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July 20, 1998

NETWORK ASSOCIATES REPORTS Q2 LOSSES AFTER CHARGES

By CBR Staff Writer

Network Associates Inc, the Santa Clara-based maker of network security software, continued to reward its investors on Monday with another quarter of fast-paced growth. Second quarter net losses were $101.1m against last year’s $29m profit, but the figures include $151m of charges from the April acquisition of Trusted Information Systems Inc. Revenues grew 39% to $212.5m, while on a pro-forma basis, restated revenues of a combined Network Associates and TIS Inc showed a sequential increase in revenues of 8.2% over the first quarter of 1998. Network Associates, still less than a year on from its inception as a merger between Network General and McAfee Associates Inc, has been irresistible in its rise to the top of network security space. Driven by the ambitions of CEO Bill Larson, formerly of McAffe, the group has expanded out of the anti-virus market to build what it calls enterprise network security solutions, using its powerful stock to buy up whatever Larson perceived as necessary to expand the product range. The TCI acquisition gave Larson some proven firewall technology to add to the mix. And having failed to make any serious in-roads into the European anti-virus space because it was dominated by Dr Solomon’s’ Group Plc, Larson simply made Dr Solomon’s’ shareholders the right offer, and they too were vacuumed into the accelerating US juggernaut in June. Ultimately, Larson wants to build a systems management business to tap into the market dominated by Computer Associates Inc and IBM Corp’s Tivoli Systems Inc. Looking behind the acquisition charges, Network Associates said its operating margins rose to 34% from 28% in the prior quarter, with the on- going goal being to stay in the mid thirties. Although the actual figure is still obscured by the number of acquisition related charges Network Associates continues to make. The company also warned that the number of days sales outstanding was set to rise, but insisted this would be more a function of Dr Solomon’s’ higher level of debtors than any change in business practices.

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