2 Reasons Why Symantec Corporation Will Pull Out of Its Tailspin
Symantec , the world's largest security software developer, and the world's fifth-largest software vendor, has been experiencing revenue declines for a couple of years now. Poor sales for the company's consumer antivirus software, which accounts for 40% of the company's sales, is one of the culprits to blame for this decline.
So, what measure(s) is Symantec taking to cope with these challenges, and is there any hope that it will pull out of its tailspin any time soon?
Let's start with a recap of the problem. Worldwide PC sales have been in steady decline for a couple of years now. The decline in PC sales has in turn orchestrated a slump in Norton Antivirus sales. Sales have flat-lined over the last three years -- Norton revenue in fiscal 2011 clocked in at $1.95 billion, $2.10 billion in fiscal 2012, and $2.11 billion in fiscal 2013.
Another big reason why Norton AV is selling poorly can be pinned on industry trends. Most industry analysts agree that anti-virus software lost primacy seven or eight years ago as the chief cyber-security solution. Attackers are now capable of iterating their malicious creations quick enough to evade being netted by antivirus software. The notion of setting up several perimeter defenses around networks to keep hackers at bay has gradually given way to a model that emphasizes early detection and response.
However, Symantec has instituted some strong countermeasures that seem to be working well.
1. Expanding mobile and BYOD security offerings
Symantec's growth stagnation in recent times can be partly pinned on the company's limited footprint in the high-growth mobile and BYOD, or bring-your-own-device, security solutions. According to Gartner, mobile transactions have been growing at a CAGR of 35% since 2012 and will hit $720 billion in 2017. The rapid growth has been accompanied by a similar large increase in mobile-related cyber attacks. The demand for mobile and BYOD security solutions has, as a result, been growing rapidly.
Symantec, however, has been moving quickly to fill-in the mobile security innovation gaps. The company's new enterprise mobile security product offerings helped sales in the segment grow 76% during the fourth quarter of 2014.
The company recently showcased several new mobile security solutions during the Mobile World Congress held in February, including ways to keep information and data management secure across iOS and Android devices. Others include Norton Zone that integrates with SEMS (Symantec Encryption Management Server), a solution that allows users to manage encryption keys themselves so as to protect their sensitive data. Yet another new mobile security product the company unveiled during the event was Symantec Push Authentication technology that will be used together with Symantec Validation and ID Protection (VIP).
Symantec's mobile security products are considered best in class.
2. Financial engineering
Symantec has been using its mountains of cash to fund its new product development. The company's revenue model generates very high gross margins -- 82.2% in the fourth quarter of fiscal 2014. This helps the company maintain a strong cash position. Symantec typically generates cash flow equivalent to 25% of its revenue. The company finished fiscal 2014 with $3.7 billion cash vs. $2 billion in debt. Symantec expressed its intention to return 50% of its cash to shareholders in form of dividends. The company instituted its first dividend, and the shares now yield a healthy 2.7%.
Symantec has also been aggressively cutting costs, and cut about 1,700 jobs in fiscal 2014. As a result, the company's operating expenses as a percentage of revenue fell 2.3 percentage points to 56.4%. The operating margin currently stands at 27.3%. Symantec hopes it can increase it to 30% by the end of the current fiscal year.
Symantec issued the full-year fiscal 2015 guidance above consensus estimates. The company expects its revenue to fall in the $6.33 billion to $6.77 billion range, while EPS will fall in the $1.84 to $1.92 range. The mid-point of the revenue guidance suggests a small 0.4% revenue growth.
That means that Symantec might record its first positive revenue growth in the current fiscal year. The company's turnaround is, therefore, gaining traction.
Threat from Cisco?
Cisco acquired IronPort, an email security company, in 2007. IronPort technology helps users deal with email threats and spam, which is part of what Symantec's antivirus software is supposed to do. The giant networking company has for a long time been viewed as a potential threat to Symantec because of its ability to leverage its huge partner ecosystem.
But, Cisco is now moving into different verticals that will minimize direct competition with Symantec. Cisco recently launched Managed Threat Defense, a network security solution that is designed to protect business networks against cyber attacks.
Symantec is quickly filling in the innovation gaps that have been hampering its growth. The company's cost-cutting measures also appear to be working well. This makes the company a good turnaround bet, and its shares a good buy. After all, antivirus software will, perhaps, remain an integral part of PCs, laptops, cell phones, wearables, and sub-dermal neural net implants for a long time to come.
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The article 2 Reasons Why Symantec Corporation Will Pull Out of Its Tailspin originally appeared on Fool.com.Joseph Gacinga has no position in any stocks mentioned. The Motley Fool recommends Apple and Cisco Systems. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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