Network Associates misses Q4 targets

Cos it stopped 'channel stuffing'

Network Associates saw Q4 sales miss forecasts after abandoning its channel "stuffing" policy.

The California company reported worse than expected losses of $127.2 million, excluding charges, for the quarter - against earnings of $30.1 million for the same period the previous year. Sales fell 73 per cent to $46.7 million from last year, and down 75 per cent from Q3.

The drop was partly due to NA switching its method of counting sales. It now counts revenues only after products are sold to consumers by distributors, whereas it previously notched up sales as soon as it had shipped them to its distributors.

This, along with admitted inventory backlog, convinced analysts that NA was guilty of "stuffing" its channel, or padding out its results by overselling to its distributors. When the company announced it was changing its sales counting method last month the market reacted by wiping 66 per cent off its share value. There are also a number of lawsuits pending from unhappy investors.

NA freshly appointed CEO George Samenuk promised the company would get back into the black in the second half of the year. "Let me be clear, I will not let this loss continue," Reuters reported him saying. "I intend to scrutinise every aspect of this business." ®

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