The Best Defense by Mark Veverka
- Highlighted companies: Symantec Corp. (SYMC), McAfee Inc. (MFE), Trend Micro Inc. (TMIC), Microsoft Corp. (MSFT), EMC Corp. (EMC), Network Appliance Inc. (NTAP)
- Summary: Two-years ago internet-security giant Symantec Corp. (SYMC) bought storage technology maker Veritas for $10.2b, shocking many who felt the two didn't have enough in common to make it work. Now critics are quieting down. Since the deal, SYMC has hit all profit targets, and is set to climb 10% this year. It currently trades at 12x cash flow (compared to 17x for the software industry), and 16.6x earnings (compared to 19x). While demand for consumer-security products looks set to cool, SYMC has found new revenue in the corporate market through its acquisition; consumer product growth has dropped from 63% to just 3%, and now accounts for only 34% of the company's $4.1b revenue. There is takeover speculation; some feel SYMC would be a great addition to Hewlett-Packard Co. (HPQ); CEO John Thompson says he isn't waiting to be acquired. The company faces aggressive competition from Microsoft Corp. (MSFT), who recently entered the consumer-security market with OneCare. But with 5% market-share, MSFT currently ranks 4th behind SYMC (60%), McAfee Inc. (MFE) (16%), and Trend Micro Inc. (TMIC) (8%).
- Quick comment: The article notes that MSFT OneCare retails for $49.95/year, which is the same price as an annual renewal of Symantec's Norton Internet Security package. What it doesn't make clear is that a) the Microsoft product offers antivirus and system security in the same bundle, while Norton requires the user to purchase them separately, and b) Microsoft's offering is good for up to 3 PCs; Symantec's isn't. Yet some analysts feel that it will be difficult for MSFT to lure customers with price alone; most consumers installed Norton software on their desktops years ago and continue to renew their subscriptions annually—it's simply the path of least resistance. Symantec retorts that OneCare is "very simplistic," and says its soon-to-be-released Norton 360 will have everything OneCare has, with a few added features to boot. Some have accused Microsoft of predatory pricing in its offering. They see Microsoft as trying to establish a monopoly, and have gone as far as to say that entering the security field will give MSFT a disincentive to beefing-up its Windows OS software. William Trent has done a comprehensive job of covering SYMC on Seeking Alpha. See also Symantec's 2007 Q1 earnings conference call transcript.