Storage and security software behemoth Symantec reported increased revenues but profits down in its first fiscal 2014 quarter, as CEO Steve Bennett's companywide reorg made some progress. Symantec's new strategy of focusing the sales firehose on service providers looks like it's beginning to pay off.
First quarter fiscal 2014 revenues were $1.71bn, up 2 per cent on a year ago and down a smidge on the previous quarter's $1.75bn, exhibiting the typical Symantec seasonal Q4 to Q1 drop. Net income was $157m, down 9 per cent on an annual compare and 16.6 per cent compared to the preceding quarter. So, on an annual basis, revenues are up and profits down; why was that?
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CEO and prez Steve Bennett said: "I'm proud of the team's performance despite the ongoing work to right-size and transform the company. I'm also pleased that we delivered better than expected results. … I'm confident we have the right team in place to execute our multi-year roadmaps, implement our critical go-to-market changes and continue to make progress on our successful transformation."
Hmm. Not very successful if the company pulls in more revenue but makes less profit.
CFO James Beer signalled that Symantec was not out of the swamp yet: "The magnitude of change we are undertaking is substantial and so as we move increasingly into the implementation phase of our transformation, we remain cautious on our outlook for the coming quarter."
The company stated:
Our September quarter guidance takes into consideration the significant changes our sales organisation will be undergoing as well as the associated risk. We are confident that these changes will improve execution in the long-term, but may impact results in the short-term.
For the second quarter of fiscal 2014, Symantec expects …. revenue of $1.65bn to $1.69bn, compared to $1.70bn in the year ago period….
Typically Symantec's second quarter has larger revenues than the first quarter; the company is now going backwards.
The company has created three business segments:
- User Productivity and Protection (UPP), comprised of endpoint security and management, encryption, and mobile offerings
- Information Security (IS) formed from mail and web security, authentication services, data centre security, Managed Security Services (MSS), hosted security services, and Data Loss Prevention (DLP) businesses
- Information Management (IM) made up of backup and recovery, information intelligence including archiving and e-discovery, and information availability. Previously referred to as storage management.
UPP forms 43 per cent of Symantec's revenues and that segment's income declined 1 per cent year-on-year. IS contributes 20 per cent of overall revenues and grew 7 per cent y-on-y. IM makes up 37 per cent of Symantec's total revenues and grew 4 per cent y-on-y; so UPP is a problem area.
There was a geographic problem area too; Asia Pacific & Japan. While the region contributes 18 per cent of overall revenues, those revenues decreased 5 per cent y-on-y, but, confusingly, increased 1 per cent after adjusting for currency movements. EMEA sales make up 27 per cent of revenues and grew 8 per cent y-on-y, while the Americas (chipping in a whopping 55 per cent of revenues) grew 3 per cent annually.
Any earnings call revelations? Well, Bennett referred to management simplifications and headcount reductions:
By the end of July, we will be almost done with our organisational simplification initiative, bringing the number of management layers and spans of control closer to industry standards and reducing our management structure by 30 to per cent. In addition, we removed some redundancies across the organisation during the last quarter resulting in the elimination of some individual contributor positions.
We reported the company was laying off 1,700 people in June and July.
Contrary to the impression of UPP given by the balance sheets, Bennett said: "Our better-than-expected results were driven by strength in some of our largest businesses, like Endpoint Security and Enterprise Backup. Our Endpoint Security business grew again this quarter, driven by the strength of our offerings. And our Enterprise Backup business continues its strong double-digit growth as we focus on simplifying the complexity inherent in today's backup environments. "
That implies the other parts of UPP - endpoint management, encryption, and mobile offerings - were pretty dire if they alone negated the growth in endpoint security.
Beer added some colour to this: "[There was] growth in both Norton and Enterprise Endpoint Protection. We expect growth in our Endpoint Security businesses to be flattish for the balance of the fiscal year. This growth was offset by weakness in our Endpoint Management business due in part to customer uncertainty surrounding previous divestiture rumours in the early part of 2013."
Enterprise Backup wasn't all good news either, with Bennett saying; "We have some areas where we still have some improvement opportunities, one being Backup Exec. We believe we're on the right track to resuming growth in fiscal year '15."
That's at least a year away. Sounds like major re-coding work is being undertaken.
Backup Exec was a sore point in the previous quarter, so, by implication again, NetBackup zoomed ahead while Backup Exec trod water or went backwards. Beer confirmed this: "[There was] double-digit growth in NetBackup, offset by continued weakness in Backup Exec."
What's the plan to stop the rot?
Bennett's plan for Symantec has three main elements:
- Managing point solutions in a strategic way (and avoiding Backup Exec-like screw-ups, we think) and allocating resources to them based on market opportunity.
- "New integrated offerings that solve higher order, higher value customer problems. This will change the basis of competition in a way that is positive for us and delivers real value for our customers."
- Integrating Symantec's capabilities with selected other firms, with network security providers being an example of this large opportunity. Bennett said: "We are in advanced discussions with network security partners, including running proof-of-concepts with selected beta customers … Stay tuned for future announcements."
He's also trying to turn the sales force around with "New roles for our sales force as hunters versus farmers and changing their incentives to be paid on new business. We're also beginning implementation of the change from a general sales force to one where the vast majority either [sell] information security or information management solutions … we are in the process of retooling our sales incentives over time to pay on profit and revenue, but that won't affect us until fiscal year '15."
Beer said: "In the [next] September quarter, we'll be implementing our new sales organisation structure, territories and compensation plan."
That structure will include a separate renewals team - the farmers, we suppose - farming existing customer accounts.
Bennett added this gem about senior management changes in the past year:
We had our officers' meeting where we got the top 140 people in the company together a couple of weeks ago. I will tell you, the people that were here before and are still here are different people than they were a year ago, in a positive sense...
I shared an interesting statistic with the officers that investors probably should see, too. Of the top 12 people that were running the company a year ago, 7 are no longer with the company. And our officer population, which was 146, I think, a year ago, 70 are no longer with the company. So we've had quite a significant leadership transition.
He mentioned a new chief marketing officer was starting soon: "That is a really, really key hire for us and we've got really a spectacular individual."
All Things Digital says it's Manny Kostas, an ex-senior veep for marketing and strategy at HP/
The ever-busy Bennett talked about rejigging the channel strategy too:
Our strategy in the past was everybody sells everything, that was our channel strategy. And so we're going to be much more strategic, and I think one of the areas we're focusing a lot on is service providers, whether they'd be telcos or whether they'd be some of the hosted service providers and how do we have right-for-me offerings and value propositions for these different channels and have a much more strategic look. And so I think it's a big opportunity for us and stay tuned for some additional insight from us as we firm that up.
The good ship Symantec is trying to turn itself around with massive changes in its top leadership and a root and branch reform of the sales infrastructure. If revenues and profits grow then Bennett will be a hero. If they don't then he'll have to walk the plank, prodded by the swords of disappointed investors. Those swords are firmly in their scabbards, for now. ®