Gen Digital Inc (GEN) 2009 Q2 法說會逐字稿

Good day, and welcome to Symantec's second-quarter 2009 earnings conference call. Today's call is being recorded. At this time, I'd like to turn the call over to Ms. Helyn Corcos, Vice President of Investor Relations. Please go ahead, ma'am

Good afternoon and thank you for joining our fiscal second-quarter 2009 earnings call.

With me today are John Thompson, Chairman of the Board and Chief Executive Officer of Symantec, Enrique Salem, Chief Operating Officer and James Beer, Executive Vice President and Chief Financial Officer.

In a moment, I will turn the call over to John, who will provide high level comments on the Company, Enrique will follow with quarterly highlights and James will wrap up with a review of the financials and our guidance as outline in the press release. This will be followed by a question and answer session.

Today's call is being recorded and will be available for replay on the Symantec Investor Relations home page. A copy of today's press release and supplemental financial information are available on the website and a copy of today's prepared comments will be available on the website shortly after the call is completed.

Before we begin, I'd like to remind everyone that some of the information discussed on this call, includes our projections regarding revenue, operating results, deferred revenue, cash flow from operations, amortization of acquisition related intangibles and stock-based compensation for the coming quarter contain forward-looking statements.

These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in the statements.

Additional information concerning these risks and uncertainties can be found in the Company's periodic reports filed with the U.S. Securities and Exchange Commission. Symantec assumes no obligation to update any forward-looking statements.

In addition, to reporting the financial results in accordance with generally accepted accounting principals with GAAP, Symantec reports nonGAAP financial results. Investors are encourage to do review the reconciliation of these nonGAAP financial measures to the most directly comparable GAAP results, which can be found in the press release and on our website.

Now, I'd like to introduce our CEO, Mr. John Thompson,.

Thank you, Helyn and good afternoon, everyone. In the face of a slowing economic environment, our Company generated year over year growth in revenue demonstrated solid progress on operating margin goals and delivered strong earnings growth.

Our core businesses consumer security, back up and storage, continue to grow and drive profitability for our Company. And we saw solid performance in the large enterprise buyer segment as illustrated by the strength of our big deals during the September quarter.

While we are pleased overall with the results, like many other companies, we saw a pause in IT spending among some of our customers during the last week of the quarter due to what we suspect were uncertainties and constraints in the global markets. And as expected, the strengthening of the dollar versus other currencies around the world also impacted our financial results.

While a stronger dollar is certainly an important metric of the health of the U.S. economy relative to other economies, it will continue to have an impact on our results for the December quarter.

Therefore, we are updating our business outlook to reflect the likelihood of a continued economic slow down and the change in foreign currency rates.

In addition, we intends to maintain our flexibility with customers in tailoring transaction to say assist them in acquiring technologies they need during, to whether this tough economic times. The strength of our financial position, as well as our focus on areas where we can outperform our competitors, should position us well in this marketplace.

As always, we will continue to be prudent in managing our cost and expense. We've identified incremental cost saving areas and are making them part of our continuous improvement approach.

These new actions are consistent with the efforts we have had in place which have produced the improvements in operating margins over the past four quarters. These actions are intended to align our cost structure with the new realities driven by the economic environment.

James will provide a bit more detail on our plans in a few minutes.

We think customers will take advantage of this environment to both rationalize the products they use and the vendors they buy from.

In speaking with customers around the world they feel certain areas must continue to garner their attention and capture the lion's share of any new investment they are like to the make over the next year or so.

All of these investments must meet stringent ROI standards and support the requirements to create a less complex, more compliant IT infrastructure. Some examples of these areas include more comprehensive storage management solutions to help lure overall hardware spending.

Rich day loss prevention solutions to deal with rapidly changing employee and subcontractor or contractor environment and services that allow them to selectively out task those things no longer deemed to be critical for them to manage.

Our storage business, for example, certainly benefits from the ROI based selling approach we put in place more than a year ago. And the reason be enhancement to our data loss prevention solution are timely and consistent with what our customers say they need know to manage in today's more uncertain times.

We will stay focused on executing our strategy to secure and manage information against more risk, at more points, more completely and efficiently than any other Company in the world. Our development teams have been working diligently to deliver next-generation products for compliance and systems management.

Let me spend a minute discussing a couple of these offerings. In the compliance arena, our integrated process automation solution control compliance suite 9.0 helps organizations generate, create and maintain a sustainable compliance program in accordance with governance mandates and their risk management strategies.

Importantly, it should allow our customers to achieve their compliance objectives at a much lower cost than manul or more traditional approaches. Our next release of Altier seven leverages proven infrastructure and technology to deliver a tightly integrated solution to help customers automate many of the labor intensive processes they use today in their distributor and client server infrastructure. The Symantec management platform, a core technology of our open collaborative architecture will be used to integrate technologies from many of our key products including Symantec End Point Protection, Backup Exec Systems Recovery, Configuration Management and Data Loss Prevention.

