McAfee Strong Q3 Validates Strategy, Buyout by Intel, Says CEO

McAfee set record revenues for the third quarter as the company expanded its portfolio to include endpoint, network and cloud security.

McAfee's chief executive said the company's "outstanding" third quarter results were proof customers, partners and employees supported the pending acquisition by Intel.

There were lower discounts, longer contracts, a higher percentage of new customer business and lower attrition among employees during the third quarter from July to September, said David DeWalt, Intel's chief, on a conference call with analysts to discuss earnings on Oct. 28.

"All of this shows that the future is clearly very bright for McAfee," said DeWalt.

McAfee had $523.3 million in third-quarter revenue, an 8 percent increase from third-quarter 2009's $485.3 million, the company said. McAfee reported earnings of $0.67 per share, a 9 percent increase from last year, and better than the $0.64 expected by analysts surveyed by Thomson Reuters. Analysts were also expecting revenues to fall between $513 million and $514 million.

According to DeWalt, the quarter results even beat McAfee's own internal early forecast.

Intel acquired McAfee for $7.7 billion in August. DeWalt said the acquisition is on track and the companies are going through regulatory approvals and "customary" closing conditions. He said the acquisition is expected to close mid-2011.

Something doesn't match up, as Intel's Chief Financial Officer Stacy Smith said the acquisition could "close by year end or in the first quarter of 2011," during that company's third-quarter earnings call on Oct. 12.

McAfee will operate as a stand-alone independent, wholly owned subsidiary of Intel with full autonomy, said DeWalt.

"We are not moving away from our core security business of software-based endpoint protection and network security technologies, but instead intend to improve security for all of our customers by providing integrated hardware and software solutions," he insisted.

Some of the quarter's biggest deals were with customers spending more on security beyond the PC and traditional Windows security, said DeWalt. McAfee's expansion of its security portfolio to include endpoints, the network and the cloud was "right on point," said DeWalt.

The Network Security business, featuring technology from McAfee's 2008 acquisition of Secure Computing, had "double-digit" year-over-year sales growth, with increased demand for firewall, intrusion prevention and network access control, DeWalt said.

Jonathan Chadwich, McAfee's chief financial officer, said the boost came primarily from the public sector.

"Our Q3 performance is clear evidence that our customers and partners understand and support our strategy of delivering innovative, holistic security risk management solutions and the future potential of the combination of Intel and McAfee," DeWalt said.

DeWalt outlined McAfee's strategy on the call, discussing mobile and embedded device security, hardware-based security, and security management and noted that McAfee is "aligned" with the most "critical" trends in security. Customers are looking for a "focused" security company, more integration and a tighter relationship with partners, he said. The top concerns are around "consumerization of IT, cloud security and protecting their intellectual property," according to DeWalt.

McAfee's ePolicy Orchestrator, allowing enterprises to centrally manage security across a range of devices using a single console, will be part of the McAfee Security and Management Platform 5, DeWalt said. McAfee Enterprise Mobility Management Platform 9 is based on its recent Trust Digital acquisition, he said.

"We've created a bridge from a PC-centric world to a world where everything is digital and everything is connected," said DeWalt, noting that the new McAfee 3.0 strategy looks at "ubiquitous security" that is connected to the network and the cloud.

McAfee already offers security for virtualized environments with the MOVE platform for Citrix.

During the quarter, McAfee completed the acquisition of privately owned tenCube, the provider of the WaveSecure mobile security service that will be integrated into the company's mobility portfolio, DeWalt said.

Chadwick said the company will continue making small and medium acquisitions.

Addressing analysts' tablet and mobile concerns, DeWalt said there is significant opportunity in the smartphone and tablet market, but consumers and corporations are asking for management products to securely connect devices to the network, not traditional antivirus for those devices. Despite recent analyst forecasts, DeWalt said there still is "robustness" in the PC Windows market.

Antivirus "will be a laggard, clearly, so far," until the devices have more robust storage, but there are plenty of "leading-edge" products and features currently available for mobile devices, said DeWalt.