NetIQ Corporation

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NetIQ Corporation

3553 North First Street
San Jose, California 95134
U.S.A.
Telephone: (408) 856-3000
Fax: (408) 273-0578
Web site: http://www.netiq.com

Public Company
Incorporated: 1995
Employees: 1,332
Sales: $213.2 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: NTIQ
NAIC: 511210 Software Publishers

NetIQ Corporation develops software that helps companies manage their computer networks, offering its customers control over performance, security, configuration, and vulnerability issues. The company's products are organized under four classifications: performance and availability management; security management; configuration and vulnerability management; and operational change control. NetIQ's performance and availability management software is designed to identify and to respond to application failures, system software crashes, hardware failures, slow response time, and insufficient resource capacity. Its security management software reduces exposure time to security breaches and identifies corporate policy violations. The company's configuration and vulnerability management software enables customers to assess network vulnerabilities and manage risk. The company's operational change control products allow companies to delegate administrative tasks and manage user accounts. NetIQ serves more than 60,000 customers through facilities located in 16 countries.

ORIGINS

Like most companies, NetIQ evolved during its first decade in business, beginning with a foundation that enabled it to establish itself as a going enterprise before using that foundation as a springboard to become something more than its founders originally conceived. NetIQ's foundation, set following its formation in September 1995, was in developing performance-monitoring software for companies with a presence on the Internet. Its reputation during its early years, the early years of the Internet as well, was built on a suite of products marketed under the name "AppManager." The AppManager found a receptive audience in the commercial sector because of its ability to monitor performance across large-scale networks. For a business keen on knowing the details of its web site's performance, as the online face of the business met a potential customer, AppManager provided useful information. The software measured server response time, registered minor idiosyncracies of the system, and alerted systems managers of potential problems. NetIQ established itself in the performance-monitoring niche, earning enough of a reputation to complete an initial public offering (IPO) of stock in July 1999, just as interest in any business related to the Internet was reaching fever pitch. To the company's credit, it foresaw the rapid maturation of its industry and cast a much larger net, evolving beyond a performance-monitoring software company.

The explosive growth of the Internet created a need for businesses to not only know how well their web sites performed, but also how visitors interacted with their web site. This was the major leap describing the difference between offering performance-monitoring software and systems-management software. NetIQ was able to make the leap because of its accomplishments as a performance-monitoring software provider, but the evolutionary step it chose to take was as much bold as it was the only viable option for survival. For virtually any company involved in anything related to computers or the Internet, Microsoft Corporation was an industry behemoth that at some point had to be confronted. Net-IQ did well as a performance-monitoring software developer, but its management realized it was only a matter of time until Microsoft turned its attention to the performance-monitoring niche and quickly dominated the market segment. The realization left Net-IQ's management essentially with only two options: either fight on and most probably be crushed by Microsoft, or concede, get what it could from the technology it had developed, and redirect its focus to another, potentially more fruitful, business.

NETIQ CHANGING TACK FOR THE NEW CENTURY

NetIQ's senior executives chose to control their own destiny, expressing their decision via an acquisition and by ceding ground in its performance-monitoring niche. The first step toward developing a presence in a larger market was taken in February 2000, when NetIQ merged with Mission Critical Software Inc in a $1.4 billion deal. The two companies focused on separate, but related areas, with NetIQ targeting performance-monitoring business and Mission Critical targeting systemsmanagement business, the future of the "new" NetIQ that emerged after the merger. The acquisition reflected NetIQ's realization that vast opportunities existed in the realm of applications management tools, a market the company intended to tap with Mission Critical's suite of One Point products. Developed for large-scale, Windows NT-based networks, One Point managed user traffic, user accounts, and network security, giving NetIQ a toehold in the systems-management market. A series of smaller acquisitions followed, including the purchase of Sirana Software Inc., Ganymede Software Inc., and Software Realization Inc., each of which added new systems-management components to NetIQ's product portfolio. After bolstering its systems-management business, the company "made what amounted to a sacrifice fly," according to the November 8, 2000 issue of Investor's Business Daily. In October 2000, NetIQ signed a $175 million product licensing deal with Microsoft, giving ground to obtain the resources to expand its systems-management capabilities further. "What you really have is, they sold the [performance-monitoring] product," an analyst explained in the November 8, 2000 issue of Investor's Business Daily. "They received $175 million to invest in extending their product portfolio and to help redefine themselves. That's what people are excited about."