Our customers are really excited about these products and the progress we are making in integration across our portfolio. Something that will be difficult for some others, certainly some competitors to achieve through partnerships alone.

We are well-positioned to keep our business growing and to return value to shareholders. We've got a strong balance sheet, a solid recurring model, minimal capital expenditure requirements and a continued focus on improving the efficiency of our business operations.

These attributes when combined with our strong product portfolio, diverse customer base and investments in key product growth areas position our company for continued long-term success. With that, I'll turn the call over to Enrique, who will provide more detail on the sent quarter highlights.

Thanks, John, and good afternoon everyone. I'd like to highlight a few key items of our fiscal second quarter.

Starting with our consumer segment. The consumer revenue was impacted by continued softness in the retail sector. As you know, retail sales have been steadily declining. It's important to note that during the September quarter, revenue from our retail channel declined by more than 20% year over year. However, our electronics distribution channels continue to grow posting 10% year over year growth.

Our consumer business remains very profitable and the contribution margin from this segment continues to improve. As you know, moving on to 2009 versions of Norton Antivirus and Norton Internet Security in September. These products have set a new industry standard for speed and performance by being the fastest security products in the world. Initial response to the launch of Norton Internet Security 2009 has been overwhelmingly positive.

In addition, to the eight top awards we've received to date, Wall Street Journal notes that 2009 is the fastest, simplest and least obtrusive security suite in the market.

We continue to pursue a multiprong strategy to acquire new customers. First, we have relationships with seven of the top OEM manufacturers. We signed several OEMs during the September quarter, including a deal with Packard Bell, where Packard Bell will continue to shipment in AMIA. Another deal, a large PC manufacturer has awarded N. I. S. the recommended and trial default positions in AMIA, Japan and Latin America for all small business PCs for the period November 2008 through April 2009.

Second, in the emerging markets where customers are more price sensitive we will grow our business by leveraging the PC tools brand online, go-to-market model. Now, moving on to our enterprise segment, we had another strong quarter in terms of large deals. During the September quarter, we generate ad total of 326 transactions valued at more than $300,000 each, up 8% compared to 302 transactions in the year ago quarter.

We generated 77 transactions worth more than $1 million each, up 20% compared to 64 transactions in the September 2007 quarter. In addition, we also saw a good mix of our product offerings within these top deals. 87% of all large transactions, included multiple products or services providing further validation that during the difficult economic times customers prefer to consolidate vendors and are doing so with Symantec.

In our end point security business, we are seeing good traction in large enterprise and continue to win competitive displacements. We are also seeing large scale deployments with one high tech customer deploying our Symantec end point protection solution on more than 100,000 nodes worldwide. Symantec end point protection is leveraging the zero impact performance technology already available in our consumer security products.

Our recently delivered maintenance release has faster boot time than any of our competitors. While this business is doing well in large enterprise, we saw softness in the mid market influenced in part by weak macro economic conditions.

A particular area of strength in our core business continues to be the storage and back up businesses. There are two factors that are driving our storage management business to grow above market growth rates. The first driver is customers increasing focus on hard dollar ROI from savings on storage spending.

Customers want to manage complexity while reducing costs and making more efficient use of their existing storage investments. Our storage foundation products help customers simplify their data centers and reduce costs by standardizing the storage management software across their environment.

The second catalyst is being driven by large enterprise migrate to go Linux and Windows based commodity servers in their data centers. This horizontal scaling allows infrastructure to grow or shrink based on computing demands without huge changes in capital expenditures.

These types of data centers rely heavily on sophisticated management and availability tools to take full advantage of serving and storage virtualization technologies providing a catalyst for our storage management and high availability businesses.

To further take advantage of this shift in the data center we recently launched Veritas cluster server one. VCS-1 is a new high availability in disaster recovery platform optimized for the next-generation virtual lived data center. We believe VCS-1 has a multiyear head start over our competitors proprietary high availability tools which are optimized for legacy data center environments.

Early adopter reception to this product has been strong with a major telecommunications provider already using this production in production today. Given these factors, we are confident in the long-term direction of our server management and high availability businesses.

The next area of our business that continues to show strength is back up. The back up market where we have the market leading product for both high-end and mid market segments is being driven by the migration from tape to disk, virtualization, deduplication and replication.

Our next-generation data protection strategy leverages these trends and continues to gain momentum with our customers and partners. Net back up has the best protection for environments and now we have taken this best-in-class virtual machine protection and incorporated them into the Backup Exec product.

This is an example of how we are gaining cost synergies by combining the net back up and Backup Exec product teams. We have started shipping Backup Exec 12.5 also supports Microsoft's hyper V environments. We remain commit to providing solutions that work across all major operating systems, hardware types and across all hyper visors. We recently expanded our strategic partnership with Dell in the back up area. Dell will sell disk arrays that are preinstalled with Backup Exec 12.5 technology. These appliances are extremely easy to deploy, provide support for both physical and virtual environments and are mostly targeted for the SMB marketplace.

