諾頓 (NLOK) 2001 Q4 法說會逐字稿

Good day, everyone and welcome to the Symantec Corporation fourth quarter earnings release conference call. Just as a reminder, today's program is being recorded. And at this time, I would like to turn the call over to Ms. Helyn Corcos, Senior director of Investor Relations. Please go ahead mam.

Thank you, and good afternoon. With me today, are John Thompson, Chairman of the Board, President and Chief Executive Officer of Symantec and Greg Myers, Senior Vice President of Finance and Chief Financial Officer. In a moment, I will turn the call over to Greg. He will provide you with the financial results of our fiscal fourth quarter and year-end 2001, which ended March 30, 2001. John will then discuss the highlights of the quarter's performance and on focus moving forward. This will be followed by a question and answer session. Today's call is being recorded and will be available for playback until close of business on Tuesday, May 1st. The number to dial is 888-203-1112, the pass code is 44-5866. The call is also being webcast and a replay will be available at our website on the Investor Relations home page. Before we begin, I would like to remind everyone that this conference call including the question and answer session contains forward-looking statements related to financial targets, objectives for future operations, and other matters. These statements are based on current expectations that are subject to significant risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. Additional information concerning factors that might cause actual results to differ materially is contained in the risk factor section of the company's previously filed form 10-K for the year-ended March 31, 2000 and on the form 10-Q for the quarter ended December 29, 2000. Additionally, I would like to remind everyone that we have excluded operating results from the divestitures of our AXENT and Internet tools product line and we have included operating results from AXENT Technology for our comparative period. As such, reference growth rate and financial performance, exclude divestiture businesses, but include AXENT historical results in comparison. In addition, we have excluded all acquisition-related amortization charges from operations. Please visit our Investor Relations website for adjusted historical pro forma profit and loss statement. And now, I would like to introduce our CFO, Greg Myers. Go ahead, Greg

