Down Payment on the Future
Similarly, with the number of system and network security breaches rising steeply, McAfee hasn't seen any falloff in demand for its security software. To the contrary, net revenue for the publicly traded company grew to $448 million in the first quarter, up 21% from last year's Q1. More than half of that increase was attributable to several acquisitions the company made, but organic growth amounted to $31 million in the quarter.
While McAfee has reined in many areas of spending to keep its cost structure in line with other software companies, it's using some of its cash for major upgrades to its IT infrastructure, enterprise resources planning system, and customer relationship management system. The goal, in part, is to be ready for an economic upswing. "We're able to spend more now because of the market conditions, but we're also looking to be positioned to handle accelerated growth when the economy gets better," said Keith Krzeminski, senior vice president of finance and chief accounting officer. "To not do it would be to risk forgoing that growth."
The CRM upgrades, for example, are designed to make sales forecasting and order processing easier so that the sales force can spend less time working with internal technology and more time selling to an expanding market, Krzeminski said.
He acknowledged that because business has remained so brisk, the company has considered that there may not be as much pent-up demand for security software as there could be for some other kinds of applications. Still, McAfee is positioning itself to benefit from an expected continuation of tight cost controls.
A key goal of the acquisitions has been to assemble a broad array of security tools and combine them with McAfee's existing products on an integrated platform. That will allow the tools to be managed from a single command post and let customers realize savings by reducing the number of security vendors they deal with, according to the company's pitch. "It's a play to customers' needs — they're looking for the highest level of protection at the lowest possible cost," Krzeminski said.
Hurrying to Market
Current results are more mixed for another software vendor, Sabrix. During the recession many potential customers are putting off decisions on whether to buy the company's core product, an application that calculates sales and use taxes as an add-on to enterprise resource planning systems. "They're saying they just need to see what the next quarter looks like before they do anything," said Jeff Stephens, CFO of the privately held company.
At the same time, though, the company is seeing increased demand for a tax-compliance outsource service it launched in 2007. The service not only calculates the tax, but also prepares the returns. Coming soon, according to Stephens, is an added service that will file the returns with jurisdictions and make the payments.
That's one of several services Sabrix is hurrying to get ready well in advance of previous timelines. "We've pulled some things in years ahead of the original roadmap," Stephens said, "to take advantage when people start spending again." Not that they'll be spending wantonly. After the economy clears up, the company believes businesses will still be very careful with costs. Demand may therefore grow for outsource services, which typically cost less than enterprise solutions.
The urgency to bring new services to market grew out of an executive meeting last October. "Companies were talking about survival, but that didn't sound like it should be our goal. We talked about what we had to do to thrive when this thing turns around," said Stephens.
Another plan was investment in human resources. Sabrix had decided earlier to merge its two operating divisions and eliminate redundancies in sales, engineering, administration, and customer support, which pared the work force by 10% tp 15%. But the company has approved enough open positions to bulk back up by more than 5% in order to take advantage of the availability of good people, especially those with technical skills, who are out of work.
The company also boosted its spending on advertising and marketing, to get out the message about its outsource services.
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