I attended Symantec’s annual shareholder meeting on September 23, 2009. The company offered shareholders a goodies bag that included a complimentary copy of Norton Online Backup; a zip-up notebook; a nice pen; and a small padlock (symbolizing Symantec’s security focus). Approximately thirty attendees were treated to coffee, juice, and pastries.
I was looking forward to this meeting for two reasons: one, the Investor Suffrage Movement asked me to move Proposal No. 3 on behalf of another shareholder; and two, this would be new CEO Enrique Salem’s first year handling the annual meeting.
Chairman and former CEO John Thompson opened the meeting and introduced various Board and executive team members. After Mr. Thompson was done, Executive VP and General Counsel Scott Taylor allowed me to move Proposal No. 3 (sponsoring shareholder: Kenneth Steiner) and to provide a short explanation of the proposal. I’ve been to many shareholder meetings, but this was my first time moving a proposal. I delivered a short summary about the proposal and then sat down.
One quick aside: I attended Symantec’s meeting last year and was very impressed with then-CEO John Thompson. I was looking forward to seeing him again this year, but had forgotten that corporations tend to despise outside shareholder proposals. Responding to such proposals takes up attorney time and internal resources. The usual corporate attitude is that if shareholders don’t like the way the executives run the company, they can sell their shares. So perhaps I should not have been surprised that while I was reading the presentation, Chairman John Thompson, seated only several feet from me, was staring at me with a “Make My Day” expression. (To his credit, Mr. Salem recognized me from last year and skipped the stare-down.) Thankfully, after the meeting, Mr. Thompson was his usual charismatic self, entertaining various attendees with some stories. Mr. Thompson appears to be in great shape and has lost some weight since last year.
After I moved the proposal and delivered the short summary, Mr. Taylor closed the polls and announced preliminary results. Proposal No. 3 passed. After Symantec takes additional steps--such as amending its bylaws--the threshold for calling special meetings will be 10% ownership, down from 25% ownership.
Mr. Taylor then introduced President and CEO Salem, who delivered a brief presentation about Symantec’s accomplishments. I’ve listed what I consider to be the most interesting information below:
1. 120 million consumers use Symantec’s software.
2. Symantec’s customer base is 30% consumer, 70% enterprise.
3. Symantec wants to “commoditize infrastructure,” which means driving costs out of the environment (I asked Mr. Salem to clarify this term after the meeting. He gave me an example of a consumer choosing between two hard drives--Symantec wants to give the consumer the same capabilities in each product so the consumer can choose based on price. For more information, see page 3 of the Annual Report, under “Enable our customers to simplify their heterogeneous environments and reduce costs...”)
4. Symantec is growing its data loss prevention and “online backup” business. Symantec anticipates a lot of growth from its “online backup” business.
5. Symantec’s growth comes from both “organic innovation and acquisitions.” For example, Symantec is testing “reputation-based” analytics (i.e., should this software run on my computer?) and has an impressive R&D budget. (Note: Symantec's reputation-based analytics feature is live in Norton's 2010 products.)
After the informal presentation, Mr. Salem opened the meeting to questions. A shareholder made several comments about Proposal No. 3, which he opposed. He said that labor unions hated Mr. Robert Miller (who was singled out several times in the proposal) because he was a tough CEO. He said American corporations are being “denigrated” by activists.
Mr. Salem, like most corporate executives, is no fan of outside shareholder proposals. He could have taken the bait and criticized the proposal; instead, he showed admirable diplomatic skills. He indicated he would work with Symantec’s largest shareholders, and he was committed to shareholder success. I immediately realized Symantec had chosen a CEO with excellent PR skills, which is important for any service-oriented company.
Another shareholder, Tony Mazzapelle, questioned a large goodwill writedown. Mr. Salem acknowledged the unusually large writedown of approximately $7.4 billion and explained that at one point, the dislocation of the stock market had caused Symantec’s goodwill to be valued more than the corporation itself. The company recognized the issue and complied with SEC rules to resolve the matter. He also clarified that the large goodwill was the result of several acquisitions, not just one.
Mr. Mazzapelle then raised an issue dear to my heart, which is non-GAAP vs. GAAP accounting. Personally, I hate non-GAAP results. Even though it’s legal and common to use them, non-GAAP numbers allow accountants too much leeway. Here, for example, using non-GAAP numbers allowed Symantec to report operating income of approximately $1.88 billion for Fiscal Year 2009. During the same time period, however, using GAAP, Symantec reported an operating loss of approximately $6.5 billion. Slight difference, no?
