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Network Associates sinks
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April 7, 1999: 1:24 p.m. ET
Shares of anti-virus software tumble after warning 1Q profits won't meet targets
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NEW YORK (CNNfn) - Shares of Network Associates Inc. sank Wednesday, a day after the maker of security and anti-virus software warned first-quarter profit will fall far short of analysts' targets.
Shares of Santa Clara, Calif.-based Network Associates (NETA) plummeted 5-11/16 to 16-1/4, or roughly 26 percent, on heavy volume of nearly 39 million shares at around 1:15 p.m. ET Wednesday.
Investor discontent was underscored by Wall Street brokerages -- a stunning 10 of which downgraded Network Associates on Wednesday.
After the closing bell Tuesday, Network Associates posted fourth-quarter operating profit of 50 cents a share, topping analysts' target by 4 cents. The company delayed the release of the fourth-quarter results for accounting reasons tied to its acquisitions.
The shares fell 7-1/2 Tuesday, after Morgan Stanley Dean Witter provoked concern about Network Associates, as the brokerage lowered its rating on the stock to "neutral" from "outperform."
Several Network Associates rivals also fell: ISS Group (ISSX) lost 7-1/8 to 62-5/8, Computer Associates (CA) fell 1-3/4 to 34 and Security Dynamics Technologies (SDTI) shed 1 to 15-7/8
Y2K to blame
But the company also said woes in the enterprise software market and changes in corporate purchasing due to the Year-2000 computer glitch would cause sales to fall by as much as 10 percent in the quarter ended March 31.
Network Associates said it expects first-quarter earnings to come in between 30 cents and 32 cents per share, when analysts surveyed by earnings tracking firm First Call Corp. expected 48 cents.
Analysts were clearly taken aback by the earnings warning. Dawn Simon, of Brown Brothers Harriman, said she believed many security products makers would be immune -- compared to enterprise software firms -- to the Y2K problem.
"Y2K was seen in the past as hitting enterprise companies rather than security companies, because security is considered an essential component," she said, referring to recent viral outbreaks such as "Melissa."
But Simon said "the real issue" for the company has been an "ill-timed" release of its new Active Security product in the face of the Y2K problem.
The Y2K problem refers to problems computers may face in the transition from 1999 to 2000, because many computers are programmed to recognize only the last two digits of the year. Computers could read 2000 as 1900 or even stop functioning.
Some corporate customers put off purchases to await the launch of that product, which "can catch hackers without jeopardizing corporate data," said Simon, who downgraded the stock to "neutral" from "buy."
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