Viruses, Spyware And Botnets - Oh My!

By Eugene Bukoveczky | August 04, 2009 AAA

It's a pretty shocking statistic. Accordng to a just-released report by security software provider McAfee (NYSE:MFE), spam, or annoying and unsolicited email, now makes up 92% of of emails sent, and it's growing at a monthly rate of 33%! That amounts to a daily tally of about 117 billion of these useless and fraudulent messages, which are clogging up inboxes and taking up bandwidth.

Add to this the rapid propagation of cybercriminal-controlled "botnets", which can enslave computers without users' knowledge and "malware", which can destroy vital files and the internet starts to look like a very scary place. Throw in reports of cyberattacks on the White House and the New York Stock Exchange earlier this month, and you have a pretty compelling argument for the deployment of security software.

For McAfee and rival providers like Symantec (Nasdaq:SYMC) and Check Point (Nasdaq:CHKP), it would appear that there's more than enough demand for their products these days to ensure steady revenue and earnings gains. Let's take a look at how these companies are faring so far this year.

IN PICTURES: How To Make Your First $1 Million

Symantec Shares Plunge
Recession-induced tightening of corporate IT budgets and mounting competition has recently taken its toll on industry-leader Symantec. The company's shares dropped more than 12% following the release of quarterly results that revealed a slump in revenues and lower-than-expected earnings. Apparently, many of the company's major corporate clients have taken to limiting their purchases to just the bare essentials, signing only one-year term contracts for software services, compared to the three-year contracts they would normally have taken in the past. A drop in the company's revenue guidance for next quarter offers a clear signal that this trend isn't likely to change in the near future. (Find out how these specialized ETFs can give your portfolio the punch it needs. Check out Singling Out Sector ETFs.)

What's surprising about this is the fact that IT managers are choosing to cut back in the security area despite its critical nature. The area had long been thought to be relatively immune to the overall slump in IT spending that has hit the industry hard this year. According to Goldman Sachs, global IT spending should slump about 5% this year, before staging a healthy 6.3% recovery in 2010.

Symantec Losing Market Share?
If Symantec's recent bout of business underperformance is a result of this industry-wide slump in spending, the company should see its fortunes rise next year. However, there are signs that suggest that the company could be losing market share to its rivals. (Learn mroe in Which Is Better: Dominance Or Innovation?)

Recent quarterly results released by Checkpoint, showed a 12% revenue gain, with deferred revenues up 30%. Last April, the Israeli company acquired Nokia's (NYSE:NOK) security appliance business, and now expects to beat analysts' earnings expectations for this year. McAfee is also expected to report higher earnings this time around. If it beats expectations, this could be a sign that Symantec is losing market share.

The Bottom Line
With the prospect of another couple of disappointing quarters lying ahead, don't expect a quick rebound in Symantec's shares. It's more likely McAfee will continue its outperforming ways, at least for the balance of this year.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free

Related Analysis
  1. Trend Following Tips for ETF Investors
    Chart Advisor

    Trend Following Tips for ETF Investors

  2. Forget About Falling Oil, Look Into These 5 MLPs
    Chart Advisor

    Forget About Falling Oil, Look Into These 5 MLPs

  3. When To Buy Strongly Performing Stocks
    Chart Advisor

    When To Buy Strongly Performing Stocks

  4. ChartAdvsor for October 24, 2014
    Chart Advisor

    ChartAdvsor for October 24, 2014

  5. The ADX Shows Strong Uptrends In These 4 Stocks
    Chart Advisor

    The ADX Shows Strong Uptrends In These 4 Stocks

Trading Center