to announce actual fourth-quarter results on January 25.

From a CRN United States report by Marcia Savage.

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