諾頓 (NLOK) 2006 Q4 法說會逐字稿

Good day and welcome to Symantec's fourth quarter 2006 and fiscal year 2006 conference call. Today's call is being recorded.

At this time, I would like to turn the call over to Ms. Helyn Corcos, Vice President of Investor Relations. Miss Corcos, please go ahead.

Good afternoon, everyone, and thank you for joining us.

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

In a moment I will turn the call over to John. He will discuss highlights of our results for the fiscal fourth quarter and fiscal year 2006 which ended March 31, 2006.

James will discuss the financial details of the quarter and the year and then will provide a discussion of the guidance for the June 2006 quarter and fiscal year 2007 as outlined in the press release. James will then turn it back to John for concluding remarks. This will be followed by a question-and-answer session.

Today's call is being recorded and will be available for replay on Symantec's Investor Relations home page at symantec.com/invest. In addition to today's press release a copy of our prepared remarks and supplemental financial information are available on the IR Web site.

Before we begin, I would like to remind everyone that some of the information discussed on this call including our projections regarding revenue and operating results for the coming quarter and fiscal year 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 most recent periodic reports filed with the U.S. Securities and Exchange Commission. Symantec assumes no obligation to update any forward-looking statement.

In addition to reporting financial results in accordance with Generally Accepted Accounting Principles, or GAAP, Symantec reports non-GAAP financial results. Please note that our combined non-GAAP financial results included the historical results for Symantec and VERITAS for comparative fiscal periods.

In addition, our non-GAAP results include deferred revenue that has been eliminated from our GAAP results as part of the purchase accounting for the acquisition of VERITAS, and adjustments related to the fair value of the assets acquired and liabilities assumed as part of the acquisition, and also excludes certain non-GAAP expenses net of tax. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP results which can be found in the press release and on our Investor Relations Web site.

Now it is my pleasure to introduce our CEO, Mr. John Thompson.

Thanks, Helyn.

Symantec ended fiscal 2006 with a solid March quarter and we're poised to extend our successes into the new fiscal year. The tough headwinds of strengthening currencies around the world and evolving threat landscape and the changes in our consumer revenue model have provided a challenging backdrop for fiscal year 2006.

Through all of this, I am very pleased with the progress our team has made with the integration of VERITAS and I believe our Company is well positioned for the changing competitive landscape in the overall software industry.

The last ten months have not been the easiest in our history. As we merged our teams, some people opted to leave, and we more than doubled the workload in some areas, but we persevered and we have concentrated on making our Company better.

We focused intensely on the sales force and our channel which are critical to our long-term success. We're seeing some early benefits from our progress in this area, as evidenced in the results we posted during the March quarter.

The new Symantec is now ten months old, and I think we've accomplished a great deal in a short period of time.

Together, we are now one company, one team, working to help our customers protect their digital assets and IT infrastructure. So I'd like to spend a few minutes recapping some of our accomplishments for fiscal year 2006.

Our R&D teams had another prolific year as Symantec launched more than 100 new products and services around all of our product categories and shipped nearly 23 million boxes around the world. Some of the notable releases include NetBackup 6.0, Backup Exec 10d, Enterprise Vault 6.0, LiveState Recovery, the Symantec Mail Security products and the Norton 2006 group of consumer security products, albeit a bit later than expected.

We extended and delivered on our stated Phase I and Phase II merger integration plans for our product support and services offerings. We've launched joint product solutions for e-mail management, regulatory compliance and business continuity.

We've also made significant progress to create common licensing, common installation procedures, and a common user interface across a number of our security and availability products. Beyond that, we'll provide you with a detailed update on our Phase III plans at our analyst meeting later this month.

As you know, to minimize disruption to our customers and partners, we chose an approach to sales integration we refer to as, "Stay In Your Lanes." However, with the close of the transaction, we started integrating our sales leadership teams above the first line manager level in July.

This April we completed the integration at the field or account level. So today, our teams are integrated across the board and the vast majority of our customers now have a single account manager from Symantec.

Our account managers are responsible for overall opportunity identification and relationship management. They're supported by product, services and technical specialists.

We've also reduced the number of accounts a rep is covering thereby allowing them to penetrate more deeply into an organization and leverage the full breadth of our product portfolio. In addition, we have finished the consolidation of our sales opportunity management system, consolidated our sales plan structures and merged our sales information portals.

In each of the geographies, we consolidated our services teams under a single leader. And while most of the market's attention has been on the Symantec VERITAS integration, we've also seamlessly integrated the sales teams from IMLogic, BineView, Sygate and Relicore.

Throughout all of this voluntary attrition in our worldwide sales operation was lower this year when compared to prior years. We have a strong sales team in place with extensive experience and in depth knowledge that will continue to drive our success as a company.

Now I'd like to provide a few more highlights of the March quarter.