Small and immediate businesses can now take advantage of Backup Execs advanced features around Share Point and Exchange Protection and Granular Recovery of files.

Moving on, our [inaudible] and data loss prevention businesses continues to show strong growth further extending our market leading positions.

In the same way that data basis have become the home for structured information, our market leading arkind solution, Enterprise Vault gives company's of all sizes a primary storage tier for unstructured information. An increasing number of Fortune 100 companies are recognizing that an intelligent arkind of is the best place to secure and manage their unstructured information. Enterprise Vault 8.0 which will we expect to ship in early 2009 will focus on helping organizations reduce the cost of storing unstructured information through data duplication and will feature advanced electronic discovery capabilities.

Our data loss prevention team had its best quarter ever. We signed deals with some of the largest global enterprise during the quarter with most customers opting to purchase the full suite. For example, a large US credit card company licensed the entire Symantec data loss prevention suite. PCI compliance was the key driver given the requirements to protect credit card information, employee data, financial data and high net worth customer lists. This customer selected our solution because our detection accuracy, central management and ability of the solution to scale.

During the quarter, we also announced the release of Symantec DLP 9.0, which includes end point management Symantec's open collaborative architecture. This release highlights our focus on integrating key technologies across the portfolio using the collaborative architecture. In closing, we will continue to drive profitability while investing in key high growth areas and further strengthening our competitive position in the marketplace. With that, I hand the call over to James.

Thank you, Enrique, and good afternoon everyone. I'm pleased that our ongoing focus on managing costs is leading to continued operating margin expansion and earnings growth. I'll start by reviewing the financial details of the September quarter. GAAP revenue was $1.518 billion. NonGAAP revenue grew 6% over the September 2007 period to $1.523 billion driven by strong growth in our storage, back up, archiving, data loss prevention and services businesses. Foreign currency movements positively impacted nonGAAP revenue by approximately 3.5 percentage points year over year and negatively impacted revenue by two percentage points sequentially.

Had the exchange rate remained at our guided rate of $1.53 per Euro, versus the weighted-average rate of $1.49 per Euro for the quarter, our nonGAAP revenue would have totaled $1.541 billion, approximately line with the midpoint of our revenue guidance. It's September quarters fully diluted GAAP EPS was $0.16.

NonGAAP fully diluted EPS for the quarter was $0.37, up 28% year over year reflecting the combination of continued revenue growth and judicious expense management. International nonGAAP revenue of $764 million grew 5% versus the year ago period, accounting for 50% of total nonGAAP revenue. The Asia Pacific Japan region grew 11%. The Americas grew 6% and the Europe, Middle East and Africa region grew 3% year over year.

Emerging markets such as China, India and Russia continues to generate very strong growth rates. Moving on to our nonGAAP revenue by segment. The consumer business generated revenue of $440 million, equivalent to 29% of total revenue and grew 2% year over year.

Moving to the enterprise arena, the storage and server management segment generated revenue of $573 million, up 12% year over year and representing 38% of total revenue. Our security and compliance segment generated revenue of $403 million, up 1% versus the year ago period. This segment accounted for 26% of total revenue.

Our services segment generated revenue of $107 million, up 16% year over year, representing 7% of total revenue. We continue to focus on improving the cost efficiency of our services operation and are pleased with the contribution improvements that the group has made during the past few quarters. NonGAAP gross margin increased 40 basis points to 85.7% for the September 2008 quarter, as compared to 85.3% for the year ago period.

Our continued focus on cost management has also increased nonGAAP operating margins for the September quarter to 29.1%, up 390 basis points year over year.

This is the fourth consecutive quarter in which operating margins have increased strongly versus the prior year. GAAP net income was $140 million for the September 2008 quarter. NonGAAP net income was $311 million, up 18% year over year. We exited September with a cash and short term investments balance of nearly $2.31 billion. During the September quarter, we repurchased $200 million, or 9.3 million shares at an average price of $21.46.

Our net accounts receivable balance at the end of the September 2008 quarter was $645 million. Days sales outstanding, or DSO, was 39 days in line with normal seasonal trends. Cash flow from operating activities for the September quarter was $248 million, as compared to $331 million in the September 2007 quarter. This reduction was driven by increased cash tax payments versus the year ago period in which we received a tax refund. The year over year differential in cash taxes totaled over $100 million.

Tax deferred revenue at the end of the September 2008 quarter was approximately $2.71 billion.

NonGAAP deferred revenue grew 4% year over year to $2.72 billion. Foreign currency movements negatively impacted nonGAAP deferred revenue by one percentage point year over year and negatively impacted deferred revenue by five percentage points sequentially.

