A Look At Symantec’s Individual Business Units

SYMC: Symantec Corp logo
SYMC
Symantec Corp

We recently restructured our model for Symantec (NASDAQ:SYMC) to match the company’s own reporting format. At the start of fiscal year 2014, Symantec outlined a new Go-to-Market strategy and realigned its business units into three divisions, namely the User Productivity and Protection, the Information Security and the Information Management units. In contrast, Symantec’s earlier reporting format had five segments – Consumer, Security and Compliance, Storage and Server Management, Services and Other.

Below, we present a brief overview of Symantec’s realigned business units. We have a Trefis price estimate of $25 for Symantec, marginally ahead of its current market price.

See our complete analysis of Symantec

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User Productivity And Protection

The User Productivity & Protection segment consists of products such as Norton solutions, as well as the endpoint security and management and the encryption and mobile offerings. All of these are used by consumers at home and at work. The division accounts for nearly 43% of Symantec’s total revenues and generated about $2.87 billion in FY14 sales, about 4% lower from FY13. The decline in FY14 sales for the division was a result of a slowdown in sales of endpoint management solutions and consumer PC and data encryption suites.

Going forward, we expect the division to witness a further slowdown in sales in the near term, primarily from weak endpoint management and data encryption suite sales. To offset this weakness, Symantec has planned to reinvest cash from mature consumer product lines such as Norton into niche product markets that offer high growth prospects, like mobile security solutions. Over the longer term, we expect its entry into these product areas to offset any weakness resulting from declining PC security software suites.

In terms of margins, the User Productivity and Protection segment has the highest operating income margin across Symantec’s divisions. The division posted an operating income of nearly $1.06 billion in FY14, 5% higher from a comparable prior year period. This represents an operating profit margin level of nearly 37% in FY14 compared to 34% in FY13. Going forward, we expect the company product diversification into niche product categories such as mobile security to weigh on the pace of margin expansion. New product launches in the consumer security market have promotional campaigns that consume cash and erode margins over  the near term.

Information Security

Symantec’s Information Security business caters to enterprise security needs and includes products such as Secure Socket Layer (SSL) encryption services, mail and web security, data center security, data loss prevention and other information security services. FY14 revenues for the division stood at nearly $1.3 billion, or 19% of total Symantec revenues. However, the division in recent quarters has posted negligible growth year on year, with sales remaining flat compared to FY13.

Going forward, we expect sales from this division to grow more appreciably, primarily resulting from the increasing frequency of cyber-attacks on company networks. However, demand for newer enterprise-grade security products that are capable of integrating application control features, intrusion prevention systems and malware protection programs is growing, and we believe Symantec’s weak position in these product areas could result in subdued performance despite an expanding market in the near term

In terms of margins, the Information Security segment posted an operating profit margin of 14% in FY14, compared to 3% in FY13. This margin expansion on a year-on-year basis was facilitated by lower salaries and wage expenses, lower advertising and promotion expenses, and lower outside service expenses. However, we expect significant upside on margins for the Information Security business unit going forward. In Q1FY15, divisional margins expanded to 20% from 7% in Q1FY14. We believe Symantec could leverage its product portfolio with the new Go-to-Market strategy in place and grow its margins further.

Information Management

Product offerings in the Information Management division include storage management and high availability solutions, backup and recovery, archiving and eDiscovery that help enterprise customers protect and manage their IT infrastructure and mission-critical data. Fiscal year 2014 sales from the division stood at $2.5 billion, 4% lower from a year prior period. The Information Management business generate about 38% of Symantec’s total sales.

The fall in divisional sales in FY14 for the Information Management business was a result of a decline in sales for information availability offerings, Backup Exec products and Enterprise Vault products. These declines were only partially offset by Symantec’s NetBackup appliance. Going forward, the company intends to deliver new, integrated, modular offerings such as Integrated Backup and Cloud-based Info Management in the next 6-24 months as part of its Symantec 4.0 transformation. [1]

Operating income margin for the division stood at 23% in FY14, compared to 27% in FY13. The fall in margins was a result of lower sales and higher material costs associated with its NetBackup appliance business. We expect margins to improve marginally from their current level going forward. The storage management business is intensely competitive, with Symantec competing with deep-pocketed players such as EMC, HP, Oracle and IBM. This results in weak margin performance, with players eyeing market share gains at the expense of margins regularly.

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Notes:
  1. Symantec’s Strategic Direction Presentation, Symantec Presentations, January 2013 []