諾頓 (NLOK) 2009 Q4 法說會逐字稿

Good day, and welcome to today's Symantec fourth quarter 2009 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. Please go ahead, ma'am.

Good afternoon and thank you for joining our call to discuss fourth quarter and full-year 2009 financial results. With me today are Enrique Salem, Symantec's President and Chief Executive Officer; and James Beer, Symantec's Executive Vice President and Chief Financial Officer. In a moment, I will turn the call over to Enrique. He will start with a few comments about our quarterly activities and results. James will then provide financial and operational details, as well as review our guidance as outlined in the press release. Then Enrique will wrap up with comments about our fiscal year 2010 focus areas. 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 website at Symantec.com/invest. A copy of today's press release and supplemental information are available on our website and a copy of today's prepared remarks will be available on the Investor Relations website shortly after the call is completed.

Before we begin, I'd like to remind you that our June 2008 period results included 14 weeks of activity versus the normal 13 weeks that the June 2009 quarter will have. I'd like to take a moment to review the specific financial details of the extra week. Non-GAAP revenue for the June 2008 quarter included approximately $75 million of a one-time benefit and non-GAAP earnings per share included approximately $0.03 of a one-time benefit generated from the extra week. Non-GAAP deferred revenue included a one-time negative impact of approximately $5 million from the extra week. We will exclude the impact of the extra week when comparing our 2009 guidance and results to the June 2008 results.

Next, we will review our non-GAAP financial results, focusing on constant currency growth rates unless otherwise stated. For March 2009 quarter, the actual weighted average exchange rate was $1.30 per Euro and the end of period rate was $1.34 per Euro compared to our guided rate of $1.32 per Euro. For the March 2008 quarter, the actual weighted average rate was $1.50 per Euro and the end of period rate was $1.58. For revenue and operating expense purposes, current and comparative prior period results for entities reporting in currencies other than the US dollar are converted into US dollars at the actual exchange rate in effect during the respective periods. For deferred revenue, results are converted into US dollars at the actual exchange rate in effect at the end of the period. We have included a summary and reconciliation of the year-over-year growth rates in our press release table and in our supplemental information.

Given the rapidly moving exchange rate environment, I'd like to remind everyone to continue to apply the rules of thumb that we have provided as a guide to the impact of currency fluctuations on our financial metrics. For every US cent movement versus the Euro, revenue would be impacted by approximately $4.5 million, and deferred revenue would be impacted by approximately $7 million. In addition, for every $0.05 US movement versus the Euro, non-GAAP earnings per share would be impacted by approximately $0.01. It is important to note, however, that these rules of thumb will move around based on the actual currency fluctuations and the mix of our revenues and expenses.

Moving on, some of the information discussed on this call including our projections regarding revenue, operating results, deferred revenue, cash flow from operations, amortization of acquisition-related intangibles, and stock-based compensation for the coming quarter contain forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. Additional information concerning these risks and uncertainties can be found in the company's most recent periodic reports filed with the US Securities and Exchange Commission. Symantec assumes no obligation to update any forward-looking statements.

In addition to reporting financial results in accordance with Generally Accepted Accounting Principles or GAAP, Symantec reports non-GAAP financial results. 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 website.

And now I would like to introduce our new CEO, Mr. Enrique Salem.

Thank you, Helyn, and good afternoon, everyone. This quarter marks a solid close to fiscal year 2009. The breadth and depth of our portfolio contributed to the solid results despite the current macro economic environment and currency headwinds during the second half of the year. Results for the quarter were driven by strength in enterprise backup, storage management, data loss prevention, and consumer. Our strong non-GAAP earnings per share are a result of eliminating unnecessary costs and shifting our spending to areas with the greatest returns. We continue to generate substantial cash flow from operations and strong deferred revenue.

Now I'd like to highlight a few key items of our fiscal fourth quarter. In our consumer segment, despite the decline in PC units, we continue to strengthen our leadership position as highly publicized threats such as Conficker and trojan.h. have increased consumer awareness for the need for security software to protect their personal data.

We continue to expand our category leadership by bringing innovative products and services to market. In the March quarter, we shipped Norton 360 Version 3.0 that has an ultralight footprint and fast performance that is the hallmark of our 2009 product line. Norton 360 has already won PC Magazine and Computer Shoppers' Editors Choice award. Furthermore, Symantec's Norton line of products have received top scores from several of the industry's preeminent independent testing bodies. In the most recent review from AV Comparatives, Symantec was the only vendor to be awarded top ratings in all three tested categories -- detection, false positives, and performance.

Additionally, Symantec has received Virus Bulletin's VB 100 award 43 consecutive times, dating back to 1999. No other competitor has had our record. This record underscores Symantec's ability to provide the best protection against malware to our customer, something that no other competitor can match. Customer feedback has shown that satisfaction across all areas of the product's experience are at an all-time high, particularly in the area of performance.

