Symantec Rides Storage Growth To $29 Despite PC Weakness

| About: Symantec Corporation (SYMC)

Symantec (NASDAQ:SYMC) announced its FY 2012 results on May 7, and reported revenues of $6.9 billion, up 2.5% y-o-y. The slowdown in growth was a result of the sluggish PC market. However, Q4 results were better than the annual results with 4% growth in revenues. Sales were positively impacted by a positive reception of NetBackup, DLP and other information security offerings as well as continued growth in Norton and SEP endpoint products.

The positive impact of restructuring initiatives from the past year saw it improve operating margins. The company expects full impact of the restructuring to be evident in FY 2015. However, the company forecast that current quarter results will be negatively impacted due to a weak Japanese yen. The yen has depreciated sharply against the dollar after unprecedented monetary stimulus by the Bank of Japan.

Symantec's future performance will depend upon its storage and server management business segment which represented 36% of total revenue during the quarter and grew 7.3% y-o-y. The services business expanded 11% y-o-y, but its impact on revenues was minimal as it accounts for only 4% of the total revenue. The antivirus business showed the effects of a sluggish PC market as it increased by 2% to $513 million.

The company competes with Intel Corp's McAfee division in security, and EMC (NYSE:EMC), Oracle (NASDAQ:ORCL) and CommVault Systems Inc in the storage business.

Future Outlook

Over the next year, the company plans to streamline its management structure as part of the ongoing restructuring. The process is targeting a July completion. It will also rework its go-to-market strategy through creation of new renewals team and focusing its sales organization on new businesses by creating a specialist sales force. The company also stood by the initial strategic direction for 2013-2014, which entails focus on organic growth, disciplined capital allocation and growing margins as well as cash flows.

Storage Software Remains The Key Value Driver

Symantec is one of the largest providers of storage software and owns approximately 15% of the $14 billion storage software market behind top players EMC and IBM. In the January-March period, Symantec saw its revenues from storage and server management business grow 7.3% y-o-y to $634 million, which accounted for nearly 36% of its revenues. With the storage software market expected to grow 8% over the next two years, we expect Symantec will maintain its leadership position in the storage market and that it will remain its most valuable division. Spending on computer security is expected to rise to about $86 billion in 2016 from about $55 billion in 2011.

Norton Business To Slowdown In The Near Term

Symantec's Norton Antivirus software business constitutes 34% of our price estimate for the company. In the January-March period, the revenues from the segment grew at about 2% to $513 million.

With the segment constituting about 30% of its total revenues, it was a major contributor to the slowdown in sales growth. The business has seen some tough times in the recent past as a slowdown in PC sales has negatively impacted its growth. However, consumer loyalty towards the product helped mitigate the negative impact. In the short term, we expect the Norton business to deliver flattish revenue growth due to an expected decline in PC sales. Our estimates are in line with the company's estimates of the market being relatively flat in the FY 2015-2017 period.

We have a revised $29 Trefis Price Estimate for Symantec, which is about 15% above the current market price.

Disclosure: No positions