Symantec’s tussle with Google
Earlier in this series, we discussed Symantec’s (SYMC) sale of its Web Security business and its potential impact on the company’s margins. Let’s see what triggered Symantec for this sale.
Symantec was in the news for months after Google (GOOG) raised questions over the authenticity and validity of its web security certificates. At one point, Google threatened to cease recognizing all Symantec-issued certificates. Not long after this event, both companies agreed to a deal that would have been put into effect in December 2017 had Symantec not sold its Web Security business to DigiCert.
Web Security business’s impact on margins
Google’s action triggered Symantec’s Web Security business sale and noted that it brought “growth opportunities” in IoT to DigiCert.
In its fiscal 1Q18 earnings release, Symantec highlighted that its Website Security and related PKI solutions are expected to contribute ~$400 million and ~$180 million in overall revenues and operating income, respectively. Its operating income of $180 million translates to an ~45% operating profit margin.
The $950 million that Symantec received from the sale of its Web Security business includes $350 million in cash costs such as taxes and fees. Taking that into effect, essentially 70% of the business was valued for $600 million. In our view, this was a distressed sale that could an adverse impact on its margins.