As we finished the fiscal year our execution in all segment and regions was quite strong. Business was driven by solid demand for enterprise products such as e-mail archiving, systems recovery and storage management solutions, as well as a consumer demand on our Norton Internet Security product.

Importantly, our enterprise and consumer antivirus segments experienced solid performance during the quarter. In addition, pro forma combined deferred revenue grew to over 2.2 billion representing 18% year-over-year growth and 12% sequential growth.

Our sales team continues to generate a significant number of large transactions. In the March quarter we generated a total of 1,142 transactions valued at more than $100,000 including 91 deals worth more than $1 million.

In addition, almost 50% of the large transactions included multiple products or services.

We've also focused on driving momentum for extensive community of partners. In the March quarter we launched the first phase of a new partner program which integrated 60,000 partners from 20 programs and 37 countries into one simplified structure.

The restructure program is designed to accommodate a diverse partner ecosystem with VARs, distributors, OEMs, consultants, service providers and alliances all now operating under a common program umbrella. The program is intended to drive demand for Symantec products and to reward our partners for not just selling our products, but investing in training and services built around the Symantec product portfolio.

The Enterprise Security business grew 9% year-over-year and 7% sequentially to $287 million for the March quarter. For fiscal year '06, Enterprise Security grew 13% versus fiscal year '05.

In addition, we experienced a record quarter of bookings in the Enterprise antivirus business and it performed in line with typical seasonal trends.

Our securities solutions experienced strong year-over-year growth during the March quarter. We saw solid demand for our antispam products which posted another terrific quarter.

We launched the 8220 Mail Security appliance, and a new release of Symantec Mail Security for the SMTP environments, which is targeting small and medium-sized companies. Our MSS and compliance solutions also made solid contributions in the March quarter.

We continue to improve our existing antivirus, enterprise antivirus solutions with the recent launch of Symantec Antivirus 10.1 and Symantec Client Security 3.1. The combination of a more stable pricing environment and a number of additional initiatives we have underway will strengthen our position in the enterprise endpoint security market.

For fiscal year '07 we will integrate several important integrate offerings. For example, we intend to integrate our antivirus and firewall technologies with recently acquired Endpoint Compliance Technologies from Sygate and behavior blocking technologies from WholeSecurity.

The project, code name Hamlet, will be delivered towards the end of this fiscal year and will extend our solution from endpoint protection to full endpoint compliance.

Managing the compliance process for internal policies and external regulations is rapidly emerging as the key business driver for infrastructure software deployments. In this area of IT compliance we intend to integrate our agent-based ESM product with our agent-less BindView product.

During the quarter we launched BindView's policy manager. This unique product ties together our entire product stack from a compliance perspective.

Over time, we will integrate policy compliance with all of our security and availability products.

Data protection revenues were $302 million down 8% versus the March 2005 quarter. This performance reflects normal seasonality and follows a record December 2005 quarter.

It's also important to note that the comparable period for VERITAS was December '04 which was a record revenue quarter. For fiscal year '06 we grew data protection revenue 7% compared to fiscal year 2005, a bit ahead of overall market projections.

During the quarter we extended our NetBackup product line by introducing NetBackup PureDisk Remote Office. The solution is designed to automate the process of protection of remote offices, enable data encryption and unify data protection processes across the central data center and remote locations.

We're committed to ensuring the protection of our customers critical data wherever it resides.

Enterprise Vault continues to out perform with phenomenal growth driven by solid demand for our comprehensive e-mail, instant messaging and file system archiving platform. The ever-increasing growth of stored data, along with you new regulations governing data retention, are driving companies to evaluate how they classify, search and manage all forms of digital information.

With the broad functionality of Enterprise Vault, combined with our partnerships to deliver intelligent archiving, organizations have the ability to classify their data based upon its value and perform faster search and discovery procedures all while reducing storage costs.

We have a thriving business in both e-mail security and e-mail archiving. Building on our leadership in these areas we intend to expand beyond e-mail to messaging and beyond security to overall message management.

The result will be a comprehensive enterprise management platform, message management platform that ensures the health of an organization's mission critical messaging infrastructure. For fiscal year '07 we will ship -- we will continue with the integration process we embarked upon last year.

Our next step is to unify policy management across e-mail and instant messaging and eventually extend it to archiving. This will allow for richer data analysis within our customer's messaging systems for compliance, legal discovery and business management purposes.

Now let's take a short look at our storage and server management group.

Our storage and server management group posted revenue of 300 million growing 2% year-over-year in the March quarter. The pcAnywhere and Ghost products continue to negatively impact the healthy growth produced by the rest of the solutions in this segment.

For fiscal year '06, the storage business grew 6% versus FY '05. The Storage Foundation suite clustering and command central storage products continue to perform well in the market posting double-digit growth.

Our sustained momentum is attributable to continued customer demand for storage and server solutions that simplify data center management and provide continuous availability of mission critical applications. Our systems recovery product, LiveState Recovery, also excelled in the quarter delivering solid double-digit performance.

