Symantec Q1’17 Earnings Preview: Slow Industry Growth and Deferred Revenues To Impact Top-line

by Trefis Team
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The major player in consumer and enterprise security software, Symantec (NYSE:SYMC) is scheduled to release its Q1’17 earnings on August 4th. (Fiscal years end with March.)  Symantec has seen around a 3.5% cumulative annual decline in its revenues since 2012, primarily due to  slow consumer and endpoint protection industry growth. Moreover, Symantec and other big players like McAfee are being affected by the smaller players which have a lot more task oriented software as compared to the big players who have a wider domain. To overcome this, Symantec has been focusing on information and data security, in addition to threat security, which it believes makes it apart from its competitors.  Still, there hasn’t been any significant impact of this on its revenues and earnings growth yet.

Coming onto FY’17, increasing portions of Symantec’s revenue should be deferred in the coming fiscal year due to a shift of momentum towards cloud based products, which unlike licensed products are subscription based and have to be renewed periodically. Most importantly, the company has completed its acquisition of cloud security leader Blue Coat Systems on August 1, 2016. The markets are expecting that this will offset the slow growth and deferred revenues as the stock has risen around 18% after this news. There may be no mpact of Blue Coat acquisition on growth in Q1’17 as the completion of the transaction post-dated quarter close.  We expect Symantec’s revenues to decline in line with company guidance.

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See our complete analysis for Symantec

Cost Cutting Initiative Will Help Margins

  • Symantec started a $400 Million cost cutting program earlier this year, primarily focusing on savings from procurement, increasing organisational efficiency, real estate and enterprise security portfolio simplification. It intends to achieve this target by fourth quarter of FY 2018. [1]
  • Under this program, the company reduced its headcount by massive 43% in 2015-16, and it said it will continue to do so in the coming fiscal year.
  • This can significantly help the margins of both the consumer as well as enterprise security segment.

Blue Coat Acquisition: Will it be a Turning Point?

  • Blue Coat acquisition will stengthen the cloud security segment of Symantec as there has been a consumer shift towards the subscription based cloud products from the license based products.
  • This acquisition will make Symantec the world’s largest Enterprise Security Software Company. 53.4% of the company’s revenues already come from Enterprise Security.
  • The Blue Coat CEO Greg Clark will take over as Symantec’s CEO. He has been credited for turning around the fortunes of Blue Coat, and therefore may add considerable value to the company in terms of growth trend reversal.

Channel Partner Model and SIEM Needs Focus

  • According to Gartner, SIEM (Security Information and Event Management) is the fastest growing segment of the industry, with over 15% growth in 2015.
  • Symantec needs to increase its focus on SIEM to improve the growth as the consumer security software industry has seen a 5.9% decline in 2015.
  • Also, Symantec continues to increase its reliance on generating revenues through channel partners. This model helps in reducing the sales force. 80% of McAfee’s revenues, Symantec’s major competitor, came through channel partners in 2013. (CRN report).

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Notes:
  1. Q4’16 Remarks []
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