NAI Bets on Intrusion Prevention

Beset by legal and financial problems, the security company maps a new course to regain dominance.

For network security companies, the past two years have been a blur of innovation and skyrocketing customer demand, both feeding off a string of increasingly disruptive and malicious viruses, worms and targeted attacks. Indeed, as enterprises have scrambled to keep pace with the bad guys and look for better ways to secure their networks, security companies such as Symantec Corp., Internet Security Systems Inc., Computer Associates International Inc. and others have watched their bottom lines swell.

At least most of them have. For Network Associates Inc., which made its bones in the 1990s by gobbling up smaller competitors and integrating their products into its own, the current security gold rush has been a painful reminder of how quickly things can change.

The company, which once grew at a breakneck pace and swatted aside challenges from Symantec and Trend Micro Inc., is now beset by legal and financial troubles stemming from accounting and sales abuses.

NAI executives have watched as the companys stock has lost more than half its value in less than two years. Worse, revenue and net income have fallen steadily since 2002, with revenue dropping to $226 million in the third quarter of this year from $254 million in the same period last year and net income plummeting from $50.6 million to $26.5 million.

All of this forced NAI to rethink its strategy and refocus the company on a risky new plan to become the dominant player in the hot but nebulous intrusion prevention market. The plan, which took shape during the last eight months, centers on the companys acquisitions in April of IntruVert Networks Inc. and Entercept Security Technologies, two of the leaders in the IPS (intrusion prevention system) space.

NAI executives said the strategy is not just another of the companys semiannual rebranding campaigns; instead, its a move to position NAI at the forefront of what they see as a seismic shift in the way enterprises secure networks.

But the plan is something else as well: a major gamble. It is the action of a once-dominant company that needs a win, pushing its stack of chips to the middle of the table and waiting to see if anyone will call it. From the outside looking in, many observers, former employees and competitors said NAIs move smacks of desperation and is little more than a new marketing message—and a vague one at that. Others see it as an attempt to distract analysts and customers from the recent financial issues and ongoing battles with the Securities and Exchange Commission and Department of Justice.

"It looks a lot like what Symantec did when I was at NAI. Theyre just pulling together product lines that are force-fed," said a former top NAI marketing executive who asked to remain anonymous.

Next page: Still reeling from the Bill Larson era.