Mr. Mazzapelle rightfully complained that publishing both sets of numbers was confusing, and he asked whether the company would continue to publish both sets of numbers. Mr. Salem responded that Symantec would be using both GAAP and non-GAAP methodologies in the future. He said if shareholders wanted a clear vision of the company’s finances, they need only to review Symantec’s cash flow, which is approximately $1.5 billion annually. His response left even a skeptic like me satisfied.
Another shareholder questioned Symantec’s marketing costs. Mr. Salem indicated the company was aware of the issue and was focused on growth (which naturally entails significant marketing costs).
Was Symantec gaining or losing market share against McAfee (MFE)? Mr. Salem said Symantec was gaining in the large enterprise segment, but not in the small business segment. He also said, the “quality of our products has never been better.”
I asked my usual question: what is Symantec’s competitive advantage in the marketplace? Mr. Salem said that Symantec’s software could run on almost any platform (Linux, etc.) and protected consumers “against the widest range of threats.”
Overall, I was very pleased with Mr. Salem’s demeanor, knowledge, and delivery. Prior to the meeting, I was concerned that after having a CEO as charismatic as Mr. Thompson, Symantec’s next CEO would have difficulty measuring up. My concerns were clearly misplaced.
As I mentioned earlier, this is my second year attending a Symantec annual meeting. Once again, Symantec ran its annual meeting professionally. It deserves kudos for delivering a pleasing shareholder experience. Its ability to run a great meeting is especially notable because its local competitor, McAfee, doesn’t seem to emphasize its annual meetings. For example, in recent years, McAfee (MFE) hasn’t bothered with an informal slide presentation. To make matters worse, when I last attended McAfee’s annual meeting, shareholder relations staff treated me like an intruder (I appeared to be the only non-employee shareholder there, which might have bothered them). Although McAfee's stock has done better than Symantec's recently, once Symantec digests its massive (and perhaps ill-timed) acquisitions, it may outperform McAfee. In the meantime, long-term, patient shareholders may want to consider buying Symantec stock.
Disclosure: I own an insignificant number of SYMC shares. If I do add shares, I expect to hold them for several years. Also, I provided a copy of this article to Symantec prior to publication. Consequently, I incorporated some minor changes in my sole discretion. Almost all the changes related to correcting numerical values, such as changing $7.7 billion to $7.4 billion (I originally wrote $7.7 billion because that's the number I heard the shareholder say).
"And if an epitaph be my story, I'd have a short one ready for my own: I had a lover's quarrel with the world." -- Robert Frost
Showing posts with label SYMC. Show all posts
Showing posts with label SYMC. Show all posts
Friday, September 25, 2009
Monday, September 22, 2008
Symantec Corporation (SYMC) Shareholder Meeting
Symantec Corporation (SYMC) held its annual shareholder meeting today at its Cupertino, CA headquarters. Available food included a small spread of Starbucks coffee and untoasted bagels, with some juice drinks on ice. Shareholders received a free copy of Norton 360 Version 2.0 and a zip-up notebook with a pen and calculator inside.
There appeared to be about 25 employees attending, plus around 4 to 10 non-employee shareholders. Helyn Corcos, VP Investor Relations, was in charge of the logistics of the meeting. Ms. Corcos seems very detail-oriented and asked me to rewrite my full name on the sign-in sheet (my handwriting is usually illegible), and then noticed I held my shares in street name, i.e., through a broker. She referred me to another person, Mr. Wilcox, who indicated I could not vote at the meeting, because I had not requested a legal proxy. Later, Mr. Wilcox accepted my legal proxy and politely explained the process of converting the street proxy into a legal proxy. (A shareholder should mark on the ballot that s/he will be voting in person, and then mail his/her voting ballot back to the brokerage, after which it will send a legal proxy. I knew all this, but sometimes the ballot comes in the mail too late to mail it back and receive a legal proxy in time.)