The combination of Backup Exec and LiveState Recovery had allowed us to capture increased interest as customers realize the benefits of a comprehensive data and system protection solution. Indeed our ability to successfully leverage our customer relationships is reflected in the positive traction we've seen in the cross-selling of LiveState Recovery into our traditional Backup Exec customer base as buyers realize the benefits of a comprehensive data and system protection solution.

During the quarter we completed the acquisition of Relicore, the leading provider of automated, real-time application and server configuration management solutions. When combined with our server management solutions our customers will gain greater visibility over their data center assets and improve their efficiency and effectiveness in managing those assets.

Today at our Vision 2006 User Conference we announced the Symantec Data Center Foundation Solution, an integrated suite of data protections, storage, server and application management solutions. Our offering simplifies IT infrastructure management, drives down costs, improves agility and protects information and applications.

Symantec is the only company that offers enterprises a suite of products which allows them to take active control of their data centers providing confidence that their information is protected, available and accessible.

Our services group had a very strong quarter posting record revenue of 48 million up 16% year-over-year. For FY '06 services revenue generated $180 million and grew 34% compared to FY '05.

In past years our services revenue was derived mostly from implementation and installation engagements. Today, customer interests in IT risk management and risk mitigation strategies is driving this business and we broadened our services to expand the entire customer buying cycle.

In addition to implementation and installation services, our engagements now cover advisory services, design solution services and services to build and manage IT environments. We expect to continue to build out this important part of our team and our solution offerings as we move forward.

Revenue in our consumer business increased 12% sequentially to $363 million and represents 29% of total revenue during the March quarter. On a year-over-year basis March quarter revenue growth was flat due to our move to a fully ratable revenue recognition model.

The impact of this move was approximately $15 million in the period. Adjusting for the move to the ratable model, the consumer segment grew 5%.

Our consumer business grew 6% during fiscal year '06. Adjusting for the move to the ratable model, the consumer segment grew 12% in fiscal 2006.

Our electronic distribution channels comprised of online, OEM, ISP and subscription renewals, continue to grow rising 16% year-over-year. Electronic software distribution sales improved almost 10 full points during fiscal year '06 reaching 65% of total revenue for the segment.

We saw continued demand for our Norton Internet Security product which grew 33% versus the March 2005 quarter. During the quarter Norton Internet Security comprised approximately 50% of total consumer revenues and is now the largest single product contributor to revenues in this segment.

The top issues for consumers today are about being able to protect, save and recover their digital assets. In March we launched Norton Save & Restore which offers a quick and simple way to save and recover customers digital assets.

On the distribution side, we continue to find ways to expand our reach to new end-users. During the quarter Adobe announced a partnership with us which offers fast, easy ways for customers to protect their PCs from security threats.

Leveraging Adobe's powerful brand and market position, users who download the latest version of Adobe Reader will be offered a trial version of Norton Internet Security 2006. Our relationship with Adobe offers one of the broadest communities of consumers and small business users another way to protect their PCs in an easy, cost effective way.

During this fiscal year we expect to deliver quite a few exciting new products to the market. We will launch a new category that we call "Transaction Security."

Market research data suggests consumers are becoming more concerned about transacting business online. As consumer confidence in online transactions has declined, so has Internet usage for some e-commerce activities.

In early February we announced our next generation consumer security service, code name Genesis. This offering will seamlessly integrate our best of breed security products along with our market leading PC health and backup technologies to offer protection from the ever-changing threats impacting today's digital lifestyle.

We anticipate offering a beta version of this service sometime in the late summer.

For fiscal 2007 we intend to leverage our more than 50 million active customer to sell them an expanding group of products and continue to deliver significant innovation into the marketplace all while maintaining the profitability of this segment. You'll hear more about our plans from this important segment at our May 31st analyst conference.

Now for a closer look at the financials, I'd like to introduce our new CFO, James Beer. James joined us in March after a 15-year career at AMR where he had been the CFO for the past two years.

James has a very well rounded business background and brings with him tremendous experience at a Global 500 company. I know some of you have had the opportunity to meet with him already, and we are very pleased to have him on board.

Before I turn the call over to James to review our March quarter results in more detail and our guidance for the June quarter and fiscal year '07, I'd like to put some context around our current view.

Since our initial forecast in January, James and I, along with our business unit leaders have carefully reviewed our internal plans and the current market environment. Our revised guidance reflects our best view of the changing environment and the realities of today's competitive market.

With that, I'll turn it over to James.

Thank you, John, and good afternoon, everyone. It's a pleasure to be here.

Indeed I'm encouraged by the progress we've made as evidenced by the March quarter and FY '06 results. A lot of change impacted our business during the past twelve months such as the slowing of the antivirus market, an evolving threat landscape, our new consumer revenue model, and the negative impact of foreign currency movements just to name a few of the drivers.

