Updated from 5:32 p.m. EDTSAN FRANCISCO -- IT security company Symantec ( SYMC) beat analyst expectations for the second quarter, though profit fell and the company issued weak guidance for the coming quarter. The results sent shares of Symantec down $1.77, or 8.42%, to $19.25 in recent after-hours trading. Net income for the second quarter fell to $50 million, or 6 cents a share, from $126 million, or 13 cents a share, a year ago. The earnings included a writedown of $87 million associated with what the company called its "non-strategic" data center management assets. Excluding items, Symantec posted earnings of 29 cents a share, or $263 million, compared with 26 cents a share, or $261 million a year ago. Analysts polled by Thomson Financial were expecting 26 cents a share. Revenue for the quarter was $1.42 billion, higher than analyst expectations of $1.39 billion. A year ago Symantec posted revenue of $1.27 billion. Deferred revenue at the end of the second quarter was $2.6 billion, compared to $2.33 billion at the end of the September 2006 quarter. Excluding charges, deferred revenue reached $2.62 billion, up 12% from $2.35 billion a year ago. Cupertino, Calif.-based Symantec said a review of its product portfolio led the company to write down some of the assets that were acquired by storage firm Veritas in 2003 and 2004. Symantec announced it would buy Veritas for $13.5 billion in December 2004.
But Symantec declined to specify the "assets," saying that the company is in discussion about alternatives to those products and is still talking to its customers about it. For the third quarter, Symantec estimates revenue between $1.41 billion and $1.45 billion. It expects earnings, excluding charges, to likely be between 25 cents and 30 cents a share. Analysts are expecting revenue of $1.47 billion and earnings of 31 cents a share. The company expects deferred revenue in the range of $2.635 billion and $2.785 billion. Symantec said its conservative outlook for the third quarter stems from lower-than-expected bookings and an unsteady macroeconomic environment. "While our first-half performance has been solid, exceeding our operating plan in both quarters for we have not met our planned new business targets," John Thompson, CEO of Symantec, told analysts on a conference call. "We remain cautious about the business outlook and coupled with the uncertain economic environment, it causes us to take a more conservative view of the December quarter and the remainder of the fiscal year," he said. However, Symantec said it has not yet seen cutbacks from its largest financial services customers, though smaller midmarket customers paused or slowed down their spending last quarter. The weak guidance is likely to come as a disappointment to company-watchers and analysts who had applauded Symantec's strong performance in the last two quarters. Symantec had presented an upbeat note at its analyst day in June, and investors had been hoping the company would regain some of its luster.
But it may be time to scale back some of those expectations. "I don't want people to get overly excited about the first half and drive up the outlook for the second half beyond what are reasonable expectations in an economic environment that's quite uncertain," said Thompson. "We thought it would be prudent to be a bit more conservative perhaps and not let estimates run away from us." Still, investors can take heart that the growth across the company's key business divisions in the second quarter remained strong. Symantec's consumer business, which represents nearly 30% of its total revenue, grew 10% from a year ago. The security and data management division grew 7% and the data center management segment grew 7%. Services, which accounted for 6% of total revenue, grew 30% from a year ago. Revenue from its international operations grew 15% from the year-ago quarter. Symantec signed 302 contracts worldwide compared to 292 contracts in the same quarter a year ago. Of those, 64 contracts were worth more than $1 million each compared to 67 contracts in the same period a year ago. More than 75% of its large deals involved multiple products.