Symantec's CEO and Chairman, John Thompson, led the entire presentation, starting with the formal part and then moving to the informal presentation. A link to Mr. Thompson's background is below:
http://www.symantec.com/about/profile/management/executives/bio.jsp?bioid=john_thompson
Mr. Thompson's informal presentation started with some company background. After explaining that Symantec helps consumers and corporations manage digital content, he pointed to four focus areas: control (handling your digital environment); security (adding that "keeping good things in is as important as keeping bad things out"); compliance (legal requirements); and availability (accessibility of your information). He mentioned Walt Mossberg's glowing review of Symantec's latest Norton Internet Security program:
http://ptech.allthingsd.com/20080917/symantec-rewrites-its-security-suite-to-curb-nuisances/
Mr. Thompson said "the number one issue is managing complexity," and Symantec's overall strategy was to "secure and manage" digital content. More specifically, Mr. Thompson identified five strategic areas:
1. Growing core franchises (security, etc.)
2. Scaling high growth businesses (data loss prevention, etc)
3. Seeding longer term growth (e.g., virtualization)
4. Going international
5. M&A
Symantec is in a good business. Data loss prevention is experiencing a 93% growth rate as more people buy computers and are willing to pay for online security. Symantec is ranked first in multiple categories in terms of market position and has a 58% market share in the fast-growing data loss prevention business.
Mr. Thompson said the company would use 1/2 of CFFO (cash flow from operations) for share buybacks, a very good sign.
The Q&A session started. I asked how Symantec differed from McAfee. I asked this same question from McAfee's CEO, who initially gave a confusing answer. Mr. Thompson's answer was clear and concise. He said McAfee focuses primarily on security, whereas Symantec has a dual focus of giving customers security as well as recovery tools. Mr. Thompson implied McAfee doesn't focus on helping its customers beyond avoiding disastrous online attacks.
Another shareholder asked about the Veritas acquisition. (Symantec bought Veritas and its large enterprise storage business in late 2005.) While seemingly a natural fit--Symantec does data protection for large enterprises, and Veritas handles storage for large enterprises--the acquisition ran into problems that have weighed down Symantec's share price. Symantec's shares were trading around $30 prior to the acquisition and now trade around $19, up from a 52-week low of $14.54.
This is where Mr. Thompson shined. Some CEOs will attempt to duck and dodge bad news, like MGM's CEO, who made overly optimistic comments at his most recent shareholder meeting. Other CEOs get upset at bad news or hard questions, like Enron's former CEO. But Mr. Thompson immediately took responsibility and didn't try to blow any smoke. He said that the execution of the Veritas acquisition has not been stellar, but has improved over the last twelve months. His answer was just the right length and with the perfect tone. I left thinking he knew exactly what the problem was and was on top of it.
Another shareholder asked about Mr. Thompson's thoughts on the recent financial turmoil (e.g., Lehman Bros and Merrill Lynch). Mr. Thompson said the underlying dynamics of his business have not changed--only the identity of the buyers/customers might change. He also indicated that financial companies cannot avoid online security compliance. He then turned the question over to the CFO, James Beer, who confirmed that 98% of Symantec's $2 billion were in banks (cash) or money market funds, not risky or illiquid instruments [such as auction rate securities].
I asked whether Symantec was working with VMware (WMV). Mr. Thompson said that Symantec was working with VMware and had demonstrated the "best backup capability" and very strong endpoint virtualization. He said Symantec might compete directly with VMware in the endpoint market rather than partner with it, because the nature of the software business fostered competition. (This can't be good news for VMware.)
Another shareholder asked a general question about phishing, and COO Enrique Salem said Symantec was working on numerous anti-phishing defenses, including "trustmarks." The meeting ended shortly thereafter.
After the meeting, I got a chance to hear Mr. Thompson speak informally with several people. Mr. Thompson has a gift when it comes to storytelling. He talked about a recent salmon fishing trip, which took place in an exclusive area. From a small story about fishing, he expanded into bears, even detailing an age range in which young male bears are the most dangerous. He expressed more interesting tidbits, like how you shouldn't get between a mother sow (pig) and her young offspring. He talked about silver salmon (after returning to their spawning stream, their coloring changes from pink to pale grey) and why you wanted to catch them right before or after they hit freshwater (they are used to saltwater, so when they hit freshwater, their skin "degenerates"--goes from pink to silver). When I was done listening, I came away thinking this is a man who notices the details and is a natural-born leader. I realized right then and there that Mr. Thompson is one of the most charismatic CEOs in Silicon Valley.
So much of enterprise security sales is about sales ability--the underlying software products aren't yet so different that technology is the primary differentiator. Having a CEO like Mr. Thompson provides Symantec with a clear advantage over competitors, because he is someone you want to listen to and have a drink with. Contrast this with McAfee's CEO, who, while certainly a nice man, doesn't inspire confidence and seems to throw out terms he doesn't fully understand to impress an audience. His offhand, irrelevant mention of the Basel II Accord still rings painfully in my head. I don't claim to understand it 100% either, but even the Dallas Federal Reserve Bank president declined to answer a question about Basel II publicly in a recent Commonwealth Club speech, saying it was too complex for a short answer and the questioner should speak with him privately.
