10/26/2006
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Symantec Slips in Europe

Still feeling the hangover of its Veritas acquisition in the heart of Europe

Symantec, which reported its second quarter results last night, is enjoying solid demand for its storage products, although the European enterprise market remains a major problem for the company. (See Symantec Reports Q2.)

"The single largest problem is the central [European] region -- Germany is struggling with its own economic woes," explained Symantec CEO John Thompson on a conference call last night, referring to the planned tax increases that are expected to slow the German economy.

But Symantec also needs to get its own European house in order, according to the CEO. Even a year after acquiring Veritas for $13.5 billion, there are lingering integration challenges. (See Symantec & Veritas: It's a Deal.) "Our European team have lost their security swagger, they have not quite figured out how to embrace the totality of our portfolio... That's unfortunate, but it's something that will be fixed," explained Thompson, adding that Symantec has already made management changes in the region.

But Europe, where firms are wrestling with a slew of compliance and security challenges, is a significant enough market to affect the vendor's overall enterprise business. (See Top Tips for Compliance , The Upside of Compliance, and ITIL Irritates IT Managers.)

At least one analyst firm voiced its concern today about this part of the Symantec empire. Sales of the vendor's enterprise products were $880 million in the second quarter, up 5 percent year over year, although this was well below W.R. Hambrecht's estimate of $925.4 million.

"Clearly, we were disappointed by the quarter's enterprise results," explains W.R. Hambrecht analyst Robert Stimson in a guidance note released this morning, although he feels that Symantec can bounce back. "We believe the weakness in the enterprise segment was strictly a timing issue, and will likely not effect the remainder of fiscal year 07."

Symantec's storage sales, however, were solid during the second quarter. Revenues from the vendor's Data Center Management Group (DCMG), which include its storage offerings, were $342 million, up 8 percent year over year. On last night's call, Thompson said that this growth was led by the vendor's Storage Foundation product family. (See Symantec Ships Foundation 5, Symantec Certifies HBAs, and Symantec Supports Linux.)

Overall, Symantec reported Q2 revenues of $1.26 billion, up from $1.06 billion in the year-ago quarter, although this figure was just below analyst estimates of $1.29 billion.

The vendor also swung back to profit, posting net income of $123 million, compared a net loss of $251 million for the same quarter last year, when the vendor was starting to digest its Veritas acquisition. (See Symantec, Veritas Complete Merger, Symantec, Veritas Complete Merger, and M&A Worries Stall Symantec Shares.) Earnings per share were 12 cents, compared to a loss of 21 cents per share for the same quarter last year.

On a non-GAAP basis, the vendor's net income and earnings per share were $259 million and 26 cents, respectively, although this was still below analyst estimates of 27 cents.

Almost two years after announcing the Veritas acquisition, there is one major integration project still to be completed. (See Symantec, Veritas Integrating.) "We're on schedule to complete, later this quarter, the integration of our two Enterprise Resource Planning (ERP) systems into one ERP system," explained CFO James Beer, on last night's call, adding that this will open the door to new billing programs.

Although execs did not reveal any new products last night, Thompson reiterated his commitment to growing the vendor's services business. The CEO recently revealed his aim to boost the vendor's annual services revenues to the billion dollar mark by 2010. (See Symantec Touts Portfolio and Symantec Sets Out Roadmap.)

But Symantec still has some way to go before it reaches this target. Q2 services revenues were $54.6 million, up 14 percent on the same period last year. This, however, only represented 4 percent of total revenues, as opposed to the company's ultimate target of 10 percent.

Next month, the vendor is expected to launch a set of new operational services, which will encompass storage management, backup, and security offerings, although Thompson did not expand on these plans last night.

— James Rogers, Senior Editor, Byte and Switch

  • Symantec Corp. (Nasdaq: SYMC)
  • W.R. Hambrecht & Co.

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