Symantec Soars Amidst Sustained Market Strain

Symantec (NASDAQ: SYMC), the world’s largest maker of security software, announced rather impressive Q3 results on January 28 that sent its stock surging 6%.

With revenue of $1.54 billion, the company reported growth of 1% over the previous year and met the Street’s revenue expectations. EPS of $0.42 was significantly higher than the market’s expectations of $0.32 and recorded 27% growth over the year.

US markets recorded growth of 7% in revenues and contributed $0.77 billion to quarterly revenue. International markets also contributed about $0.77 billion; however, international revenue recorded a decline of 5% over the year due to the negative impacts of currency devaluation.

By segment, the Consumer business generated revenue of $0.45 billion and grew 2% over the year. Storage and Server Management segment grew 1% over the year to $0.57 billion. Security and Compliance revenue was down 5% over the year to $0.40 billion. The Services segment grew a substantial 20% over the year to clock $0.13 billion.

Going forward, the company expects revenue of $1.49-$1.54 billion with EPS of $0.33-$0.35.

Symantec management believes that the current market conditions are driving customers to cut IT spending, particularly storage spending. But the company also says its products allow customers to reduce storage costs by better utilizing existing storage and by buying additional storage at lower costs, and they seem confident of expanding their market share. To expand their base in the SMB segment, they entered into a partnership with Dell. The Dell-based disk arrays are preinstalled with Backup Exec 12.5 and are currently outselling their “competitor’s technology by 3 to 1.”

Last year the company acquired Vontu, a leader in data loss prevention (DLP) software. The acquisition has been quite successful, with the DLP team leveraging the Symantec direct sales force and channel presence to expand globally. As an illustration of the company’s success, Continental Airlines has licensed Symantec’s Data Loss Prevention suite to help protect sensitive data to ensure compliance with state data privacy laws and to help maintain PCI (Payment Card Industry) compliance.

Symantec continued with its trend of acquisitions by spending $0.62 billion in the quarter to acquire MessageLabs and $0.24 billion on PC Tools. MessageLabs is a leading provider of online messaging services and web security products. With this acquisition, Symantec is expecting to gain leadership in the SaaS market and expand its existing portfolio of SaaS offerings with messaging and web security services from MessageLabs. Sydney-based PC Tools is expected to help Symantec expand its geographic reach and consumer product portfolio to include PC utilities software and point security technologies. PC Tools is a global provider of software products designed to protect the privacy and security of Windows computer users.

Symantec is also expanding in the OEM space and the notebook market by working with a number of providers. They signed a multi-year deal to ship a 60-day trial of Norton Internet Security on ultra low-cost Asus laptops and desktops worldwide and signed new contracts with United Online and Fujitsu. They are also shipping the Norton Internet Security for the Mac, although they did not mention specific details of potential market size.

In the coming quarters, the company is looking at launching a new release of Norton 360, is introducing a web-based Norton online backup in February, and will be providing online backup to customers through its acquisition of SwapDrive last June.

Finally, Symantec is looking at focusing on enterprise security, strengthening their leadership in the transition to next generation data protection and at scaling its SaaS business to include archiving, DLP, backup and many other services.

The company seems to be doing the things needed to expand its leadership. A smart move to build leadership in the enterprise space for Symantec would be to acquire Qualys, a company I have discussed before, and also profiled the story of its founder, Philippe Courtot, in my book, Entrepreneur Journeys (Volume One).

The stock rose 6% to close at $15.46, taking its market capitalization to $12.3 billion. Earlier, in November, it had sunk to a 5-year low of $10.05.