Symantec Q1 Performance Rekindles Veritas Debate

Despite lingering concerns over its ability to integrate Veritas' storage business with its core security operations, experts say that Symantec's latest earnings show that it is finally making headway.

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.

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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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