M&A Worries Stall Symantec Shares

With the Veritas merger just completed, security vendor misses analyst revenue estimates

July 30, 2005

3 Min Read
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Shares of security vendor Symantec Corp. (Nasdaq: SYMC) dropped $2.01 (8.45 percent) to $21.78 in early afternoon trading today as investors showed their uneasiness with the integration and performance of the company's newly acquired Veritas business.

Last night, Symantec reported a first-quarter GAAP profit of $199 million, or 27 cents a share, on revenues of $700 million. While the company's revenues were up 26 percent on the same period last year, the result was slightly below analysts' expectations of $712 million (see Symantec Reports Q1).

Symantec, which completed its $13.5 billion acquisition of Veritas Software Corp. (Nasdaq: VRTS) earlier this month, reported a $117 million profit, or 16 cents a share, in the first quarter of 2004.

The firm's pro forma numbers were the same as its GAAP earnings; it reported a pro forma profit of $199 million or 27 cents a share. This number beat analysts' expectations by 2 cents a share and compared favorably to the company's year-ago quarterly earnings of $128 million, or 18 cents a share.

Because the Veritas deal was only completed a few weeks ago, the first-quarter results did not include the storage specialists financials (see Symantec, Veritas Complete Merger and Shareholders OK Veritas/Symantec Merger). However, Gary L. Bloom , the former Veritas CEO, said growth in licensing and services revenues helped drive Veritas’s overall revenues to $529 million for company’s quarter ending in June, up 9 percent on the same period last year.However, Bloom said that Veritas saw a 3 percent decline in its "sluggish" U.S. business. This played into speculation that Veritas would be vulnerable to aggressive competition from rivals such as EMC Corp. (NYSE: EMC) in the months following its acquisition (see Vulnerable Veritas and EMC Pulls Switch on Veritas).

With users increasingly looking to limit the complexity of their data centers, Symantec is now looking to tie security and storage networking together, particularly Veritas’s core family of data backup products (see Wedding of the Year and Veritas Tops in Backup, File System SW). And, despite the upheaval of the last few months, Bloom promised that Veritas’s NetBackup 6.0 software will be out on the market towards the end of this year.

But Wall Street says things will be rocky before they smooth out. “We believe that concerns over integration risk and signs of decelerating growth in the core Symantec business are likely to overhang the shares,” writes Todd Weller, an analyst at Legg Mason Inc., in a note to clients.

Interestingly, while data center managers want their security and storage solutions more tightly integrated, Symantec is taking its time to integrate the Veritas sales force with its own.

John W.Thompson, the Symantec CEO, said last night that he was seeing “very solid results” in bringing the two firms’ sales teams together and that “morale seems to be high.” Still, he let on that customers are “anxious” to hear more about the future product roadmap.”Headcount reductions have been fairly minimal," Thompson says, adding that only 125 to 130 people were cut companywide. He explained that the combined companies are looking to make savings in other areas, such as purchasing, but it's not clear how long Wall Street and investors will see that strategy as sound.

Still, Thompson is confident that there's some near-term savings to be had. "As a five billion dollar software company, we should be able to negotiate better deals with some of our suppliers."

— James Rogers, Site Editor, Next-Gen Data Center Forum

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