Despite all of that, we grew our fiscal year non-GAAP revenue by 8% to more than $5 billion and generated an even dollar in non-GAAP earnings per share.

I believe we are doing the right things to prepare for the year ahead, but before I get into the new fiscal year, let me spend a minute reviewing the financial details of the March 2006 quarter.

GAAP revenue for our March 2006 quarter was $1.239 billion. Non-GAAP revenue grew 1% over the March 2005 period to $1.3 billion.

There were several factors that impacted our year-over-year growth that you should be aware of. First, foreign currency movements lowered non-GAAP revenue by almost $50 million, or 4% in the March 2006 quarter as compared to March 2005.

Second, it is important to note that the year-over-year comparable period for VERITAS' results was the December 2004 period which was a record revenue quarter for that company. Third, the move to the ratable model in the consumer segment lowered non-GAAP revenue by approximately $18 million.

Non-GAAP revenue grew by 4% sequentially and was positively impacted by foreign exchange movements of approximately $8 million, or less than 1% when compared to the December 2005 quarter. The March quarter's fully diluted GAAP earnings per share was $0.11.

Non-GAAP fully diluted earnings per shares for the quarter was $0.26 in line with the previous March quarter's non-GAAP result. International non-GAAP revenue for the March quarter was $650 million growing 5% versus the year ago period and representing 50% of total non-GAAP revenue.

Excluding currency effects, international non-GAAP revenue would have grown by 12%. The Europe, Middle East Africa region and Asia Pacific, which includes Japan, grew 3% and 9% respectively.

America's revenue declined 2% driven primarily by the difficult year-over-year comparable period for VERITAS' results and the move to the ratable model in the consumer segment.

Non-GAAP gross margin remained stable at $0.85 for the March 2006 quarter compared to 85.1% for the year ago period. Non-GAAP operating expenses of $704 million were 54% of revenue for the March 2006 quarter versus operating expenses of $658 million, or 51% of revenue in the March 2005 quarter.

The most notable cost continues to be head count. Head count at the end of the March quarter was 15,846, up 13% year-over-year driven primarily by recent acquisitions.

GAAP net income was $119 million for the March 2006 quarter and non-GAAP net income was $279 million. This was 11% lower than non-GAAP net income of $314 million for the March 2005 quarter driven by foreign exchange movements, the change in the consumer business to a ratable revenue model and the year-over-year methodology requirements noted earlier.

Symantec exited March with a strong balance sheet. Cash and short-term investments were $2.9 billion at the end of March. It should be noted that we repurchased approximately 9 million shares valued at nearly $155 million at an average price of $16.85 during the quarter.

Now, our net accounts receivable balance at the end of the March 2006 quarter was $671 million. Days sales outstanding, or DSO, was 47 days in line with normal seasonal trends for the combined business.

Cash flow from operating activities for the quarter is expected to be approximately $460 million. Our tax payments were higher than in recent quarters due to lower volumes of stock option exercises driven by our lower stock price.

Pro forma combined cash flow from operating activities for FY '06 is expected to be approximately $1.6 billion in line with our expectations. GAAP deferred revenue at the end of the March 2006 quarter was approximately $2.16 billion.

As John mentioned, non-GAAP deferred revenue at the end of the March 2006 quarter reached a record $2.22 billion, including $58 million of VERITAS deferred revenue that was excluded as part of the purchase accounting for the merger. Non-GAAP deferred revenue grew $340 million, or 18% as compared to the non-GAAP combined deferred revenue for the March 2005 quarter.

On a non-GAAP basis enterprise products represented roughly 60% of deferred revenue with consumer products accounting for about 40%. We expect about 60%, or approximately $730 million of our June quarter revenue to come from the balance sheet.

Now I'd like to spend a few minutes discussing our guidance.

Now that I have been on site for a couple of months, I've had the chance to evaluate our previous plan against the current business environment. The antivirus market and the threat landscape continue to undergo important changes, and as a result we have decided to reduce our FY '07 revenue estimate by of the order of $100 million.

We have also reworked our budgets to reduce expenses by $100 million.

For FY '07, our assumptions are based on an exchange rate of $1.18 per euro. As a result, we are forecasting that GAAP revenue for FY '07 will be between 5.2 and $5.4 billion.

Our non-GAAP revenue guidance for FY '07 is between 5.3 and $5.5 billion. We forecast that our GAAP earnings per share result will be between $0.46 and $0.57.

Symantec will begin including expenses resulting from FAS 123R in our reported GAAP results starting in the June quarter. As such, the total stock- based compensation impact to FY '07 GAAP earnings is estimated to be approximately $0.14, or 12%.

Our non-GAAP earnings per share guidance is between $1.05 and $1.15 for FY '07.

We expect operating expenses to increase to approximately $3 billion for FY '07 as we focus on in investing in the business to drive revenue growth. Areas of investment include increase spending for marketing initiatives ahead of the entry of Microsoft, along with investments in consolidating our ERP systems and facilities.

