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Why Symantec’s Earnings Could Remain Sluggish in Q1

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Symantec’s earnings

Symantec (SYMC) reported adjusted earnings of $0.39 per share in the fourth quarter of fiscal 2019, which declined ~11.4% from both the prior-year quarter and the sequential quarter due to higher investments in the enterprise security segment. In comparison, Oracle’s (ORCL) earnings of $1.16 per share topped the estimates by 8.4% and the year-ago number by 22.1% in the last-reported quarter. Microsoft’s (MSFT) earnings of $1.14 grew 20% YoY in the third quarter.

Expectations for Q1

Symantec anticipates its first-quarter fiscal 2020 adjusted earnings in the range of $0.30 to $0.40 per share in comparison to last year’s earnings of $0.34 per share. While revenues are expected to grow 3.5% YoY in Q1 on a constant currency basis, we expect the soft operating margin to dent earnings in the first quarter.

For Q1, the company has predicted an operating margin in the range of 25% to 27%, down from the fourth quarter’s margin of 29%. The company noted increased costs in the Enterprise Security business would continue to hurt margins in the first quarter. The company is increasing spending in infrastructure to support the cloud business.

Cloud business

The growing acceptance of cloud services technology, which allows a user to store and share data to remote locations, has enabled software companies to focus more on its cloud business. As per the latest Gartner report, the worldwide public cloud service revenues are projected to grow 17.3% ($214.3 billion) in 2019, up from $182.4 billion revenues in 2018. By 2022, public cloud service revenues are expected to touch $331.2.

Recently, Symantec’s cloud product is also improving and is now able to retain more customers in the data level protection market, as a lot of companies remain concerned about data breaches in the cloud. Amid growing cloud security concerns, Symantec aims to address the security and compliance issues related to enterprises’ transition to cloud with its Integrated Cyber Defense Platform, through a suite of IaaS, PaaS and SaaS technologies.

Symantec has also partnered with major cloud service providers like Microsoft, Amazon, and Oracle, which has expanded its reach to different markets.

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