Tale of Two Earnings Reports

Sharply different earnings reports from Symantec and McAfee raise questions about future growth.

Does lower consumer confidence and fears about a slowing economy have an effect on buying decisions for PC security products?

That is the question at the heart of sharply different outlooks for the next fiscal quarters of Symantec and its computer security rival McAfee.

On Oct. 24, Symantec announced that its profits for the second quarter of fiscal 2008, ending Sept. 28, had slipped 60 percent over the same period last year and offered a cautious outlook for the next quarter. The following day, McAfee announced in its preliminary third-quarter 2007 earnings report that its profits doubled, and CEO Dave DeWalt indicated the company had no plans to slow down.

Symantec officials said their cautious predictions for the next quarter were due to economic conditions.

"We decided we would pull back what appeared to be growing bullishness" over Symantecs earnings, CEO John Thompson said during a conference call on Oct. 24. "This was a great quarter, but we are cautious about our own business."

Consumers, he said, were worried about the housing and credit crisis and held off on purchases, and added Symantec is on track to meet its June forecast of earnings of $1.10 per share to $1.15 per share for the fiscal year.


Click here to read more about McAfees fiscal third quarter earnings.

"People dont feel they have as much disposable income," Thompson said. "The choice to buy another software product or add to the PC they have will be somewhat limited."

Just how much consumer attitudes may have affected Symantecs performance is open to debate. However, the divergent quarters of the company and one of its main competitors in the security space, McAfee, suggest more factors may have been at play, said Scott Crawford, an analyst with Enterprise Management Associates.

"Symantec has largely been challenged with rationalizing a wide range of acquisitions, from the large [Veritas] to the small, and with several important strategic deals in between, such as Altiris," he said.

"It is a big challenge for a big company to bring these assets together under a coherent strategy. It will take time to accomplish all that, and in the mean time [Symantec] is rushing to keep up with these serious competitors."

Meanwhile, major acquisitions among enterprise leaders such as Cisco and IBM as well as moves by Microsoft threaten to bring security and management together under a formidable banner, Crawford said.

McAfee has responded by picking its battles and delivering on tangibly measurable goals—Symantec by realigning its portfolio across a number of acquisitions that it now must digest, he said.

"McAfee has been working at turning the company around at every level for the past couple of years, from top-level management, through the restatement of 10 years of financial reporting, through the product portfolio itself," Crawford said.

Crawford added that in the enterprise, McAfee is gaining momentum with products that consolidate and simplify the management of some of the most challenging tactical risks, particularly on distributed endpoints.

McAfee recently released an update to ePO and the Safeboot acquisition reinforces this strategy with multiple aspects of data security that lines up well with this strategy.

"The bottom line is that McAfee has picked its battles and is making tangible progress toward defined goals."


Read more here about Symantecs efforts to meld Altiris into its product portfolio.

Melissa Grady, an analyst with Technology Business Research, said limited revenue growth in Symantecs Security and Data Management group through 2007 is partially caused by the delayed release of Symantec Endpoint Protection 11.0 in late September. McAfees rival offering, ePolicy Orchestrator 4.0, became generally available at roughly the same time.

"Customers put off enterprise security purchases waiting for the product release [of Endpoint Protection 11.0], which only became available at the end of the quarter," Grady said.

Grady added that any drop-off in software purchases would be seen in other companies as well.

"IBM and EMC also recently reported slow sales in the financial vertical, so it is unlikely that the problem is specific to Symantec," she said.

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