Facing more intense competition from Microsoft (MSFT) and shifting security demands from corporate customers, Symantec (SYMC) is taking another whack at diversifying. The company and its shareholders can only hope this effort fares better than the last one.
The No. 1 maker of computer security software said on Jan. 29 that it plans to acquire Altiris (ATRS), a maker of software that keeps PCs and handheld computers in line with corporate policies, for $830 million in cash. Altiris' software installs standard sets of software on PCs and can quickly update fleets of machines with the latest bug fixes. Symantec expects the deal to close in the second quarter and add to earnings in its 2008 fiscal year, which begins Mar. 31. More important, it could position Symantec to take advantage of a coming information technology world where keeping data centers safe is as much about complying with common standards as it is warding off the latest virus.
But Symantec's last attempt to read the IT tea leaves, its $13.5 billion acquisition of backup-software maker Veritas in 2005, hasn't gone as well as planned. Disappointing sales of Veritas products and unexpected integration costs have hurt financial results, shifted marketing plans, and lopped 18% off the value of Symantec shares since the beginning of the year. Shares fell 1.4%, to $17.52, on Jan. 29. Symantec reported revenue for its third quarter ended Dec. 29 of $1.31 billion—short of previous guidance—and net income of 12¢ per share, down from initial estimates of 14¢ to 15¢ per share. Sales of the company's data center management software—mostly Veritas—sank 8% from the previous year. The company also cut its outlook for the fourth quarter ending Mar. 30.
Turning the Corner?
By buying Altiris, Symantec is betting it can shore up profits by selling IT managers tools for securing their PCs, laptops, handhelds, and servers at lower prices and with fewer headaches than they experience when buying the software from different vendors. Symantec promised to apply a similar calculus to the data storage market when it opened its wallet for Veritas, analysts said. "This sounds a lot like Veritas on a smaller scale," says Peter Kuper, a vice-president and research analyst at Morgan Stanley (MS). "Will it be any better this time around?"
The company's managers hope so. Symantec leads the market for protecting home PCs from viruses and other malicious software with its Norton product line, and data security products for businesses now account for nearly 40% of revenues. The Veritas unit is supposed to supply a third pillar of sales growth and could be poised to turn a corner, says James Socas, Symantec's senior vice-president of corporate development. "Veritas was a large acquisition, and it took time to get our ducks in a row," he says. But the completion last month of an expensive back-office software integration project, improved cash flows, and growth in deferred revenue from licensing deals "illustrates a healthy business," Socas says. "The heavy lifting is done."
While Symantec rights its business, it faces increased competition from Microsoft, which has gained share in the security market from Symantec and McAfee (MFE). On Jan. 30, Microsoft is broadly releasing Windows Vista, its new PC operating system, which includes anti-phishing and anti-spyware features that encroach on the security vendors' turf. Last year, Microsoft released Windows OneCare, an online service that adds antivirus and firewall protection (see BusinessWeek.com, 6/1/06,
>"Microsoft Sweeps Into Security"). And Redmond is readying a line of corporate security software under the brand name Forefront, the result of a spree of acquisitions during the past few years.
As Microsoft expands its anti-malware presence, Symantec has to reach beyond its core. "A lot of the things Symantec's had to do the past couple of years have been a reaction to Microsoft entering their main market," says John Pescatore, an analyst at market researcher Gartner. (That includes the 2004 acquisition of On Technology, a software distribution company Symantec bought for $100 million.)
But Symantec Chief Executive John Thompson's plans to sell data backup and security software in tandem haven't found market acceptance, and he's had to reposition the products, says Pescatore. Attempts to push the combination of Altiris and Symantec products too aggressively could run into similar trouble. "Security needs change pretty rapidly when new threats come up, and configuration management is about keeping things pretty much the same," he says. "The buying behavior out there isn't pulling this."
Au contraire, says Steve Madigan, vice-president of corporate development at Altiris. As chief information officers add multiple servers to their data centers to handle work once done by mainframes and other centralized machines, keeping those computers patched with the latest software updates and most current versions of software applications is becoming part of companies' security process, he says.
Moreover, larger amounts of corporate data reside on the PCs and handhelds that Altiris' software manages for customers, including General Motors (GM), Steelcase (SCS), and Landmark Communications' Weather Channel Cos. "It really is a structural shift in computing," says Symantec's Socas.
Symantec customers and investors will get to hear Thompson's take when he gives a speech scheduled for Feb. 6 at the RSA Conference on computer security in San Francisco. The timing of his slot: two hours after Microsoft Chairman Bill Gates. No doubt they'll be listening closely for signs that Symantec can diversify quickly enough to dodge Microsoft's attack.