Symantec Signals More M&A

With strong quarterly results to work from, CEO John Thompson looks to add to company portfolio

James Rogers, Contributor

July 27, 2006

4 Min Read

Symantec beat analysts' revenue estimates with its first-quarter results, and the vendor, which stumped up $13.5 billion for storage specialist Veritas last year, has its eye on more deals. (See Symantec Reports Q1, Symantec & Veritas: It's a Deal, and Symantec, Veritas Complete Merger.)

"We will continue to look for bolt-on technology capabilities that can be integrated into our product portfolio," said CEO John Thompson on a conference call last night, although he ruled out the possibility of any more Veritas-sized deals in the near future. And he refused to comment on rumors that RSA Security, recently bought by EMC for $2.1 billion, had been one of these targets. (See Third Brigade Secures Versatel.)

In a note released earlier this week, Edward Maguire, research analyst at Merrill Lynch, warned that Symantec is still missing key pieces of technology needed to tie together the security and storage sides of its businesses. "In particular, the company lacks access management/identity management and encryption technologies which would be helpful to effect policy-driven data security," he wrote, adding that RSA's Web access management and encryption tools would have proved useful.

Rob Enderle, principal analyst at Enderle Group tells Dark Reading that one possible acquisition candidate could be software specialist Phoenix Technologies, which, according to media reports, is already being courted by venture capital firms Ramius Capital Group and MV Advisors. "There's a chance that Symantec could come in as a white knight," says Enderle.

Phoenix Technologies offers a range of products, from firmware designed to protect x86-based devices and their data, to system debugging tools and user authentication software.

But, over at Merrill Lynch, Maguire warned that many users are closing their corporate coffers: "The overall environment for security spending appears to be deteriorating, which could weigh heavily on Symantec's efforts to regenerate growth in its enterprise business."

These sentiments were echoed by Enderle. "Security spending seems to be slowing down," he said, adding that users are cutting back on spending till Microsoft's Vista operating system ships. (See Symantec Locks Horns With Microsoft.)

The vendor's total first-quarter revenues, on a GAAP basis, were $1.26 billion, up from just under $700 million in the same period last year, beating analyst estimates of $1.24 billion. Symantec reported earnings of 9 cents per share on net income of $95 million, compared to 27 cents and $199 million in the same period last year.

On last night's call, Symantec execs said that foreign currency movements affected the firm's growth, as did the difficulty of comparing different year-over-year Symantec and Veritas results.

"Thankfully, this is the last quarter in which we will be making year-over-year comparisons to different Veritas and Symantec calendar periods," said James Beer, Symantec's CFO.

On a non-GAAP basis, Symantec's earnings were 24 cents on net income of $248 million. Analysts had estimated earnings of 21 cents a share.

Despite the vendor's overall revenue growth, storage and data center management were something of a mixed bag. (See Symantec Envisions Dominance.) Revenues for the firm's data center management business, which includes Veritas products, were $351 million, flat compared to the same period last year. "This result reflects the difficult year-over-year comparison of our actual June 2006 activity versus the March 2005 Veritas quarter," explained Beer.

The performance of Symantec's storage foundation family of products, which includes the Veritas cluster server line, however, was much less ambiguous, with "solid double-digit growth," according to the CFO. (See Symantec Ships Foundation 5 and Symantec Extends Linux Range.)

Last night Thompson also acknowledged that the security market is "tightening a bit," which provided an opening for him to trumpet the importance of the vendor's "Project Hamlet," which is said to combine technology from Symantec's Sygate and WholeSecurity acquisitions, as well as its existing anti-virus offerings. (See Symantec Sets Out Roadmap, Symantec Strolls Off With Sygate, Symantec to Acquire Sygate, and Symantec Buys WholeSecurity .) "It allows us to deliver a more integrated capability at the upper end of the marketplace, and down into the mid-market," he added. Hamlet's not expected till sometime in 2007.

On the call, John Thompson also reiterated his plan to discontinue work on Symantec's proprietary security hardware, such as its Network Security and Gateway Security appliances. (See Symantec Streamlines Security Biz.) This, he added, will enable Symantec to invest in "higher growth" areas of its business, such as enterprise messaging and compliance.

The market responded positively to the results. In trading today, Symantec shares rose $1.78 (11.27%) to $17.58.

— James Rogers, Senior Editor, Byte and Switch

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