Despite the market's emphasis on our relationship with HP, HP represents only one of numerous OEM relationships we have around the world. We have meaningful relationships with HP, Dell, Acer including Gateway and Packard Bell, Lenovo, Fujitsu, Toshiba, ASUS, and Sony among many others. We continue to aggressively pursue valuable OEM deals, recently winning multiple competitive agreements. We will be shipping on Dell's global small business line, and also their gaming line. We are renewing our relationship with Lenovo's ThinkPad brand, and have also extended our agreement with Acer.

In the netbook segment, our 2009 product continued to be an attractive choice. In addition to the ASUS agreement announced last quarter, we signed contracts to ship NIS on Dell and HP minis this quarter. Although the price of PCs has steadily fallen over the past decade, security software prices have not. This is due to the fact that it is not the cost of the underlying PC, but the value of the information and content on the PC that matters.

Norton Online Backup, which shipped during the quarter is giving us additional and unique traction with OEMs. We have already signed an agreement to ship a 60 day trial of Norton Online Backup with Sony [Europe]. Norton Online Backup also creates a new opportunity to partner with ISPs. We have signed an agreement to provide back up for a major ISP in North America. We currently host over 30 petabytes of customer data and have more than 7 million active customers. That's seven times more customers than our nearest competitors. Our Norton Online Backup product allows us to expand beyond traditional security and introduce more consumers to our trusted Norton brand.

Next in our enterprise business, we are seeing the results from our solutions ability to simplify heterogeneous environments and reduce spend by commoditizing infrastructure. In our data center business, the March quarter saw the first results from our Stop Buying Storage marketing campaign. There are four key opportunities that our customers are benefiting from. Those are -- one, storage resource management; two, thin provisioning; three, data deduplication; and four, intelligent archiving. Our software enables customers to decrease the hardware spend by increasing utilization rates across multiple hardware platforms. The strong sales momentum created by the Stop Buying Storage campaign accelerated throughout the quarter with the teams tracking over 250 specific new enterprise opportunities. Additionally, we are extending our lead in thin provisioning by securing the commitment to the top storage array vendors to support our storage foundation and provisioning APIs including new solutions with Hitachi Data Systems and [Three Par] data.

Our data center backup and deduplication products posted strong year-over-year growth. Net Backup, the number one backup solution for the enterprise, continued its strong performance as the market moved to next generation data protection. Our deduplication product, PureDisk, in particular performed well during the quarter. PureDisk can reduce total storage required for disk space backup by over 50 times.

Earlier this week, we have started shipping Symantec Endpoint Protection Small Business Edition. We expect to improve performance in the mid market through this product. Symantec Endpoint Protection Small Business Edition provides comprehensive protection with simple management capabilities and preconfigured settings that allow small businesses to get up and running quickly. We are working with our partners to make sure they are fully educated on the benefits of the new product. We believe this release will enable Symantec Endpoint Protection to extend its success in the large enterprise to the SMB space.

Also in our enterprise security products group, data loss prevention continued its fifth quarter of double digit year-over-year revenue growth. Our customers tell us our products are two years ahead of our competitors' offerings. Studies have shown in the market of uncertain job security, data loss prevention has become even more relevant for our customers.

Additionally, we are now shipping the Altiris Client Management Suite 7.0 and Server Management Suite 7.0. Both management suites utilize workflow technology to provide the necessary automation and integration from a central location to help our customers reduce the time it takes to manage their assets, improve security, and reduce operational costs. Both suites are built on the Symantec Management platform, which provides integration across Symantec's product portfolio and third party solutions. The work flow engine facilitates integration into the customer's environment and enables our partners to sell more value-added services.

Finally, this quarter, Dell began shipping every server with their next generation Management Console as a native solution built on Symantec's management platform. This presents an opportunity to upsell our new Altiris suite as well as many Symantec products that will simply snap into the platform, including our Backup Exec information manager and Backup Exec system recovery. Dell Management Console ships with every server Dell sells, further validating Symantec's strength of technology and architecture.

I will now turn the call over to James to provide you the financial details before I discuss my focus areas as I look forward to fiscal year 2010.

Thank you, Enrique and good afternoon, everyone. The fourth quarter wrapped up a year in which we delivered record non-GAAP revenue of over $6.2 billion and record non-GAAP earnings per share of $1.57. During the fiscal year 2009, we grew earnings per share 24%, increased operating income by 19%, and expanded our non-GAAP operating margin by 360 basis points to 30.2%. These results are reflective of the substantial progress we are making in our efforts to improve the efficiency and effectiveness of our cost structure. Our balance sheet continues to be strong, providing us with significant financial flexibility. We exited the March quarter with nearly $2 billion of cash on hand, reflecting the fact that during the past six months, even during a challenging economic environment, we generated more than $1 billion of cash flow from operations.

