2nd 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 8.5% to $13.42 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.

"We saw some challenges in the June quarter," said Symantec President and Chief Executive Enrique Salem during a conference call to discuss the earnings.

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."

Salem said during the earnings call that, "Those deals have not been lost to competitors. We closed many of them in July."

Later in the call, however, Salem added that he expects a certain deal reluctance to continue throughout the current quarter. "We see close rates increasing on larger deals and we expect that will continue in the current quarter," he said.

Caution is found across the U.S. and Europe, as well as across verticals, with the exception of the public sector, Salem said, adding, "We saw the best performance coming from the public sector."

Symantec's results are emblematic of the fact that "Enterprise purchasing softness continues to be a persistent theme in IT, lagging behind growth in consumer spending," said Don More, a partner at the investment bank Updata Advisors Inc.

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.

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.

Combined with the purchase of PGP Corp. and GuardianEdge, which both closed in the first quarter, the three acquisitions will mean a 11 cent dilution in the company's current fiscal year, Beer said.

"In the next couple of years, the acquisitions will improve operating margins," said Beer. "In 2013, we'll be at a 30% operating margin." GAAP operating margin for the first quarter of fiscal year 2011 was 13.5%.

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

(John Kell contributed to this report.)

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