UPDATE 3-McAfee reports lower 1st-qtr net as spending rises

(Adds comments from CEO and analyst.)

By Jim Finkle

BOSTON, April 24 (Reuters) - McAfee Inc (MFE.N), the world's second-largest security software maker, posted a steeper-than-expected 27 percent drop in quarterly profit on Thursday as it increased spending on product development and marketing to boost share.

First-quarter net income dropped to $31.6 million, or 19 cents a share, from $43.4 million, or 27 cents a share, a year earlier. Three months ago, the company forecast first-quarter income of 24 cents to 29 cents per share on revenue of $345 million to $360 million.

Profit excluding special items was 43 cents a share, below the 45 cent average target by analysts, according to Reuters Estimates.

Revenue rose 17 percent to $370 million, beating the average analyst estimate of $352 million but far short of market leader Symantec Inc's (SYMC.O) revenue of $1.5 billion in its most recent fourth quarter.

"My goal is to be the number one security vendor. There is just no other way about it," McAfee Chief Executive Dave DeWalt said on a conference call.

DeWalt said he hired new sales managers, 60 new sales representatives and improved product offerings during the quarter, adding the investments would pay off over the long term.

He said that contributed to an increase in operating expenses to $226 million from $203 million.

"The investment is a balancing act," said FBR analyst Daniel Ives. "They have a strong growth opportunity ahead of them."

ECONOMIC SLOWDOWN

DeWalt told Reuters in an interview that he saw no signs of his business being hurt by the economic slowdown, even among customers who have been hardest hit.

"Security is a very high requirement for companies," the CEO said. "It's not like financial services companies -- who have probably had the roughest time economically -- are going to stop spending on security," he said. "Can you imagine the implications of that one?"

Ives said the comments would alleviate concerns among investors that security software makers could get clobbered if the economy continues to worsen.

Symantec is due to report results on April 30.

DeWalt said that he was not being forced to discount products more heavily than usual, adding that the average sales price per machine protected by his software was up about 30 percent during the quarter from the year-earlier period.