Why Symantec’s margins saw expansion in 2Q15
Key takeaways from Symantec's 2Q15 earnings (Part 8 of 14)
Consolidation of Norton offerings aimed to enhance margins
In its 4Q14 earnings release, Symantec Corporation (SYMC) announced its plan to separate the Norton brand from other consumer products. The objective of the separation was to enhance the brand’s franchise value and improve margins and cash generation. The company streamlined Norton’s nine core products into a single security offering. It also exited unprofitable deals with original equipment manufacturers (or OEMs). This move led to the expansion of operating profit margins to 53% in the Consumer Security segment.
ETFs that have significant exposure to Symantec include the PowerShares QQQ Trust ETF (QQQ) and the Technology Select Sector SPDR Fund (XLK). These ETFs are likely to benefit when the company posts positive results.
Symantec leads the global antivirus software industry
Symantec with its Norton Security Suite leads the global antivirus software market with 22% market share, as the above chart shows. It’s followed by McAfee (INTC), which holds a 20% share. IBM (IBM) is also a player in the market, with a 3% market share.
Symantec’s operating margin saw expansion
Apart from the Norton consolidation and the exit of business with OEMs, Symantec also exited certain retail channel arrangements to focus more on a new e-commerce direct-to-customer channel. Enterprise Security also registered an increase on the margin front. Its margins increased from 15% in the second quarter of fiscal year 2014 to 17% in the second quarter of fiscal year 2015. In 2Q15, Information Management revenues increased marginally by 3%, and margins declined 20% due to an increase in sales of its low-margin appliance products. The above measures seem to have yielded results for the company as the operation margin in 2Q15 reached 21.5% compared to 15.1% in 2Q14, an increase of 640 basis points.
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