Bloomberg News

Symantec Forecast Tops Estimates as Security Spending Rises

July 27, 2011

(Updates with CEO, analyst comments starting in fourth paragraph.)

July 27 (Bloomberg) -- Symantec Corp., the largest maker of computer-security software, forecast higher profit and sales than analysts predicted as businesses boost spending to defend their systems amid a recent spate of threats.

Profit excluding some costs will be 38 cents to 39 cents a share in the fiscal second quarter ending in September, Mountain View, California-based Symantec said today in a statement. That compares with the 38-cent average estimate of analysts, according to Bloomberg data. Sales will be $1.66 billion to $1.68 billion, above the consensus of $1.61 billion.

Corporate spending on data security is increasing amid a rash of hacking attacks, including breaches of Sony Corp.’s PlayStation network and EMC Corp.’s RSA Security unit.

“The threat landscape is more toxic than ever,” Symantec Chief Executive Officer Enrique Salem said on a conference call with analysts. “That is driving people coming to us.”

Companies plan to spend 4.5 percent more on computer security this year than last year, according to results of a Morgan Stanley survey of 100 U.S. chief information officers, released July 13.

Symantec said its deferred revenue, an indicator of future sales growth, rose 23 percent to $3.69 billion as of July 1.

“Security is on fire,” said Brad Zelnick, an analyst at Macquarie Capital in New York, who has an “outperform” rating on Symantec shares. “Broader trends are playing to their strengths. There’s headline after headline talking about all the various data breaches and threats out there.”

London Arrest

London police arrested a man today as part of an international investigation into computer crimes, and the Federal Bureau of Investigation arrested 14 alleged members of a hacking group and charged them on July 19.

Companies also are demanding more of Symantec’s storage technology as their data needs multiply, Zelnick said.

Symantec rose 33 cents to $18.75 in extended trading at 7:23 p.m. New York time, after the results were released. Earlier the shares fell 66 cents to $18.42 on the Nasdaq Stock Market. The shares have gained 10 percent this year.

“Their Achilles’ heel the last few years has been execution,” said Daniel Ives, an analyst at FBR Capital Markets & Co. in New York. “They are now walking the walk and executing, continuing to gain back investor confidence one quarter at a time,” said Ives, who has a “market perform” rating on Symantec shares.

Specialized Resellers

Salem said in an interview that he’s been making sure the company’s resellers focus on specific products in its broad range of software offerings. He’s also providing more incentives for internal sales staff to bring in new customers and sign licensing agreements.

“Our sales execution is probably the best it’s been in 10 years,” Salem said. “The partners that specialize get the most support,” he said. “We’ve got a pretty big portfolio -- we cover a lot of ground.”

Symantec also is building products and planning acquisitions meant to fight future security threats posed by downloadable applications for smartphones and tablet computers.

“It’s a new market, so it’s going to take some time for it to grow,” Salem said.

Above Estimates

For the fiscal first quarter ended July 1, sales rose 15 percent to $1.65 billion, compared with the analysts’ average estimate of $1.58 billion. Profit excluding some costs was 40 cents a share, compared with the 37-cent average estimate of analysts.

Symantec’s biggest rival, McAfee Inc., was acquired by Intel Corp., the world’s largest chipmaker, for about $6.6 billion this year. Intel plans to use McAfee to help add security measures to its semiconductors for computers, smartphones and other devices.

At a May 26 meeting with investors in New York, Salem said Symantec plans to spend as much as $1.25 billion on acquisitions in mobile and cloud computing and in virtualization software that makes servers more efficient. On July 11, Symantec bought closely held Clearwell Systems Inc. for about $390 million, acquiring software for handling legal documents.

One area of concern among analysts was sales of consumer products for securing personal computers. Consumer sales rose 11 percent to $525 million, or 5 percent on a currency-adjusted basis. Symantec is fighting slower shipments of PCs and free security software distributed by companies including AVG and Avast Software, said Israel Hernandez, an analyst at Barclays Capital in San Francisco.

--Editors: Stephen West, Nick Turner

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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