Network Associates and the meltdown of the computer security sector

Feb 1, 2001 12:00 PM, Jack Mallon

The collapse of computer security firm Network Associates (NASDAQ/NETA) and the resignation of its pioneering CEO in the last week of 2000 underscored the plight of the once high-flying security sector.

In a Dec. 26 announcement, Network Associates said that it expected sales for the December quarter to be in the range of $55 to $65 million with a net loss of between $130 and $140 million, excluding non-cash interest expense, an amortization expense and compensation charges related to employee stock options. For the calendar year 2000, the company disclosed that it expected to post revenues in the range of $742 to $750 million and a net loss, excluding the above charges, of between $84 and $94 million.

The holiday announcement stunned analysts and investors, and the stock was driven down 65 percent for the day — to close at $4.50 a share. The company's stock had sold as high as $37.19 during 2000 and at $66.25 at the beginning of 1999.

Also incorporated in the blockbuster announcement was the news that Bill Larson, who drove the Santa Clara, Calif.-based company past the billion dollar sales through a series of product-expanding acquisitions, would resign as CEO.

Also getting the axe was company president Peter Watkins and CFO Prahbat Hoyal. Edwin Harper, a company director since 1993, will become chairman, and George Samenuk, an ex-IBMer, was quickly recruited as the new CEO and president.

This year-end collapse of Network Associates was a sad exclamation point for the sector.

Other computer security companies that were hammered down during the year included: Pilot (NASDAQ/PILT), down 94 percent, Diversinet (NASDAQ/DVNT), down 92 percent, Jawz (NASDAQ/JAWZ), down 92 percent, V-One (NASDAQ/VONE), down 89 percent, Saflink (NASDAQ/ESAF), down 85 percent, and Cylink (NASDAQ/CYLK), down 84 percent.

Despite the collapse of these sector high-flyers, some analysts see a brighter future for some of the computer security stocks. Certainly Check Point Software (NASDAQ/CHKP) has been a consistent performer, landing in the number 1 position for security stock gainers for 2000 with a stock appreciation rate of 169%.

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