A trend that we are seeing lately is the divestment of non-core business segments. Security software provider, Symantec Corporation (SYMC) is splitting its business into two separate entities – the security business and the data storage business – as per a Bloomberg report. However, the company itself avoided commenting on the story.
Earlier, in April, Reuters reported that Symantec was in the process of hiring banks for help on strategic advice and to defend against activist shareholders. At the time, a few activist investors and private equity firms were rallying for a sale or split of the Symantec business.
The current separation of the units comes at an opportune moment for Symantec. It makes the divided parts more attractive as acquisition targets for companies like EMC Corp (EMC) and Hewlett-Packard Company (HPQ), according to Bloomberg. Moreover, the breakup aims at streamlining the company’s operations and increasing focus on higher-margin areas such as the cybersecurity business. This strategic move could be beneficial for the company to revive its operational performance.
Symantec has realigned its organizational structure by eliminating several mid-level management positions to create a leaner operating structure. It also outlined a go-to-market strategy, which involves reorganization of its sales force into specialized groups to look after functional areas of security and information management.
Sales of Symantec’s security solutions have been affected by the shrinking PC market. Per the latest IDC report, PC shipments will drop 3.7% in 2014, the third consecutive year of decline. Notably, the PC market has taken a big hit and is not expected to recover in the next 2–3 years. This has affected the sale of Symantec’s PC security solutions and business volume to a considerable extent.
To counter this decline, Symantec has shifted its focus to the mobile business, which will enable it to generate additional volumes.
Moreover, Symantec is making efforts to attract small and mid-sized businesses with the introduction of enhanced versions of storage management and Internet security solutions. These solutions are primarily targeted at information-driven businesses.
However, execution risks remain on the restructuring initiatives undertaken by Symantec. If the company’s revamped go-to-market strategy does not yield the desired results, it will have a negative effect on its overall performance.
The company also faces increased competition from other bellwethers such as Microsoft Corporation (MSFT) and Intel Corporation. Moreover, continued investments in new products and services in the absence of meaningful top-line growth could impact the company’s margins.
This could be the reason that the security company reported negative returns both on a year-to-date basis (down 1.2%) and from a 1-year perspective (down 6.3%) despite the rising share market and improving economic environment.
Currently, Symantec has a Zacks Rank #3 (Hold).
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