Thanks Helyn. Good afternoon everyone and thank you for joining us on today's call. I am very pleased to provide you with the financial details for the March quarter, the fourth quarter of our fiscal year 2001, which once again resulted in record revenues. Net revenue for our fourth fiscal quarter was 250.6 million. This represented a 15% increase over the March 2000 quarter's revenue of 217.5 million. For the fiscal year ended March 2001, revenue was 944.2 million. This was an increase of 14% over the fiscal year ending March 2000 revenue of 826.6 million. In measuring revenue performance, it should be noted that our reported results were impacted materially by unfavorable foreign exchange activity. Had foreign exchange rates remained constant with the March 2000 quarter a year ago, revenue growth would have been 19% in the March 2001 quarter and 21% for fiscal year ended March 2001 as well. In absolute dollars, that equates to an effective $7 million in the March 2001 quarter, and $43 million for the fiscal year. Earnings per share for our fourth quarter before the amortization of all acquisitions related costs and one-time charges was $0.62. This was 13% higher than the March 2000 earnings per share of $0.55 and was $0.19 above our December 2000 earnings per share of $0.52. Earnings per share for the fiscal year ending March 2001 before all acquisition-related expenses and one-time charges was $2.35. This was 25% above our fiscal year ending March 2000 earnings per share of $1.88. The amortization of goodwill and other deal-related intangibles for the quarter was $57 million. This was $49 million above the March 2000 quarter with almost all of the change relating to the amortization of capitalized purchase cost associated with our purchase of AXENT technologies. In the March 2001 quarter the company incurred a one-time charge of 26.6 million. The most notable elements of this one-time charge were 25 million related to the writedowns in our equity investment portfolio and 1.6 million related to reductions in our workforce as we continue to align the company around our enterprise focus. Earnings per share for Symantec's fourth quarter included an amortization of all goodwill, all other acquisition-related costs, and one-time charges; it was a $0.37 loss. This quarter's revenue of 250.6 million was driven by three primary elements; first robust growth in our enterprise security business, second improved results in our enterprise administration segment, which was previously referred as our e-Support segment, and finally continued strength in our international markets. This quarter's enterprise security revenue was 105.9 million, a 44% increase over the March 2000 quarter and 15% higher than the December quarter. Continued strength from our AV Solutions coupled with very strong performance from our acquired AXENT vulnerability assessment and detection product lines drove the growth. Enterprise security revenues accounted for 42% of our revenue mix comparing quite favorably to the March 2000 mix of 34%. Enterprise administration once again, commonly referred to as our e-Support segment, delivered 57.6 million revenue of 21% over the March 2000 quarter and it accounted for 23% of our revenue mix. New releases of pcAnywhere and Ghost drove the improved performance with pcAnywhere and Ghost growing 14 and 48% respectively over the March 2000 quarter. Our consumer products business accounted for 34% of our revenue mix down from 42% of the total revenue a year ago. In addition, overall growth in our consumer products was down 9% as compared to the March 2000 quarter. The declining growth was driven by two primary factors. First, in an extremely strong March 2000 quarter, where revenues grew at 27% as a follow on to the security focus surround the change in the millennium. This created an extremely difficult comparison period for our consumer products in the current quarter. And two, the effects of a very weak PC market as demonstrated by growth warnings from almost every major PC vendor. As we look forward into the fiscal year 2002, we would expect the growth in our consumer business to fall between mid and high single digit growth. International revenues comprise 45% of total revenues and grew by 27% over the March 2000 quarter. Strong growth in our Asia Pacific region at 50% led the way, followed by 24% growth in Japan, and 24% growth in a million 00:07:32. This quarter's gross margin was 87.8%. This compared quite favorably to our March 2000 gross margin of 85.6%. The economies of scale related to the higher revenues, higher margins associated with the shift towards more enterprise-related sales and the continual products cost improvements across the consumer business, had driven the true improvements in our gross margin. Operating expenses, before all acquisitions-related charges were 164.9 million and was 66% of total revenue. As a percent of revenue this quarter, operating expenses were 3 points higher than the March 2000 quarter. The per-cent increase in operating expenses is mostly related to the integration activities associated with the acquisition of AXENT. Net income before the amortization of goodwill and other deal-related intangibles was 48.2 million and 19% of the revenue. This compared well with the March 2000 quarter where net income of 43.4 million was at 20% of the revenue. Our balance sheet continued to be in a very strong position as we exhibit the March 2001 quarter. Cash and restricted cash totalled 632 million at the end of the March quarter. With over 70 million of net free cash flow during the quarter, it should be noted that this quarter's cash position is net of 245 million and stock repurchase activity during the quarter, though the company bought back 5.1 million shares. In the future, the company will continue to execute its repurchase program, as it deems appropriate, up to a previously disclosed level of $700 million. The company's accounts receivable balance at the end of the March 2001 quarter was at 117 million. The accounts receivable balance represents 42 days of sales outstanding, 10% lower than the 46-day's day DSO reported last quarter. Deferred revenues in the March 2001 quarter totalled $183 million. This represents about a 15% of future quarterly revenue. Deferred revenues were up 21 million from the December 2000 quarter. I would like to spend a moment to discuss our expectations for the June 2001 quarter as well as our guidance for the fiscal year ending March 2002. As we look forward, it should be noted that they are still well known risks associated with global economic uncertainties and with the successful completion of the integration of AXENT into our operations. For the June 2001 quarter, we would expect revenues to be in the range of $255-263 million. This would compare to the revenues in the June 2000 quarter of 225.4 million in revenue. Earnings per share for the June 2001 quarter, excluding all acquisition-related costs and one-time charges is forecasted to be in the range of 62-67 cents per share, with the range in EPS guidance, directly related to the range in our revenue guidance. This compares to a pro forma June 2000 quarter EPS of $0.60. We continue to believe our fiscal year 2002 revenues can grow in the range of 20-25%. This will put our forecasted fiscal year revenues in the range of 1.1 to 1.2 billion for the year. If history proves to be an indication of future trends, we would expect quarterly revenues to grow modestly through the September 2001 quarter with a substantial increase in revenue production during the December 2001 and March 2002 quarters. The growth in the December 2001 and March 2002 quarters is expected to be driven by strong year-end corporate spending cycles and in addition to an up-graph in consumer spending that generally appears in the pre and post Christmas season periods. Our fiscal year 2002 guidance per earnings per share growth, excluding all day-related expenses and one-time charges is expected between $3 and $3.25 per share. On a pro forma basis, this will put our growth in EPS between 30-38%. The variability in earnings guidance is directly related to the fiscal year guidance range for our revenue growth. In summary, I would like to say our team is very pleased with our ability to deliver yet another solid quarter of revenue and earnings performance. Now, I would like to hand the call over to John to give you additional detail on the quarter's performance as well as some insight into what you can expect in the future.

