Symantec Teases New Security Products With Focus On Subscriptions

Investors in security vendor Symantec seemed to take heart in Symantec's shifting business model and a wide range of new security solutions the company plans to introduce later this year, despite falling revenue and earnings for the company's fourth fiscal quarter and full year of 2016.

Symantec said in its earnings call Thursday that it is in the process of moving more of its business to a subscription model and away from traditional licenses, which in part is leading to a head count reduction this year of 1,200 people, or about 10 percent of its workforce.

For the fiscal fourth quarter of 2016, which ended April 1, Symantec reported revenue of $873 million, down about 3 percent compared with fourth quarter 2016 revenue of $899 million.

[Related: Symantec CEO Steps Down, Security Vendor Lowers Revenue Guidance]

The company reported GAAP earnings of $2.045 billion, or $3.15 per share, compared with last year's $176 million, or 25 cents per share. The GAAP earnings includes Symantec's sales of its Veritas storage business. On a non-GAAP basis, fourth-quarter earnings were $147 million, or 22 cents per share, compared with last year's $203 million, or 29 cents per share. Analysts had been expecting non-GAAP earnings of 23 cents per share.

Earnings were announced before the close of trading. Symantec's shares closed the day flat, but fell more than 3 percent in after-hours trading.

For all of 2016, Symantec revenue fell about 9 percent year over year, to $3.6 billion. The company earned $2.5 billion, or $3.71 per share, on a GAAP basis, down from last year's $878 million, or $1.26 per share. On a non-GAAP basis, the company in fiscal 2016 earned $698 million, or $1.03 per share, compared with last year's $908 million, or $1.30 per share.

Outgoing Symantec CEO Mike Brown, who in April said he will remain in this role until a replacement is found, said during the conference call that Symantec is going through a shift in its business as it continues to deliver new products leveraging its unified security strategy and builds its enterprise security go-to-market capabilities.

In a statement, Brown said that, unlike its competitors, Symantec has a strong focus on unified security, which lets customers view all threats in their environments, automate remediation of security risks and not just monitor them, employ security-as-a-service to protect cloud-based workloads, and take advantage of Symantec's monitoring of 8 trillion objects worldwide for potential threats.

"Many of the network security vendors in the market today, such as FireEye and Palo Alto, only provide threat protection offerings," he said. "These offerings are focused on keeping bad actors out of the network and do not provide protection for the data itself."

Symantec will expand on those technologies with the introduction of several new solutions in fiscal 2017, Brown said.

This includes expanding the company's new Advanced Threat Protection, or ATP, solution with a complete set of third-party APIs and integrations into other major security products and a new agentless endpoint detection and response capability to help sell ATP into environments with competitors’ endpoint products, and therefore triple Symantec's addressable market for ATP, he said.

Brown said Symantec will also expand its unified security strategy with Symantec Unified Endpoint Protection, a SaaS endpoint security and management solution for small and midsize enterprises. The company will also introduce Data Center Security Dot Cloud solution for automatically discovering and securing workloads on Amazon Web Services and Azure cloud. It will also introduce the next version of Symantec Endpoint Protection (SEP) with enhanced cloud-based detection, proactive exploit protection and machine learning, he said.

Also new this year will new cloud enhancements for Symantec's Data Loss Prevention, or DLP, solution for such cloud services as Box, OneDrive, and Salesforce.com. DLP is currently for Office 365 and Gmail, he said.

Fiscal 2016 saw Symantec focus on cybersecurity and on increasing its enterprise capabilities in this market, Brown said.

This includes investing in a new lead-generation program, increasing the number of quota-carrying sales reps by 20 percent, he said.

"We are also continuing to focus on channel partners with more security expertise through our award-winning Secure One program that certifies our partners on our products and provides better rewards for those partners that focus on Symantec," he said.

Brown said the shift from in-period licensing to subscription sales impacted Symantec's revenues in several areas.

Enterprise security revenue fell 4 percent in the fourth fiscal quarter. However, the company sold more than 1.2 million ATP subscriptions during the quarter, which was the first quarter of availability. "This initial penetration represents just a fraction of our total Symantec Endpoint Protection installed base," he said.

Symantec already has a $100 million pipeline for ATP in fiscal 2017, he said.

Symantec's DLP revenue fell 4 percent in the fourth quarter as more business shifted to subscription versions of the technology.

Future business is expected to come from the company's Encryption Everywhere offering, Brown said. Encryption Everywhere is currently available via Web hosting providers, but Symantec expects many customers to convert to premium website services, he said.

Symantec's Norton-branded consumer security solution is also quickly shifting to a subscription model, Brown said. About 95 percent of U.S. customers already use Norton via subscription, and customers in Europe and Japan will be converted to the subscription model starting this fall, he said.

During the question and answer period of the financial conference call, Brown, when asked about the shift toward a subscription model, said the company is enthusiastic about how well it is going. "We benefit from the shift to more cloud-based offerings," he said.

Overall, about 60 percent of Symantec's portfolio, including SEP, DLP and ATP are growing in revenue terms, while 40 percent, including endpoint management, are showing falling revenue, Brown said.

When asked about Symantec's future plans for mergers and acquisitions, Brown said the company is placing its emphasis on organic growth.

"M&A is clearly not the solution to get Symantec growing again," he said.

However, Brown said, Symantec will consider acquisitions where they make sense. "But we're very strict with our criteria," he said.