Symantec’s (NASDAQ:SYMC) stock has been rallying and hit its 52-week high last week. While the company reported only 4% revenue growth in Q3, it was mainly driven by strength in its storage and server management business segment which represented 37% of total revenue and grew 8% y-o-y. The services business expanded 10% y-o-y, but its impact on revenues was minimal as it accounts for only 4% of total revenue. The anti-virus business showed the effects of a sluggish PC market as it increased by 1% to $530 million.
We believe this rally is being driven by its strength in the storage business where it has the third highest market share as well as new initiatives such as its focus on the bring your own device (BYOD) market. Symantec’s grip on the anti-virus market is slipping with the company losing out to competitors such as Microsoft and Avast as well as free antiviruses. There is however an upside for its touch optimized software aimed at Windows 8 PCs and tablets, and we expect this market will show effects on its revenues as the PC market recovers.
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Storage Software Remains The Key Value Driver
Symantec is one of the largest providers of storage software and owns approximately 14.6% of the $14 billion storage software market behind top players EMC and IBM. In Q3, the company reported storage and server management revenue of $666 million, which accounted for nearly 40% of its revenues and grew by 8% annually. We expect Symantec will maintain its leadership position in the storage market and that it will remain its most valuable division.
Focus On BYOD Market
Symantec plans to invest further in research and development to introduce high value products such as Norton Cloud, Mobile Workforce Productivity. The Mobile Workforce Productivity tool is aimed at the bring-your-own-device (BYOD) market as it is driving demand for security on mobile devices.
The company 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.  The biggest issue with the BYOD revolution is its inability to support multiple devices with multiple operating systems and architectures while providing all necessary facilities.
Symantec’s technology is built from scratch to solve some of these issues and plugs directly into management platforms that allow mobile devices to be added without server-side complications. The technology is based on the know-how obtained through the acquisition of Nukona in 2012 and will be be driven by mobile virtualization. This offering puts Symantec in direct competition with VMware (NYSE:VMW), a pioneer in virtualization who has its own BYOD offerings. This presents a large growth opportunity for Symantec and is likely to contribute meaningfully to its revenues in the next few quarters.
The company plans to offer high value products in user productivity and protection, information security and information management to meet its goals of 5%+ cumulative average growth rate in organic revenue with operating margins of 30% from FY 2015. It also initiated a new $1 billion share repurchase program.
We currently have a $29 Trefis Price Estimate for Symantec, which is about 30% above the current market price.Notes: