Symantec Q3 Earnings Boosted by Cross-Selling Storage, Security Portfolio

Strong demand in Symantec's backup, data archiving, data loss prevention and managed security services boosted third-quarter income up 82 percent to $240 million.

An "increasingly toxic threat landscape" and "unprecedented information growth" boosted Symantec's fiscal year third-quarter performance as enterprises and consumers snapped up security and storage product bundles designed to protect large volumes of stored data, the company said.

The company reported fiscal third-quarter revenue of $1.7 billion, a 6.9 percent increase over last year's third-quarter revenue of $1.6 billion. Symantec's net income was $240 million, or 32 cents a share, for the quarter ended Dec. 31. The company saw an 82 percent increase in net income over last year's $132 million. The company exceeded its earnings targets for the sixth consecutive quarter. Excluding some costs, earnings were 42 cents per share, which beat analyst estimates.

Symantec's strong results were driven by strength in its data loss prevention (DLP), authentication, managed security services and backup divisions. In fact, the company saw market share gains by its backup division during this quarter. Symantec signed "several large transactions" for its NetBackup 5220 appliance during the third quarter, which also displaced established competitors, Enrique Salem, CEO of Symantec, said during an earnings call.

Growth was driven by the company's "unique ability to provide integrated deduplication, backup and virtualization solutions in a variety of form factors," Salem said.

Storage demand will be growing at a rapid rate-close to 50 percent-this year, according to Salem, driven by the growing amount of data being collected and stored. Organizations need to be able to deduplicate and manage that whole backup environment. They also need help thinking about how to protect their information, which leads to strong demand for DLP and managed services, Salem said.

Symantec's cloud businesses are "growing at a faster rate" than its on-premises offerings, Salem said. The subscription side of the business, which includes .cloud and VeriSign's authentication business, is expected to grow faster than license revenue.

Symantec sales teams closed 135 deals valued at more than $1 million during the third quarter, more than double the prior quarter and about 14 percent more than the comparable period a year ago, Salem said. Of those deals, 41 percent were storage and security bundles as the sales team focused on cross-selling products in the company's extensive portfolio, he said.

"Instead of just buying archiving, we're going to show you a compelling reason why you should buy our archiving and our discovery," Salem said.

Symantec closed its $115 million acquisition of LiveOffice, a cloud-based archiving company, this month. The company also acquired Clearwell Systems for $390 million last year. The combination of LiveOffice and Clearwell Systems gives Symantec the foundation for a data management business that will complement its existing security and storage portfolio.

"My expectation is that we'll actually be able to sell a much broader set of capabilities," Salem said.

The Enterprise Security business had a strong quarter as well. Data loss prevention had strong growth as organizations invested in technology to safeguard their intellectual property and prevent leakage of their critical data. The Managed Security Services business closed its largest transaction ever with a global hospitality company, Salem said.

Endpoint Security stabilized this quarter after the last few quarters, where it was "flat to declining," as more customers switched away from competitor products to Symantec Endpoint Protection 12, Salem said. "Given the work to integrate McAfee into Intel, we're also seeing opportunity to displace and gain share across segments against McAfee," he said.

The consumer segment for Symantec's PC security software increased only 5 percent compared with a year earlier. While the company signed a deal to put Norton Security on Lenovo PCs, fees for factory-installed software fell $8 million from the previous year. The trend is not expected to change until "probably the Windows 8 launch," Salem said. Microsoft is expected to release the latest Windows operating system in the fall.

Symantec is looking to boost its services in other areas-such as mobile security for Android tablets-to move away from its dependency on new PC sales. "I expect the opportunity to be in these other services as we go beyond the PC," Salem said.