Thanks Greg. As Greg suggested, we are all extremely pleased with the worldwide teams performance during the March quarter. As you just heard, we delivered record revenues for the 10th consecutive quarter and very solid earnings. We continue to benefit from having a very diversified business, both in terms of the geographic mix and the breadth of our customer base. Our focus continues to be on executing and delivering very strong security solutions across all categories. Let me highlight some of the accomplishments of the quarter. Symantec's worldwide enterprise solutions comprised of our security and administration products accounted for 65% of total sales compared with 56% just last year. Enterprise revenues grew 35% during the quarter year over year. Our enterprise security business was clearly the significant highlight during the quarter with growth of 44% over the prior period. Growth was driven primarily by a vulnerability management, intrusion detection, and antivirus solutions. Overall, total AXENT solutions grew both sequentially and year over year in the mid-teen range. And we are extremely pleased with the growth this team was able to achieve during the initial phase of our integration period. Specifically vulnerability management solutions led the way with growth of 51% over the March quarter of last year. Net Recon has been selected as a finalist by Network Computing for one of the best vulnerability assessment products tested over the Networked Enterprise. And our intrusion detection solutions continue to be well received amongst enterprise customers experiencing 21% growth. Our enterprise antivirus products increased a record 60% during the quarter, beating all competition handily. This represents the highest growth we have ever seen in this segment and underlines the strength of our technology. We continue to gain fraction in all our firewall solutions, however we still have much work to do in this area. We offer an award winning firewall and BPN solutions across multiple tiers, including the most secure pyramid of protection, of firewall appliance and desktop firewall protection for both consumers and enterprises alike. Our firewall appliance won product of the year from Network Magazine and the Symantec Enterprise firewall is a finalist for the well-connected award by Network Computing for one of the best firewall solutions. In addition, our power BPN won an info-world best impact award because of its power, flexibility, and ease of use. To demonstrate the strength of our solutions, I would like to review several of the larger deals we signed during the quarter. To punctuate the point, this was the best quarter, we ever saw for large transactions. A record 17 deals over $300,000 were signed during the quarter from just seven last quarter. Let me highlight a few of the major customers vents around the world. Today we announced our largest booking ever. Symantec was awarded the largest security component of the Navy Marine core Internet contract. The Navy saw the strength of our product line and will be implementing a full complement of our security solutions and this is just the beginning. Our performance stands to serve us well as we ramp this initial offer and offering and implement against the target growth opportunities that this represents. Reuters also purchased multiple security solutions from us including vulnerability assessments, firewall protection, intrusion detection, and security management. We will be securing one of the world's largest commercial networks of 500,000 notes and providing professional services to support the worldwide implementation of these solutions. We closed several deals with IBM around the world, implementing a variety of our securities solutions for both the desktop and the gateway environments. The US Postal Service is deploying antivirus software across all of its service and deskstops. And finally AETNA adopted Symantec's award-winning intrusion detection products throughout its organisation. They chose our products over ISS, given our advantages and scalability, performance, ease of use, and support. AETNA also extended their views of our award winning vulnerability assessment products across every single server. The combined value of these five deals was more than $20 million. We also cemented two strategic relationships during the quarter. The first with Hewlett Packard provides enterprise security manager and intruder alert for HP open views IT operations. These vulnerability assessments and intrusion detections solutions solidify or simplify security management allowing customers to deploy critical e-business initiatives from a central location. The second strategic relationship involves integrating host and network intrusion detection with IBM's trivially enterprise solution to protect it from network attacks. The Telesales team performed extremely well. Telesales continues to book about 50% of our enterprise revenues. Sales in the small and medium segment grew 32% over the last year. They closed three deals over a $100,000 during the quarter with our antivirus and enterprise administration products being the strength. The overall pipeline for enterprise deals is robust, as we enter the first quarter of our fiscal year. Barring a significant change in the economy, we expect to see continued strength based upon our product and geographic diversity. We closed three new managed services deals during the quarter for a total contract value of $4 million. The deal is focussed primarily on remotely managed firewall and intrusion detection services. For example, Provident Mutual purchased intrusion detection and firewall products as well as consulting and managed services. This was a significant win against five significant competitors. A major telecom company in the Middle East will be implementing a full complement of our products as we provide high-level consulting and security awareness training for all of its employees. We are working with one of Japan's largest systems integrators as we look to expand our ability to deliver managed security services around the world. We made a concerted effort during the quarter to drive the services pipeline. Our efforts have resulted in the pipeline more than doubling from the December quarter. We have resourced the group and added sales and delivery people during the quarter, and we are starting to see and gain traction in this very