McAfee Hacks Into Success

Consumer revenue jumped by 114% with help from digital providers including the AOL division of Time Warner(TWX Quote), Japan's NTT DoCoMo and Spain's Telefonica that distribute McAfee's software to their customers.

McAfee has made a few purchases of its own under the new regime, including Foundstone, IntruVert and most recently Wireless Security, but unlike the buys in the '90s, these deals were carefully focused on security.

"McAfee does a good job of adding more network-oriented technologies both through acquisition and through internal development, and the fruits of this can be seen in the new integrated products rolling out over the next several quarters," says Friar. Goldman Sachs is seeking investment banking business with McAfee.

Now the trick will be to hold off the opposition. Symantec, of course, is already formidable, and has been stealing share from McAfee. According to NPD, McAfee's share of the consumer antivirus market dropped from 22% in 2002 to just 11.8% in 2004, while Symantec's grew from 78% to 88%.

Whether Symantec will be even more formidable with the added firepower of Veritas is unclear. On the one hand, Veritas adds a well-trained sales force that may be able to cross-sell Symantec security products. And it will benefit from the growing customer preference to minimize its list of software vendors.

But Veritas has no direct expertise in security software, so some analysts say the combined companies won't have much synergy and won't be an added threat to McAfee.

A key battle to watch: the shift of McAfee's sales force away from a direct model to an indirect one. In the past, McAfee has not been seen as channel-friendly, while Symantec has been very strong. McAfee's efforts to change its spots appear to be succeeding, but if it fails to make continued headway in distribution, investors will have reason to be unhappy.