Symantec (NASDAQ:SYMC) is a global security software developer, providing security solutions for consumers and businesses. The company derives majority of its revenues from the sale of storage management software with a revenue share of 36%, followed by consumer security software sales amounting for 30% of revenues. The company has a market capitalization of $14.2 billion and posted overall revenues of $6.8 billion in the 12 months ended December 2013 – 58 basis points lower than revenues from a similar period in 2012.
In addition to a shrinking top line, Symantec’s gross profit margins witnessed a deterioration in CY13, declining from 84.2% in CY11 to 82.7%, impacted by weakening PC sales globally. At the end of fiscal 2013 (ended March 2013), Symantec announced a realignment to its product offerings and shift from being a device-centric company. Intending to move from protecting endpoints and data centers, it wanted to achieve a broader focus of protecting and managing digital information. The Symantec 4.0 strategy includes simplifying the company’s existing organizational structure, developing innovative products and services, and changing its Go-To-Market strategy.
In this note, we take a closer look at Symantec’s information management division. We have a $28 Trefis Price Estimate for Symantec, which is at a premium of approximately 36% to its current market price of $21.
Information Protection And Management Key To Symantec’s Growth
Globally, PC shipments have been declining at a double-digit pace as consumer buying shifts towards smartphones and tablets due to their flexibility in addressing customers’ increasingly variable demands. Gartner reports that PC shipments in 2013 fell 12.3% to 299 million shipments compared to 341 million in 2012.  Going forward, the technology researcher expects shipments to drop 7% in 2014.  Declining PC shipments should continue to pressurize revenues from Symantec’s consumer security software division, with lower standalone installations on a year-on-year basis.
We believe Symantec should be able to offset this inherent weakness in consumer product sales by expanding offerings in its biggest division, storage management software. Software-as-a-Service deployments across business verticals, ranging from SaaS-based digital marketing tools for small businesses to enterprise-level ERP solutions, contributed to a sharp increase in data centers. Furthermore, exponential increases in machine-generated data globally, along with rapid growth in Big Data and analytics, is expanding storage requirements across the IT industry. An increase in data centers housing highly concentrated amounts of sensitive data, and increased proliferation of business into personal devices, has resulted in an increase in cyber attacks in recent times.
New product launches across the Information Management domain should remain critical to Symantec’s future. The company plans to announce various new offerings across the Business Continuity, Information Fabric, Storage Defined Software and Object Storage Platforms in the next 6-24 months. Business Continuity ensures a comprehensive strategy to maintain and protect mission-critical information for customers across various technologies and infrastructure platforms, combined with reduced downtime, and is of paramount importance to data centers. Additionally, Symantec’s Information Fabric platform, a highly automated system for enterprise metadata, helps analyze, govern and protect data in the cloud.  Recently, Hitachi Systems extended its partnership to resell Symantec NetBackup and Enterprise Vault Information archiving software, because of its proven reliability with customers.  We expect to see an increase in enterprise adoption of end-to-end solutions compared to endpoint solutions, which should benefit Symantec’s top line.Notes:
- Gartner Says Worldwide PC Shipments Declined 6.9 Percent in Fourth Quarter of 2013, Gartner, January 2014 [↩] [↩]
- Symantec EMEA Industry Analyst Conference: shifting the tack of dealing with security issues, Forrester, December 2013 [↩]
- Hitachi Data Systems expands partnership with Symantec to deliver pinnacle of data management, data protection to customers worldwide, ITWeb Channel, February 2014 [↩]