Symantec Earnings Helped By Mobile Trends As Windows 8 Nears

Symantec (NASDAQ:SYMC) will announce its Q1 results on July 25. While we expect revenue growth to be subdued due to muted PC shipments this quarter as buyers wait for the Windows 8 operating system, increased security spending for 2013 should help drive revenues. Norton Insight, which uses the Big Data approach to make a smarter anti-virus, is also expected to drive revenues. Norton 2013, which has been optimized to work with the touch interface of Windows 8, is also a potential revenue driver. Storage software, the biggest division of Symantec, is likely to benefit from the company’s strategic investment in cloud backup provider Backupify.

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Outlook

Revenues in the previous quarter were flat at ~$1.7 billion and slower PC shipments were blamed for the poor performance, in part due to customers postponing their purchases until the release of Windows 8 later this year. The company had also lowered its outlook for the last quarter on a weak storage business. ^[1] We expect this trend to continue in Q1 and revenues to remain flat.

Mobile Security To Drive Business

The bring-your-own-device (BYOD) revolution is taking off, and this has driven up demand for security in mobile devices and tablets. Symantec has a range of software including mobile anti-virus that helps prevent theft of data from lost or stolen mobile phones. This is an added feature over the standard security measures to prevent viruses and malware, and is also a big growth opportunity as smartphones are expected to grow at 55% or so and reach a yearly shipment size of one billion phones by 2015. ^[2]

Norton 2013 and Norton Insight

Norton 2013 is designed to leverage the Windows 8 platform, and the product sales are expected to take off once the operating system is released later in 2012. The anti-virus is designed to run both on PC and tablets, and this will enable it tap the faster growing tablet market, if the Windows 8 tablets are a success.

Norton Insight uses audit files from millions of PCs in the Norton Community to detect similar files and flags them based on certain criteria, thereby helping in improving the anti-virus. Norton is the second largest division of Symantec and constitutes nearly 35% of the stock value, by our analysis.

Changing Business Model to Cause Short Term Pain

Symantec’s license sales have been declining as customers prefer to pay for security software as a subscription. This has led to Symantec changing its focus to security Software as a Service (SaaS) model. Users find it cheaper to pay on an ongoing basis while Symantec benefits from reduced costs, resource pooling and lower revenue losses from piracy.

Security software sales follow the business cycle of PC sales, which is facing competition from tablets, and is likely to be lower.

The company estimates its Q1 revenues to be in-line with the last year period’s at $1.65 billion. It also expects storage software business sales to slow down in Q1.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Symantec To Confirm 4Q Warning On Lower Income, www.ibtimes.com, May 1, 2012 [↩]
2. IDC Smartphone Growth Estimate, IDC [↩]