Symantec Corp. said it’s splitting into two companies, a move that reverses a decade-old expansion effort by the biggest maker of security software.
The Mountain View, California-based company said in a statement yesterday that its cyber-security and data-storage divisions would become separate publicly traded companies. Symantec said it made the decision after an extensive business review and had concluded it needed to be nimbler and more focused.
“It has become clear that winning in both security and information management requires distinct strategies, focused investments and go-to market innovation,” Chief Executive Officer Michael Brown, who was promoted to the role last month, said in the statement. “Separating Symantec into two, independent publicly traded companies will provide each business the flexibility and focus to drive growth and enhance shareholder value.”
Analysts and investors have long sought a breakup of the company, which has a market capitalization of $16.2 billion. They have argued Symantec’s businesses weren’t compatible, and that the company’s stock price was being hurt by fusing the high-margin security business with the less profitable storage division. Bloomberg News reported Oct. 8 that Symantec was exploring the split.
Symantec is joining Hewlett-Packard Co. and EBay Inc. as the latest large technology company to plan a breakup. EBay said on Sept. 30 it would spin off its PayPal payments unit from its marketplace business, while Hewlett-Packard said earlier this week that it would hive off its personal computer and printers businesses into one entity and carve the corporate hardware and services businesses into another company.
Symantec shares rose 3.5 percent the day Bloomberg News reported the company was in advanced talks over a breakup. The shares climbed 0.3 percent to the equivalent of $23.46 at 9:07 a.m. in Frankfurt. The stock dropped 2.4 percent to $23.44 at the close in New York yesterday.
“At least this allows new management to pursue a new course,” said Rob Owens, an analyst at Pacific Crest Securities in Portland, Oregon. “These two discrete companies still have the same products that are challenged for growth. So maybe it allows one of the entities to become more strategic in terms of an acquisition.”
Symantec said Brown will remain CEO of the security business, which will retain the company’s name. Thomas Seifert will continue as chief financial officer of Symantec’s security business.
John Gannon, who joined the company in August 2012, will be general manager of the new storage information management business. Gannon was formerly chief operating officer of Quantum Corp. and previously led Hewlett-Packard’s commercial PC business.
The transaction will be a tax-free distribution to shareholders of 100 percent of the storage business, Symantec said. The spinoff is set to be completed by the end of 2015. The company also reiterated its quarterly earnings guidance from its August earnings call.
Symantec began a review of its long-term strategy in May, Brown said in an interview yesterday. The conclusion was that there were too many trade-offs in having security and storage under one roof, from allocating research and development money to managing sales relationships, Brown said. The company also determined that contractual complexities with customers in dividing the businesses could be overcome, he said.
“There really are two different buyers and there are different buying criteria,” he said. “Information management is about cost and reliability and in security, it’s about what you can do in real time to defend against threats. This really allows each business the freedom to operate and develop its own unique strategies and investment profiles.”
There will probably be job cuts later -- though not immediately -- as the businesses look at reducing costs, Brown said. The company said it has more than 20,000 employees in more than 50 countries.
Symantec’s total revenue in fiscal 2014 was $6.7 billion. Its user productivity and protection unit, plus information security business, generated about $4.16 billion in sales, with the information management business producing $2.5 billion, according to data compiled by Bloomberg.
Symantec has been struggling to rev up growth. Revenue declined in the latest fiscal year and is projected to be unchanged this year as the company grapples with a PC slump that has crimped sales of its antivirus software. Bloomberg News reported in April that Symantec hired JPMorgan Chase & Co. to explore strategic options and defend against activist shareholders, and the bank continues to serve as its financial adviser.
While Symantec helped pioneer anti-hacking technologies, it has increasingly found itself out of step with the security industry. Recent data breaches at Target Corp. and JPMorgan have showcased the rapidly escalating threat from professional hackers that even advanced detection systems are unable to stop.
Antivirus software for consumer and corporate PCs is a small part of the total security market, which is projected to rise 8 percent this year to $72 billion, according to Gartner Inc. The biggest and fastest-growing security areas are now services including consulting, outsourcing and implementation -- categories that make up more than half of all worldwide spending, according to Gartner.
In 2005, Symantec acquired data-storage maker Veritas Software Corp. for $10.2 billion. Since then, several Symantec CEOs have confronted the issue of whether to split the company. Enrique Salem, who was CEO from 2009 to 2012, and Steve Bennett, who was CEO from 2012 to March 2014, both said they wouldn’t break up the company.
Bennett was fired in March after sales growth continued to decelerate. The board -- which has as its chairman Dan Schulman, who is president of PayPal as it is being spun off from EBay -- then conducted a six-month search for a successor. In September, Symantec appointed interim chief Brown to the position on a permanent basis.