Trouble Looms for Symantec

The company sees a big quarterly earnings drop and the departure of a top exec, which could signal the beginning of the company's long descent from the top of the security world.

Symantec Corp.s ascension to the top of the security world may have peaked and begun a long descent last week when the company reported a huge quarterly loss as well as the departure of another top executive.

Symantec lost $251 million in the second quarter of its fiscal year, its first loss in nearly three years, and, more ominous, announced that Chief Financial Officer Greg Myers is leaving the Cupertino, Calif., company.

Much of the earnings drop was attributed to Symantecs purchase of storage and backup company Veritas Software Corp. late last year, but that didnt keep analysts and industry watchers from worrying.

Symantec officials declined to comment on Myers departure or the companys quarterly earnings.

Myers departure—occurring just months after former President John Schwarz left Symantec and at the conclusion of the companys first full quarter as a merged entity with Veritas—underscores the epic shifts occurring within Symantec as it tries to do what few other software companies have done: profitably sell to both consumers and enterprises while fending off the competition.

Following the departure of Schwarz, the loss of Myers reveals just one of the dangers of mega-mergers such as Symantecs acquisition of Veritas—a surplus of top management talent competing for too few spots, said Gartner Inc. analyst John Pescatore.

"This is part of the reason so many mergers dont work out," said Pescatore in Stamford, Conn. "Youve got two pretty big companies, both with CFOs and COOs [chief operating officers]. Schwarz was probably thinking hed become CEO one day."

In the companys earnings call, CEO John Thompson thanked Myers for his service and suggested that family pressures had prompted Myers departure.

Schwarz predicted other high-level departures in an interview with eWEEK in September, but the lack of warning before Myers departure stoked fears that the CFO is leaving ahead of damaging financial news, which pushed the companys stock near 12-month lows late last week.

"You always worry when its not announced in advance and theres not a good reason," Pescatore said.

Departing executives are only one challenge Symantec faces.

The companys lucrative consumer anti-virus software business grew just 10 percent over the same fiscal quarter last year, a slowdown in growth from previous quarters that Myers attributed to the late release of Norton 2006 products, more competition and fewer high-profile security threats.

That competition will only get worse when Microsoft Corp. begins selling OneCare, its desktop security product, early next year.

"Microsoft is going to blow up the consumer market with OneCare," said Mateo Millett, an analyst at Avian Research LLC, in Boston.

OneCare may not compare with Symantecs Norton feature for feature, but it is good enough for most consumers, and Microsofts enormous distribution channel will allow the company to wrap up consumers who dont yet use security software, Millett said.

With consumer anti-virus software sales relying more heavily on OEM and bundling deals with hardware vendors and Internet infrastructure providers, Symantec is trailing competitors such as McAfee Inc. and Trend Micro Inc. in forging deals with those parties, experts agreed.

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"You dont see MSN [The Microsoft Network] and AOL [America Online Inc.] saying, We chose Symantec," Pescatore said.

Symantecs enterprise business also faces a rocky road as engineers struggle to integrate technology from Veritas and a slew of other recent acquisitions, including Sygate Inc., WholeSecurity Inc. and Platform Logic Inc., and release updated products.

Symantec has said it plans to replace or enhance key products in its security suite with technology from Sygate and WholeSecurity. The company has also laid out an aggressive road map for releasing integrated products by early next year, Pescatore said.

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