Had exchange rates remained at our $1.53 per Euro guided rate versus the ending period rate of $1.38 per Euro, deferred revenue would have totaled $2.83 billion. This was weaker than expected due total reluctance on the part of some of our customers to finalize contracts during the last week of our quarter.

Now, I'd like to spend a few minutes discussing our expectations for the December quarter.

While the storage and security value propositions that we offer our customers give us a certain amount of insulation from the current macro economic environment, clearly, no company is immune from its customers challenges during tough economic times.

As a result, along with recognizing the recent strengthening of the dollar, we are providing a wider guidance range than normal as follows. We are assuming an exchange rate of $1.25 per Euro for the December 2008 quarter versus the $1.45 per Euro we experienced during the December 2007 quarter.

Given the rapidly moving exchange rate environment, it may be helpful to provide the following rules of thumb as to the impact of currency movements on our financial metrics.

or every U.S. cent movement versus the Euro revenue would be impacted by approximately $4.5 million. And deferred revenue would be impacted by approximately $7 million.

In addition, for every $0.05 movement versus the Euro, nonGAAP earnings per share would be impacted by approximately $0.01.

It is important to note, however, that these rules of thumb will move around based on the actual currency mix of our revenues and expenses.

For the December 2008 quarter, we expect GAAP revenue to be in the range of 1.446 to $1.496 billion. NonGAAP revenue is estimated to be in the range of 1.45 to $1.50 billion. In constant currency terms, this range would equate to 1.54 to $1.59 billion as compared to the $1.529 billion we generated in the December 2007 quarter. As a result GAAP earnings per share are forecasted to be in the range of between $0.11 and $0.14. NonGAAP earnings per share are estimated to be in the range of between $0.30 and $0.33.

In constant currency, this range would equate to $0.34 to $0.37 as compared to the $0.33 result in the year ago period. This guidance assumes a common stock equivalents total for the quarter of approximately 840 million shares.

At the end of the December quarter, we expect GAAP deferred revenue to be between 2.696 and $2.821 billion. We expect nonGAAP deferred revenue to be between 2.7 and $2.825 billion. The exchange rate at the end of the December 2007 quarter was $1.47 per Euro.

Using this constant currency rate, this range would be between 2.854 and $2.979 billion as compared to $2.897 billion at the end of December 2007.

We expect about 62% or approximately $920 million of our December quarter revenue to come from the balance sheet. This percentage once again illustrates the degree of predictability that we have built into our income statement during the last few years. Lastly, we have $600 million left in our current stock repurchase board authorization.

We continue to be committed to do share buybacks as an important part of our Capital Management strategy.

There is further opportunity to improve the efficiency and effectiveness of our cost structure. For example, we just recently entered into contracts with third-parties to outsource portions of both our IT and finance back office functions. We are also in the process of outsourcing our European manufacturing operations from Ireland to the Czech Republic.

The economic and process improvement benefits of these movements will begin to appear during FY 2010. In the shorter term, we are continuing to focus on each line item of our cost structure and the attendant opportunities to drive additional efficiencies.

We are in the process of implementing a reduction in force, as well as carefully managing the replacement of ongoing attrition. In addition, we are focusing on our travel expenses as well as all other discretionary purchases. We estimate that these actions will allow to us maintain our quarterly operating expenditures approximately in line with the September quarters result for the remainder of the fiscal year, versus the more traditional pattern of cost increases in the second half of the year.

In saying this, I am accounting for the increasing costs driven by the acquisition of PC tools and am assuming a foreign exchange rate of $1.25 per Euro for the remainder of the FY.

In closing, while our September quarter was impacted by the strengthening of the dollar and the weakening of the economic environment, we believe that the last three months marked another important step forward that the development and growth of Symantec.

We continue to build momentum in terms of the breath and quality of our product offerings, the depth of our relationships with customers and the efficiency and effectiveness of our back office.

Our security products continued to be essential to the protection of digital assets and our storage and system management products save customers considerable amounts of money, which will be even more important in the coming quarters. We generate strong cash flow from operations, in part as a result of our predictable maintenance streams and have reduced net CapEx during the last two years. We possess a strong balance sheet and have a sustained record of share buybacks while also successfully continuing to expands the product and market scope of the Company through acquisitions.

As a result, I believe we are well-positioned to deal with the current macro economic environment. And we will stay focused on both our revenue and cost strategies. And now, I'll turn the call back to Helyn so that we can take some of your questions.

Thank you, James. Tom, will you please begin polling for questions?

(OPERATOR INSTRUCTIONS)

While Tom is polling for questions, I would like to announce that Symantec plans to attend several financially analyst conferences over the next couple of months. In addition, we will be reporting our fiscal third quarter results on January 28, 2009.

For a complete list of the investor related events, please visit our events calendar on the Investor Relations website. Tom, we are ready for our first quarter.

And our first quarter comes from Robert Breza with RBC Capital Markets.

