When security software maker Symantec acquired data storage vendor Veritas in July 2005 for $10.3 billion to diversify its products in the face of a slowing market for anti-virus software, the risks of the deal were well-outlined.
Symantec, the worlds leading provider of anti-virus applications and security software, was betting its future on a marriage to a company whose strengths lay squarely outside its home turf.
Nonetheless, many analysts and market observers believed at the time of the deal that having security and storage under one roof seemed to go well together—not unlike peanut butter and jelly—and that the sandwich might ultimately turn out to be a good one.
And with storage giant EMCs recent move to acquire authentication specialists RSA Security for $2.1 billion, other industry players have clearly bought into the same idea.
One year later, after whiffing on four consecutive disappointing financial quarters, Symantec has finally come up with a hit for its investors.
The Cupertino, Calif., companys shares surged as high as 10 percent early on July 27 after its fiscal first quarter results and business forecast exceeded Wall Streets expectations.
Even though its profit fell to $94.8 million, or 9 cents a share, from $198.6 million or 27 cents a share a year ago, Symantec stock climbed $1.70 a share to $17.50.
The companys quarterly net income slumped due to higher expenses and one-time acquisition-related charges related to Veritas. At the same time, its revenue improved greatly through sales of Veritas products, along with strong demand for its Norton line of security software.
Symantec CEO John Thompson, who has been repeatedly criticized for launching the Veritas buyout, said the first quarter earnings report highlights the overall strength of the combined company.
“If anything, this quarter underscores the value in the diversity of the business we have created,” Thompson said.
With another recent storage-security marriage—the June 29 EMC purchase of RSA Security merger for $2.1 billion—still fresh in mind, the question lingers in many quarters: Does it really make sense for security and storage to be together?
Some experts agree with the executive, maintaining that the promising earnings, which beat Wall Street analyst expectations by 8 cents per share (Reuters estimates), prove that Symantec has made it through the hard times and is finally benefiting from the gargantuan merger.
Brian Babineau, analyst with Enterprise Strategy Group, Palo Alto, Calif, said the original vision behind the deal may not have materialized, but he believes the combination of security and storage is gaining acceptance.
“The discussion on whether storage and security technologies will converge is over,” said Babineau. “Our research suggests that approximately 50 percent of all the data being created by organizations is considered confidential; translated, the more data organizations continue to create and store, the higher likelihood that they will need to secure and protect that data.”
The analyst said that a larger challenge for Symantec today is its ongoing process of blending its consumer and enterprise businesses.
The consumer and business markets have become so unique and fast-moving that the company will need to work hard to balance expenditures on issues of marketing and advertising, and customer support, relative to its two major customer segments, Babineau said.
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Other experts remain unconvinced that Veritas is a good fit however, citing differences in the types of security products needed by storage-intensive customers, and those that Symantec provides.
Mike Karp, analyst with Enterprise Management Associates, Boulder, Colo., said that Symantecs vision for marrying security and storage is correct, but that its implementation of the idea has been lacking.
“There absolutely is and needs to be a fundamental linkage between security and storage, but the kind of security software Symantec offers does not fill the bill,” said Karp.
“When IT managers want to link security with their storage, identity management is the key; Symantec does none of that, and as a result has no security footprint inside the enterprise IT room beyond anti-virus protection.”
Rival vendors such as systems management specialists CA have a “significantly more viable coupling” between storage and security, he said.
Some, including Charles King, analyst with Pund-IT, of Hayward, Calif., believe that EMCs move to snap up RSA makes more sense than the union of Symantec and Veritas.
“EMCs acquisition of RSA is a more astute pairing, as they gained an ally whose products and expertise fit well across a range of EMCs existing solutions and customers, and who also brought a healthy legacy business to the party,” said King.
King said that while Symantec and Veritas share some common pursuits, the deal seems more in the line of one company bolstering its business.
“The Veritas purchase was essentially a tactical move whose full worth wont be known until Symantec feels the full weight of Microsofts assault on its security business,” King said.
Some security market watchers contend that the process of integrating Veritas, and finding ways to market the two companies products together, remains a significant challenge to Symantec, and CEO Thompson.
Peter Firstbrook, analyst with Gartner, based in Stamford, Conn., said that some Symantec customers have become frustrated, and outwardly critical, of the companys extended growing pains.
“There has been a lot of grumbling over the quality of Symantecs support and service for Veritas products, and Thompson acknowledged there was a problem in the companys ability to find skilled technical help to address that,” Firstbrook said.
Firstbrook added that some security customers believe Symantec is spending too much time on Veritas.
“The company [Symantec] told them [customers] they made the deal to get security prowess, but then theyre trying to talk to them about storage a lot; its the tail wagging the dog to an extent.”
Firstbrook said that many security customers may also be waiting for Symantec to get all the various products it has acquired over the last several years integrated into its own packages.
While the company has done well with the marriage of products from acquisitions such as Brightmail, which addresses a growth market in the messaging security space, Firstbrook said that the rest of the companys roadmap has not been made as clear as it should be.
“Overall the security market has slowed down, but they [Symantec] also have a lot of integration work aside from Veritas that could be slowing buying cycles,” said Firstbrook.
“People are looking at that and thinking it all could work well as a consumable package someday, but they dont want to be Symantecs guinea pigs, and theyre taking a wait and see approach.”