Microsoft Warily Eyes Antivirus Market

As a result of Microsoft's circumspect public attitude, analyst and investor opinion about whether Microsoft will enter the antivirus fray remains all over the map.

"I think there is a very strong likelihood they're going to do it on the antivirus side," said Joel Fishbein, an analyst with Janney Montgomery Scott, who noted Microsoft has been hiring security software engineers for the past six months.

But Fishbein said Microsoft may not offer antivirus ware until it releases its next operating system, Longhorn, now not slated until 2006. If that happens, "people won't pay the same multiple for Symantec as they once would," he predicted.

The one uncertainty, Fishbein acknowledged, is whether the monopolist would raise more antitrust concerns by selling antivirus software. He has buy ratings on both Symantec and Network Associates. (His firm hasn't done banking with either company.)

Schwab SoundView Capital Markets analyst Walter Pritchard believes regulatory hurdles would be high enough to block Microsoft. Rather than competing head-on with Symantec and Network Associates, he believes Microsoft could fight viruses through what he called "behavior blocking." Using that approach, Microsoft could build in code that blocks common virus behavior such as sending out hundreds of emails to people in a person's address book, he explained.

Noting Symantec's more than 50% sales growth last year, Pritchard said a bigger risk to the antivirus market than Microsoft is a slowdown in sales. He remains bullish on the companies, though, with outperform ratings on both Network Associates and Symantec. (His firm doesn't do investment banking with either company.)

Chris Bonavico, a portfolio manager with Transamerica Investment Management, said he believes another reason Microsoft will not jump into the space is because security is a services business that requires around-the-clock responses to new attacks, and Microsoft isn't a services company. Bonavico, who holds Network Associates rather than Symantec because he believes there are fewer expectations priced into the stock, also suggested companies would be more confident in a third party offering security than Microsoft itself.