Now let me get into the details of the fourth quarter. Symantec achieved GAAP revenue of $1.47 billion. Non-GAAP revenue grew 2% in constant currency terms versus the March 2008 period to $1.49 billion. It is important to note that the US dollar strengthened 13% against other currencies compared to the year ago period, reducing our international revenue as measured in US dollars. As a result, foreign currency movements negatively impacted non-GAAP revenue by 6 percentage points year-over-year. Had currency effects remained at our guided rate for March-quarter, revenue would have reached $1.495 billion, placing it within our guided range.

We generated a total of 369 transactions valued at more than $300,000 each, and 85 transactions worth more than $1 million during the March quarter as customers adjusted their IT spending as a result of the challenging nature of the current macro economic environment. While this was the primary reason for fewer large transactions versus last year, and lighter than expected revenue in the quarter, we did see a greater proportion of our sales being recorded on the balance sheet rather than the income statement, reflecting the emphasis during the quarter toward customers renewing maintenance opposed to buying new licenses.

Looking at our geographic results, international non-GAAP revenue of $747 million grew 3% in constant currency versus the year ago period and accounted for 50% of total non-GAAP revenue. Asia Pacific/Japan was up 4% in constant currency while North America and EMEA grew 1% and 2% respectively on a currency adjusted basis.

Now I'd like to move on to our nonGAAP revenue by segment. The consumer business generated revenue of $443 million, up 4% in constant currency versus the March 2008 quarter. Electronic distribution represented 80% of consumer revenue and grew 7% as compared to March 2008, driven primarily by strong activity from our subscription renewals, OEM partnerships, and online channels. Norton 360 accounted for 30% of consumer revenue and grew more than 65% versus the year ago period.

Storage and server management group generated revenue of $539 million, up 1% in constant currency compared to the March 2008 results driven by strong enterprise backup and storage management performance. We are particularly pleased with the customer reaction to our sales campaign around Stop Buying Storage. It is generating significant business for us given that IT buyers are looking for a clear and quick return on new investments in this economic environment.

Our security and compliance group generated revenue of $370 million. The segment declined 9% in constant currency terms. While our midmarket security business continued to be weak, we are encouraged by the release of our new Endpoint product that targets this market sector. Our data loss prevention solutions continue to be in high demand as companies address the increasingly important issue of confidential information being misused by employees. Our services group, which included a full quarter of MessageLabs results, generated revenue of $135 million, up 41% in constant currency year-over-year and represented 9% of our total revenue.

Turning now to margins, non-GAAP gross margin was 85.7% for the March 2009 quarter, in line with the year ago quarter. Our continuing focus on cost management increased non-GAAP operating margins for the March quarter to 30.5%, up 270 basis points year-over-year. We recorded a GAAP net loss of $249 million for the March 2009 quarter as a result of the finalization of the goodwill writedown calculation that was previously estimated in our December quarter results. This drove a March-quarter charge of approximately $400 million.

Non-GAAP net income was $318 million, up 3% versus the March 2008 quarter. March quarter's fully diluted GAAP loss per share equated to $0.30. Non-GAAP fully diluted earnings per share for the quarter were $0.38, up 6% from the March 2008 quarter, and $0.03 above the high end of our guided range.

During the March quarter, we spent $100 million to repurchase 7 million shares as an average price of $13.84. In total during fiscal year 2009, we returned $700 million to shareholders by repurchasing 42 million shares at an average price of $16.53. Our net accounts receivable balance at the end of the March 2009 quarter was $837 million. Days sales outstanding or DSO was 51 days.

Cash flow from operating activities for the March quarter was $607 million, primarily due to strong collections and expense controls. We generated operating cash flow of approximately $1.67 billion for the fiscal year.

GAAP deferred revenue at the end of March 2009 was approximately $3.06 billion. Non-GAAP deferred revenue reached $3.08 billion, up 6% in constant currency as compared to March 2008. Foreign currency movements positively impacted non-GAAP deferred revenue versus our guidance. Had foreign exchange remained at the guided rate for the quarter, deferred revenue would have been lower at $3.07 billion. but at the upper end of our guided range. Sequentially, deferred revenue grew by $119 million or by 6% in constant currency. Our financial results will continue to benefit from our strong deferred revenue balance during fiscal year 2010.

Now I'd like to spend a few minutes discussing our guidance for the June 2009 quarter. As a reminder, the year ago June quarter included an extra week of activity, which we will be stripping out of our comparative commentary, as Helyn outlined during her introductory comments. In addition, we are assuming an exchange rate of $1.30 per Euro for the June 2009 quarter versus the $1.56 per Euro we experienced during the June 2008 quarter, equivalent to a 17% currency headwind. Our guidance also assumes a common stock equivalent for the quarter of approximately 830 million shares and an effective tax rate of 30.5%.