Several of these costs are one-time expenditures related to the VERITAS acquisition. Once behind us, we expect our expense performance to return to more historical levels.

We expect fully diluted common stock equivalents of approximately 1.05 billion shares. This assumes we will be executing our previously announced repurchase program during FY '07.

Deferred revenue is expected to be in the range of 2.3 to $2.5 billion.

Cash flow from operating activities is expected to be in the range of 1.5 to $1.7 billion. This lower range than previously discussed is driven by higher tax payments due to lower volumes of stock option exercises resulting from our lower stock price, and a second tax issue which I will describe in just a moment.

Lastly, as you know, we reorganized and consolidated our business units. In doing so, for FY '07, we will be reporting our results broken down into the following four segments: first, Consumer, second, Enterprise Security and Data Management, third, Data Center Management and fourth, Services.

We will be providing you with a historical view of the new business segments at our analyst meeting later in the month.

Our forecast for the current quarter takes into account the seasonal nature of the June quarter, in which enterprise and consumer demand tends to decline from the March period.

Our guidance for the June 2006 quarter is as follows: GAAP revenue is estimated at between 1.20 and $1.23 billion; non-GAAP revenue is estimated between 1.22 and $1.25 billion; GAAP earnings per share is forecasted between $0.05 and $0.07.

Total stock based compensation impact to the June quarter GAAP earnings is estimated to be approximately $0.04, or 16%. Non-GAAP earnings per share is estimated between $0.20 and $0.21.

As I mentioned earlier, one of the areas of investment this year is in combining the back office ERP systems. This will serve as the catalyst in the December quarter for the merging of our Enterprise Security and availability buying programs along with the harmonization of our maintenance accounting policies.

A single buying program structure will provide customers with increased flexibility in terms of how they do business with Symantec and will simplify our back office processes. Because of these changes, some of our enterprise revenue may need to be recognized on a pro rata basis over the term of the license.

The change to the maintenance methodology would likely create a one-time reduction in recognized revenue. Early indications are that these items could lower recognized revenue by of the order of $200 million in FY '07, with the maintenance accounting convention change driving approximately $40 million of that amount.

Our evaluation of this issue is continuing, and I will update you on our findings in due course.

It should be noted that such a reduction in recognized revenue would generate a corresponding increase in deferred revenue. Also, such an accounting change would not affect our planned operating expenses.

Before I turn the call back to John, I'd like to address a tax-related matter.

We are as yet unable to confirm our eligibility to claim a lower tax rate on a distribution made from a VERITAS foreign subsidiary prior to the acquisition due to a failure to file a timely extension to the final preacquisition return. The distribution was intended to be made pursuant to the American Jobs Creation Act of 2004, and would have, therefore, been eligible for a 5.25% effective U.S. federal tax rate in lieu of the 35% statutory rate.

We are seeking a ruling from the IRS on this matter. If we are unable to obtain verification from the IRS that we are eligible for the lower rate of tax on the distribution, we will be required to pay additional U.S. taxes totaling $130 million.

Since this payment relates to the taxability of foreign earnings that are otherwise the subject of the IRS assessment we received a month ago, this additional payment, if required, would reduce the amount of taxes payable related to the VERITAS transfer pricing dispute.

The failure to file the extension represented human error and a break down in our tax controls. Right at the top of my priorities list is making sure that our controls are robust and fully utilized and that the finance team is properly skilled and resourced as we move into the new fiscal year.

While certainly no excuse, I should point out that the tax department has suffered significant attrition following the closing of the VERITAS merger leaving those remaining with significantly increased workloads.

In recent weeks, however, we have made progress in reinforcing the tax department. An experienced tax partner from a Big 4 accounting firm has been recruited to lead the group and he is in the process of identifying and implementing further changes.

Within the last couple of weeks, we've also hired a Senior Vice President of Finance Operations who brings 25 plus years of financial experience to Symantec. Going forward, we will continue to build and recruit the necessary skills required to run a company of this size and growth potential.

Now I'd like to hand the call back to John.

Thanks, James.

As you've heard, we have not been sitting still. We've implemented a number of changes to better prepare us for fiscal year '07 and beyond.

We've realigned into four distinct product business units. We've completed our sales coverage model transition, consolidated our partner programs, and repositioned our services business.

All of these changes have been undertaken to better align our business with the market segments buying centers that we believe have the greatest potential for our Company.

For more than 20 years we've been protecting our customers from threats, systems failures, user errors and natural disasters. In fact, we protect more people from more online threats than anyone in the world.

As we look ahead, we believe our business strategy, our team, and our line-up of compelling offerings positions us well for long-term growth. There is no doubt there will be challenges but I believe we've made the right changes in our business to overcome these challenges. Furthermore, we've built a very strong team that we believe will continue to drive our leadership position in the industry.

