McAfee, Compellent Rise Above the Mire

Security software and virtual storage offer some respite from the economic storm.
Author:
Publish date:

Despite the dark clouds hanging over the economy, the need for data storage and security software is giving some tech stocks a lift.

Security specialist

McAfee

(MFE)

, for example, reported impressive fourth-quarter results Thursday, as did data storage firm

Compellent

(CML)

.

McAfee's shares surged $1.59, or 5.24%, to $31.75 Friday after it reported fourth-quarter revenue of $424 million, a 19% increase on the same period last year, beating analysts' estimate of $421 million. Excluding charges, McAfee earned 53 cents on net income of $82.5 million, up from 46 cents and $75.1 million in the prior year, and in line with consensus estimates.

The Santa Clara, Calif.-based company, which was one of the

TheStreet.com

's top tech

picks

for 2009, was buoyed by deals to bundle its software with PCs, and by booming North American sales, which grew 25% year over year.

"We continue to believe that the security market, while not immune, should hold up well on a relative basis and that McAfee is one of the best-positioned companies in this sector," wrote Todd Weller, an analyst at Stifel Nicolaus, in a note released Friday.

The analyst pointed to McAfee's aggressive attempts to forge deals with PC manufacturers and solid sales execution as evidence of its strength.

"Despite a weak consumer backdrop, McAfee's consumer business also continues to exhibit solid trends and we walked away from the quarter with increased confidence in McAfee's ability to sustain reasonable growth," wrote Welller.

With economic downturns typically producing an upsurge in criminal activity, firms such as McAfee and its rival

Symantec

(SYMC) - Get Report

are well positioned to lock down business and consumer data. Symantec, for example, beat analysts' earnings and revenue estimates in its recent

third-quarter

results, thanks largely to its booming

services

business.

McAfee is ramping up its network security story following its $465 million

acquisition

of

Secure Computing

last year.

"The U.S. Fed was one of Secure Computing's strongest areas -- one of the strategic rationales that I had for the acquisition," said Dave DeWalt, the McAfee CEO, during a conference call Thursday. "Governments worldwide are now putting up their cyber shields, their cyber security initiatives, and the U.S. government is one of those."

Stifel Nicolaus' Weller reiterated his "Buy" rating and $38 price target for McAfee, but acknowledged the tough spending climate, lowering his 2009 revenue estimate from $1.89 billion to $1.87 billion.

McAfee, which did not offer guidance for fiscal 2009, expects first-quarter revenue between $440 million and $460 million, well above analysts' estimate of $425.9 million.

Storage Area Network (SAN) specialist Compellent also bucked the tech sector's downswing this week, posting its thirteenth consecutive quarter of revenue growth and issuing healthy first quarter guidance. Although hardly a household name, the firm is tapping into strong demand for

virtualization

technology.

Compellent posted fourth-quarter revenue of $27 million, a 60% increase on the same period last year and above analyst estimates of $25.1 million. For the first quarter, the company expects revenue of $28 million, above consensus estimates of $25.7 million.

As a relatively small firm, Compellent claims a big advantage over storage giants such as

EMC

(EMC)

and

NetApp

(NTAP) - Get Report

, which took a major

third-quarter

revenue hit this week.

Compellent CEO Phil Soran explained that his firm, which relies on resellers rather than direct sales, can use its partners to help drive sales in a downturn. Additionally, the firm's size offers it a degree of agility that its competitors lack, he added.

"With our size, we can increase our pipeline easier than a big NetApp can; we can cover up the slowdown," said Compellent CEO Phil Soran, explaining that the firm uses a 100% channel model. "We have done a good job of getting our business partners to understand the financial

benefits of our feature set."

Compellent, which competes mainly with

Dell

(DELL) - Get Report

,

Hewlett-Packard

(HPQ) - Get Report

and EMC, touts "tiered" storage products that shift older data onto less expensive storage media. The firm is even developing a version of this technology aimed specifically at

solid state disks (SSDs)

, according to Soran.

"We have talked about early customer shipments this quarter, so

the launch is in the next couple of months," he said.

At least one analyst thinks that Compellent's strong momentum bodes well for its prospects in 2009.

"While the macro-economic conditions are challenging and are clearly impacting many IT vendors, we believe Compellent is firing on all cylinders and will continue driving top-line growth throughout 2009," wrote Troy Jensen, senior research analyst at Piper Jaffray, in a note this week. The analyst also reiterated his "Buy" rating and $14 price target on Compellent shares.

McAfee shares were up about 0.1% to $30.35 in Tuesday trading, and Compellent shares were up about 1% to $13.91, while the Nasdaq was down 3.4%.