Symantec makes case for recession resistant club; Touts storage business

Symantec appears to be in a series of businesses that can weather an IT spending downturn.As this earnings season progresses a few winners are clearly emerging.
Written by Larry Dignan, Contributor

Symantec appears to be in a series of businesses that can weather an IT spending downturn.

As this earnings season progresses a few winners are clearly emerging. The common thread is that these winners all can deliver enterprises return on investment and help companies cut costs. IBM, VMware and Riverbed have also delivered good quarters.

Symantec's fiscal third quarter results make the case that it should be included in the recession resistant club.

Excluding a massive writedown for goodwill, an accounting term that refers to the valuation of previous acquisitions, Symantec's results were better than expected. The company reported third quarter net income of $350 million, or 42 cents a share, on revenue of $1.51 billion. That tally was 10 cents better than Wall Street estimates.

Based on generally accepted accounting principles Symantec lost $6.81 billion, or $8.23 a share, because it wrote down assets on its books. That's quite a big number to overlook, but Wall Street is doing just that on Thursday.

What has Wall Street so happy? Symantec was able to do two things:

  • It actually provided an outlook for the next quarter;
  • And that outlook was in line with expectations.

Symantec projected fourth quarter revenue between $1.47 billion and $1.52 billion. Earnings excluding charges are expected to be 33 cents a share to 35 cents a share. Including charges, Symantec predicts fourth quarter earnings of 12 cents a share to $14 cents a share (statement).

Why is Symantec skirting the meltdown?

The company plays in three areas--storage optimization, data loss prevention and enterprise security--that aren't easily cut.

CEO John Thompson said on a conference call:

We were able to deliver revenue above our forecast despite our customers' continued scrutiny of their IT budgets. Customers tell us that they will allocate funds to areas of storage optimization, data loss prevention, and enterprise security. Furthermore, their attention is turned to initiatives that will drive immediate cost savings rather than longer-term investment programs.

Toss in a recurring revenue stream on the enterprise side of its business and Symantec is well positioned.

The most notable item in Symantec's report is how it is positioning itself as a company that can cut your storage spending. Enrique Salem, chief operating officer and soon to be CEO, said:

Starting with our data center business, a key factor driving our Storage and Server Management results over the past four quarters has been our ability to enable clients to quickly reduce IT spending, particularly storage spending. In this economic climate, customers are looking for solutions that can deliver cost savings within an operating budget cycle. As such, we initiated a new selling campaign built around the theme of stop buying storage. Customers using our solutions can reduce storage costs by better utilizing existing storage and by buying lower cost storage.

Salem was also questioned on maintenance rates and customer pushback. Here's what Salem said:

When you look at it - we haven't talked about the maintenance rates, but what I am pleased with, even in this tougher economic environment, we continue to see customers renewing their maintenance, and they are continuing to buy new licenses alongside of those maintenance agreements.

What I do want to emphasize is that our storage products continue to perform well very specifically because customers are looking for ways to save money and with our current offerings we're able to do that. This notion of stop buying storage absolutely works with CIOs around the world.

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