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Morningstar | Symantec Continues Its Large Strategic Shift Amid Integration Challenges

Symantec’s recent acquisitions, divestitures, and overhaul of its management team have resulted in a refocused cybersecurity company with a broader suite of products. The company sold Veritas, its information management business, while purchasing Blue Coat and LifeLock. We expect the Blue Coat assets to bolster Symantec’s enterprise portfolio, stabilizing the top line while generating sizable margin expansion, in contrast with relative stagnation in the consumer business.In fiscal 2017, 41% of Symantec’s revenue came from its consumer security business, but the segment’s 50% operating margin meant that the segment contributed the majority of the company’s EBIT. We remain concerned about recent declines in the high-margin consumer business, which has historically benefited from brand equity surrounding the Norton Security products and original-equipment manufacturer partnerships. As consumers shift to mobile and Internet of Things devices from laptops and desktops, we expect only modest revenue growth. We expect the integration of LifeLock to bring a mild degree of support to the consumer segment, particularly as this segment benefits from the Equifax scandal, which has renewed consumer interest in identity protection. We expect Symantec to benefit from LifeLock’s wide subscription base while cross-selling Norton and LifeLock for a monthly subscription fee. However, we do not expect a complete revitalization of this segment amid competitive pressures.Symantec’s enterprise business currently carries lower operating margins (8% for fiscal 2017), but we believe the integration of Blue Coat will allow for material top-line growth and margin expansion over the next five years. Blue Coat’s products, such as secure web gateway and cloud access security broker, position the company well for cloud and next-generation endpoint security. The limited overlap between the portfolios of the two businesses may enable further cross-selling opportunities for Symantec’s existing customers. We think Blue Coat provides Symantec with assets to protect cloud applications and mobile users in the enterprise markets.