Must-know overview of Symantec: A company in transition

Why Symantec’s revenue has been declining

Symantec announced a turnaround strategy in 2013 under former CEO Bennett, and said it was focused on implementing the changes over the first two quarters of fiscal 2014. Although revenue rose in the first quarter of 2014, subsequent quarters saw a decline. The company expects a revival in revenue and earnings growth in early fiscal 2015, and said it was committed to its target of more than 5% organic growth and higher than 30% adjusted operating margin by fiscal 2017.

Symantec RevenuesEnlarge Graph

Symantec’s fiscal third quarter 2014 results, which were announced in January 2014, beat street expectations, but revenue fell 5% to $1.7 billion year-over-year due to its sales restructuring initiatives under the turnaround plan. License revenue declined 27% year-over-year while content, maintenance and subscription revenue was flat. GAAP operating margin of 23.8% grew 680 basis points, resulting in GAAP earnings per share of $0.40, up 29% year-over-year. Operating margins expanded due to lower sales and marketing expenses driven by sales restructuring initiatives. GAAP net income was $283 million, up 31% year-over-year. Symantec’s sales have been impacted by low demand for its storage and security products and a slump in the PC market.

In terms of segment highlights for the fiscal third quarter 2014:

  • The User Productivity & Protection segment represented 42% of total revenue and declined 4% year-over-year to $718 million. The revenue decline was primarily due to weakness in endpoint management sales. Most of Symantec’s security products are bundled with PCs and sales have been impacted by declining PC shipments and the shift towards smartphones and tablets. Worldwide PC shipments totaled 82.6 million units in the fourth quarter of 2013, a 6.9% decline from the fourth quarter of 2012, according to preliminary results by Gartner, Inc. According to IDC, worldwide PC shipments were expected to decline 10% in 2013.  Total shipments are expected to decline by an additional 3.8% in 2014 before turning slightly positive in the longer term. In 2012, Symantec was the leader in the security software market, with 19.6% share, followed by Intel Security (formerly McAfee), with 8.8%, according to Gartner.
  • The Information Security segment represented 19% of total revenue and declined 3% year-over-year to $327 million due to decreased revenue in data center security and mail and web security businesses. The company discontinued its Managed Firewall and Managed Endpoint Protection services in June last year that were under the Managed Security Services (MSS) portfolio in a move aimed at streamlining its offerings. A report in channelnomics noted that solution providers criticized the move as they felt that Symantec was disrupting existing relationships and sacrificing future opportunities.
  • The Information Management segment comprises the NetBackup and recovery products and represented 39% of total revenue. Segment revenue declined 6% year-over-year to $660 million primarily from weakness in its information availability offerings and Backup Exec products. Symantec last year said it will discontinue its Backup Exec.cloud service, which was a pure cloud-based offering designed for small businesses to back up data.

The company also saw revenue decline domestically and internationally, especially in the Asia Pacific/Japan region, which represented 17% of total revenue and decreased 12% year-over-year. Symantec said the revenue declined primarily due to foreign currency translation adjustments resulting from the weakening of the Japanese yen against the U.S. dollar. International revenue represented 53% of total revenue and decreased 4% year-over-year.

The company’s outlook for the fourth quarter of fiscal 2014 came below analyst consensus. Symantec expects revenue of $1.615 billion to $1.655 billion, compared to $1.748 billion in the year-ago period. GAAP diluted earnings per share is forecast between $0.29 and $0.31 as compared to $0.27 in the year-ago period. GAAP operating margin was estimated at 18.0% to 19.5% compared to 14.6% in the year-ago period.

Bennett also did not rule out acquisitions. He said on the earnings call that, “we plan to announce several small acquisitions over the next couple of quarters that will help us accelerate the progress of our strategy. We are focused on acquiring technology and engineering teams that accelerate our progress in delivering innovative new solutions that win in the marketplace.”

The cybersecurity has seen plenty of M&A since last year as Cisco (CSCO) acquired Maryland security company Sourcefire for $2.7 billion, IBM acquired Trusteer while Intel Security (formerly McAfee) acquired Stonesoft. Tech security upstart FireEye acquired Mandiant for $1 billion in early January. Mandiant is a forensics firm that identified a sophisticated Chinese hacking operation. Palo Alto Networks acquired Morta Security and Israel-based Cyvera. UK-based Sophos recently acquired Cyberoam Technologies, an India-based provider of network security products.

Looking ahead…

Bennett said on fiscal third quarter 2014 earnings call that Symantec is forging partnerships with next-generation firewall makers to more tightly integrate the appliances with Symantec Endpoint Protection. For mobile security for both businesses and consumers, Symantec launched the latest version of Mobile App Center, formerly Nukona, for mobile device and mobile application management. The Symantec Sealed program delivers enterprise-class security for both internal and third-party applications on both iOS and Android operating systems. The program currently has 60 partners including Webalo, Damaka, Alfresco and SAVO Group, and more than 125 applications, Symantec said in a February release. Norton Zone, enables mobile customers to secure and access their corporate data anytime, anywhere on any device. These new services support Symantec’s existing Enterprise Mobility Management capabilities.

The company is also looking to enhance its capabilities under cloud infrastructure platforms, hardware supply chain, global security intelligence network and Information Fabric. With Information Fabric enterprises can effectively protect, manage and derive value from their data regardless of where it is stored, and at the same time have control and visibility over the data across private, public and hybrid clouds.