For the June 2009 quarter, we expect GAAP revenue be in the range of $1.44 billion to $1.50 billion. NonGAAP revenue is estimated to be in the range of $1.45 billion to $1.51 billion compared to revenue of $1.58 billion after adjusting for the extra week during the June 2008 quarter. At the midpoint of the guided range, we expect revenue growth of approximately 1% in constant currency terms. GAAP earnings per share are forecasted to be in range of between $0.09 and $0.11. The FASB Staff Position 14-1 change in accounting for convertible debt will increase during fiscal year 2010 by a total of approximately $100 million or by about $25 million per quarter. This accounting change does not affect cash flow. Given that this is a noncash expense, we will be excluding it from our non-GAAP results.

Non-GAAP earnings per share are estimated to be between $0.34 and $0.36, as compared to $0.37 after adjusting for the benefit of the extra week in June 2008. At the midpoint of the guided range, we expect earnings per share growth of approximately 9% in constant currency. At the end of the June quarter, we expect GAAP deferred revenue to be between $2.84 billion and $2.94 billion. We expect non-GAAP deferred revenue to be between $2.85 billion and $2.95 billion as compared to $3.03 billion after adjusting for the negative impact of the extra week in June 2008. At the midpoint of the guided range, we expect deferred revenue to decline 5% sequentially in constant currency, in line with historical seasonal patterns. We expect about 64% or approximately $955 million of our June quarter revenue to come from the balance sheet.

In closing, the focus in FY 2010 will be on balancing investment in key growth areas of the business with effective cost management in order to position the company for long-term success. And now I will turn it back to Enrique.

Thank, James. Now five weeks into my leadership role, I would like to take a moment to discuss my plans for the new fiscal year.

Looking back during John Thompson's ten years as CEO, Symantec grew annual revenue to $6 billion. We remain focused on our vision to secure and manage the world's information. However, I have a slightly different approach to managing the $6 billion business that I have inherited. I plan to use the scale that John built and focus our investments to increase internal innovation to improve quality and further integration our solutions. We will extend our market leadership position in security, backup, and storage management. On the product side, I am pleased with our leadership and performance in our storage management and consumer businesses.

For fiscal year 2010, I have established three key product focus areas for our team. First, responding to customer needs and enterprise security; second, capitalizing on the migration to next generation data protection; and third, offering our products through the software as a service model. In enterprise security, in addition to the Symantec Endpoint Protection Small Business Edition, which allows us to better serve the midmarket, we are now shipping Symantec Protection Suite 3.0 in Small Business and Enterprise editions. The suite creates an endpoint and messaging environment that are secure against today's most complex malware, data loss, and spam threats. It is quickly recoverable in the event of a failure, thereby controlling costs and managing risk. Moreover, the suites are easy to deploy and simple to use, saving customers time and costs associated with securing their IT environments.

The most recent Conficker virus provides a perfect illustration of the core Symantec vision -- the unification of security and management. We can enable our customers to identify their systems that need to be patched, deliver the patches, update their SEP signatures, and validate they are indeed secure using our compliance tools. Additionally, we can manage the frequency of backups to protect critical data in times of high threat levels. We are the only vendor who can bring this complete offering to market.

Second, we will solidify our leadership in the data protection business as we transition and help our customers move to next generation technologies which include disk-based backup, virtualization support, continuous data protection, and deduplication. We expect to sell more of these next generation technologies as Net Backup 5.0 customers on maintenance continue to transition to Net Backup 6.5, which enables more disk-based options. Additionally in February, we announced that backup and archiving will be combined under the same management. Net Backup, Backup Exec, and Enterprise Vault are the clear market leaders in the enterprise and midmarket backup, the archiving market segment, and the archiving market segments respectively. We will leverage our technology strength in backup and archiving to simplify administration and reduce costs for our customers. Our Backup Exec product will have built in deduplication and archiving options powered by the Enterprise Vault technology, which is expected to ship later this year.

Software as a service is our third product focus area. We acquired MessageLabs, the leader in SAS messaging security, in November 2008. Our integration is going smoothly and we plan to utilize our existing technology on the MessageLabs platform to create new SAS and hybrid offerings to include archiving, DOP, backup, and many other services. Our goal is to offer customers the flexibility to manage their business using online services, onsite software, or hybrid onsite and online solutions. This is especially attractive in the current macro economic environment, as SAS is a delivery method that enables many companies to improve IT spend.

