TBR perspective: Symantec’s move will disrupt security and storage landscapes
Jane Wright, Senior Analyst, TBRI
OCT 30, 2014 13:00 PM
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Symantec's decision to split into two (as yet unnamed) companies was a much needed move to get Symantec back on track to competitive growth rates in the fast-moving security and storage software markets. Once renowned as an endpoint security vendor, the new Symantec security company is preparing to re-emerge as a stronger security vendor with a broader portfolio and a renewed focus on addressing the key drivers (such as zero-day threats) for businesses' and consumers' IT security decisions. The security company will compete for increased market share in growth areas such as endpoint-based advanced threat protection (ATP) and cloud-based security services. With a more dedicated focus on software-defined storage (SDS), the new Symantec information management (IM) company has the opportunity to reinvest its business and align to future trends such as cloud computing and big data that are driving growth in the storage market.

Symantec is a significant player in the security and IM markets, with a total of $6.7 billion in annual revenue and 21,000 employees, and TBR believes the separation will have immediate and long-term implications for Symantec's customers, partners and competitors.

·   Customers: While any significant realignment such as Symantec's separation may cause disruption for customers as they adjust to new relationships and operations with their vendor, Symantec has smoothed out many of these changes. Symantec has spent the past quarter realigning its sales and partner training with security and IM so employees are better prepared to operate in the two separate companies. However, many customer organizations aim to reduce complexity by using just a handful of vendors to deliver all their infrastructure requirements. Customers that looked to Symantec for both security and IM solutions may find vendor management tasks more complicated with the two new Symantec companies and may decide to consider vendors with more holistic offerings.

·   Partners: In the latter half of 2013, Symantec began redirecting partner resources to specific competencies within security and IM. TBR believes many channel partners naturally gravitate to security or storage competencies, as the two segments must have different drivers and must meet different customer requirements. While the Symantec separation will prompt channel partners to re-evaluate their relationships with Symantec, channel partners that focus on storage or security solutions will be encouraged by Symantec's renewed focus and strengthen their commitments to the respective Symantec company.

·   Competitors: Symantec's move to separate is a strong signal that the synergies between storage and security groups within a single vendor company, while helpful, may not be profitable because the two groups have different customer demands, growth rates and innovation road maps. Symantec was not the only vendor to attempt to wring value from a storage and security marriage; EMC continues to tap its RSA security division for the security capabilities it can apply to EMC's storage offerings. However, TBR believes the security market is changing so quickly, due to ever-changing threats and increasingly sophisticated attacks, that innovation and delivery of security solutions demand a dedicated focus from a vendor. By creating a separate security company, Symantec is positioned to provide that focus, which will increase its competitive stance against competitors such as Intel (McAfee), IBM, Dell SecureWorks, FireEye and Trend Micro.

Symantec is primed to move forward quickly as 2 separate, but more nimble, companies

In recent quarters Symantec has been working to achieve 30% operating margin in 1Q15, but TBR's analysis showed Symantec was not on track to meet this goal. Based on Symantec's structure, prior to the separation announced on Oct. 9, TBR forecast the vendor's overall operating margin at 22.7% in 1Q15. Symantec had to take decisive action to accelerate growth and maintain its competitive strengths in the security market, and TBR believes the company's separation is a positive step in that direction.


Symantec's finances and organizational culture were primed for this change. Findings in TBR's 2Q14 Software Vendor Benchmark indicate Symantec's resource management strategy has built a healthy foundation that can sustain the companies through the separation. In 2013 Symantec began organizing its people and portfolio around security (including products such as Symantec Endpoint Protection and Norton) and information management (including products such as NetBackup and Storage Foundation). Symantec also split its direct sales team into security and IM specialists. With these realignment tasks underway, Symantec will be able to move forward quickly along its two new company lines.

However, Symantec must execute the separation quickly and carefully or risk alienating customers, partners and even its employees. Customers may hesitate to begin or renew Symantec engagements until they are sure neither of the new companies is on the verge of an acquisition, which could disrupt new integration requirements. Partners will wait to see any changes in margins or other incentives as they continue their relationships with one or both of the Symantec companies.