And now, I'll turn it back to Helyn who will take questions from our audience.

Thank you, John. Jamie, will you please begin polling for questions?

I [OPERATOR INSTRUCTIONS]

I would like to announce Symantec plans to attend the following conferences. The JPMorgan conference on May 22nd, the UBS conference on May 23rd and the Nasdaq London conference on June 20th.

In addition, Symantec will be hosting an analyst meeting n May 31st in the Bay Area. This event is invitation only and registration is required.

A live webcast and replay of the event will be available on the Investor Relations home page. For a complete list of investor-related events, please visit our events calendar on the Investor Relations Web site.

Jamie, we are now ready for our first question.

Thank you. We'll take our first question from Heather Bellini with UBS.

Hi. Thank you. I had two questions.

One, if you could comment, John, a little bit on the consumer backup offering that's going to be part of Genesis, will that also be a standalone product and if you have any commentary on pricing?

And the follow-up would be either for you or James regarding guidance. You guided to 20 to $0.21 on a non-GAAP basis for the fiscal first quarter. I was just wondering if you could walk us through your view of how earnings will ramp throughout fiscal year '07 in order to hit the midpoint of the earnings range? Thank you.

On Genesis, the backup offering in Genesis will be a backup service, and so at this point in time is not planned as a standalone service although that is certainly something the team is considering. As you may know, we just released Norton Save & Restore which is a standalone backup product, not a service, and hence it is available for those who want to do local PC-based backup as opposed to backing up with a service provider somewhere.

I'll turn to James and let him answer the guidance question.

Well, Heather, our approach is really to offer the coming quarter and the full-year look obviously more difficult to estimate the full-year. I think previously the Company has given guidance that indicated the importance of the last two quarters of the fiscal year. Certainly, we see nothing to change that general perspective, but I think I'd just leave it at that.

Okay. Thank you.

We'll take our next question from Adam Holt with JPMorgan.

Good afternoon, John and James. I also had two questions about the guidance.

The first is, John, in your comments you talked about some of the things that you've accomplished in terms of getting through the sales force integration and changes. I was wondering what, if any, kind of assumptions you've made around any potential account changes and/or disruption that went into the first quarter guidance?

And then just secondly, as we take a step back and look at the year, obviously the year's been a moving target. You've talked about some of the influences on that. What are some of the things that you can talk about to build up to the new numbers to get us confident that this is really a starting point for beats and raises from here? Thanks.

Our guidance certainly reflects our best view of the environment, both competitive environment and our internal capability and capacity, so I don't view that there is any further news to come related to the June quarter that has anything to do with our sales force that's not reflected in these numbers that we've given you.

We've taken the time over the course of the last 60 days that James has been here to have each of our business unit leaders, along with our finance and planning team, come together and kind of think about the segments of the marketplace where we play, our product road map for the coming year, the current competitive landscape, and the changes that we think are likely over the course of the next twelve months, and those views are reflected in this new guidance.

Our non-GAAP guidance is on a full-year basis 5.3 billion to 5.5 billion, and earnings forecasts associated with that is $1.05 to $1.15. We think that's certainly a balanced view at this point given all that we know.

Great. Thank you.

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

Hi, guys. Good afternoon.

First [inaudible] some clarification on the cash flow issues and then a clarification on the revenue guidance. On the cash flow issue, [inaudible] I'm coming out to like 1.51 billion for the cash flow for this year. That's after, I think, the adjustments that have been made for reclassification.

And also, on the guidance for next year the 1.6, 1.7 is the delta between that and the 1.8 purely the tax issue or are there other issues? And then I had a revenue question.

Okay.

So to the first one, for this fiscal year, we're looking at a pro forma number of $1.5 billion for operating cash flow, sorry, $1.6 billion for the operating cash flow, and for FY '07, the delta versus what the Company has previously discussed is very much driven by those two tax issues that I mentioned.

First of all, the fact that our lower stock price is meaning that fewer employees are exercising options and is when they do exercise options obviously there tends to be a smaller delta between the strike price and the exercise price, and that's, there is a lower tax deduction available to us. That's a higher tax payment.

And then the other item relates to the $130 million of tax that I discussed at the end of my remarks.

Okay.

And then the other clarification is on your revenue guidance. I think you said that because you integrated the selling plans between availability and security, you'd have to defer more. Or you might have to defer more to the tune of $200 million. So is that $200 million mean that if that happens then you would reduce the 5.3 to 5.5 billion guidance goes against that?

That's correct. I wanted to give everyone a heads up as to this issue that we are still very much working on, but it is something that we're thinking through very seriously as we bring together the back office systems of the two companies.

And obviously, we will be looking to respond to the needs of the market place in terms of how the buying programs are designed, and then there is also an issue of the fact that when you bring together two different companies that have different accounting methods for things such as maintenance, you've obviously got a pick a single procedure going forward, and so that's what's driving the $40 million or so component of what I described as a total impact of the order of around $200 million.

