Veritas Purchase, Weak Antivirus Sales Hurt Symantec's Quarter

Symantec's much-debated acquisition of Veritas has at least temporarily cut into the company's bottom line.

On Tuesday, the security vendor reported GAAP net loss for its fiscal second quarter was $251.3 million, or 21 cents per share, owing primarily to the write-off of $284 million in expenses associated with the Veritas purchase. In the same quarter last year, Symantec posted a net profit of $135.6 million.

GAAP revenue for the quarter was $1.056 billion and non-GAAP revenue was $1.192 billion. The Non-GAAP number includes $136 million of deferred revenue that has been eliminated from GAAP results because of the Veritas addition. Non-GAAP net income was $273 million for the quarter, 16 percent higher than the September 2004 quarter's $235 million.

The Veritas influence wasn't entirely responsible for the disappointing quarter. Although Symantec's worldwide enterprise security business represented 22 percent of total revenue and grew 11 percent on a combined non-GAAP basis year-over-year, Symantec CEO John Thompson said the company suffered from an increasingly competitive security space.

"We posted weaker-than-expected security results, especially in the midtier and the high end of the market," he said during a conference call with media and analysts.

Margin-conscious Symantec partners will want to take note of how the company intends to remedy this.

"Pricing pressure was apparent throughout the security sector, and you should expect to see a much more aggressive Symantec in this area during the December and March quarters," Thompson said.

However, despite weak consumer sell-through on the company's Norton antivirus products due to Symantec's decision to delay the release of its 2006 solutions, Thompson said the company will not compete on price in this area.

And, despite the setbacks, Thompson said the integration of Veritas is going as well as could be expected.

"I'm very pleased with the team's performance during our first quarter of combined operations," he said. "Each company's sales force followed our strategy of 'stay in your lanes' in order to minimize conflict, and we will begin creating a more integrated sales force in the coming quarter."

For the fiscal year ending March 2006, GAAP revenue is estimated at $4.2 billion, excluding $288 million of deferred revenue from the Veritas transaction and $559 million of revenue related to Veritas for the quarter ended March 31, 2005. Symantec's combined non-GAAP revenue for fiscal 2006 is estimated at $5 billion, 8 percent higher than the combined non-GAAP revenue for fiscal 2005 of $4.625 billion, but lower than the company had projected before this quarter.