McAfee, SAP and Sun – Mixed Financials

 

On the positive side, McAfee Inc. posted a 21 percent growth in first quarter sales and a 77 percent increase in quarterly profits. However, SAP AG reported first quarter revenues fell three percent whereas profits slid 16 percent; while Sun Microsystems Inc. registered a 19 percent decline in its third quarter revenues and incurred a major increase in its quarterly net loss.

Focal Points:

• McAfee posted first quarter revenues of $448 million, up 21 percent from the previous year's quarter of $370 million. On a GAAP basis, net income leapt 77 percent year-over-year to $53.5 million from $30.2 million in the year ago quarter. This was the 13^th straight quarter of double digit growth for the security software firm. The quarter's results included $41 million in revenue from Secure Computing, which the company acquired in November for $490 million. Corporate business jumped 28 percent to $276 million while the number of McAfee's security products preloaded in PCs has gone from 20 percent to 50 percent of total shipments in the last 12 months. Symantec Corp. holds the exclusive pre-load contract with Hewlett-Packard Co. (HP) on the consumer side while McAfee is the default option on Dell Inc.'s new PCs. Over the last year, McAfee also landed new deals with Toshiba Corp.,
• SAP reported that first quarter revenues of €2.39 billion, a three percent drop year-over-year from €2.46 billion a year ago. Net income came in at €204 million versus $242 million for the first quarter of 2008. SAP managed to hold software and software-related service revenue flat at €1.74 billion in the first quarter compared to a year ago. On a geographic basis, the company saw U.S. revenue fall 13 percent with Japan declining 16 percent while Europe, Middle East and Africa declined 3 percent. SAP had previously announced plans to cut its workforce to 48,500 by the end of the year and as of March 31 the company had 49,916 employees. In the first quarter, SAP took a charge of €160 million to cover the cost of cutting 2,200 jobs. Starting in 2010 the price of SAP Enterprise Support will increase at an average rate of approximately 3.1 percent but will be capped at 22 percent through 2015. 
• Sun's third quarter revenues fell 19 percent over the previous year's quarter to $2.61 billion from $3.27. On a GAAP basis the net loss for the third quarter was $201 million, compared to a net loss of $34 million for the third quarter of 2008. Sun ended the quarter with a cash and marketable debt securities balance of $2.990 billion and generated cash flow from operations for the third quarter of fiscal 2009 of $178 million - the third consecutive quarter of positive cash flow from operations in fiscal 2009. The company grew billings nearly four percent year-over-year in what it viewed as its combined key growth categories of total software, open storage, Solaris-based SPARC CMT Servers, and X64 Servers. These combined key growth categories accounted for 40 percent of total billings in the third quarter of fiscal 2009 versus 30 percent in the third quarter of fiscal 2008. Total software billings grew 28 percent year-over-year while open storage billings grew 63 percent year-over-year and Solaris-based SPARC CMT Servers billings grew 3 percent year-over-year.

Experton Group believes the global economic slump will continue to depress IT revenues and force IT vendors to refine their business models to focus on their core competencies. McAfee can be expected to drive further into the corporate arena while SAP will seek to bolster its bottom line through increased support fees and services. The major gains in Sun's key growth areas were in areas that represent approximately five percent of Sun's revenues, whereas the majority of Sun's revenues are basically flat or declining. This does not bode well for Sun (or Oracle Corp. after the acquisition closes) as the majority of its business is now under a more intense attack by its major competitors. Symantec will need to move more aggressively to prevent further McAfee inroads into its traditional businesses. Dell, HP, and IBM Corp. will step up the pace of their migration swat teams to take business from Sun while Oracle will look to attack SAP and gain further footholds in the software as a service (SaaS) space simultaneously. IT executives should use the current economic crisis to push back on SAP's revenue growth strategy and try to keep their ongoing support fees constant over time. IT executives should also re-examine their Sun vendor relationship to determine what their long-term relationship will be under Oracle. IT executives expecting to be major users of Sun hardware under Oracle's reign and that have Oracle software should negotiate desired terms and conditions with Oracle before the vendor's fiscal year end (which is the end of May).