Symantec Reports Flat Q4, Profit Up On JV Divestment

Symantec (NASDAQ:SYMC), the leading software security solutions provider, declared its results for the fourth quarter of 2012. Revenue for the quarter came in at $1.68 billion, which was flat on a y-o-y basis. It recorded handsome profit from its JV stake sale with Huawei technologies, which gave a boost to the otherwise dull earnings. Symantec provided a subdued outlook for Q1 as it expects lower security software sales following a slow PC shipment cycle. However, in the longer term, it should benefit from the shifting focus to a SaaS business model based on subscription rather than license sales, as well as from the growth in security apps for smartphones and tablets. Symantec competes primarily with Intel (NASDAQ:INTC) via McAfee, and Trend Micro and Kaspersky Labs in the security software market.

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Margins Up On JV Sale

Symantec posted profit of $559 million, up from $168 million same period last year, mainly due to gains from the sale of its 49 percent stake in a joint venture with Huawei Technologies. The JV was sold to its partner for $530 million. This is a one-time sale and we continue to maintain lower revenue growth in the short term. ^[1]

Q1 Outlook Weak On Changing Business Model

The company’s license sales have been declining as customers prefer to pay for security software as a subscription as opposed to buying licenses. Hence Symantec is now changing its focus to security Software as a Service (SaaS) model, which will benefit the users as they will find it cheaper to pay on an ongoing basis, while Symantec will benefit from reduced costs, resource pooling and will likely reduce its revenue loss from piracy.

The company lowered its outlook for Q1 stating slowing PC shipments as consumers wait for the release of Windows 8 operating system. Security software sales tend to follow the business cycle of PC sales, and lower sales due to increasing competition from tablets is also likely to affect sales. The estimated revenue for Q1 is in-line with last year period’s at $1.65 billion. It also expects storage software business sales to slow in Q1.

Security Apps for Smartphones and Tablets to Drive Sales

Norton has a range of applications for tablets and smartphones that prevent theft of data when they are lost. This is an added feature over the standard security measures to prevent viruses and malware. We expect this division to become a major revenue driver, going forward.

Businesses are adopting cloud computing platforms and mobile devices are now the primary tool to access enterprise data, and this is likely to drive Symantec’s mobile security business. This is a significant growth opportunity as smartphones are expected to grow at a rate of 55% or so and reach annual shipment of one billion phones by 2015, according to research firm IDC. ^[2]. As tablet and mobile penetration increases, we expect this to become a leading source of revenue for Symantec.

We have a $ 22 Trefis price estimate for Symantec, which is about 40% above than the current market price.

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1. Symantec SEC Filing, www.sec.gov, May 2, 2012 [↩]
2. IDC Smartphone Growth Estimate, IDC [↩]