Although Symantec will need to invest time and other resources in reaffirming its relationships with customers and partners, TBR believes Symantec's planned separation is a strategic move to enable the two companies to more closely align resources for key growth segments, such as mobile security, ATP and managed security services in the Symantec security company, and backup or cloud backup solutions in the Symantec IM company. 


Symantec's security company will be a stronger competitor and more sought-after partner

Security solutions have long been Symantec's flagship offerings. With a portfolio of security services and widely installed products including Symantec Endpoint Protection and Norton products, enterprise and consumer security solutions have delivered approximately 63% of Symantec's revenue. The security segments also delivered faster growth for the company than the IM segment. Prior to the separation announcement, Symantec's Information Security segment experienced 2.7% year-to-year revenue growth in 2Q14. However, the segment saw three consecutive quarters of year-to-year revenue decline prior to 2Q14, as the vendor worked to consolidate its offerings and shift its portfolio to meet customer demands for services-based security products and ATP

capabilities. With a more focused strategy and dedicated resources, the new Symantec security company is positioned to improve this growth rate in 2015.


Following the separation, the Symantec security company will become a stronger competitor in the endpoint security segment and a more sought-after partner in the network security segment. While it has a variety of security offerings, Symantec is primarily an endpoint security vendor. Symantec preannounced its endpoint-based ATP solution last spring, with planned availability one year later. The one-year delay provides insight into the internal development challenges Symantec faced at the time, as more nimble competitors, especially relatively smaller competitors such as FireEye, were gaining share in this important security segment. In the new Symantec security company, TBR believes Symantec will have greater ability to streamline operations and focus its R&D efforts on ATP solutions, helping Symantec introduce new technologies more quickly.

Success in the enterprise security market requires a strong network security component — whether from a line of network security products, tight integrations and partnership with widely installed network vendors or a merger with or acquisition of a network vendor. Organizations require tight integration between security and network technologies to detect and respond to targeted and persistent attacks. Endpoint security vendors and network vendors are partnering to deliver more comprehensive ATP solutions. TBR believes that with its resources focused squarely on security, the newly separated Symantec security group will be able to attract additional partnerships with key network and network security vendors. These partnerships will increase competitive pressure for endpoint security vendors that are not able to create similarly strong ecosystems. 

Symantec's IM company will establish a new foundation for revenue growth

With its revitalized, independent IM business, Symantec will expand its market presence as a provider of storage software, backup and recovery, and high-availability solutions. In 2Q14 Symantec's IM segment revenue grew 1% year-to-year. Prior to 2Q14, the segment experienced three consecutive quarters of year-to-year revenue declines. Before splitting, Symantec reported several IM product enhancements on its FY15 road map, including the release of its NetBackup and IT Resiliency products. TBR expects these enhancements to be executed as planned. The split will enable Symantec's information management business to refocus R&D spending to bolster its NetBackup and Storage Foundation portfolios, which must adapt quickly to meet customer needs for in-memory storage and virtual backup and recovery.


With the separation, TBR believes Symantec can allocate resources quickly and effectively to evolve its storage software, backup and recovery solutions, driving much-needed organic innovation into these product portfolios. A critical piece of the IM puzzle for Symantec will be its ability to align with SDS solutions as it continues to gain market adoption. SDS solutions are helping simplify management of and drive down costs for key cloud- and big-data-oriented workloads in the enterprise. This trend is making SDS solutions highly valuable for large storage and cloud providers such as Amazon, Google and Rackspace. With a simplified corporate structure and more agile innovation process, Symantec's IM business will be better positioned to align with the movement to SDS, particularly in quickly growing segments such as cloud.

Through its earlier Veritas acquisition, Symantec has been providing SDS solutions under its Storage Foundation platform. However, TBR believes Symantec has not yet established its reputation as a leading vendor in the SDS market, although Symantec's Storage Foundation offering provides the features and functions expected in an SDS solution. Symantec's new IM business will benefit greatly from increased marketing spend around Storage Foundation, and with a broad portfolio in this IM business, Symantec can showcase its ability to provide SDS along with backup, recovery and high availability. TBR believes that if Symantec Storage Foundation can grow its support of third-party storage vendor arrays, it will have a competitive advantage, as many leading SDS solutions are still somewhat proprietary and support only a single-vendor solution.

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, telecom and enterprise network vendors, and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients' needs. Our analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis. 

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