It's worth noting that Symantec's meeting was very well-run--everyone knew what they had to do and adapted when necessary. When there was some static at Mr. Thompson's microphone, several people jumped and tried to fix it without interfering with the presentation. In contrast, during McAfee's shareholder meeting, I got the feeling that no one had spent substantial time planning the meeting in advance. In fact, one of McAfee's employees seemed upset non-employee shareholders had come to the meeting. Here, Mr. Thompson recognized a shareholder from last year and said hello.
If you're ever in a room with Mr. Thompson, go hear him speak. He's charismatic, dignified, and prepared. Mr. Thompson didn't just talk about salmon fishing after the meeting. He also briefly discussed politics. Not surprisingly for a man who has a preternatural ability to put people at ease, he said he supported Barack Obama because he was dismayed at how the country was becoming divided. He said we needed to work together, and he favored "statesmanship rather than brinksmanship." Regardless of your political beliefs, Mr. Thompson's natural leadership ability is exactly what shareholders should value in a CEO whose business involves sales. Between McAfee and Symantec, there is no question that Symantec appears to have a more professional management team. However, both McAfee and Symantec lack true diversity--there are no Asians/Indians on their Boards or in top management positions, which is an unforgivable oversight when some of the fastest growing markets are India, China, and possibly Vietnam. In time, I hope this oversight will change, but when the main problems with your company are diversifying upper management and finalizing an acquisition--neither of which directly impacts your underlying business--that's a good sign.
Disclosure: as of September 22, 2008, I own less than 20 shares of SYMC.
There appeared to be about 25 employees attending, plus around 4 to 10 non-employee shareholders. Helyn Corcos, VP Investor Relations, was in charge of the logistics of the meeting. Ms. Corcos seems very detail-oriented and asked me to rewrite my full name on the sign-in sheet (my handwriting is usually illegible), and then noticed I held my shares in street name, i.e., through a broker. She referred me to another person, Mr. Wilcox, who indicated I could not vote at the meeting, because I had not requested a legal proxy. Later, Mr. Wilcox accepted my legal proxy and politely explained the process of converting the street proxy into a legal proxy. (A shareholder should mark on the ballot that s/he will be voting in person, and then mail his/her voting ballot back to the brokerage, after which it will send a legal proxy. I knew all this, but sometimes the ballot comes in the mail too late to mail it back and receive a legal proxy in time.)
Symantec's CEO and Chairman, John Thompson, led the entire presentation, starting with the formal part and then moving to the informal presentation. A link to Mr. Thompson's background is below:
http://www.symantec.com/about/profile/management/executives/bio.jsp?bioid=john_thompson
Mr. Thompson's informal presentation started with some company background. After explaining that Symantec helps consumers and corporations manage digital content, he pointed to four focus areas: control (handling your digital environment); security (adding that "keeping good things in is as important as keeping bad things out"); compliance (legal requirements); and availability (accessibility of your information). He mentioned Walt Mossberg's glowing review of Symantec's latest Norton Internet Security program:
http://ptech.allthingsd.com/20080917/symantec-rewrites-its-security-suite-to-curb-nuisances/
Mr. Thompson said "the number one issue is managing complexity," and Symantec's overall strategy was to "secure and manage" digital content. More specifically, Mr. Thompson identified five strategic areas:
1. Growing core franchises (security, etc.)
2. Scaling high growth businesses (data loss prevention, etc)
3. Seeding longer term growth (e.g., virtualization)
4. Going international
5. M&A
Symantec is in a good business. Data loss prevention is experiencing a 93% growth rate as more people buy computers and are willing to pay for online security. Symantec is ranked first in multiple categories in terms of market position and has a 58% market share in the fast-growing data loss prevention business.
Mr. Thompson said the company would use 1/2 of CFFO (cash flow from operations) for share buybacks, a very good sign.
The Q&A session started. I asked how Symantec differed from McAfee. I asked this same question from McAfee's CEO, who initially gave a confusing answer. Mr. Thompson's answer was clear and concise. He said McAfee focuses primarily on security, whereas Symantec has a dual focus of giving customers security as well as recovery tools. Mr. Thompson implied McAfee doesn't focus on helping its customers beyond avoiding disastrous online attacks.
