Earnings: McAfee's getting it done

After the bell, McAfee announced a good quarter. Top line of $272 million (that's over a billion run rate folks) and earnings beat expectations by 7 cents. That's good performance, with consumer providing 20% growth. Wall Street likes it because the stock is up almost 8% this morning.

So what is McAfee doing that the Big Yellow is not? One man's opinion is that It's all about the channel. McAfee has been very aggressive in courting and investing in the enterprise security channel and it's paying off. If you pick up a CRN magazine, you see them everywhere. Security is a huge problem for the mid-market, and the mid-market buys through the channel. McAfee is there.

Second, they are looking at alternative distribution on the consumer side. Sure they are in the retail channel, but you are not going to beat Symantec on their own turf. But increasingly consumers and SOHO businesses are buying the security suite from their broadband provider. McAfee has most of the big ones locked up. They don't make a lot of money in year 1, but then they become the incumbent. Most folks are lazy, so unless it doesn't work - people just renew. The recent deal to buy SiteAdvisor will only strengthen their position in the consumer's mind. That is going to be a very visible service for them and a great brand enhancer.

So where are the holes? Come on, there are always holes and guys like me have to pick at them. That's the fun part of this gig. Basically, McAfee has to figure out where they are going to focus their efforts, either on the infrastructure (network, servers, etc.) or content (email, applications, databases). Of course they'll have products in all security categories, but what are they going to lead with? All of the above is not really an option either.

On the infrastructure side, they have a good position in the DMZ with the IntruVert product, so they can extend from that. But they'll need to move into the core of the network. We are going to see a lot of the capabilities subsumed into the network and data center fabric. Network access control (NAC) is going to be embedded into the switch infrastructure. The endpoints will just feed information to the network and become much less strategic in that scenario. They need some way to bring forward as complete a story as Cisco has in the campus.

Content security is another story. Understanding how applications work and how to secure them without breaking stuff is hard. It's not something you can do half-ass. For most of the last two years, McAfee's content story was weak. Their new content gateways (for email and Web) seem to be better, though not as robust as some other players in the market. So if they want to keep pace in this space, they need to get smarter in the data center and supplement their Entercept stuff (which seems to be going nowhere fast) with some database security mojo.

Or maybe they make a bigger play into the managed services space. That's certainly an area where McAfee has lagged.

But these are good problems to have. Unlike a number of big companies that can't find their way (3Com, Novell), McAfee is building momentum and figuring out how to goose growth - as opposed to figuring out which private equity firm is going to take them private to milk their installed base.