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

Good afternoon, guys.

Just on the guidance for the June quarter you're obviously estimating in a pretty significant ramp on the operating expense line, and I presume a lot of that's goes to thing like sales and marketing expense with the new consumer products, et cetera. Could you give us a little bit more color on that?

And then specifically, as we look out through the year, James, just to follow-on Michael's question, if we see the revenue take that $200 million hit, obviously bookings doesn't change, but would that have a similar flow through to the bottom line or are there similar expenses that you can defer to balance?

Let me start with them and I'll probably address them both.

It would appear, Sarah, as though the right thing for us to do ahead of Microsoft's entry is to make sure that the market understands the strength of our product portfolio and the strength of our brands. So we are investing more in the consumer business in raising awareness and consciousness that consumers have about our capabilities.

And that's reflected in some of the current end market programs around the world, and other things that we will do between now and, let's say, the launch of our '08 version of products.

Okay.

Now, with respect to the guidance, if in fact we do decide to make the changes that would improve licensing flexibility with customers, then we will have to have resources to drive the placement of those licenses. Hence, it will go to deferred revenue.

And while it goes to deferred revenue, we will have to have some expense in order to generate the deferred revenue. So you're likely to have a flow-through effect in the EPS as well.

Okay.

I think it is relatively early days, we did want to give everyone a heads up to this issue. Certainly, the experience on the consumer side as we have moved that towards the ratable model has been that the cost of goods sold associated with that consumer revenue has also gone ratable.

Sure.

So a similar impact could be envisaged if we moved down in this further direction.

Okay. Thank you.

We'll take our next question from Walter Pritchard with Cowen & Company.

Great. Thanks. The two questions.

One just, John, if you maybe could walk us through the consumer number. That was a little bit better than I expected and I know we saw a little bit better number out of McAfee as well. Just wondering if you can maybe comment on what specific channels you're seeing are stronger there and especially versus your expectation?

And then also, I think you'd outlined some segment guidance initially on your January conference call. I'm just wondering if there's any update to that or do we sort of expect all the segments to come in modestly lower than they were expected to before?

I think we'll have to give you new segment guidance at our analyst conference because we've gone through the process of reorganizing our business, but we haven't bothered to go back and rework the plans against the new FY '07 segments. So watch this space.

On the consumer side, I think the strength for the quarter was clearly in Norton Internet Security. It now represents 50% of the consumer revenues. That's a product that grew north of 30% in the quarter, so it was a very, very strong quarter for NIS, or Norton Internet Security.

On the channel side, the electronic channels continue to be very, very strong. They now represent 65% of revenue. Year-over-year their contribution is up almost 10 full points, and so we think as is indicative in other people's results, the shift to electronic continues.

Thanks.

We'll take our next question from Gregg Moskowitz of Susquehanna Financial Group.

Thanks very much.

First question, wondering, John, if you can comment on what products were most involved in the large deals that you signed during the quarter? And along those lines, obviously, we're very early on the security storage convergence trend, but if you did have any large deals across both products I'd be interested in hearing that.

And then just secondly, if you could quantify the effect within the Enterprise Security segment from acquisitions, specifically, BindView IMLogic and the first full quarter for Sygate. Thanks.

We don't break out acquisition revenues, but let me talk about the strength in the quarter. The products that were strongest in the quarter were Enterprise Vault, on the enterprise side that is, Enterprise Vault, Storage Foundation, and our compliance products.

We also saw good solid bookings growth and revenue performance in our enterprise antivirus solutions as well, so across the board the business was in pretty healthy shape in every segment. Like all businesses, this is a portfolio so you're going to have some ups and downs, but I'm pretty pleased with this as a seasonally adjusted kind of March quarter.

Great. Thank you.

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

Thank you.

Could you speak to -- you're talking about stabilization of the pricing environment which is a different tune than we've seen you talk about over the last few quarters. Can you just maybe talk about the factor there and why you think you've seen a change for the positive on the pricing environment and the enterprise? Thanks.

It's hard to say what the factors are, to be very honest with you, because we've only had one data point, and as I've said in the past when we've had one data point, let's be careful not to extrapolate it into a trend line.

I'm satisfied that the data we've seen suggests that prices were stable compared to the last two or three quarters, but that is yet to be a trend. If it continues, that should bode well for us and others in the industry.

I would hope that many of the competitors who play in this space recognize that it's not our collective best interests to compete based on price.

We'll take our next question from Todd Raker with Deutsche Bank.

Hey, guys, two questions for you.

First, James, I was hopeful that you could tell us what the tax impact in the cash flow number 1.6 billion was this past year from stock options conversions?

You know, I think we probably would not get into that degree of specificity, frankly, so we'll cover a lot of detail in the 10-K in that regard. So I think we'll just leave it to that point.

