UPDATE: Symantec 1Q Surges On Margin Growth; 2Q View Weak

Symantec Corp.'s (SYMC) fiscal first-quarter profit surged on higher margins, but the security- and storage-software company's revenue was roughly flat from a year ago and missed expectations.

Shares tumbled 8.3% to $13.45 in after-hours trading, as the company also predicted second-quarter earnings of 27 cents to 28 cents a share on revenue of $1.45 billion to $1.47 billion. Analysts polled by Thomson Reuters expected 34 cents and $1.53 billion, respectively.

Echoing the tentativeness of the economic recovery, the company saw a "cautiousness" in the final weeks of the quarter as the Symantec sales force tried to close corporate deals, said Chief Financial Officer James Beer in an interview before the earnings call.

"That impacted the revenue picture for the quarter, particularly for larger customers who buy our storage products," Beer said. "The procurement process took longer than normally expected. There is still a reasonable amount of economic uncertainty in the market."

But during a conference call to discuss earnings, Symantec President and Chief Executive Enrique Salem added that "Those deals have not been lost to competitors. We closed many of them in July."

Storage products make up about 15% of Symantec's revenue.

Sales of security software have held up rather well during the economic slowdown, as fending off viruses and hackers remains a top information-technology concern. In May, the company unveiled a new family of products targeted primarily at mobile phones, highlighting the growing importance of non-PC devices connected to the Internet.

For the quarter ended July 2, Symantec posted a profit of $161 million, or 20 cents a share, up from $74 million, or 9 cents a share, a year earlier. One-time, non-recurring tax issues contributed to the boost in profit, Beer said.

The three products the company sells in the software-as-a-service model had double-digit percentage growth, Beer added. The company plans to sell more of its products--particularly its storage products--this way, he added.

"We envisage more of our corporate backup and archiving products offered over the Web as well," Beer said.

Excluding stock-based compensation and other items, earnings grew to 35 cents from 33 cents. Revenue was essentially flat at $1.43 billion.

In May, the company projected earnings of 35 cents to 36 cents a share on revenue of $1.48 billion to $1.5 billion.

Gross margin climbed to 81.5% from 78.2%.

Sales in the storage and server management segment, the company's largest business, decreased 5.2%, while the security and compliance segment's sales were up 1.2%. Consumer-segment sales jumped 5.8%.

In May, Symantec said it would purchase VeriSign Inc.'s (VRSN) identity and authentication business for $1.28 billion. The acquisition gives Symantec a unit that sells products that businesses use to encrypt and protect information. The business had revenue of $410 million last year, and Symantec expects the deal to add to earnings starting in the September quarter of 2011.

At close of trading on Wednesday, shares in Symantec traded at $14.67, down about 18% to this year. Still, that is better than the 23% drop in shares of Symantec's close competitor, McAfee Inc. (MFE). McAfee, based in Santa Clara, Calif., will announce its quarterly results Thursday.

(John Kell contributed to this report.)

-By Jeanette Borzo, Dow Jones Newswires; 415-765-8230; jeanette.borzo@dowjones.com

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