important area. During the quarter, we announced several significant infrastructure and service provider relationships around the world. Our service provider solutions are gaining attention in the carrier market due to increased performance and quality of service. Our relationships established during the March quarter with global leaders include British Telecom, Nortel, Bell South, Digex, Network Appliance, and Selectron. British Telecom has expanded their relationship with us. They will be providing Internet filtering solutions for schools in the UK. In addition, they will be offering Norton Internet security through their application service provider offer. Nortel will leverage the inner-probability of our content filtering solution with its shaft 5000 broadband service node. This allows service providers to aggregate tens of thousands of subscribers on to one platform and apply customized filtering to individual subscribers. We are the only antivirus company providing network appliance cash and filer gateway solutions. Our CarrierScan server 2001 was the first product to protect both of these devices, beating our competition in this area. We made significant improvements during the quarter in our enterprise administration team. Revenues grew 21% from March of last year, certainly better than our expectations. PcAnywhere 10 delivered solid growth of 14% and we experienced robust growth of over 48% from Ghost. We continue to be extremely pleased with the performance that Ghost Solution delivers. Our consumer business continues to maintain market leadership. In absolute dollars the consumer group performed very well during the quarter and the fiscal year well above our internal expectations. While Norton Internet Security continues to drive results with growth of a 155% over a year ago, as Greg suggested, the overall consumer products category was down 9% compared to a year ago. We saw the return on some competitors resorting to net to zero promotions on suites and point-products, yet our core consumer products continue to command market-leading positions in both retail units and revenue share. The fact that customers continue to pay above the average category-selling price for our products is a indicator of the strength of our technology and the strength of our brand. During the quarter, Symantec shipped its first AntiVirus protection for the wireless in hand-held platform with Symantec AntiVirus for the Palm OS*. This released stand applications locally on the Palm device providing what we call end-point protection. We shipped new versions of the Norton Personal Firewall and Norton Internet Security this quarter adding enhanced security and new behavioral blocking technology to these market-leading products. We continue to expand our OEM relationships with all of the major PC manufacturers. We expanded our relationship with Compaq. Our focus is on delivering Internet security products to the consumer market place. Our AntiVirus solutions are preloaded on HP, small and medium business and corporate PCs worldwide, and we expand our relationships with Sony Electronics Via PC group. Symantec's AntiVirus products are the focus of Sony desktops and notebooks in the consumer and the server markets. A recent survey of one of our large earlier customers showed that upgrades or up sales are extremely strong. We found that 26% of the customers who click through purchase our products compared to an industry average of 5%. In addition, subscription revenue exceeded our forecast this quarter, with OEM revenue almost doubling from February to March. Assuming we can garner the same results with other OEM relationships, it is our long-term expectation that this will contribute significantly to our consumer revenue. Now, onto an update on AXENT and how the integration process is progressing. We have not produced these results or could not have produced these results without a tremendous contribution from the people and solutions from AXENT. We have recently made moves to streamline and upgrade our sales management team and expect this process to continue during the current quarter. So far, the combined sales force has been through basic training and they will undergo in-depth training during the month of May. We have rolled out new compensation plans and territories worldwide. Given the strength of our sales force, we know our people are heavily recruited by the competition. However, our sales people are extremely energized and focussed on being a part of this new security company. In fact, we have not lost any of our top performers worldwide. Product delivery world maps are in place and the development teams have been fully integrated. We validated these road maps with our customers and our customer advisory council just this week. The advisory council is made up of 20 of our largest customers from around the world, representing a very broad range of industry sectors. We demonstrated our ability to move fast and integrate internal systems, organize employees under strong leadership, and execute very, very smoothly. The activity in our research lab is as high as it has ever been. We continue to see an increase in the number of files admissions to our labs around the world and expecting more than 50,000 suspicious files per month. Our researchers are finding almost 10 new viruses per day. The increase in security threats was collaborated by recent poll by the Computer Security Institute and the FBI. The study revealed that 85% of nearly six hundred companies and government agencies acknowledge suffering the network intrusion. This is a hot space because corporations have spent the last few years opening up their networks to their customers, suppliers, and partners. Now, they need to secure those networks. Although, we are not immune to an economic downturn, so far we have not experienced a slowdown in enterprise security spending. We believe the breadth of our product line and the diverse customer base provides a significant competitive advantage to us. Our focus continues to be on execution and delivering strong enterprise level solutions across that broad customer base. We are driving towards delivering realistic revenue growth in the range of 20-25% and EPS growth in the 30-38% range for fiscal 2002. We believe the Internet security opportunity represents tremendous growth for our customers and for our shareholders. So, back to you Helyn.

