Symantec Takes On Microsoft - TheStreet

IT security company

Symantec

(SYMC) - Get Report

has been working in

Microsoft's

(MSFT) - Get Report

shadow for nearly eight months.

In June, Microsoft, which stayed out of the consumer security business for years -- preferring to bundle the basic Norton product with preinstalled versions of its operating system -- released Windows OneCare, a product that place the software giant in direct competition with Symantec.

Since then, security experts have been searching for Symantec's response.

Now the Cupertino, Calif.-based Symantec finally has the goods to challenge Microsoft and leverage its home-turf advantage.

Symantec on Monday launched its latest product, Norton 360, an all-in-one security suite that combines security features such as antivirus, antispyware and firewall with system maintenance tools such as backup and tuneup.

Norton 360 marks the second big release from Symantec this year. Last month, the company began offering a data management and

leak-prevention product to businesses.

The newest product places Symantec, which has been a longstanding security partner of Microsoft, on a collision course with the Redmond, Wash.-based company. For years, Symantec piggybacked on Windows OS installations to put the Norton product into the hands of consumers.

Now it is unclear how the partnership between the two will play out.

"This is an important release for Symantec, because it brings such features as data and offsite backup to the basic Norton product," says Peter Hofstra, vice president and a portfolio manager at AIC Funds, which holds shares of Symantec.

"And it shows Symantec's consumer business is strong despite new entrants and the constant threat of Microsoft," he says.

Shares of Symantec were recently down 19 cents to $17.17.

In addition to Microsoft's OneCare in June, Symantec security rival

McAfee

( MFE) debuted its competing set of products, code named Falcon, in August.

Even

Check Point Software

(CHKP) - Get Report

, which ranks No. 6 in the consumer security market according to the NPD Group, had a

new version of its ZoneAlarm product out in November, underscoring Symantec's lateness to the market with Norton 360.

Symantec, which says it has been working on the product for nearly two and a half years, released only a test version of Norton 360 in late November.

"We couldn't just take exiting technologies like Internet security and backup and bundle them together," says Rowan Trollope, vice president of consumer products and solutions at Symantec.

"We had to rewrite these from the ground up because we wanted the final product to be faster and use less memory on the computer."

The time to market does not bother investors such as Hofstra. "With Norton 360 they are going beyond basic security," he says. "And they might be a little late, but they haven't lost any market share, and it is not hurting them."

The consumer division contributed about 31% of Symantec's overall revenue

in the third quarter of fiscal 2006 ended Dec. 29 and grew 24% year on year.

Price Pressure

The increased competition in the consumer security market isn't putting any price pressure on Symantec either. The company has priced Norton 360 at $79.99 for a year for use on up to three PCs.

Windows OneCare costs $49.95, while McAfee has priced its McAfee PC Protection Plus product that offers basic security and backup features at $49.99.

"It's a good sign that Symantec has been able to do pricing increase while everyone else thought they would be losing market share," says Hofstra. "If consumers feel that there is a compelling market value, they will pay for what they see as a superior brand."

Symantec already has a Norton Internet Security product priced at $69. Trollope says the company could see come cannibalization of revenue there because the Internet security and 360 products have a lot in common.

"Cannibalization is, however, a good thing for us here," says Trollope, "because Norton 360 is priced higher. We also think there is room to grow the market and space for both products."

Despite its tight grip on the consumer security market, Symantec's stock has been on a downward slide. Shares have fallen nearly 15% in the three months since Nov. 27 and have been up just about 3% in a year.

The good news on the consumer business side should help the stock, says Hofstra, but what investors are more concerned about is the

integration of Veritas and the performance of its enterprise security division.

Symantec announced that it would buy storage company Veritas for $13.5 billion but closed the transaction in 2005 for $10.25 billion.

Enterprise security, which constitutes 69% of Symantec's revenue in the third quarter, declined 1% year on year. Specifically, growth in data center management products that contributed 26% of overall revenue in the third quarter remained flat quarter on year and declined 8% year on year.

"We feel Symantec is undervalued right now," Hofstra says. "What's really weighing on the stock is the corporate side of the business and, until that clears out, the stock is likely to be stuck under $20.