Thanks for taking my questions. First question for John or Enrique. When you dig into the segments, when you look at the 12% growth in storage and server management, it clearly indicates that you're taking share from competitors out there.

I would just get an understanding of who and when you look at the security and compliance space growing only one percent, how do you feel about your competitive situation there? Do you feel like your taking share, maintaining share, how would you classify that? And I have a follow up for James, thanks.

If we look at the strength in our storage and back up business, I think what you are seeing is that we now have a very strong product line across both the windows platform and the more distributed platforms and given some of the new features that we have been adding, our strength in banking up, virtual environments and some of the other things we've done in data duplication are really starting to pay off.

So we are absolutely now given the strength of those products making a lot of progress against the competition where not only in large accounts but also in the mid market. So we continue to see the strength in those products and I think we will continue to gain market share there.

I think when you look at the end point security business or the security business, I think what you've seen is, we continued to well in large enterprise but we did see some softening in the mid market as we delivered the semantic end point protection technology into that segment.

My sense is right now, that that's more impacted by some of the things going on in the macro environment and I fully expect with the new release of our new maintenance releases, maintenance release three, that the performance improvements will shine in the mid market and continue to improve our position in that segment.

James, maybe as a follow up quickly you mentioned the reduction in force. Could you just kind of help us think about some ranges there, kind of zero to five or 2 to 3%. Can you kind of just help us with a range on how we should think about the reduction in force? Thanks.

Yes, sure. We are looking at a reduction of around 4.5% of our dollar volume for people.

Great. Thank you very much.

Next question Heather Bellini UBS.

Hi, thanks. Good afternoon, everyone. I was wondering if you could talk a little bit about deferred? They are obviously impacted by FX and you also mentioned the macro victim.

I was wondering if you could share with us a little bit what business segment had -- exiting out FX for a minute -- what business segments were the weakest in terms of deal signings during the quarter and how should we think about bookings growth going forward in terms of how you guys define bookings growth? And I just had one follow up if I might.

Heather, I think it would be fair to say that we saw softness in mid market in the low end of the enterprise segment as we entered the last week of our fiscal quarter. Which happened to be the week of the Monday $700 million decline in the Dow. So it was an interesting time to be trying to close business.

It was characterized in the segments that I just mentioned. It had a particularly strong impact, quite frankly in Europe and the U.S. compared to APJ and many of those were deals that just pushed as opposed to deals that essentially went away or we lost to competition.

Now, the question is for how long have they pushed. Do they show up in our December quarter results or do they become an issue that will continue to chase until the economic environment improves just a bit. And let me have James answer the second half of your question.

In terms of bookings, Heather, I won't try to get into predicting bookings rates going forward but certainly as we think about what we achieved in the September quarter, I know many of you will look at the bookings as the calculation of revenue plus change in deferred.

And certainly, I would urge you and your colleagues to look at that change in deferred on the cash flow statement. The cash flow statement is using an average FX rate for the period, whereas if you look at the balance sheet and it's going to use that end of period exchange rate in that statement, the balance sheet would give you a very different answer.

It would very much accentuate the volatility that we saw in the foreign exchange rates towards the ends of the quarter.

So I would urge you to focus on revenue plus change in deferred as defined on the cash flow statement and doing that calculation it gets you out to around 3% bookings growth, which is direction until in line with what we accomplished during this quarter.

Okay. Great. And then John, since you mentioned it you said the question is how long have the deals pushed out for. I mean, do you have any sense given what you've seen so far in the first month of the quarter? Do you have a view on how long they might push out for?

I wish I had that crystal ball, Heather.

I do think our teams are very mindful of where the transactions are. What the issues are that might cause them to move with customers. As I said in my planned remarks, I think we are going to have to use the strengths of our financials to help move transactions along.

That does not mean that we go and do crazy things that pollute our balance sheet, but we should come through this a lot stronger than companies that don't have the financial muscle that we have.

And so Enrique and James and I will certainly be working with the geographic leader to say make sure we can structure transactions that able, recognizing it in the period, and building a deferred revenue revenue pool that underpins the cash flow of the company.

And then my follow up for James was, just given the expense reductions and the risk factor that you discussed, given what you are doing there can you still, are you still hold to go your view of 100 basis points of margin expansion? Is that why you are making the cuts to still be able to hit that target given the new revenue view?

100 basis points of operating margin expansion is a long-term goal as we've discussed at Analyst Day and on other occasions and certainly, I'm pleased with the records that we have been able to record in the first half of the year and these moves that we are announcing today on the cost structure for the back half of the year will obviously help us as well. So I think I'll just leave it at that.

Okay. Thank you.

We'll take our next question from Sarah Friar with Goldman Sachs.

Hi, guys. If I could just come back to guidance as well. Looking at where you've gone from a revenue perspective, we would guess that your currency impact is probably about negative 5% in December, just based on that same exchange rate that you gave, James. It looks like you're guiding flat to 1% type growth at the midpoint.