Thank you, John. Operator, please see if anyone is holding for questions.

Of course. At this point, if you would like to ask a question, you may do so by pressing the * key followed by the digit 1 on your touchtone telephone. Once again, to ask a question this afternoon, please press the * key, followed by the digit 1 and we will pause for just a moment to assemble our roster.

While the operator is calling for question, I would like to announce that we will be attending conferences at Wells Fargo Van Kaspar, Adams Hartel Intel and Pacific Crest over the next few months. We look forward to seeing you there. Operator, we are ready for the first question.

That first question will come from Kevin Wagoner from Adam Partners.

Good quarter, guys. I have a question with respect to your product portfolio and if you could characterize the more discretionary security expenditures on behalf of your customers throughout the quarter of the four or five products that you are selling, which will fall into that camp.

Okay, but I don't think customers are all declaring any of the products in the security space discretionary. Clearly, there are areas where customers are less likely to adopt full implementations and you have seen some of that as it relates to other vendors in the industry, but we have been very conscientious in focussing our security thrust on the infrastructure side of the market and that is an area where so far, we have not seen customers we tracked or withdraw their spending plans.

My second question with respect to strong performance in the antivirus area particularly in the enterprise space. Could you provide additional color along the lines of perhaps a break or to quantify the gateway portion of antivirus versus the desktop performance?

Well, as it turns out, we don't track specifically the gateway, we just made some changes in our infrastructure where we are going to break apart what we call the solutions CD and what the solutions CD does; is it has all of our products on one component or one CD shift of our customers and hence as we move forward with a more reconfigured or repackaged solution approach, we will be more able to track those things more specifically.

Thank you very much.

Up next you will hear a question from Tod Raker from CS First Boston.

Good afternoon, guys. Good quarter.

Thank you.

Could you talk about your service provider offering and what products are you going to offer directly and how do you manage channel conflict with other service providers out there for the managed security services.

Well, at this moment, the managed security services component of our business, while a significant opportunity, it is relatively small to begin to be thought. What we expect, is to be able not to only offer the services ourselves, but to be the backstop in companion with some bars or smaller service providers who would like to use our infrastructure. So, we in some instances, go direct to larger customers and in other instances might make our infrastructures available, if in fact that service provider wants to use it in conjunction with their capability.

And you would envision your basically having the full suite of products available through this.

To the extent that they lend themselves to that, at the moment, the principle focus of the managed services initiative is on firewall protection and intrusion detection. There are at least some instances where customers are asking for a managed antivirus service. But we have yet to close such a deal.

I believe you mentioned one account, Provident Mutual where you beat five of your competitors.

Correct.

Can you talk about what you are seeing in terms of your competitor dynamics and what is differentiating your service versus other guys and how much of it is really price competition?

Well, quite frankly, there is a fair amount of price competition. We are seeing many smaller firms; certainly a couple of it doesn't have the need to report the results externally. We are been a little more aggressive on price than we are willing to be because we think we have a responsibility to make a profit in this business. But when it is all said and done, I think what customers buy from us is the fact that we have a product delivery capability in conjunction with a service delivery capability and their expectation is that they should be able to get a better and more immediate response from us than others who are just in the service delivery business or don't have the global scale that we have.

And just one housekeeping question that I marked down, could you give us head count in the sales force and contrast that with head count at the end of the fourth or third quarter, calendar for December.

Total head count at the end of the March quarter was 767 in the sales force and it was essentially flat to the December quarter.

Okay, great.

Underneath that, there has been some churns as we had moved out the lower performers and tried to back fill those with stronger people.

Okay, thanks.

Moving on, we will hear from Rob Allen from Pacific Crest Securities.

Hi guys. John, could you talk a little bit about competition on the antivirus front, what pricing looks like, you know, Network made their comments on their call that they actually took some market share back on the enterprise side domestically, but these numbers that you just posted actually evidenced the opposite, but I want to get a sense is where pricing is especially against Network Associates and what you are seeing as a trend these days.