Another shareholder asked about the Veritas acquisition. (Symantec bought Veritas and its large enterprise storage business in late 2005.) While seemingly a natural fit--Symantec does data protection for large enterprises, and Veritas handles storage for large enterprises--the acquisition ran into problems that have weighed down Symantec's share price. Symantec's shares were trading around $30 prior to the acquisition and now trade around $19, up from a 52-week low of $14.54.
This is where Mr. Thompson shined. Some CEOs will attempt to duck and dodge bad news, like MGM's CEO, who made overly optimistic comments at his most recent shareholder meeting. Other CEOs get upset at bad news or hard questions, like Enron's former CEO. But Mr. Thompson immediately took responsibility and didn't try to blow any smoke. He said that the execution of the Veritas acquisition has not been stellar, but has improved over the last twelve months. His answer was just the right length and with the perfect tone. I left thinking he knew exactly what the problem was and was on top of it.
Another shareholder asked about Mr. Thompson's thoughts on the recent financial turmoil (e.g., Lehman Bros and Merrill Lynch). Mr. Thompson said the underlying dynamics of his business have not changed--only the identity of the buyers/customers might change. He also indicated that financial companies cannot avoid online security compliance. He then turned the question over to the CFO, James Beer, who confirmed that 98% of Symantec's $2 billion were in banks (cash) or money market funds, not risky or illiquid instruments [such as auction rate securities].
I asked whether Symantec was working with VMware (WMV). Mr. Thompson said that Symantec was working with VMware and had demonstrated the "best backup capability" and very strong endpoint virtualization. He said Symantec might compete directly with VMware in the endpoint market rather than partner with it, because the nature of the software business fostered competition. (This can't be good news for VMware.)
Another shareholder asked a general question about phishing, and COO Enrique Salem said Symantec was working on numerous anti-phishing defenses, including "trustmarks." The meeting ended shortly thereafter.
After the meeting, I got a chance to hear Mr. Thompson speak informally with several people. Mr. Thompson has a gift when it comes to storytelling. He talked about a recent salmon fishing trip, which took place in an exclusive area. From a small story about fishing, he expanded into bears, even detailing an age range in which young male bears are the most dangerous. He expressed more interesting tidbits, like how you shouldn't get between a mother sow (pig) and her young offspring. He talked about silver salmon (after returning to their spawning stream, their coloring changes from pink to pale grey) and why you wanted to catch them right before or after they hit freshwater (they are used to saltwater, so when they hit freshwater, their skin "degenerates"--goes from pink to silver). When I was done listening, I came away thinking this is a man who notices the details and is a natural-born leader. I realized right then and there that Mr. Thompson is one of the most charismatic CEOs in Silicon Valley.
So much of enterprise security sales is about sales ability--the underlying software products aren't yet so different that technology is the primary differentiator. Having a CEO like Mr. Thompson provides Symantec with a clear advantage over competitors, because he is someone you want to listen to and have a drink with. Contrast this with McAfee's CEO, who, while certainly a nice man, doesn't inspire confidence and seems to throw out terms he doesn't fully understand to impress an audience. His offhand, irrelevant mention of the Basel II Accord still rings painfully in my head. I don't claim to understand it 100% either, but even the Dallas Federal Reserve Bank president declined to answer a question about Basel II publicly in a recent Commonwealth Club speech, saying it was too complex for a short answer and the questioner should speak with him privately.
It's worth noting that Symantec's meeting was very well-run--everyone knew what they had to do and adapted when necessary. When there was some static at Mr. Thompson's microphone, several people jumped and tried to fix it without interfering with the presentation. In contrast, during McAfee's shareholder meeting, I got the feeling that no one had spent substantial time planning the meeting in advance. In fact, one of McAfee's employees seemed upset non-employee shareholders had come to the meeting. Here, Mr. Thompson recognized a shareholder from last year and said hello.
If you're ever in a room with Mr. Thompson, go hear him speak. He's charismatic, dignified, and prepared. Mr. Thompson didn't just talk about salmon fishing after the meeting. He also briefly discussed politics. Not surprisingly for a man who has a preternatural ability to put people at ease, he said he supported Barack Obama because he was dismayed at how the country was becoming divided. He said we needed to work together, and he favored "statesmanship rather than brinksmanship." Regardless of your political beliefs, Mr. Thompson's natural leadership ability is exactly what shareholders should value in a CEO whose business involves sales. Between McAfee and Symantec, there is no question that Symantec appears to have a more professional management team. However, both McAfee and Symantec lack true diversity--there are no Asians/Indians on their Boards or in top management positions, which is an unforgivable oversight when some of the fastest growing markets are India, China, and possibly Vietnam. In time, I hope this oversight will change, but when the main problems with your company are diversifying upper management and finalizing an acquisition--neither of which directly impacts your underlying business--that's a good sign.
