The Negative Impact of Potential HP-McAfee Deal on Symantec’s Stock

Includes: HPQ, MFE, SYMC
by: Trefis

Symantec (NASDAQ:SYMC) provides its Norton antivirus software to PC maker HP (NYSE:HPQ) for bundling with HP’s consumer desktop and notebook PCs. Symantec’s deal with HP is expected to expire by next year and there is speculation that McAfee (NYSE:MFE), Symantec’s primary competitor, could take Symantec’s place as the default antivirus software provider for HP PCs.

We believe that McAfee is offering its software at a lower price point compared to Symantec which is why HP is reconsidering renewal of its deal with Symantec.

Below we explain the significance of Norton software for Symantec and how an HP-McAfee deal could impact Symantec’s stock.

Norton constitutes 32% of Symantec’s stock price

Symantec provides security software to both consumers and businesses that help them block malicious software and spam emails. Norton Antivirus is the most popular Symantec software product among consumers and we estimate that it constitutes around one-third of the $23.82 Trefis price estimate for Symantec’s stock.

Symantec gets $200 million a year from HP

The Symantec-HP deal has been estimated to generate $200 million of revenue annually for Symantec and its loss could amount to a 3% to 5% loss of market share for Symantec in the $3.8 billion antivirus software market.

Symantec competitor McAfee already distributes its pre-installed antivirus software on the PCs of five of the top ten PC makers. Compared to Symantec, McAfee has a higher market share in terms of units of antivirus software sold; however, McAfee’s higher unit sales is offset by lower pricing of its software compared to Symantec’s Norton software. This has resulted in McAfee’s lower overall market share in terms of revenues when compared to Symantec.

We estimate that Symantec will have about 53% antivirus market share in 2010 compared to about 19% for McAfee.

Negative $1 impact for Symantec’s stock on HP-McAfee deal

If Symantec’s deal with HP is not renewd, it would mean a further loss of 3% to 5% market share for Symantec from 2011 onwards. The impact of such a market share loss is about $1 to the $23.82 Trefis price estimate for Symantec’s stock. We have not yet factored in this market share loss for Symantec due to the uncertainty around an HP-McAfee deal.

You can modify our forecast below to see how Symantec’s stock could be impacted if its share in Consumer Antivirus Software Market were to decline further than we have forecast.

For additional analysis and forecasts, here is our complete model for Symantec’s stock.

Disclosure: No positions