Symantec Struggles Continue

Veritas integration problems hit Q3 results, although security products are looking up

James Rogers, Contributor

January 25, 2007

3 Min Read

Symantec met analysts' revenue estimates with its third-quarter results yesterday although the firm continues to wrestle with integration problems in the aftermath of its Veritas acquisition. (See Symantec Reports Q3 Results and Symantec, Veritas Complete Merger.)

The ongoing problems with the vendor's Veritas line were not exactly out of the blue. Earlier this month the vendor lowered its third-quarter guidance, citing poor sales of its Veritas products. (See Symantec Slips on Storage .)

On a GAAP basis, Symantec's revenues were up to $1.313 billion from $1.149 billion in the year-ago quarter, in line with analyst estimates. GAAP earnings per share were 12 cents on net income of $114 million, compared to 8 cents and $91 million in the same period last year.

On a non-GAAP basis, revenues were $1.324 billion, up 6 percent year over year, and earnings were 26 cents on net income of $248 million, down from $282 million. Analysts had estimated earnings of 25 cents.

Symantec's Data Center Management Group, which includes the Veritas product line, was a blot on the vendor's financials, with revenues declining 8 percent year over year to just over $336 million. "We're certainly not satisfied with our December quarter results," said CEO John Thompson on a conference call today.

The exec explained that Symantec was still ironing out problems with the group's sales model during the third quarter, which hurt revenues. "Historically, there had been a focus on new license sales," he said. "We're more focused on longer-term relationships with customers and building a payment stream over a longer period of time."

The Veritas complaint is now an all-too-familiar one. Symantec has had a tough time living up to its forecasts since the $13.5 billion acquisition closed in July 2005. The vendor is now looking to push deferred revenue from these products into future quarters. (See Symantec & Veritas: It's a Deal, Symantec Slips in Europe, and An Off Quarter for Symantec.) "It will take us probably two or three quarters to work this through the system," said Thompson. "Then we will get to a stready run-rate."

Symantec's security products, which brought in revenues of $515 million, at least provided Thompson some respite from his ongoing Veritas hassles. "Our security and data management group posted its strongest quarter ever, growing 3 percent year over year," he said, highlighting particularly strong performance from the vendor's compliance, endpoint access control, and Enterprise Vault email archiving products.

News of Symantec's long-awaited security product, code-named "Hamlet," also cropped up during the conference call. The software, originally scheduled for launch early this year, will combine technology from the vendor's Sygate and WholeSecurity acquisitions as well as Symantec's current anti-virus offerings. (See Symantec Sets Out Roadmap, Symantec to Acquire Sygate, and Symantec Buys WholeSecurity .)

Oddly, Thompson claimed that the project is still on schedule, even though it won't be commercially available until the middle of this year. Initial feedback from beta customers, he added, has been positive.

Symantec execs also used last night's call to flesh out their long-term plan to shave $200 million off the vendor's operating expenses. "We're taking several actions to manage our expanses," explained James Beer, the vendor's CFO. "We have effectively frozen our hiring, but we have not extended this measure to our R&D centers in India and China," he said, adding that Symantec is also cutting its spending on contractors and consultants.

Despite Thompson's Veritas woes, the market responded positively to yesterday's results. In after-hours trading, shares of Symantec rose 50 cents (2.86 percent) to $17.98.

— James Rogers, Senior Editor Byte and Switch

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