Microsoft Corp. plans to offer its own anti-virus software and has a major security update to Windows in the works.
Now some investors are speculating that the world's largest software maker could be planning an even bolder move by acquiring a major software security maker.
Network Associates Inc.'s shares climbed 3.6 percent on Tuesday, after a report by computing industry tracker CRN said that the maker of McAfee security software was up for sale. Shares in the company rose 59 cents to $17.16.
Network Associates, based in Santa Clara, Calif., was planning to announce a pending or closed sale on July 1 along with layoffs, CRN reported late Monday.
The report also hit shares of Symantec Corp., Network Associates' biggest competitor, adding to a decline that began early last week when Mike Nash, chief of Microsoft's security business unit, said that Microsoft was on track to offer its own anti-virus product separate from Windows. (MSNBC is a Microsoft - NBC joint venture.)
Shares in Symantec closed 1.4 percent lower at $40.16 on Tuesday, and have lost 12 percent since the beginning of last week.
"Microsoft has identified security as a top priority," said Dwight Davis, analyst at Summit Strategies.
Microsoft's last major acquisition came three years ago when it spent more than $2.5 billion to acquire Great Plains Software and Navision, a Dutch software maker, to build a new division selling software for small and medium-sized businesses.
Network Associates did not comment on the CRN report.
Symantec also declined comment, but repeated that it was "happy to hear that they (Microsoft) plan to compete fairly with a fee-based, stand-alone offering."
Potential snags
Redmond, Wash.-based Microsoft has promised its customers more secure and reliable software under its "Trustworthy Computing" initiative launched by Chairman Bill Gates in early 2002.
A major update to Windows XP, called Service Pack 2, that aims to boost the security of Microsoft's flagship product, is also close to being finalized and released to customers this summer.
And last year Microsoft acquired anti-virus technology from GeCAD Software Srl., a Romanian software company, to develop its own software.
Microsoft, which is sitting on more than $56 billion in cash, could easily afford to buy Network Associates, which after Tuesday's share rally was valued at $3.2 billion .
Analysts noted, however, that there would be plenty of reasons to doubt whether a deal was imminent.
"This would be quite a break in tradition for Microsoft, which has historically chosen the latter half of the buy or build equation," Brian Bolan, analyst at Marquis Investment Research, said in a report.
Antitrust concerns might also prevent an acquisition, although analysts also noted that the security industry was also a notoriously competitive market and buying a security software vendor would face relatively less resistance.
"It raises less issues for Microsoft to acquire more presence in the security market than when it moved into the business applications market," Davis said.
Another snag in a potential Microsoft acquisition of Network Associates, however, could be the latter's troubles with the Securities and Exchange Commission involving overstated revenue and earnings, which forced the company to restate earnings several times over the past three years.
Last week, the former chief financial officer at Network Associates, Prabhat Goyal, was sued by the SEC for his role in overstating revenue and earnings from the second quarter of fiscal 1998 through the fourth quarter of fiscal 2000, and selling stock during the period.