declined Thursday after an analyst raised concerns about large antivirus contracts and weakness in Europe, while suggesting that competitor
is ahead of third-quarter estimates.
Shares of Network Associates fell $1.37, or 10.7%, to $11.48 in recent trading, while shares of Symantec rose a modest 72 cents, or 2.2%, to $34.19.
In a note Thursday, J.P. Morgan Securities analyst Sterling Auty shifted to a positive near-term outlook on Symantec while suggesting investors lighten up on Network Associates heading into its quarterly report next month. He maintained his neutral rating on both companies. J.P. Morgan expects to receive or intends to seek compensation for investment banking from Symantec and Network Associates, and the firm has done banking business for Network Associates in the past year.
Auty lowered his third-quarter revenue estimate for Network Associates to $201 million from $206 million -- below management's target range of $205 million to $215 million. He maintained his earnings estimate of 11 cents a share -- the low end of management's range of 11 cents to 13 cents a share. The consensus estimate is for the company to earn 12 cents a share on $226.1 million in revenue, according to Thomson Financial/First Call.
Auty said he believes a dependence on large enterprise antivirus contracts and difficulty in Europe is making Network Associates' job tougher in the seasonally weak third quarter. He noted the company placed three new country heads in Europe in a quarter that is typically challenging because of summer holidays.
Indeed, at the Banc of America Securities conference this week, Network Associates CEO George Samenuk said sales execution remains a problem and he's expecting a flat third quarter in Europe. "The weakness in Europe continues," he said.
Auty also suggested Network Associates management is distracted by the
acquisition. The December quarter, however, will include heavy antivirus renewals and new products from Network Associates.
On the other hand, Auty said he expects Symantec's strong consumer antivirus business, which grew 49% in the past nine months compared with the same period a year earlier, will continue to enjoy such growth for another two quarters due to new product versions, a price increase for online renewals and a seasonally strong December quarter.
Auty also said he has seen an increase in business from small- to mid-sized enterprise customers in the current quarter, particularly with its firewall products. And he believes the July 31 deadline set by
for its business customers to convert to a new subscription-based payment system led to an opportunity to cross-sell Symantec products and allowed resellers to dedicate more attention to Symantec in August and September.
Auty raised his revenue estimate for Symantec to $310 million from $300 million in the fiscal second quarter, which ends this month, and his earnings estimate to 31 cents from 29 cents. The consensus is for Symantec to earn 31 cents a share on $307.6 million in revenue in the second quarter.