Okay. And what's should we be looking at from a tax rate on the income statement for fiscal '07?

Well, obviously, we've got our hands full with tax issues as we've been discussing here, but we're assuming a tax rate in the 30 to 31% realm for the fiscal year.

Okay. And then a quick question for John.

The division conference is very clear that you guys have a lot of irons in the fire on product development cycle. How comfortable are you today with the product road map both on the consumer enterprise side and your ability to deliver against all of your objectives?

Well, we've outlined, Todd, for our customers we had 3500 customers in this conference that this is what we're going to do this year, and while there is a certain level of science associated with software, there's a certain part of art as well.

I have to believe, though, that the team is committed to deliver on those dates and our track record is pretty dog gone good. Yes, occasionally, we slip, but that's the exception rather than the rule.

Thank you. We'll take our next question from Rob Owens with Pacific Crest Securities.

Good afternoon.

Could you elaborate a little bit on your comments to a change in the threat landscape and just how that's affecting buyer behavior?

If you think about it, Rob, between 2002 and 2004 there were almost 100 medium to high severity viruses that hit the marketplace. In calendar year 2005 there were only six.

Clearly for the under penetrated, low end of the business, or corporate market and the consumer markets, having a lot of visibility in the marketplace about virus attacks, or worm attacks, certainly drives a level of demand given the strength of our distribution capability and the brand awareness around Symantec and Norton.

When the threat landscape changes so precipitously to the point where there are so few high profile attacks, it will have a corresponding effect on basic antivirus and other technologies that tend to deal with malicious content. That's why we believe our product portfolio has to shift more toward addressing the new threats, which are much more silent, much more focused on identity theft and fraud, and hence, Genesis and some of the other product capabilities we tend to, or intend to deliver will address the new threat landscape.

Great.

On increase in marketing, you've been talking about that for a while in front of Microsoft. Should we take this as a reiteration of that or are you increasing your sales and marketing even to higher levels than you had previously--

No, this is just a repeat of what we've said.

Okay. Thanks.

We'll take our next question from Charlie Chen with Needham and Company.

I had a follow-up question about the pricing environment, just a comment on stable pricing. Does that hold through for the [SMB] segment where you seem to have seen the most aggressive pricing?

Yes.

Okay. Great.

James, if you had commented on your expectations for currency in the guidance in the first quarter, and full fiscal year?

Yeah. The currency rate that we're using for our guidance is $1.18 per euro.

Okay.

And last question, on Genesis, any thoughts to the timing of the GA release and pricing?

We're not going to talk about pricing until we're ready to release the product. That would not be fair to our channel partners or our customers. The current thinking is that the product will ship in fourth quarter, if you will, of the year.

I think there are some appropriate considerations that the team will need to go through in terms of whether or not that's the right product introduction time given that we will certainly refresh the Norton antivirus and Norton Internet Security products in the August/September time frame. So the team is going through the evaluation, will have the beta in the marketplace late summer, will take the feedback from that and make a determination also when we should release the product, but it clearly will come this fiscal year.

Thank you. We'll take our next question from Peter Cooper with Morgan Stanley.

Great. Thank you.

John, two clarifications if I might. One is, did I hear you talk about the [inaudible] revenue consumer [inaudible] little bit of license up front and less [inaudible] did I not hear that correctly? So just a quick clarification there.

I'm sorry. I can't understand you, Peter.

I'm on a cell phone breaking up on you?

Yeah.

Okay. Just if you can hear me now, the simple question is, what Genesis [inaudible] leadership digs I think originally we were looking for it in calendar year '06, but it sounds like it might be--

I'm not announcing any change in the Genesis dates. And what was the other question?

About the consumer [inaudible]. Is there any changes from full ratable back to some license component now?

No.

Okay. Thanks.

We'll take our next question from Robert Breza with RBC Capital Markets.

Jamie, that will be our last question.

Okay. At this time I'd like to go ahead and turn the call back to --

We can take Rob Breza, I'm sorry, but that will be our last question.

My apologies. One moment. Mr. Breza, go ahead with your question.

Thank you.

Just a quick clarification, John, I think what Peter was trying to get at was on the revenue recognition change that James was talking about in the 200 million, that's fully reflected in your guidance, correct?

No, no.

Okay. Thank you.

This is very much just a heads up as to something that we're thinking through.

Okay. Thank you.

With no further questions, I'd like to turn the conference back over to Mr. Thompson for any closing comments or additional remarks.

Well, I appreciate everyone's interest in our business and its performance.

We've certainly had a challenging fiscal year '06. We think many of those challenges have been well handled by our team, and we're poised for a better, much stronger fiscal year '07.

We look forward to seeing you on May 31st and we'll give you more details about our operating plan for this year. Thanks for listening in.

Ladies and gentlemen, this does conclude today's Symantec fourth quarter 2006 and fiscal year 2006 conference call. We thank you for your participation and you may now disconnect.