Disclosure: as of September 22, 2008, I own less than 20 shares of SYMC.
Monday, July 28, 2008
McAfee Shareholder Meeting, July 28, 2008
McAfee's (MFE) shareholder meeting was a low key event. It appeared less than five non-employees attended. The food consisted of some cookies, what looked like a brownie, and sparking juice (berry flavor).
David Dewalt, McAfee's CEO, did the non-formal part of the presentation. No video presentation was involved--just Mr. DeWalt speaking at the podium for about six or seven minutes. See link for more on Mr. DeWalt.
http://www.mcafee.com/us/about/management/david_dewalt.html
McAfee is a security technology company that secures systems and networks. They are famous for their anti-virus software. The highlights of Mr. DeWalt's speech are as follows:
1. McAfee has 125 million downloads/sales.
2. McAfee has 4,500+ employees worldwide.
3. They have 1.2 billion in cash and no debt.
After these points, much of Mr. DeWalt's speech was difficult to understand because it was very general. I have been to many technology shareholder meetings, and it seemed as if this speech/presentation was designed to motivate employees and the Board rather than explain anything in detail. Mr. DeWalt talked about inter-locking security, securing the premises and new frontiers, and other terms relevant to McAfee's security focus.
I did catch one point about a partnership with VMWare, Inc (VMW). Mr. DeWalt mentioned McAfee being more involved in virtual machines, not just physical machines. (For more information, you can search Wikipedia for "virtual machine.") And just like that, the presentation was done.
Another shareholder, an Apple user, asked how Apple's continued popularity will affect McAfee. Apple users are known for boasting about their OS's superior safety; however, some engineers have said there is no salient difference in security. Their opinion is Apple enjoys an advantage against hacking because of its popularity (I have never met a programmer who likes Microsoft) and lower user adoption of the Tiger OS. In other words, Microsoft dominates the field, so it has more hackers gunning for it, and if Apple ever became too large, its security system would also be exposed after hackers focused on Apple rather than Microsoft. Mr. DeWalt said the company was researching Apple's Tiger system and would be prepared to handle any security needs. McAfee's "Avert Labs" is their research arm. Here is their blog:
http://www.avertlabs.com/research/blog/
I asked a few questions. I first asked how McAfee is different from Symantec (SYMC) and whether there was a "wide moat" (a barrier to being overtaken by competitors). Both McAfee and SYMC are known for their anti-virus software, but I've never been able to tell the difference between the two companies. Mr. DeWalt tried to answer my question, but was very general. I asked for more details, and he talked about McAfee's superior work in several areas, such as its Software-to-Services model ("SAS," pronounced "sass"). He said that McAfee had taken market share from SYMC over the past two years. He implied McAfee's encryption was better than SYMC's. He also referred to the involvement with virtual applications, not just physical applications. He ended by saying McAfee was also better in risk and compliance issues, such as understanding regulations and how to comply with new and existing laws. His speech had earlier cited HIPAA, SOX (Sarbanes-Oxley), and even Basel II.
Hence, my second question. I asked how McAfee was involved in the Basel II Accord. I asked this question because it made no sense for an online security company to refer to a system designed to improve and harmonize international financial dealings. Basel II is a very complex idea. Put simply, it is designed to create some consistency and trust in international banking regulations so one country does not create worldwide problems by poorly regulating their banks. The advanced, first world countries most likely envisioned Basel II as a way to decrease risk when dealing with less-regulated or emerging markets. Hilariously, America's Fannie Mae and Freddie Mac, while not banks per se, just proved the need for a stronger Basel II Accord, or perhaps an entirely new Basel III.
Mr. DeWalt said that he was working with the U.K. and each country had different regulatory bodies. He focused on data security and the data loss. Presumably, Basel II has some requirements for how to store customer data so a James-Bond-type can't download someone's bank account in Switzerland through a laptop.