In closing, I believe we have the leading position in key markets and customers see the value of our product portfolio and the benefits of our products and services. In addition to our focus areas, we will not lose sight of improving execution in the forms of maintaining our leading market share, improving customer and partner loyalty, and becoming more operationally efficient.

And with that, I will turn the call back to Helyn to take your questions.

Thank you Enrique. Tom, we are, you can please begin polling for questions.

Yes, ma'am. The question-and-answer session will be conducted electronically. (Operator Instructions). We ask you limit yourself to two questions today to allow everyone a chance to ask a question.

While Tom is following for questions I would like to update you on a few upcoming events. First, Symantec will be hosting our Financial Analyst Day on June 11 in San Francisco. We encourage you to register for the event by May 22 in order to capture the discounted hotel rate. Second, we will be presenting at the JPMorgan conference on May 19th, and finally we will be reporting our fiscal first quarter results on July 29th. For a complete list of all of the investor related events, visit our events calendar on the Investor Relations website. Tom, we are ready for the first question.

Our first question comes from Sarah Friar with Goldman Sachs.

Great. Thanks for taking my question. If I can turn to the security and compliance division, clearly that is a little weaker than the rest. Enrique, aside from midmarket weakness, what else might be going on in there and is there any concern on headcount reductions actually starting to weigh on things like Endpoint pricing et cetera?

I think, Sarah, when I look at that segment I would say there's a couple of things going on there. One, you mentioned midmarket and we just shipped the new products on Monday which will help us there. I think the second area is we do have the currency headwind that Helyn outlined in the beginning, but in the high end of the market, we continue to see the same close rates we had seen in previous quarters. And I do believe that the demand for DLP, which is continuing to show double digit growth over the last five quarters, I expect that to continue because that's a product that our customers will continue to say is very important to what they're doing even in this tougher economic environment. But I would highlight the currency and midmarket as the two areas that I think have weighed on that segment.

Got it. Okay. And then if I could just a follow up on the margins side. Your guidance looks like you are assuming margins will contract sequentially and even year-over-year. What would be the key driver of that? Are there any incremental costs that happen in June that we should be thinking about or is that just trying to allow for currency and some conservatism?

Well, obviously year-over-year the cost base now includes the companies that we have acquired within the back half of the year. So MessageLabs and PC Tools being the primary items there. So sequentially for June versus March, we go back to our full accrual if you will on commissions. So there is an implied increase in the forecast for that line versus what we experienced in the March quarter in which we came in lighter than we had expected. So those are the primary drivers year-over-year and quarter over quarter.

You are still thinking about a cost base that you have kept a tight rein on, given the headcount reduction?

I think these results are quite reflective of the progress that we are making on the cost side of the ledger, and I am very pleased by that. And we are absolutely continuing our focus there to be able to build margin points 360 points year-over-year, very pleased with that. That's really more than we had initially expected we would be able to achieve when we started out this journey in FY 2009. And it is something that is just a part of the way we do business now at Symantec. I would not see us changing our emphasis here at all.

We will take our next question from Heather Bellini with UBS.

Hi. Thank you and good afternoon. I was wondering if I can follow up on Sarah's question about operating margins for a moment. As she was talking about Q1, I am interested in full-year to the extent that you can share with us anything there? Because in the past you did a great job expanding margin. This year in fiscal 2009, you have been talking about 100 basis points a year. Give the currency headwind that you face in particular in the first half of fiscal 2010, is that possible on a reported basis? Is there anything you can tell us there? The other would be just looking at gross margin, can you give us an idea of how should we be thinking about gross margin trending over the course of fiscal 2010 as well? Thank you.

In terms of the operating margin goal, we are always talking about 100 basis points a year as being a long-term target, and clearly we overperformed that in fiscal 2009 which I think was very good particularly given the constraints around the top line. Now we have also said that obviously just mathematically it is easier to expand operating margins in an environment where you have a robust top line, and in this macro economic environment, that is going to be more of a challenge in any one particular year.

The other thing I would say though is something that Enrique was focusing on in his remarks. We are really looking to try to find that right blend between investing in the areas of our business where we think we can generate real growth and at the same time keeping a very sharp focus on cost effectiveness and efficiency. So it will be a blend of those themes as we proceed through fiscal 2010, but we will be working hard on margins just as we did in this past year.

As to gross margins, we have made some nice improvements there in the last couple of years as well, and I wouldn't expect there to be any particular movements one way or another. The biggest drivers of gross margin for us are support costs and services costs. And in the services arena, we have made nice progress in terms of margins in the last two years. Obviously, that rate of improvement becomes more difficult as the years go by.

Great. Thank you.

We will take our next question from Kash Rangan with Merrill Lynch.