What else are you trying to encompass with that guidance? Are you really assuming kind of ongoing very tough macro backdrop almost recession type scenario? Just trying to get a sense what have you thought about when you thought about how you are going to guide ultimately?

Sarah, I don't think this is a time for us to be cavalier about our guidance and overly aggressive in forecasting what we think the macro economic environment might produce.

And while I would never want to have this characterized as conservative guidance, our view is that we need to make sure given what we observed at the end of the September quarter. We factor that into our thinking with respect to what could very well happen in December.

December historically has been the strongest sequential growth period for us. It's the period in which we do the largest amount of business and the largest amount of transactions with large enterprise customers but we cannot ignore the fact that many of our customers are suffering. And as such, that could have some consequences on us.

It makes a lot of sense. And then you've talked about the kind of SMB type weakness but can you also touch on the consumer? I know digital river call last night, they talked about a real stop in spending in the last week, almost 911 like but they haven't seen a lot of that rebound. So data point about more consumer driven purchasing behavior. From what are you seeing generally.

I think if we look at the consumer business, Sarah, it's pretty clear that retail has continued to soften. And as I mentioned in my comments, we've seen basically we are down about 20% year over year on the retail side. On line has continued for us to do well. I think we are 10% year over year growth. And we do see a continued move to on line. That hasn't -- I haven't seen a big change in the business we are doing on line at this point but retail has been the weak spot.

Can you tell, it's my final question, can you tell if it's new customer that are going away or if it's actual renewal rates that are getting impact from customers who already have Symantec but maybe aren't choosing to renew?

Given that much of it, Sarah, is in the retail channel it's hard to discern whether or not it's a repeat buyer into the store or brand new buyer who hasn't shown up in the store.

And I think you might get some color on that as you see what some of the electronic retailers announce as their results as time go on, or as time goes on.

But fundamentally the on line channel remains quite strong for us. But retail has been a source of agony for lack of a better term for us for four to six quarters now. It's been on a steady decline and we saw a fairly precipitous drop during the September quarter.

I think it's important just one comment, though, Sarah to your question, I don't know that we have seen a change in the renewal rate as a result of what's currently going on.

Because would you see it in your auto renewals, right?

Correct.

I was going to add that I'm quite happy with how our renewals have been going along now that we've already rolled it out and seen the year over year effects right around the world and it's been a very positive development for us.

Thanks a lot.

Next, Adam Holt with Morgan Stanley.

Good afternoon. If I could just start with maybe a follow up on the consumer business. I apologize if I missed this but did you give what the mix of 360 was in the quarter? And maybe give us your thinking about what you are expecting out of the retail channel heading into the Christmas season or the holiday season?

Yes, we didn't break out -- we didn't break out the difference between 360 and Norton Internet Security but as you look at it right now, 360 is roughly 28% of the revenue in the consumer business and I expect that to continue to move in becoming a larger and larger mix of consumer revenue because what we are doing is trying to encourage our customers to continue to move from the point products to the higher end suite, which is Norton 360.

As far as the holiday season and our expectations, we are -- we do believe that we've got a premium product that will do well. But it's important to note that it's too early to the tell how much demands we are going to see in the holidays.

We are well-positioned for what's known as Black Friday, which is the day after Thanksgiving, which is the biggest retail shopping day of the year. In a lot of the work, we've done with our partners. But ultimately its too early for me to try to predict how many folks are going to be in stores this holiday season.

If I could ask a follow up for James, a couple of numbers questions. The tax rate was a little bit lower than we had expected in the quarter.

How should we be thinking about the tax rates at the back half? And then just on the margins, understanding that the currency is going to have a negative impact on margins for the third quarter.

Still looking at pretty materially down sequentially and year on year. Anything in particular that you're factoring into your guidance for the margins guidance for the September quarter.

On the tax rate, I would is suggest that we continue to look at 31% for the back half of the year. The September quarter benefits from a couple of one off items that I wouldn't expect to be repeating. Going forward.

In terms of currency effects around margins, again, we are sticking to our overall long-range goal of 100 basis points and we will see where the various actions that we are taking on our cost structure going forward here in the next few months have us land.

And just my last question would be on that front. We should expect to see the 4.5% taken out of the cost structure through the December quarter. So would you hope to have that done by say the end of December?

No, I would say that that's impact will be only fully reflected within the P&L come the March quarter. Particularly, in parts of the world such as Europe. It really takes longer to implement any action like this and even in the Americas it's good to take a little bit of time here to complete the implementation.

Terrific. Thank you.

We'll take our next question from Brad Zelnick with Banc of America.

Hi and thanks for taking my question. Just to follow up on some of your earlier questions on guidance. Beyond the assumptions for FX. Just very specifically are you assuming the same economic environment that you saw in the last week of the quarter across all 13 weeks in the December quarter? And just a follow on to that, can you comment, do you have any outside seasonal exposure to particular vertical markets or customer segments in December?