Actually, to be candid, Rob, pricing is reasonably stable right now in the enterprise segment. We did see some, my words, bizarre behavior, return to bizarre behavior in the consumer segment. But all in all, we did see an uptake in price discounting in the enterprise segment at all. I think what is starting to happen quite frankly, is customers are becoming convinced that the differentiator here is not about price, it is about global support and that is about our ability to respond when they have an incident or adage as opposed to whether or not they get the lowest price per desktop or gateway.

Okay Greg, could you address the uptake in gross margins sequentially and if this number is sustainable.

It was higher than we would have thought. I think it is more akin to the fact that how much services business we do overtime with regards to the range as we have previously given. Over the long haul, I think we will be between 86 and 87% as our services revenue really start to kick and we start to see the lower gross margin related to that segment mix with the higher product gross margin.

Okay and lastly, on the retail front, I am a little surprised by the number being down year over year, given the strength we have seen, just through PC data domestically and John, you mentioned pricing was all over the board. Yet, if we look for the year, you know, your numbers are expected to be up, I believe its high single digits. What's big through those estimates? Do we need pricing to return to more normalized levels or how are you exactly going to get to those numbers?

Quite frankly, I think and Greg said it, most recent quarter in terms of its performance comparative to a year ago was a very tough one. A year ago, the consumer business grew 27% and so we were comparing to probably the strongest performance ever by our consumer products. So my expectation is volume and pricing remaining relatively constant should allow us to produce results in the mid-single digit, high-single digit range.

Great, thanks guys.

From Salomon Smith Barney, we will hear a question from Chuck Jones.

Thanks very much. First, let's follow up on your comments on the firewall market place, don't think there are still some challenges out there and can you comment on the loss of Raptor product from AXENT.

I think it is fair to say, Chuck, as I stated in my plan remarks, we got a lot more work to do. This is a product that clearly is not a loss of Raptor, but the firewall market overall. This is the product category where our products are very, very strong. What we have got work to do to develop that channel that we need to move the product in the market place and so it is as much about marketing and channel development as it is anything because all of the independent tests that we ran during the quarter say the product is more secure and its performance is, in many instances better than what is available from competition. The loss of Raptor quite frankly is too, about channel development. It is about establishing the right channel relationships and we have some work to do with SUN or Cobalt in this regard because they are some issues that are kind of across purpose between us.

Because of the sunscreen products?

No, it is more about how we manage the channel and they manage the channel and how the products get targeted.

In the AntiVirus market place, huge growth. Give us a flavor for the actual customer sets such as AntiVirus should be very well penetrating in the Fortune 2000. Is this Telesales force finding a huge number of organizations out there that still need AntiVirus?

I think the best indication of that is that is if you look at our Symantec security check, which is the online service that we make available for consumers. If that is any indication of low-to-middle market, what that check has told us is that 48% of the people who go to our site to check out their machines, find that they either do not have the AntiVirus installed or don't have the latest definitions on their machines, and I don't think the middle market is any different necessarily than an individual consumer who might go and look for that kind of service. So, the market is there and what we are doing is taking full advantage of the breadth of our product line and the strength of our brand.

Last question, intrusion detection last quarter, the growth rates I believe for host space were somewhere around 30% and network was around 60%. So, why does it feel like the growth rate and intrusion detection have ranged down?

Well, I think quite frankly, little bit of this has to do with getting our team aligned around the market opportunity that we really want to chase. I am quite pleased with the performance of AXENT's product and people; both sequentially and year over year. I make no bones about the fact that we have got more work to do, but revenue was up significantly quarter-to-quarter and significantly year over year.

Thank you very much.

Just as a reminder, to ask a question please press the * key followed by the digit 1. Fred Segall from Tucker Anthony. Please go ahead with your question.

Good afternoon everyone. A couple of questions, one on the Navy Marine Internet project. I noticed in the press release about most of the security products, could you on a rank order, what the biggest revenue products are going to be as a part of that project and when it starts and secondly, just a clarification on the consumer business. I didn't get the security product piece of that.

Let me take the last one first. Norton Internet Security grew 155%. The AV part of the business as a standalone product off hand, Fred, I don't remember it because I was focused more on the suites, but I want to say it was somewhere around mid 30's and we will have to come back to you on that number. I think where we saw the real erosion in our consumer business was Norton System Works, which is more problem-solving suite and hence it got impacted perhaps more than we might have expected. Let me go back, Greg just gave me a number; AV in the consumer space was up 27% year over year.

