Profits fall, but revenue rises, as Symantec gears up for a tussle with Google

James Rogers, Contributor

July 26, 2007

4 Min Read

Symantec suffered falling profits in its first quarter results last night, despite solid growth in its storage and data center software business. (See Symantec Reports Strong Q1.)

The software specialist, which is currently in the middle of a major restructuring, saw profits fall 5.3 percent from the same period a year ago. On a conference call last night, Symantec execs explained that profits were impacted by a $19 million restructuring charge related to workforce reduction and real estate consolidation efforts.

Revenues were a different story, rising 11 percent to $1.4 billion from $1.27 billion, comfortably beating analyst estimates of $1.32 billion.

On a GAAP basis, earnings per share were 10 cents, flat compared to the same period last year. Symantec's net income for the quarter was $95 million, compared to $101 million in the year-ago quarter.

Non-GAAP earnings per share were 29 cents on net income of $263 million, up from 24 cents and $253 million in the first quarter of 2006. Analysts had estimated earnings of 20 cents.

Notably, Symantec's storage and data center software products and services saw a 5 percent growth in revenue (to $399.2 million) over the same period a year ago. CEO John Thompson attributed the first quarter's results partially to strong sales of the NetBackup product, which came out of the Veritas deal. Growth in sales was due to "customers’ desire to standardize and simplify the data center," he said. (See Symantec Bolsters Backup, Symantec Unveils NetBackup 6.5, and Symantec Enhances PureDisk.)

TBR analyst Melissa Grady agrees that NetBackup, which was recently overhauled by Symantec, will continue to prove crucial to the vendor's performance. "A number of upcoming product releases and updates, including Symantec Endpoint Protection 11.0 and NetBackup 6.5, will ensure continued revenue growth in consumer and enterprise businesses for the remainder of 2007," she wrote in a note released this morning.

The analyst also pointed to the recent OEM deal between Symantec and XenSource as a significant strategic move, coming at a time when users are attempting to tie server and storage virtualization together. (See Symantec Drifts Into Xen, XenSource Signs Symantec OEM, and Storage Virtualization Edges On.) "It will be mutually beneficial that they can point customers to another server/storage virtualization source other than VMware and EMC."

Growth in the Data Center Management Group (DCMG) represents something of a coup for Symantec. The vendor has been sharply criticized by analysts since its 2005 $13.5 billion acquisition of Veritas, which saw a host of technology integration issues. (See Symantec Slips on Storage , Symantec Struggles Continue, and Symantec Adds Reporting.)

Analysts also had a beef with the company’s move to expand from its consumer-based security product comfort zone into the enterprise arena with data center products and services. In fact, third quarter '07 results saw an 8 percent decline in year over year revenues of the (DCMG), and there was no growth in the quarter ending in March. (See RAD Data Intros Website.)

Thompson also credited the company's strong performance and outlook to the acquisition of Altiris, which enables enterprise users to mange software on mobile devices. (See Symantec Picks Up Altiris and Symantec Faces 'Truth'.)

Despite solid storage growth and the positive impact of the Altiris acquisition, Symantec may also face a looming challenge in the security area, according to TBR analyst Grady. (See Google Plucks Postini and Google Acquires Postini.) "We believe that Google's recent acquisition of Postini will position the company to compete against Symantec in the security as a service (SaaS) market in 2008," wrote Grady, explaining that the search giant is likely to build security features into Gmail and Google Apps. "We believe that as the two companies reach for new market opportunities with small and medium business, Symantec will soon find itself in competition with Google."

In early trading today, Symantec's shares rose 20 cents (1 percent) to $20.26.

— Rivka Little, Special to Byte and Switch

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