The interest in NetIQ ratcheted up soon after the licensing agreement with Microsoft was signed. In January 2001, the company announced another mammoth deal, revealing that it intended to acquire Portland, Oregon-based WebTrends Corporation in an all-stock deal valued at $1 billion. WebTrends, known as an analytical software company, specialized in the analysis of log files, the principal resources from which Internetbased businesses derived information regarding how visitors used their web sites. Analyzing web logs was considered too complex and too costly for an Internetbased company to conduct internally, which meant that applying analytics to log files required the services of an application services provider (ASP) or the installation of software capable of gleaning pertinent information from the files in-house. With the addition of WebTrends, Net-IQ positioned itself to offer a range of software packages for which the company charged an annual license fee of between $700 and $10,000, and to compete as an ASP, creating a "powerhouse" that held sway as the "unquestioned leader in e-business infrastructure management and intelligence solutions," according to the May 21, 2001 issue of 123Jump.

COMPANY PERSPECTIVES

NetIQ is a leading provider of integrated systems and security management solutions that empower IT with the knowledge and ability to assure IT service. NetIQ's Knowledge-Based Service Assurance strategy embeds knowledge and best practices to ensure operational integrity, better manage service levels and risk and ensure policy compliance. With NetIQ you know your IT service is assured.

Despite 123Jump 's glowing appraisal of the WebTrends deal, there was more than a modicum of investor pessimism about the merger. Within hours of the announcement, doubts about the deal's worth drove its value down by 20 percent. As the investing public grew increasingly disenchanted with the Internet sector, the valuation, as measured by the trading price of NetIQ's stock, plummeted. By the time the deal closed in March 2001, what had been announced as a $1 billion merger ended up as a $250 million transaction.

As NetIQ progressed toward its tenth anniversary, the company continued to strengthen its capabilities by targeting rivals and bringing their expertise under the NetIQ banner. The acquisitions helped build the company's business along three fronts: system management, security management, and web analytics. To lead the company during its acquisitive phase, a new executive was brought in, marking a transition in leadership that saw one of NetIQ's founders end his stay at the company. Ching-Fa Hwang, who had helped start NetIQ and had served as the company's president and chief executive since its inception, named Charles M. Boesenberg as his replacement. An executive with 30 years of experience in the technology industry, Boesenberg held senior executive positions at Apple Computer and IBM before serving as chief executive officer and president of three companies: Central Point Software, Magellan, and Integrated Systems. Hwang stayed on as chairman of NetIQ for the first half of 2002, completing a planned succession of leadership that culminated with Boesenberg being named chairman in July 2002.

Under Boesenberg's control, NetIQ completed two acquisitions in 2002 that bolstered its security management business. In October, the company announced it had agreed to purchase PentaSafe Security Technologies, Inc., a Houston, Texas-based specialist in security management solutions. "This is a compelling and strategic combination that we are convinced will deliver strong results for customers and shareholders," Boesenberg explained in an October 1, 2002 NetIQ press release. "PentaSafe brings to our team a wealth of experience and knowledge in a fast growing market that will be instrumental in building on our strategy to become the leading provider of integrated cross-platform systems and security management solutions." The day after the $255 million deal was completed in early December 2002, Boesenberg announced a second acquisition meant to expand the company's security management business. Marshal Software Ltd., an Auckland, New Zealand-based company, was the target. Marshal developed software to safeguard networks, but its specialty was in providing security solutions for e-mail environments, giving administrators control over protecting confidential information, blocking e-mailbased viruses, and enforcing e-mail usage policies. The $23 million acquisition was completed before the end of the year, adding Marshal's customer base of 3,500 to NetIQ's expanding operations.