Mr. DeWalt is an amiable man, but my overall feeling is that he wants to be a visionary and uses grand ideas to establish a vision a la John Kennedy's style. That's great if you want to be president of a nation--but for running a tech company, especially one based on credibility, one must be careful to use words in context and to have specific examples if necessary as support for the grand ideas. Mr. DeWalt didn't really explain who he was working with in Europe to implement Basel II. The EU is implementing Basel II now, but most countries will be implementing Basel II by 2015. Mr. DeWalt's glib response might have been due to a lack of time or his general style, which is geared more towards enthusiasm than specifics. I came away thinking McAfee has grand visions but needs to work on being more specific in its business and expansion plans.
My last question had to do with a line in the "Risk Factors" section of the 10-K. California is auditing McAfee's 2004-2005 income tax returns. No specifics were listed in the 10-K. I asked about the audit, and the CFO indicated the audit involved apportioning income between states. Most states are experiencing budget shortfalls and are going after any source of untapped revenue . A company like McAfee that sells a lot of their products online to an anonymous end user may have a difficult time determining in which state it or its customers should pay taxes, thereby allowing an argument that it is underpaying certain taxes. For example, if someone downloads a program in Kentucky but uses it in California, which state should get the tax? It's also possible McAfee wasn't collecting any taxes at all during 2004-2005, but I am speculating. The CFO indicated there had been no claim and no settlement discussions with the State of California.
The CEO came up to me after the meeting and shook my hand. I handed him my business card, which lists me as a lawyer. His face sort of froze a bit. No one in business likes lawyers. I need to get a new card for shareholder meetings. Still, Mr. DeWalt, while amiable, needs to be more specific about future plans and how exactly he will take McAfee into the future. Having 1.2 billion dollars and no debt is impressive. Perhaps the numbers already speak for themselves or will speak for themselves. McAfee releases earnings on July 31, 2008.
After the meeting, I thought about McAfee's wide moat. I didn't really see one at first. McAfee has competition from not only SYMC, but AVG, which offers a free security application. I use a paid security service for my work computer, but AVG for a home computer. And that's when it hit me. McAfee did have some protection against becoming obsolete because no business will entrust their enterprise or business software protection to a company that gives away its product. Consumers are one small part of the pie when it comes to online security, and McAfee and SYMC probably duke it out for the corporate accounts the way Pepsi and Coke fight for market share. But unlike Coke and Pepsi, when times are tough, people won't cut back on online security. It's the last place any business will skimp on--after all, a business will lose days, maybe even weeks, if hackers access its intranet or files. The new essential product is online security, and a recession won't necessarily affect companies like SCUR, MFE, and SYMC. But the proof is in the pudding, and we will see on July 31, 2008, whether McAfee's numbers satisfy Wall Street.
David Dewalt, McAfee's CEO, did the non-formal part of the presentation. No video presentation was involved--just Mr. DeWalt speaking at the podium for about six or seven minutes. See link for more on Mr. DeWalt.
http://www.mcafee.com/us/about/management/david_dewalt.html
McAfee is a security technology company that secures systems and networks. They are famous for their anti-virus software. The highlights of Mr. DeWalt's speech are as follows:
1. McAfee has 125 million downloads/sales.
2. McAfee has 4,500+ employees worldwide.
3. They have 1.2 billion in cash and no debt.
After these points, much of Mr. DeWalt's speech was difficult to understand because it was very general. I have been to many technology shareholder meetings, and it seemed as if this speech/presentation was designed to motivate employees and the Board rather than explain anything in detail. Mr. DeWalt talked about inter-locking security, securing the premises and new frontiers, and other terms relevant to McAfee's security focus.
I did catch one point about a partnership with VMWare, Inc (VMW). Mr. DeWalt mentioned McAfee being more involved in virtual machines, not just physical machines. (For more information, you can search Wikipedia for "virtual machine.") And just like that, the presentation was done.
