Symantec’s Leaner Norton Line Should Bode Well For Sales And Margin Expansion

SYMC: Symantec Corp logo
SYMC
Symantec Corp

Symantec (NASDAQ:SYMC) is a global software developer that provides security and storage management solutions for consumers and businesses. The company has a market capitalization of $16.7 billion and had annual revenues of approximately $6.8 billion in CY13. Comparatively, revenues for CY12 were 58 basis points higher at $6.84 billion. To plug the decline in sales, Symantec marked out a five-point strategy that includes realigning its product offerings and restructuring its Go-to-Market strategy.

In the recently released first quarter results for fiscal year 2015, Symantec’s revenues increased by about 2% on a year-on-year basis to $1.74 billion. To further boost this top line growth rate, the company announced to streamline its most profitable product line, Norton. Below, we delve deeper into Symantec’s strategy with the Norton brand.

See our complete analysis of Symantec

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Trimming Norton Provides Broad Growth Opportunities

In the Q4FY14 earnings call, Symantec reported its plan to separate the Norton brand from other consumer products with the objective of enhancing the brand’s franchise value and improving margin and cash generation. [1] The company plans to optimize the e-commerce direct-to-customer channel in order to expand operating profit margins in the highly profitable antivirus software market. [1]

Recently, the company announced a plan to consolidate its product offerings in the Norton line, going from nine products to just one new product called Norton Security. We believe the new product is Symantec’s attempt to take its security solutions to smartphones and connected devices from PCs alone. The new product, currently in public beta and available for sale from September 2014, includes the functionality of Symantec’s existing products. [2] Norton Security can be used across Windows, Mac, Android and iOS devices, expanding its reach and increasing interconnectivity amongst customer devices. Features of Norton Antivirus, Norton Internet Security and Norton 360 will be merged into the new offering called Norton Security

Additionally, the company is turning away from pre-installed promotional software on new PCs, such as free trial-period offerings, to focus more on subscription sales. Fran Rosch, executive vice president of the Norton Business, states that the benefits from placing these promotional software offerings are not worth the cost. [3] Mr. Rosch highlighted that one direct subscription generates the same amount of profit as converting five trial users into its premium offering. [1]

Through the streamlined product line, Symantec plans to reinvest savings from the Norton brand into niche, high growth market segments such as Enterprise Backup and Storage Management & Security. Symantec has already cut down redundant costs significantly in Q1’15, and the revamped Go-to-Market approach should result in significant margin expansion in the near term. Moreover, the proposed e-commerce channel for Norton products, along with the removal of the free-software trial model into a direct subscription model, should bode well for the company on sales and expenses.

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Notes:
  1. Symantec’s (SYMC) CEO Michael Brown on Q4 2014 Results – Earnings Call Transcript, Seeking Alpha, May 2014 [] [] []
  2. Symantec Cleans House, Trims Norton Lineup, PC Magazine, August 2014 []
  3. Symantec to Overhaul Its Norton Security Line, The Wall Street Journal, August 2014 []