Hi. Thank you very much. One question for you, Enrique. On the storage side, you indicated that the Stop Buying Storage message is starting to resonate and produce results. Should we infer that the trajectory you started with this quarter, that gets better? In other words, the growth rate could potentially improve as a result of the campaign? If you could talk to that. And also, James, a question for you -- as MessageLabs gets reported in the services line item, how does that change the margin profile of services business going forward? Thanks.

When you think about the Stop Buying Storage marketing campaign, what's happening is customers are coming to us and saying they absolutely are trying to manage their capital expenditures one of the best areas for them to target is the area of storage. So I think what you can expect is customers try to take advantage of some of the concepts like intelligent archiving, thin provisioning, storage resource management, and data deduplication, that will benefit the various lines -- because as you look at the functionality I just mentioned, some of that is delivered by our net backup PureDisk capability, some of it's delivered by our Enterprise Vault product. So we see that the Stop Buying Storage campaign will allow those products to continue to perform at their current levels given this tougher environment. So I think that campaign is going to help us be able to continue to drive the performance we've seen in the last several quarters.

As to the impact of MessageLabs on the services margins, I would expect them to improve the margins in that segment. You may recall we've had a lot of focus in the last couple of years on improving margins in the services segment anyway. But MessageLabs, as we increase scale there, which is obviously very much our intent, I think there will be the opportunity to expand its own operating margin. I would look for an continuing improvement trajectory on services margins.

Great. Thank you very much.

We will take our next question from Adam Holt with Morgan Stanley.

Good afternoon. I had a couple of questions about the consumer business. I was hoping maybe you can talk about some of the key drivers of that business. Did 360 improve as a percentage in total bookings in the quarter? Were average selling prices up in the quarter? As you think about the next couple of quarters for the consumer business, you noted that the PC market had been weak, which it obviously was. Should we be thinking that a recovery in the PC market is key to getting growth in that business going forward? Or do you think that business will grow as you continue to expand the OEM relationships and drive some of the new products? Thanks.

So Adam, when you look at Norton 360, you are definitely continuing to see the mix shift toward 360 and it is -- we started out very quickly with 360 moving up, but that has moderated a little bit because customers who are using Norton Internet Security are very happy with that product. So while we continue to see the move toward 360, that mix rate has slowed down just a little bit. We do benefit from the higher price point of 360 over NIS.

To your question of the PC unit shipment, I think what we are doing is we are continuing to add other capabilities. I highlighted today we have now started shipping Norton Online Backup, so even with the slower number of PC units being shipped, I think we can maintain where we are today and even can see a positive given that we are seeing the mix shift and the addition of the new offering.

My sense though is the other thing that is benefiting us right now in just talking to the consumer team is given the reception of the new products, meaning Norton Internet Security with the very fast performance and great customer experience and now Norton 360 Version 3 -- while we don't break out the renewal rates, we are seeing some improvement in renewals as a result of the great products we have put into the marketplace. That's also helping us attract some of the new OEMs that I highlighted in the call because people are looking for that improved customer experience.

Great. Thank you.

We will take our next question from Phil Winslow with Credit Suisse.

Hey guys. I just wanted to touch on the storage business. When you look at the economic impact across your business, wonder if you can comment on storage -- historically, that's been a relatively [defensive] segment. Just curious what you see there when you look particularly across the two main products, the high end with NetBackup and Backup Exec.

We are seeing continued strength in both NetBackup and storage management. What is great is given that data volumes continue to grow, that's benefiting the NetBackup product line and we saw that perform very well through the entire fiscal year. When we look at storage, the storage management side, given the Stop Buying Storage campaign, what we have actually seen is that product also continues to be a part of what the customers are trying to do to improve storage utilization and basically help them get much better return on the storage they have already purchased. So we do believe that both NetBackup and Storage Foundation or storage management will continue to do well.

Great. Thank, guys.

We will go next to John DiFucci with JPMorgan.

Thanks. First question is for James and one for Enrique. You said the focus by customers was to renew maintenance contracts here, but when I look at it, it looks to me as if may not nans declined both sequential and year-over-year. What I am doing is looking at your supplemental, and you give content, subscription, and maintenance, and I take out services, consumer and then add back the non-GAAP which is maintenance. I guess what would maintenance have done sequentially, excluding foreign exchange, or am I doing something wrong here?

What I would say -- we can get into more of the specifics perhaps offline, but what I would say here is it clearly you saw the security and compliance part of the business was where we saw a currency adjusted decline, 9% or so. Now clearly, that is not helpful to the maintenance volume necessarily quarter to quarter. But stepping back from that, that is just one component of the enterprise business. I was very pleased with pricing around maintenance and I was very pleased with renewal rates around maintenance. So those really are the important themes, whereas we did see absolutely less license, new sales, customers really pulling back from longer-term investments if you will in favor of the short-term need.

What is the renewal rate about for you?