Norton Internet Security was up 155% and that total was down 9%?

Right! Correct!

Okay. Thank you.

Now your other question was again ...

May be Marine projects I just was glancing at the press release and it looks, I think, virtually all your security projects. Could you just talk about the sort of rank order, the revenue contributes?

Quite frankly, it is hard to do that since the project just rolled out. It is a very, very large multi-billion dollar project for the Navy and Marine Corps. Our components are everything that is in our product line. Our AV solutions, our content-filtering solutions, firewall, intrusion detection, and vulnerability assessment, and I think what will happen here is as the project unfolds, how much they will take up, which of the components will become more evident to them and to us, but we have just getting started and it is a huge opportunity for us.

This is something around 400,000 desktops, is that, have I read them right or is it even larger than that?

Its more than that, I think it is much more than that. Let me go back. Greg just corrected me on a couple of numbers. One or two is given the number on the consumer AV stock.

Consumer AV over the past quarter was flat, the growth rate was flat to March 2000 and once again that is fundamentally due to the extremely high growth rate in March 2000 where we have that anomaly of 27% growth in our consumer market place.

Okay. So, you don't add security was up a 155. AV was flat, system works was down, total was down 9%.

Yeah.

Okay. Thanks.

Up next we will take a question from John McNeal from Prudential Security.

Hi guys, great execution, John real nice quarter.

Team effort, John.

I am sure you are going to sell some stock in the next few hours or so. Certainly, I am sure you are going to sell some stock to some investors over the next few hours.

You are a better judge in that than I am.

There is a big crew coming over. So, on the consumer side, I am just curious, this might be more for Greg, but how is the channel inventory look, a sort of exiting the quarter?

The channel inventories or the methodology around channel inventories has been no different than in any other quarters. And in fact we continue with our, we measure our average weekly sales through the channels and then continue to hold to our six weeks for locker fee. So, there is no change in the methods and the revenue recognition is consistent quarter over, quarter over, and quarter over.

Okay. On the consumer side, that seems to be the only segment here that showed any weakness and is pretty understandable here. Is net account bailing out of the market? Or is it just the SUN rationale pricing, is that the only way you are seeing them or how are they in the market right now, across all those segments?

That is a very good question! I think what you have seen in our results is a continued strength in the consumer level in terms of either holding or gaining share in a tough, tough market and clearly strengthen our enterprise solutions where we deliver the product called Norton AntiVirus Corporate Edition 7.5, which really has the kind of functionality that the customers want and need and they are taking it over the competitive alternative handily. In addition to that we delivered enhanced gateway products in the quarter and as I referenced because of the way we have packaged these things, it is hard for us to see the take up rate in one area versus another, but we certainly can't see the overall revenue improvement quarter over quarter.

In the enterprise side here, looking forward, how do things look? How is the turnover at AXENT and what does the pipeline look like going into June on the enterprise side of the business? Do you think you have got a little bit of flip flop here in the consumer enterprise that has taken up a slack, I mean, what do you think going forward?

Quite frankly, I value the diversity of our business immensely and so the fact that we have an enterprise business and the consumer business where they operate consistently in terms of our ability to meet the guidance that we have given you. I see that as enormous strength and enormous value for our company. Now, if I would look at the overall view of the AXENT team, we have virtually lost no one in development. We have got a team that is highly energized and in the feedback from them having been through a number of acquisition integration activities themselves; it is very, very positive about how our team has managed this integration. On the sales side, I am also quite pleased with the way the teams are managing that activity. You know, these spreads lead back for us around the world. We have had some low in turn out in the North America Sales force some consolidation of the management team which was exactly what needed to be done to ensure that we could execute better as we move forward quarter after quarter. So, we are on track and I feel quite good about where we are and I think the feedback from our customers this week to the product role map was also quite positive.

Thanks a lot, John.

Moving on, we will hear from Olivia Golden from Bear Stearns.

Hi John nice quarter.

Thank you.

You might have early mentioned it, what is the sequential growth rate for the enterprise security?

Well, the AV sequential growth rate.

Right, no mention of the sequential growth rate.

Well, hold that. What does it look like here? We will find a number here and let me even focus on sequential growth. I apologize.

Okay. No problem. While you are looking, can you comment on the competitive landscape for both vulnerability assessment and your ideas, solutions, and what best looking matters, have you seen any new competitors specifically on the private company front and what have seen from ISS?

