Symantec Locking Up Profits (and Customers)
By
Anders Bylund
October 30, 2009
|
Computer security expert Symantec (Nasdaq: SYMC) is facing more rivals than ever before. Those competitors are also bigger, stronger, and seemingly more determined than ever to cut larger slices of the security market. You don't see Symantec cowering in a fetal position, though.
Microsoft (Nasdaq: MSFT) is perhaps the biggest threat thanks to the free Security Essentials suite and the security measures built into the just-launched Windows 7 platform. It's hard to compete with free, and it's hard to overcome the default solution that ships with a new system (just ask Netscape or Firefox!). Microsoft is firing sharps on both fronts.
On the other side, Cisco Systems (Nasdaq: CSCO) is busy gobbling up security providers like IronPort and ScanSafe. Cisco is not a big name in security -- yet. But this acquisitive strategy is putting together a strong security stable that may soon rival the offerings from incumbents like Symantec and McAfee (NYSE: MFE).
But these threats are not hurting Symantec today. In the second quarter, Symantec saw sales fall a mere 3% from 2008 levels to $1.47 billion, while the backlog of deferred contract revenue grew 7% to $2.91 billion. This adds up to a strong base of recurring revenue that more than makes up for a drop in short-term spending and one-off license deals. And 51% of the sales happened abroad. If this business model is starting to sound familiar, you're probably thinking about IBM (NYSE: IBM) or Hewlett-Packard (NYSE: HPQ) of recent vintage.
The strong sales trickled down the income statement to product earnings of $0.18 per share, 20% higher than last year's $0.15 per share. For the next quarter, management sees even more contract revenue building up while top-line sales stay at about $1.5 billion. It's a beautiful model, and the fact that Symantec's customers are so eager to sign long-term licenses and support contracts tells me that they won't jump to the new competition any time soon.
Do you use Symantec's Norton security products, or do you just go with whatever Microsoft hands down from On High? If you're one of those Apple (Nasdaq: AAPL) mavericks, did you even know that there's a Norton suite for Macs? Consumer sales are big for Symantec today -- the segment accounted for more than 30% of company revenue -- so please help me understand how real people think about these things and leave a comment below.
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