More Is Less for Symantec

Symantec's(SYMC Quote) merger with Veritas was supposed to create a company that was greater than the sum of its parts. But the first quarter of fully combined operations showed the opposite -- at least for now -- and investors are pounding the stock.

In recent trading, shares were off $4.63, or 19.3%, to $19.37.

As the company's earnings report revealed late Tuesday, Symantec's core antivirus business was weak in the second quarter due to a combination of factors, including failure to ship new versions of key products on time, lack of a highly publicized security threat to stimulate sales, poor sell-through in Symantec's traditional retail stronghold and pricing pressure on both the consumer and corporate fronts.

Even worse, the problems will spill over into the third quarter and subsequent quarters, because Symantec has moved to a subscription model in which consumer sales completed in one quarter are recognized ratably as deferred revenue in the future. The company told investors Tuesday that it will miss estimates on both the top and bottom lines.

The September quarter is the first full three-month period that reflects the $10.25 billion acquisition of Veritas, which closed in early July.

There was a nasty surprise on the storage side of the business as well. Sales of data protection products, largely derived from the Veritas lineup, were up a disappointing 2%. And sales growth in another Veritas-based category -- storage management -- was up 6%. "This is not what I had expected," says Punk Ziegel analyst Steve Berg, who covered Veritas when it was a standalone storage software company, and now follows Symantec.

According to Berg, one of a number of analysts who downgraded Symantec Wednesday morning, if Veritas had remained independent, he would have expected it grow those parts of the business by about 12% in this quarter. Instead, it grew the business by just 4% on a blended basis. Berg's company does not have an investment banking relationship with Symantec.