We certainly see ISS in almost any transaction that we engage in, so contrary to what they may say, which is they don't ever see us. That's clearly not the case for us. We are not that blinded. But as it relates to the competitive landscape and the managed security space, we see not only them, that is ISS, but we see Counterpane and a number of other early stage companies who are really trying to build the customer base, whereas we are trying to build a profitable business here. I expect that quite frankly to go on for the balance of the year and sometime around the end of the calendar year, all of this will soak itself out, relative to who would be the survivors in this particular space. My sense is given the strength of our overall business; we have as good a chance of winning big here as anyone else certainly many of the smaller firms. If I go back to your question, I think we only have a piece of it here because we have got so much data. Sequentially in the enterprise state, the AntiVirus business grew 10%, I think what we are going to have to figure out, may be give that to you off line is when you add it all up for both AXENT and Symantec, what was that growth?

Thanks. Okay. Just going back to your managed security services, are you seeing your customers as more large enterprises or are you selling into smaller enterprises?

I think you are going to see the greatest interest in the middle market, but you certainly couldn't position Provident Mutual as a small or middle market company, it is a good size enterprise. I think you are going to just like in the old days, systems out-sourcing and network out-sourcing, security out-sourcing will be done selectively and I think the customers will reach the point where they realize either they don't have the critical master skills or quite frankly don't prioritize it as high as other things that their team could do, will turn to someone like Symantec to be able to do that. So, early on middle market penetration will be the strongest and overtime, I think it will move up the landscape or the ladder, if you will, to larger companies.

Thanks. Great!

Next, we will have question from Denny Selino from David O'Baston.

Hi John, Greg, and Allan, congratulations on a terrific quarter.

Thanks Denny.

Two quick questions, what was the operating cash flow in the quarter and then, John would you characterize the pipeline as strong or very strong going into the second quarter?

yeah the first one. Our net free cash flow was about $70 million after you add back some of the very large one-time outlays such as the stock buybacks, Denny.

As far as the pipeline is concerned, I think that is divided into two segments, one the software pipeline is certainly strong. I was really pleased with the team's performance as we closed the quarter. There was a nail biter quarter as this is always the case with the hockey stick, they were able to do in very, very large number of deals that they had queued up with expectation of being able to close in the quarter and the once that they rolled over into this quarter, are still active opportunities for us. The area of greatest increase I think, in terms of deals in the pipeline was in the services business, where we incited our team to really try to get that business kick started and so the pipeline is significantly larger than what we saw as we entered the last quarter as certainly we were closing out December of last year.

So you are seeing that you see momentum carry into the June quarter?

Well, we certainly have an expectation to be able to deliver the results that we just outlined for you in the coming quarter.

Okay. Thank you.

Our final question will come from Ken Karash from Buckingham Research.

This is Greg Redman for Ken Karash. You mentioned that you still have lot of work to do on the AXENT firewall space. We were just wondering what is the next step there. Also, can you give ys what you expect the share count to be going forward and the impact of foreign exchange going forward?

While Greg is working on the apex number, let me talk about the firewall. As I mentioned earlier, I think our issues in the firewall relate, 1. To market and market positioning, and 2. The channel strategy. We need broader and deeper channel capacity than we have because you certainly can't go up against such a voracious competitor as check point without having the right channels in place to go and do battle. So our focus in the coming months will clearly be on, how do we get the right value proposition to our channel partners because we know, we have very, very capable award winning technology top sell.

On the CFTs, we would have the common stock equivalent, borrowing any more stock buy-back, we would expect it to float somewhere in the range of 75 million shares and then that would grow into the coming year as we issue more stock and in fact if the share price rises, we get more stocks in the money. In the foreign exchange, I have not looked at that, so I can't tell you the effect into the coming year. We are pretty much bench marking the next fiscal year to be actually marginal in the quarter.

Okay. Thank you very much.

Now we will conclude our question and answer session. Mr. Thompson, I would like to turn things back to you for any closing or additional remarks.

Thank you very much. As I mentioned in my opening remarks, I am very, very proud of our team at Symantec. They did a wonderful job in a challenging economic environment around the world. Our product strength, the aggressiveness of our people, their "can do" attitude, I think came through with flying colors in a very, very challenging market. We have got one more quarter to go because we are always in the most important quarter of the year. So, rather than spend more time here, we are going to go get started and sell one more time. Thanks again.

And that will conclude today's conference call. On behalf of Symantec and Premier Conferencing, I would like to thank you for joining us.