Yes, I don't think you could say that we are good enough to declare that effects that we saw in the 13th week of the September quarter are going to perpetuate themselves quarter after quarter after quarter. Or week after week.

I think what you can say or observe in our forecast, is a sense that there will be a sluggishness in the way customers are willing to not just consider transactions but actually commit to those transactions. That's more likely to be reflected in what happens in the last two weeks of our quarter.

That's always the bewitching hour, if you will, for an enterprise software company because that's when the vast majority of the big deals get done.

With respect to verticals clearly Financial Services and Telecom are important sectors for us and the enterprise revenues sector or component of our business alone, Financial Services including banks and commercial bank's and insurance represents in the range of 14 to 15% of revenue.

And so we are very mindful of what's going on there and we are watching that very, very closely. If that's the specific vertical you are referring to.

Sure, I was looking across any vertical that might be relevant going into the December quarter. But if I could ask a quick follow up for James. James, can you just quantify for us the exact impact of cash taxes payments in the quarter year over year?

I think I mentioned on the call over $100 million, very close to that figure.

Thank you.

: We'll take our next question from Brent Thill with Citigroup.

Thanks. Just back to the consumer business one of your large software peers was I think pretty surprised by the uptick of the sub $500 PC or notebooks.

As you look at the impact of your attach rate, your consumer security business, what impact do you assume that these notebooks are going to have an impact on and as it looks right now this is about a third of the PC growth rate, is there any impact at all?

I mean, I think the point is no one is going to go on the Internet without our security software and I think that's the most important independent of the price you pay for the underlying computer what we've seen what matters is the data on that computer and you don't want to risk losing data or your identity or having any other problems with what you are doing on that PC.

So I think that the price point of the PC is not indicative around the demand for our security software.

I think in addition to that the question that we all have to ask is if customers are so price sensitive that they would trade down to a $500 PC, is it more likely in this economic environment that they would do nothing?

Because I'm not sure that there is a marginal material difference I should say between the PC they have and the one that costs $500. And so I think the issue about price sensitive markets is more about whether or not they will by a new PC at all. Not whether or not there will be software on the PC.

Okay. For James, can you just give us the ending headcount and just comment on linearity? It sounded like it was more ten, 20, 70, month to month versus your historical average. I think closer to 20, 30, 50 this last quarter.

Well, our headcount for September was right under 18,000, and what was the point about linearity again?

Just in terms if you looked at it month to month what portion of the revenue came first, second, third.

Of the revenue?

Right.

That would have been a normal characteristic month to month during the quarter. Because you see the pausing of spending commitments that we've been referring to came very late in the quarter itself.

And so it would have had a relatively minor impact on a recognized revenue. It really impacted the deferred revenue.

So the bookings was more back end loaded this quarter than past quarters?

No, I wouldn't characterize it that way either actually. I'd say the -- yes, from the extent that in the last day or two we saw fewer bookings than we would have normally expected. So if anything I suppose mathematically that will means they were more front ends loaded.

Thank you.

We'll take our next question from Daniel Ives with Friedman, Billings, Ramsey.

On the [inaudible] labs acquisition, what's the financial impact from that acquisition in the [inaudible] quarter?

For this quarter? For the December quarter?

Yes.

Well a relatively modest impact because we are not presuming that we would close that deal until well towards the back end of the quarter.

Okay. And just a final question. Can you walk through [inaudible] as a management team or [inaudible] what you are doing differently with customers? Are you doing more [inaudible], just walk us through --

Daniel, you are breaking up. We can't hear you. You are breaking up. Can you repeat your question.

Yes, could you walk us through this environment if you are doing anything differently with customers to get deals done? Thanks.

I think that we are obviously sensitive to what's happening with our customers but we are not changing our go to market strategy at all.

We obviously are being sensitive to what's the term of the agreement that they are looking for but I don't expect to see any material difference in what we've done in previous quarters over the last year.

Thanks.

We'll take our next question from Michael Turits with Raymond James.

Obviously, the consumer and enterprise security and compliance were the weaker segments this quarter. Storage very strong. Great to see, are you confident that that's sustainable because obviously with the other two segments so weak, even if we are doing to see this [inaudible] we have to scene storage really outperform?

Well, Michael, we think this is is about the strength in the diversity of our portfolio that at any given moment in time we might have a weaker segment than we would hope or expect but that will be offset by strength in another sector or segment. And we have been trying to build a business for the last four, five years that has been about diversity.

Product diversity, customer based diversity and geographic diversity. And sometimes those points work to your advantage. Sometimes they work against you. Clearly currency has worked against us this quarter. That was a challenge if you will with the geographic side.

But by contrast the storage business performing as well as it did really does underpin the validity we think in our portfolio strategy and our ability to go to large customers and say, you've got an array of things that you can do with us. Let's sit down and structure a transaction that reflects spending across the domain of activity we have that could in fact lead to stronger market share for us on the back ends of this economic downturn.