Well, we don't quote the renewal rates either for consumer business or the enterprise business. But we are very pleased with where they are.

We are not seeing any change in renewal rates, and one of the questions that Sarah asked at the beginning was around specifically is the unemployment having an impact on our total units. So we are not seeing a change in renewal rates or that unemployment rates are having an impact on business.

Okay. Thanks. Enrique, a follow up for you, when I look -- we look at these goodwill impairment breakdowns over the last couple of quarters, I'm just curious. Is this going to have any influence on your acquisition strategy going forward? And I guess could you state what your strategy is going to be?

I am in no real rush to start doing acquisitions. Part of the focus I've given the team is we have a tremendous engineering capability. I want to drive internal innovation. Now, that doesn't mean that we will not do acquisitions. That's one of the advantages of having the cash flow direction on the balance sheet that we do. But I am going to stay focused inside the markets that we are in, John. I mean we clearly have a big position in security. I want to look at opportunities to strengthen our position there. I want to look for opportunities in some of the next generation data protection. I want to look for opportunities in what we are doing around data categorization. So as I look at the acquisition strategy, I am in no rush to go do a lot of acquisitions. There may be some small things that strengthen our position in a few of those markets. Then longer term, I will look for what makes sense as far as continuing to drive growth into the company. But right now we can afford to be patient.

I'm sorry, one follow up, Enrique. Veritas, when it was independent, had a big push toward what it called utility computing and now people are talking about -- calling it cloud computing today. And they bought Ejasent and Jereva -- there seemed to be a big push internally. We just don't hear about it as much anymore. Is that still meaningful effort within Symantec or is that something that's gone a little sideways?

I would say that the focus areas are software as a service and not necessarily what historically utility computing -- which has morphed in title. What we would do is we'd see some of our core Veritas products, Storage Foundation, our new clustering VCS1 technology as helping build the infrastructure for utility computing, and then we see delivering on top of that infrastructure our software as a service capabilities. And so from our perspective, the priorities in investment areas are security, next generation data protection, and software as a service.

Thank you very much.

We'll take our next question from Daniel Ives with FBR Capital Markets.

Thanks. Can you talk about the linearity in the quarter and talk about what trends you are seeing in month of April? Thanks.

I think when you look at linearity and we track close rates. We did some analysis on that, Daniel. What we are seeing is consistency in the close rates, nothing new from a linearity perspective. In the enterprise business or large enterprise business it still tends to be be a good percentage of the business comes in the last two weeks of the quarter. In our midmarket business that's fairly, is steadier throughout the quarter. Our consumer business obviously both on a bookings and revenue recognition basis is fairly consistent across the entire quarter. So we haven't seen, we didn't see any real changes in the March quarter, and we didn't see, we haven't seen anything so far in the June quarter. It continues to be consistent along the percentages. We just finished the month of April and from the analysis James and I did seems to be on track similar to what we have seen in previous Aprils.

We will take our next question from Rob Owens with Pacific Crest.

Good afternoon, everyone. So following on Daniel's question, with linearity on track, can you talk about where the surprise was in the quarter that drove FX adjusted revenue to the low end of the guidance. Was it more of the maintenance rather than license, or was there something else in there?

You are on track there, Rob, because what we saw was really a couple of things. Historically in our business, we have seen longer-term deals. We have seen terms that are three year deals. We saw that become folks buying what they need for the current year or next 12 months, not necessarily pre-buying for years two and three. That's one thing we saw. And I do think that when you look at the overall business, I think given that we have now shipped the new midmarket product, I think that will definitely help because that has been an area we have been successful with the large enterprise where we've gotten a number of competitive wins, but we have not the same success in the midmarket. So the combination of shorter terms and we have continued to see without having the new Symantec Endpoint Protection and the new suites, we haven't gotten the results reflected in the midmarket. I expect that to change now that we are in with the new products.

The followon to that -- now that you are shipping the new midmarket product and Protection Suite 3.0, when should that either stabilize the security business or again grow the security business?

My expectation is we are ramping up our partners right now. Partners are starting to understand the capabilities of the product, the simplicity of it. My sense is that units shipped on Monday of this week I would expect you will start seeing results from that capability -- probably in the September quarter will have a full quarter of having been in the channel. Because if we are putting it out at the beginning of this week, you probably won't get it in the channel next several weeks.

Thanks.

Just to follow up on the first part of Enrique's answer, we were pleased to exceed on FX adjusted basis even, the consensus estimate for deferred revenue while we came in light on revenue versus consensus. So that's very much reinforcing the notion of more of the activity going to the balance sheet this quarter.

We will take our next question from Brent Thill with Citi.