Another shareholder, an Apple user, asked how Apple's continued popularity will affect McAfee. Apple users are known for boasting about their OS's superior safety; however, some engineers have said there is no salient difference in security. Their opinion is Apple enjoys an advantage against hacking because of its popularity (I have never met a programmer who likes Microsoft) and lower user adoption of the Tiger OS. In other words, Microsoft dominates the field, so it has more hackers gunning for it, and if Apple ever became too large, its security system would also be exposed after hackers focused on Apple rather than Microsoft. Mr. DeWalt said the company was researching Apple's Tiger system and would be prepared to handle any security needs. McAfee's "Avert Labs" is their research arm. Here is their blog:
http://www.avertlabs.com/research/blog/
I asked a few questions. I first asked how McAfee is different from Symantec (SYMC) and whether there was a "wide moat" (a barrier to being overtaken by competitors). Both McAfee and SYMC are known for their anti-virus software, but I've never been able to tell the difference between the two companies. Mr. DeWalt tried to answer my question, but was very general. I asked for more details, and he talked about McAfee's superior work in several areas, such as its Software-to-Services model ("SAS," pronounced "sass"). He said that McAfee had taken market share from SYMC over the past two years. He implied McAfee's encryption was better than SYMC's. He also referred to the involvement with virtual applications, not just physical applications. He ended by saying McAfee was also better in risk and compliance issues, such as understanding regulations and how to comply with new and existing laws. His speech had earlier cited HIPAA, SOX (Sarbanes-Oxley), and even Basel II.
Hence, my second question. I asked how McAfee was involved in the Basel II Accord. I asked this question because it made no sense for an online security company to refer to a system designed to improve and harmonize international financial dealings. Basel II is a very complex idea. Put simply, it is designed to create some consistency and trust in international banking regulations so one country does not create worldwide problems by poorly regulating their banks. The advanced, first world countries most likely envisioned Basel II as a way to decrease risk when dealing with less-regulated or emerging markets. Hilariously, America's Fannie Mae and Freddie Mac, while not banks per se, just proved the need for a stronger Basel II Accord, or perhaps an entirely new Basel III.
Mr. DeWalt said that he was working with the U.K. and each country had different regulatory bodies. He focused on data security and the data loss. Presumably, Basel II has some requirements for how to store customer data so a James-Bond-type can't download someone's bank account in Switzerland through a laptop.
Mr. DeWalt is an amiable man, but my overall feeling is that he wants to be a visionary and uses grand ideas to establish a vision a la John Kennedy's style. That's great if you want to be president of a nation--but for running a tech company, especially one based on credibility, one must be careful to use words in context and to have specific examples if necessary as support for the grand ideas. Mr. DeWalt didn't really explain who he was working with in Europe to implement Basel II. The EU is implementing Basel II now, but most countries will be implementing Basel II by 2015. Mr. DeWalt's glib response might have been due to a lack of time or his general style, which is geared more towards enthusiasm than specifics. I came away thinking McAfee has grand visions but needs to work on being more specific in its business and expansion plans.
My last question had to do with a line in the "Risk Factors" section of the 10-K. California is auditing McAfee's 2004-2005 income tax returns. No specifics were listed in the 10-K. I asked about the audit, and the CFO indicated the audit involved apportioning income between states. Most states are experiencing budget shortfalls and are going after any source of untapped revenue . A company like McAfee that sells a lot of their products online to an anonymous end user may have a difficult time determining in which state it or its customers should pay taxes, thereby allowing an argument that it is underpaying certain taxes. For example, if someone downloads a program in Kentucky but uses it in California, which state should get the tax? It's also possible McAfee wasn't collecting any taxes at all during 2004-2005, but I am speculating. The CFO indicated there had been no claim and no settlement discussions with the State of California.
The CEO came up to me after the meeting and shook my hand. I handed him my business card, which lists me as a lawyer. His face sort of froze a bit. No one in business likes lawyers. I need to get a new card for shareholder meetings. Still, Mr. DeWalt, while amiable, needs to be more specific about future plans and how exactly he will take McAfee into the future. Having 1.2 billion dollars and no debt is impressive. Perhaps the numbers already speak for themselves or will speak for themselves. McAfee releases earnings on July 31, 2008.
After the meeting, I thought about McAfee's wide moat. I didn't really see one at first. McAfee has competition from not only SYMC, but AVG, which offers a free security application. I use a paid security service for my work computer, but AVG for a home computer. And that's when it hit me. McAfee did have some protection against becoming obsolete because no business will entrust their enterprise or business software protection to a company that gives away its product. Consumers are one small part of the pie when it comes to online security, and McAfee and SYMC probably duke it out for the corporate accounts the way Pepsi and Coke fight for market share. But unlike Coke and Pepsi, when times are tough, people won't cut back on online security. It's the last place any business will skimp on--after all, a business will lose days, maybe even weeks, if hackers access its intranet or files. The new essential product is online security, and a recession won't necessarily affect companies like SCUR, MFE, and SYMC. But the proof is in the pudding, and we will see on July 31, 2008, whether McAfee's numbers satisfy Wall Street.
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