NETIQ PREPARING FOR THE FUTURE

In the final years before NetIQ's tenth anniversary, the company halted its acquisition campaign, directing its attention instead to integrating the assets it had purchased during the previous years. The period also was devoted to expanding the company's capabilities beyond serving Windows-based systems, as NetIQ broadened its product portfolio to embrace systems and security management products for UNIX and Linux operating systems. Against the backdrop of product upgrades and a focus on developing cross-platform solutions, NetIQ made a decision to shed its web analytics business. In the spring of 2005, the company announced it wanted to divest WebTrends, "undoing a deal from the final, fevered days of the Internet craze," as the March 29, 2005 issue of the Oregonian described it. The company, which had been operating in Portland as a division of NetIQ, was purchased by its managers with the financial backing of Francisco Partners, L.P., a California-based private equity firm. The deal was completed in May 2005 for $94 million, stripping an estimated $47 million from NetIQ's revenue volume.

KEY DATES

1995:: NetIQ is incorporated.
1999:: NetIQ completes its initial public offering of stock.
2000:: A merger with Critical Software Inc. paves NetIQ's entry into systems-management software development.
2001:: NetIQ acquires WebTrends Corporation.
2002:: Charles M. Boesenberg is named chairman, chief executive officer, and president.
2005:: WebTrends is sold.

As NetIQ celebrated its 10th year in business, the company stood as a far more comprehensive software developer than the company born a decade earlier. The evolutionary leap from providing performance-monitoring software to providing systems management and related software fueled energetic financial growth, lifting the company's revenue total from less than $400,000 in 1997 to $213 million in 2005. Although the increase in sales was substantial, the company could not claim similar success with its profitability. The process of maturing and redefining itself came at a cost, one that was evinced in NetIQ's bottom line. The company was a perennial money loser, racking up roughly $4 million in losses between 1999 and 2004. As the company prepared for its second decade of business, it began the journey on a positive note, recording a profit in 2005 of slightly more than $45,000. More of a symbolic victory than a substantial financial gain, the profit total perhaps marked the beginning of consistent profitability for NetIQ. To give his company a better chance at steady profitability, Boesenberg announced in mid-2005 that he would reduce the company's payroll by 15 percent and move certain operations from San Jose to Houston. Although the changes were expected to result in restructuring charges in 2006, Boesenberg was confident that the years ahead would confirm the prudence of the realignment and spark a successful start to NetIQ's second decade of business.

PRINCIPAL SUBSIDIARIES

NetIQ Pty. Ltd. (Australia); NetIQ do Brasil Ltda. (Brazil); NetIQ Europe Limited (Ireland); NetIQ deutschland GmbH (Germany); NetIQ Ireland Limited; NetIQ Software Internationl Limited (Cyprus); NetIQ K.K. (Japan); NetIQ Nederlands (Netherlands); NetIQ Benelux (Belgium); NetIQ Canada Corporation; NetIQ Denmark Aps; NetIQ France SARL; NetIQ Asia Limited (Hong Kong); NetIQ Italia SRL (Italy); NetIQ Asia Pty. Ltd. (Singapore); NetIQ Software Espana SL (Spain); NetIQ Limited (U.K.); NetIQ Sweden AB; Database Tools Development (Proprietary) Limited (South Africa); Marshal Software Limited (New Zealand); Marshal International Limited (New Zealand); Marshal Software LLC; Mission Critical Software, Inc.; PentaSafe Security Technologies, Inc.; PentaSafe Distribution Inc.; PentaSafe Security Technologies, Ltd. (U.K.); PentaSafe Security Technologies GmbH (Germany); PentaSafe Services, Inc.; PentaSafe Security Technologies A/S (Denmark).