Symantec slashing spree will drag down earnings

Huge severance bill will hit revenues, but leading areas are doing well

Symantec has flagged yet more layoffs although by the end of July it had already cut management by more than a third, according to execs on its earnings call.

The company has already laid off so many staff that its 2014 revenues will suffer, Symantec's executive vice president and chief financial officer James Beer conceded.

"As discussed last quarter, we expect cash flow from operations for fiscal year 2014 to be down approximately $200m (£132m) year over year, driven by severance cash payments," Beer told investors.

The other big bill for the year would be for the firm's own ERP implementation.

Symantec's June quarter GAAP revenue grew three per cent in constant currency to $1.71bn.

But Beer added that the September quarter would also reflect "significant changes" to the sales organisation still to come, and related risks.

"These changes include realigning our sales territories faster than expected, reducing costs through headcount reductions, redesigning the coverage model, launching the new renewals team, converting our generalist sales force to one that's specialised, focusing our sales organisation on new business only and redefining compensation incentives," he said. "We're changing them from farmers to hunters."

A rethink of the channel strategy is also in the offing, according to Beer.

"One of the areas we will be focusing a lot on is services providers," he suggested. "Stay tuned for further insight."

Symantec is believed to have laid off about 1,700 staff in total throughout June and July.

Symantec's chairman, president and chief executive officer, Steve Bennett, said "significant" progress had been made in transforming the company.

"By the end of July [2013], we'll be almost done with our organisational simplification initiative, bringing the number of management layers and spans of control closer to industry standards and reducing our management structure by 30-40 per cent," he said.

"Of the top 12 people that were running the company a year ago, seven are no longer with the company. And of our officer population, which was 146, I think, a year ago, 70 are no longer with the company. So we've had quite a significant leadership transition."

Symantec also removed "some redundancies" across the organisation during the last quarter, resulting in the elimination of some "individual contributor" positions, he said.

However, Bennett said the Q1 results were better than expected, helped by the strength of some of its largest businesses – including endpoint security and enterprise backup.

He indicated that the restructuring costs will feed through more in Q2, but hopefully then the improvements will also be reflected on the books.

"There are a lot of tough changes happening, but there's a lot of positive momentum for us with our employees," Bennett said.

He confirmed that its sales force would now be incentivised to be paid on new business, rather than renewals.

"We are also beginning implementation of the change from a generalist sales force to one with the vast majority focused on either information security or information management solutions," Bennett said.

A new centrally managed renewals organisation will be up and running by the end of the fiscal year across the world, he added.

The downturn in PC sales was not expected to have a huge effect, he said, although it would have had several years ago.

Subscription sales growing

Beer added that more customers are buying its subscription services, with the total subscription business expanding five per cent in Q1, and comprising 45 per cent of total revenue, up one per cent from the year-ago quarter.

"Enterprise subscriptions, which exclude the Norton business, grew 12 per cent and accounted for 15 per cent of total revenue, compared to 14 per cent in the previous year," he said.

He also said $350m has been reallocated, mostly to "key growth opportunities", with remaining savings used to puff up the operating margins for the full 2014 year.

For its September 2013 quarter, the US vendor expects GAAP revenue of $1.65bn-$1.69bn, compared to $1.70bn in the year ago period. About 77 per cent – or $1.28bn – of the Q2 2014 revenue is expected to come from the balance sheet, according to Beer.

However, the full effect of Symantec's go-to-market and sales organisation changes would not be felt until full-year 2015, he said.