Can Symantec Survive Its Reorganization?

Symantec has had a rough year, and activist investors and private equity firms might try to break up or sell the firm. Can Symantec succeed with its reorganization and survive?

Jul 7, 2014 at 6:00PM

It's been a rough year for software maker Symantec (NASDAQ:SYMC). After a period of decreasing revenue, the company embarked on a round of cost-cutting, and and an initiative to bring more development in-house, rather than relying on acquisitions.

Then, in March, the board fired CEO Steve Bennett over concerns of ineffective leadership and a failure to jump-start growth, according to the Wall Street Journal. Several weeks later, Reuters reported that the situation was attracting activist investors and private equity firms, who might be interested in the breakup or sale of the firm. What's going on with the company right now, and what might the future bring?

Changes at the top
Michael Brown, a member of Symantec's board, has taken over as interim CEO while the board searches for a permanent replacement. But Bennett's firing was emblematic of further shakeups at the top of Symantec's management, as five senior executives have left since last July. As an example, the new CFO, Thomas Seifert, was appointed only a week before Bennett was fired.

The current management says that there is talent and stability within the company in spite of the extensive changes at the top. In the first 40 days since Brown took over as interim CEO, the new team devised a detailed plan to move the company forward, which surprised analysts by its ambitious revenue and operating margin goals. When asked what leeway the incoming CEO will have to deal with such an existing plan, Brown answered that the board will be flexible, but that any CEO will be interested in growth and margin improvements that the new plan promises.

Product pruning and margin expansion
A major part of the new plan revolves around keeping only those products that can be optimized for margin improvements or growth. Businesses that do not meet these criteria will be de-emphasized, or closed altogether. Crucially, management also said that Symantec will be focusing on the enterprise segment from now on.

All of this has direct bearing on the company's most recognizable product, the Norton consumer security suite, which seems destined to become a true cash cow. Brown said that Norton is a great business for Symantec, but that it does not warrant continued investment at the same level as previously.

In general, anti-virus software is decreasing in its effectiveness as a way of blocking complex security threats, while complementary technologies, such as network security, are becoming more important. Symantec might have missed its chance to expand into these related markets, which are now dominated by companies such as Juniper Networks and F5 (NASDAQ:FFIV), which has seen 22% year-over-year growth in the most recent quarter, and views security as its major growth driver.

What this means for investors
Symantec shares have been underperforming the S&P 500 for years, but the current situation might be good news for investors. Given Symantec's history of acquiring companies, but failing to fully integrate the new products, the product reevaluation, with a focus on growth and margin expansion, is a step in the right direction. Additionally, free cash flow is expected to increase in 2015 from its 2014 level of $1.02 billion, and management has pledged to return approximately $900 million of this to shareholders through dividends and stock repurchases.

Furthermore, if activist investors have their way, parts of the company might also be sold off, leaving a smaller, but more profitable, Symantec. When asked about "other options the board might be considering to create value," Brown simply replied that the board periodically evaluates possible changes to the company, and that it will remain open-minded.

Finally, it is possible that all of Symantec will be broken up or acquired. The other major anti-virus provider, McAfee, was sold to Intel (NASDAQ:INTC) in 2011. Thanks to Intel's deep pockets, McAfee has been able to make investments in internal development and focus on new, emerging areas of cybersecurity. A big buyer like Intel doesn't sound like a bad outcome for Symantec as a company, and it might also bring a windfall to its investors.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Srdjan Bejakovic has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of F5 Networks and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers