McAfee outlook misses as software bug bites

BOSTON, USA: McAfee Inc, the No. 2 security software maker, said the cost of fixing a bug that shut down PCs at more than 100 large corporate customers will help push second-quarter earnings below expectations, sending its shares tumbling 11 percent.

The glitch, included in a regular release of McAfee's anti-virus software, mistakenly identified part of Microsoft Corp's popular Windows XP operating system as a virus, triggering personal computer outages.

The company also issued on Thursday first-quarter results that missed Wall Street projections. McAfee, which has missed Wall Street targets in two of the past three quarters, confessed to problems fulfilling orders and and blamed the strengthening of the dollar against foreign currencies, which reduced profit on its sizable overseas revenues.

The disappointing performance came three months after the company unexpectedly said its 54-year-old chief financial officer, Rocky Pimentel, would retire after less than a year on the job.

The problems disclosed on Thursday surprised analysts who questioned McAfee Chief Executive Dave DeWalt about his handling of the software bug and the reasons for the first-quarter shortfall.

"At the risk of sounding a little too blunt here, why should we have confidence that things aren't worse?" asked JP Morgan analyst John DiFucci.

"We've got to do a better job at execution," responded DeWalt, as he faced his toughest audience on an earnings call since taking McAfee's helm in April 2007.

DeWalt said that the cost of cleaning up that software bug mess would reduce the company's current-quarter profit, excluding items, by 1 to 2 cents per share.

"The bulk of that is behind us and we've certainly remediated everybody, but it costs to do," DeWalt said during the conference call. He said that several thousand consumers were hit by the bug, in addition to the more than 100 large corporate customers.

Squashing bugs?

McAfee also projected that the strengthening dollar would reduce second-quarter profit by another 4 to 5 cents per share when compared with the year-earlier period.

The company estimated a second-quarter profit, excluding items, of 58 to 62 cents per share, significantly below the average analyst forecast of 66 cents according to Thomson Reuters I/B/E/S. It projected quarterly revenue of $500 million to $520 million, missing the average forecast of $526 million.

The company also reported a first-quarter profit and revenue that missed analysts' estimates, failing to benefit from an economic recovery that helped a slew of technology companies beat Street projections.

"We've got work to do to mature ourselves as a strong execution company when it comes to both finance and operations," DeWalt said. "We've just got to put Q1 behind us and drive."

McAfee posted a profit, excluding items, of 60 cents per share for the first quarter ended March 31, missing the average analyst forecast of 63 cents, according to Thomson Reuters I/B/E/S.

Revenue rose 12 percent to $503 million, below the Wall Street view of $513 million.

Shares of the Santa Clara, California-based company fell 11 percent to $35.12 in extended trading. They had dropped 1 percent to $39.53 during the regular New York Stock Exchange trading session.