Network Associates Moves To Maximize Market Strength

Network Associates Moves To Maximize Market Strength

Harvey Weiss

By Richard McCaffery, Staff Writer

Network Associates Inc.'s federal division is rushing to expand its relationships with systems integrators and government customers to capitalize on its recent spate of acquisitions.

Those deals have given the company considerable strength in the fragmented security and network management market, analysts said.

"Our goal is to educate large prime contractors on our product sets, so we can be their main supplier," said Harvey Weiss, vice president of Network Associates' federal business group.

The Santa Clara, Calif., company is trying to interest integrators like Lockheed Martin Corp., Bethesda, Md.; Unisys Corp., Blue Bell, Pa.; Computer Sciences Corp., El Segundo, Calif.; and Litton-PRC Inc., McLean, Va., in its full product and services line, which now includes computer security and network management products.

Network Associates' federal division, based in Rockville, Md., already has relationships with these integrators and others, Weiss said, but the company is moving to raise its profile in the federal marketplace and help integrators understand its expanded line of products.

One way the company is doing this is a radio and print advertising campaign that started in September.

"It's my goal to establish relationships with the best prime contractors and integrators in the business," said Weiss.

In the last six months, the amount of federal business the company does through systems integrators and the sales channel has climbed from 50 percent to 85 percent, Weiss said. By the end of next year's second quarter, Weiss expects more than 90 percent of the company's federal business to go through the channel and systems integrators.

Integrator partners the company is using more include Unisys, Computer Sciences Corp., Litton-PRC and McBride and Associates, Albuquerque, N.M. "We're just pushing more business through them," Weiss said.

The company burst onto the scene last December when McAfee Associates merged with Network General Co. in a $1.3 billion stock swap. The merger combined McAfee's computer security products with Network General's systems management products and created a company with 1,500 employees and $612 million in combined revenues.

The buying spree continued apace this year. Executives spent another $1.3 billion in cash and stock since April to purchase five companies: CyberMedia Inc., Santa Monica, Calif.; Doctor Solomon's Group Plc., Aylesbury, England; Secure Networks Inc., Calgary, Canada; Trusted Information Systems, Glenwood, Md.; and Magic Solutions Inc., Augusta, Ga. Network Associates now has 2,500 employees.

"They have a very aggressive management style to execute their strategy of becoming the biggest in the business," said Steven Frankel, managing director of investment bank Adams Harkness & Hill Inc., Boston.

Revenues have soared as a result of the company's acquisition strategy. Frankel expects the company to generate $961 million in total revenue this year and earnings of $1.50 a share. In 1990, the company posted revenues of just $90 million. "They are the consolidator," Frankel said.

Formerly the president of Trusted Information Systems, Weiss was picked to manage Network Associates' government division last spring. Network Associates bought Trusted Information in a $300 million stock swap last April. The privately held firm develops security and network management products for the federal government.

Since April, Weiss has hired six new executives, pooled the company's government resources and opened sales offices in Los Angeles and Denver.

"It puts us closer to the customer," Weiss said. The company has a federal staff of 48 employees. "We're building a federal business group that's growing very rapidly." Weiss declined to disclose the company's government revenues.

Network Associates competes in a fragmented market, analysts said. Competitors include Remedy Corp., Mountain View, Calif.; Security Dynamics Technologies Inc., Bedford, Mass.; and Symantec Corp., Cupertino, Calif. Symantec is the No. 2 maker of anti-virus software behind Network Associates.

The company's commercial customers include the Prudential Insurance Co. of America, Cisco Systems Inc., and Ameritech Corp. In the federal market, Network Associates' business is divided evenly between the civilian and defense sides of the government, Weiss said. Its products are installed in agencies such as the departments of Treasury and Labor and at the National Institutes of Health.

Recent federal contracts include a $1.4 million deal announced in August with the Defense Advanced Research Projects Agency. Also, Trusted Information Systems is working with the Internet Software Consortium to add security to the Internet's domain name system.

Analysts said the company is among the first to sell a full line of both security and network management products for Windows NT, Microsoft Corp.'s high-end computer operating system.

"They're leading the push around NT," Frankel said. "They're the biggest, leanest and meanest in that space."

Paul Saunders, research analyst at Soundview Technology Group Inc., Stamford, Conn., said the company has done a good job keeping expenses under control during the expansion.

"They haven't missed any of their financials during any of these periods," Saunders said.

Nevertheless, some analysts are concerned the company may have bitten off more than it can chew, Saunders said. William Larson, Network Associates' chief executive officer, has told analysts the company will spend the next few months integrating its recent buys before making additional acquisitions. Saunders expects earnings per share of $1.51 this year and $2.15 next year.

In addition to expanding relationships with systems integrators, Network Associates is looking to increase its services division in both commercial and federal markets. The company wants one-third of its revenues to come from services by 2000, according to Weiss. "We're not there yet," he said. "But we're more than halfway."

Weiss expects the bulk of services revenues to come from systems integrators using his employees as subcontractors.

"We need to help the prime [contractors] deliver these solutions," he said. "I do not want to compete with integrators through our services offering."

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