BOSTON, US: No. 2 security software maker McAfee Inc is poised to take share in the lucrative consumer anti-virus market from bigger rival Symantec Corp, thanks to help from the world's biggest PC makers.
McAfee has spent more than a year bolstering relationships with personal computer vendors, convincing them to load trial versions of its security software onto their hardware.
Such deals have historically proven to be among the most effective ways to sell consumer software, analysts say. PC users can try the software without having to pay upfront or go through the trouble of installation.
"Most consumers will take whatever comes on their machine. They don't have loyalty to a particular brand. They have loyalty to ease of use," said Laura DiDio, an analyst with Information Technology Intelligence Corp.
McAfee has aggressively expanded distribution on new PCs since Chief Executive Dave DeWalt took the helm in April 2007. Back then, about 25 percent of PCs sold by major manufacturers came loaded with McAfee programs.
Now, a little more than 50 percent of PCs now ship with McAfee anti-virus software trials, according to the company. It has deals with nine of the top 10 PC makers, whereas Symantec says it has deals with seven of them.
The deals have started to translate into increased sales, analysts say. McAfee's sales of consumer software rose 18 percent last year to $636 million.
Symantec's sales grew at a slower clip, rising 6 percent to $1.8 billion, but the company still controls more than half the consumer security market worth at least $2.6 billion a year, according to Gartner and IDC research.
"McAfee is in a better position," said Gartner analyst Ruggero Contu, who is still crunching last year's data but said he believes McAfee won share from Symantec in 2008 and will likely do so again in 2009.
On Wall Street, nine analysts have buy recommendations on McAfee, with seven outperform ratings and eight holds, according to Reuters Estimates. Symantec, meanwhile has six buys, seven outperforms and 14 holds.
Focus on HP
The two California-based software makers declined to discuss terms of their deals with PC makers. Analysts say these deals generally go to the bidder offering top dollar, usually with upfront payments and commissions on software purchases.
"McAfee should reap the financial benefits from these deals over the next 12 to 18 months," said FBR Capital Markets analyst Daniel Ives. He has a market perform recommendation on McAfee and outperform on Symantec.
McAfee's biggest hardware partners include Dell Inc, Acer Inc, Lenovo Group Ltd, Toshiba Corp and Sony Corp.
It has its eye on a tie-up with Hewlett-Packard Co, the world's biggest PC maker, which has an exclusive consumer PC deal with Symantec.
"We are very focused on trying to win that business," said McAfee Executive Vice President Todd Gebhart.
The president of Symantec's consumer business unit, Janice Chaffin, declined to say when the HP deal expires. "These relationships are constantly changing," she said.
Chaffin added that some manufacturers distribute both Symantec and McAfee software.
Symantec claimed 68 percent of the anti-virus market in 2007, the most recent year for which data is available, according to Gartner. IDC puts Symantec's share at 52 percent.
Gartner estimates that McAfee held a 14 percent share in 2007, while IDC estimates it was about 18 percent -- more than double the 7 percent share for No. 3 player, Japan's Trend Micro Inc.
McAfee Shares Underperform
In the first two months of the year, McAfee shares dropped 19 percent while Symantec shares climbed 2 percent. The Nasdaq Composite Index fell 13 percent over the same period.
Cowen & Co. analyst Walter Pritchard believes McAfee's stock price has yet to reflect future payoffs from the PC deals because some investors worry that the software is paying too much for distribution rights.
He has an outperform rating on McAfee and neutral on Symantec.
But McAfee's Gebhart said such concerns are unfounded because his company always builds a strong business case before signing any deal.
Pritchard agrees. "They have proven they don't do deals that don't work out," he said. "If you have my opinion, then you believe the stock is undervalued."
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