McAfee Resurfaces as a Pure Play In the Computer Security Field: Name restoration completes NAI’s retreat from network management and help desk services

Freed from its peripheral operations and packing a $1 billion cash hoard, Network Associates Inc. (NAI) is scoping out acquisitions to bolster its core business of computer network security. The Santa Clara, Calif.-based company, which will restore the McAfee name as a symbol of its born-again concentration on security products and services, took a major restructuring step in late April by announcing the $275 million sell-off of its Sniffer network management business to the private equity consortium of Silver Lake Partners and Texas Pacific Group. NAI shed another key non-security line in January when it dealt the Magic help desk unit to BMC Software Inc. George Samenuk, chairman and CEO, sketched the company’s plans as a security pure play during an April 22 conference call by telling analysts: “We have a billion dollars in cash. We are still looking for acquisitions that would bolster our security business and fill in some holes. We continue to look, and cash is a good thing.” In addition to its famed McAfee anti-virus software, the company will focus on intrusion prevention, anti-spam, consumer security, and other offerings to secure networks and systems. For the short range, the dumping of Sniffer unloads a business that NAI has had trouble running since it was acquired in 1997. Samenuk said Sniffer lost money last year and that without NAI would be on track to reach its goal of 25% operating margins by mid-2005. On a longer-range basis, NAI appeared to be trying to hammer out a formidable position in a phase of the IT industry that will be buffeted by change for many years and may indeed require key players to focus all resources on security as trends progress. By recasting itself as a pure play, NAI is going in a different direction than some major competitors that have worked to integrate network management and security offerings. That strategy may change for a variety of reasons, including the ceaseless battle of one-upmanship between computer network operators and computer hackers. Jason Wright, an expert on computer security at consulting firm Frost & Sullivan, notes that the field, as a discrete information technology element, started to take shape only in the late 1990s, prompted by expansion of the Internet, worries over adjusting for the Year 2000 – the so-called Y2K problems – and the increased speed, scale, and innovation of systems. Intriguingly, Wright says, consolidation has been slow in IT security and may not develop with any potency for a while. The problem has been that no competitor has yet been able to come up with a total system for large-company enterprise networks that offers maximum security in every facet. However, Wright says the industry is “inching in that direction” and that a concerted acquirer like NAI can “become a broader solutions provider” with the ability to be “best in breed” at all levels. But Jack Mallon, head of Mallon Associates, an investment banking specialist in the security industry, looks for consolidation to develop at a faster pace as the large players broaden their products and services. “There is always room for the niche player – the company that does have a better mousetrap,” he says. “But the opportunity becomes less and less as the big guys develop more services.” Both see the battle against hackers as critical to the strategic shaping of major competitors and the entire industry. “Security is a very reactive game,” says Wright. “We figure out how to secure something and hackers find another open gate or side door to enter. This is a never-ending game of cat and mouse.” Mallon notes that “billions are put into security and yet hackers find ways of circumventing and penetrating the systems.” He predicts that will lead to larger, savvier companies that offer a full range of services. Copyright 2004 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.majournal.com