Symantec's ( SYMC) $13.5 billion acquisition of Veritas 18 months ago continues to haunt the security giant -- and Wall Street continues to say, "We told you so." The Cupertino, Calif., security software maker cut its profit and sales outlook for the fiscal third quarter Tuesday, blaming the miss on the weak performance of its data center management business, which largely comprises Veritas products. For the third quarter, Symantec now expects revenue of $1.29 billion to $1.31 billion, down from its earlier guidance of $1.31 billion to $1.34 billion. Adjusted revenue will probably be $1.30 billion to $1.32 billion, again lower than its previous outlook. Symantec also
lowered its outlook for the fiscal fourth quarter. Symantec's current woes aren't so much about the general environment for IT security products as much as they are about the company's struggles to bring Veritas completely into its fold without disrupting business. Disappointed investors pushed Symantec's stock down by more than 8% in recent trading to 2 1/2-month lows. Shares of Symantec were off $1.72 to $18.76. Despite the increasing convergence of storage and security -- storage company EMC ( EMC) last year bought security player RSA -- investors were never fond of the idea of Symantec and Veritas merging. Shares of Symantec traded at $32 on Dec. 7, 2004, a week before the Veritas deal was announced. A week after the merger's announcement, the stock was trading around $25 and it has never recovered.
At the time, many investors believed the Veritas purchase was too big for Symantec to swallow. They may be right. "The company likely experienced some meaningful disruption when the merging of its Symantec and Veritas buying programs negatively impacted Symantec's ability to process orders for a period of time that was longer-than-expected," wrote Todd Weller, analyst with Stifel Nicolaus in his research report. Stifel Nicolaus makes a market in Symantec shares. The Veritas deal also hasn't given Symantec the kind of growth that investors would like to see. The company continues to perform on a par with security peers that don't have a storage component to their business. Integration issues aside, Symantec faces other problems, too. The company's execution has been spotty, with problems in different geographies and business segments. Symantec's European business performed poorly in the September quarter, and that segment is still recovering. Symantec needs to conclusively show investors that the Veritas deal, for all its pain, has given the company a significant advantage in terms of growth, customers and overall business process. And that's something Symantec hasn't done yet. Amid all this, there is a bright spot: Symantec's consumer business continues to remain strong despite the entry of Microsoft ( MSFT) in May with its Windows OneCare line of security products aimed at consumers. Consumers account for about 30% of Symantec's overall revenue, and the company's strong showing there should allay fears that Microsoft could eat into its business. Symantec will release its third-quarter results after the market closes on Jan. 24.