Why Symantec Might Have to Resort to Layoffs to Control Costs



More pressure on Symantec

Symantec’s (SYMC) recently announced fiscal 3Q16 results marked the first quarter. It didn’t include Veritas as a continuing operation. Symantec also secured a $500 million investment from Silver Lake Investment—a PE firm.

With Silver Lake’s investment, Symantec stated that it won’t just get funds to develop into a fully fledged security offerings company. It will also get an incremental benefit from Silver Lake’s expertise in the technology sector. In the past, Silver Lake had a similar agreement with Avago (AVGO). It merged with Broadcom, Dell, and Motorola Solutions. Ken Hao joined Symantec’s board as part of the investment. He stated that “Symantec has become now a pure-play security software and services company.”

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Elliott Management also secured a stake in Symantec. If Elliott Management’s history is anything to go by, Symantec’s CEO Michael Brown will likely face pressure to keep costs under control. He will be pressured to keep the company’s focus specifically on its core security software and services offerings.

Symantec might have to resort to layoffs

Symantec, along with its capital return program, announced that it intends to save ~$400 million per year by the end of fiscal 2018. It’s likely that Symantec plans to achieve this cost savings by announcing layoffs. Technology companies often resort to layoffs to keep a tab on the costs. VMware (VMW) also announced layoffs with its recent fiscal 4Q15 results.

The above presentation shows the historic numbers for US tech job cuts as reported by Challenger, Gray & Christmas—an employment consulting firm. In 2015, the tech sector accounted for 13% of the 598,510 job cuts. Although job cuts in the tech space fell in 2015, announced job cuts by companies like Hewlett-Packard (HPQ), Microsoft (MSFT), Intel (INTC), and Unisys led to a 5% increase in job cuts from 59,528 in 2014 to 62,191 in 2015.

Investors who want to gain exposure to Symantec can consider investing in the Technology Select Sector SPDR Fund (XLK). XLK invests 35% of its holdings in application software. It invests ~0.34% of its holdings in Symantec.


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