I think one of the things that's going on that's helping us is the volume of data that's continuing to increase at a very, very rapid rate.

So we are seeing 60% data volume increases year over year and so what that does is that requires an increase in data protection technology. So you need our back up technology and given the rapid expansion of data or the rapid growth in data, you need to also look at new technologists like this based technology to allow to you complete those backups in the time frames that you have.

So we believe the rapid growth in data volumes and requirement for new technologies are both going to continue to contribute to our strength in storage and data protection businesses.

From the security and compliance side, assuming demand in the macro environment stays about where it is. Are there things that are taking place in that business?

I mean in security and compliance business that could suggest that that could begin to accelerate even in the an environment that looks like this one. You mention for example the some of the not as great as expected acceptance of [inaudible] in mid market. So could we see an acceleration in that segment even if things stay bad?

There's two things that are going on. One, I think the new maintenance release for Symantec end point protection I think is going to be a net positive for all segments but especially the mid market and then I think the second area, we just launched our new what we call control compliance suite, which is our integrated set of compliance technologies and I do believe that the combination of using an agent and agent less approach is going to help the performance of the security and compliance segment.

Have you, one clarification for James. You said thank you expect to keep the OpEx at this current, the September quarter level including right up until the fourth quarter.

I assume that does not include message labs in the fourth quarter, right?

That's correct. So I'm assuming obviously the costs associated with PC tools but not message labs.

Any rough thought on what that will contribute in expenses in the fourth quarter?

No, I mean I wouldn't throw out that estimate right now. We are still working through that.

All right. Thanks, guys.

: Next, John Defucci with JPMorgan.

Thanks for taking my question. Just want to be clear, John, and Enrique, the deals that did slip out of that last quarter. It doesn't sound like you've seen any of them close yet or have some of them closed, are they getting close or.

We have seen some close but it would be typical with normal patterns, John. Every quarter you have deals slip.

Right.

Some of those deals do get done in the first week or first month of the subsequent quarter.

I think what was the bigger surprise to us this quarter was the shear volume of not just the number but the dollar volume of what slipped.

And also just to be clear, it doesn't sound like these were like especially large deals that slipped, it's just a massive mid to smaller deals.

It was a range. There was a full range. There were, there was at least one really big one that we were looking at and there were a number of other that is we would have loved to have gotten. It's the typical pipeline management issues.

Okay. Okay. And, James, on the cash tax issue, I mean going forward, because you can manage that in certain ways. It sounds like it hurt you this quarter but may have helped you perhaps a year ago or so. What should we be thinking about that going forward? And the cash flow still looks pretty decent but just want to make sure, we don't get surprised by you have to pay a higher cash tax rate for several quarters.

I would characterize our cash tax payment in the September quarter as really pretty typical of what we will see in each of the quarters of this fiscal year. So nothing abnormal in this quarters payment.

But was --

It was September a year ago where we had the abnormality.

And was there an abnormality in the December quarter a year ago?

December, no. We were a little bit light on cash taxes versus where we would normally have been but not to the degree that we saw in September of 2007.

And I'm sorry to keep asking this but also for like the March and June quarters were those sort of normalized? Because.

I would characterize the March, March of last year and June of this fiscal year as more normal.

Okay. Okay. Thank you.

Tom, we have time for one more question.

Yes, ma'am. That, question comes from Israel Hernandez with Barclays Capital.

Hello everyone. John, can you talk about the performance of AMIA I think it was up 3% year over year. Did you see any patterns that were different from the events that you described at the end of the quarter or were there any particular stand outs, any countries that performed better or worse relative to your expectations.

Good question. Candidly, UK, France were weaker than we expected. The UK is our largest region within the AMIA territory and it had a weaker close as did France. Than we would have expected. By contrast, Germany had a very solid quarter.

And as some of you will recall, we have been working on building and improving our business in Germany for quite sometime and we were pleased to see the performance in Germany during the September quarter.

That said, better perform in the UK and France would have certainly helped overall Europe results.

I think that it's fair to say that Eastern Europe and the Middle East were strong.

Correct. Just need to be bigger, that's all.

Thank you.

And that is our final question today. Ms. Thompson, I will turn the call back over to you.

Well, thank you very much everyone for dialing in. We posted strong solid earnings performance in the September quarter.

We've got our eye on the issues that we think we need to manage in this uncertain economic environment. Not just in terms of what products we deliver and the strength of the relationships we have with our customers but what we do on the cost side of our business to make sure we are being thought full and prudent.

We believe that the strength of our portfolio, the strength of our balance sheet, and quite frankly, the resolve of our team will help to carry us through during these uncertain economic times.

We look forward to communicating with you about our progress as the quarter unfolds. Thanks very much.

This does conclude today's conference call. We appreciate your participation. You may disconnect at this time