Enrique, your operating margin performance has really outpaced the top line performance. At a high level, do you feel like you are reshifting your focus back on top line growth, and you'd rather trade off lower operating margin or less operating margin expansion to get that revenue growth coming back over the next couple of year?

When I think about it, James commented earlier -- our long term goal is to drive 100 basis points of margin improvement and we still see an opportunity to stay on track to do that. I think that this year as I look at the combination of some of the investments that we need to make around the opportunities in consumer security and the enterprise SAS software to service and also our next generation data protection as customers move from tape to disk-based backup, I think it is going to be important that we put some investments in those areas. I do continue believe there are always opportunities for us to continue to manage our cost structure. So I think it will be a combination of yes, we will move dollars to the areas I just mentioned, but also continue to look for opportunities to reduce costs in other areas. I don't want to back off in any way from our long term goal of 100 basis points of margin improvement.

Okay. We have seen other software companies achieve pretty good success with the suite based approach. Can you walk through what you hope to achieve? And have you had had history of doing this historically or do you consider this pretty much a brand new initiative?

The way with I look at it is, historically we have been shipping a suite, but I would call it a suite on malware protection. So we should ship Endpoint Security, Mail Base -- the mail server security, the gateway security. What we are doing now is adding the other applications that we have. So we've had market leading e-mail security for antispam protection. We acquired a small company called MI5 that adds to our web security capability.

So what we are doing is in an effort to serve the midmarket and the SMB segment better, we believe that bringing these products together in an integrated suite or extending the suites we had previously is the right way to go. So the suites are new from a capability perspective, but we have been delivering a suite that was focused on one particular type of product line. From our perspective, it is going interest something allows us just to go right back into our channel partners and go leverage our field organization just to have a new set of capabilities that I think will have a positive impact on our security business. And I expect to start seeing that as I mentioned in the September quarter.

Thanks.

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

Hey guys. I just wanted to dig in on the consumer business further -- can you guys give us a sense, I know you talked about OEM partnerships coming on stream. But can you give us a sense in terms of where you think you stand on OEM boxes going out the door today versus a year ago? And can you also walk us through what happens to an OEM relationship when it does not renew -- what happens to that legacy customer base from an economic perspective?

So let me take the second part first. Every relationship is structured differently. So it depends, Todd on what we are doing. So for example some of our agreements are what I would call a replacement fee. We get everything into the future. Some deals are structured as rev shares and they have [pay] post termination. So it really depends on the overall structure of the OEM agreement.

Now to your first question. We are absolutely -- if you saw what we just talked about, if you heard what we just talked about -- we won a number of OEM deals in the last quarter. I mean working with the ThinkPad brand, working with some extensions with Dell around SMB and their gaming platforms, and so we definitely see that the numbers of units in the OEM market that we are associated with is definitely up. The other thing I commented on which I think is important -- we were already on the ASUS netbook and we are now on both the Dell and HP minis. And so we feel that on an overall basis, the numbers of units shipping with our product is moving up right now.

Thanks, guys.

We will take our next question from Walter Pritchard with Cowen and Company.

Two questions -- first for James, on the segments, it looked like R&D was a bit above and sales and marketing was a bit below in terms of where we were thinking the expenses would come in. Wondering with Enrique talking about more focus organic development, should we expect this level of R&D spending is somewhat of a baseline going forward?

Well, as he mentioned earlier, we will absolutely be targeting specific spend into some specific areas of R&D in line with those priorities that he was laying out. But at the same time, we are working hard to make more efficient the other elements of the R&D cost base. So it will be a mixture of those two themes going forward here.

Then just -- Enrique, you talked about a few focus areas, mostly on the product side. I am wondering if that has any bearing on the go to market strategy, if there's any meaningful changes as you go into fiscal 2010 here, given you have sharpened the focus on the product side.

When I look at the go to market side, one of the things that I am most pleased with right now is I have been spending time with our channel partners. And what I see is there's a lot of enthusiasm for the new workflow technology that we shipped with our Altiris client management and server management suites. What it is enabling our partners to do is create their own intellectual property that they can take back into their customer base. The reason that is important for them is because they're really being [the V] in value to our customers using the workflow technology. That I think is going to be meaningful because as you know, given our renewed push in security and the efforts in the midmarket, partners are critical. So the effect of the suites and the workflow technology will bring a lot of partners or bring a lot of enthusiasm from our partner community. That's the feedback I am getting right now.

From an overall go to market, we are continuing to push our leadership around security and next generation data protection. So you can expect to see marketing pushing those campaigns, Stop Buying Storage campaign. We have also made some adjustments on the comp plan, but overall it is pretty consistent year to year with a little more emphasis on security as we go into fiscal year 2010.

Thanks.

We will go next to Tim Klasell with Thomas Weisel Partners.

One question here -- can you give us an idea of the impact you are having the PC Tools acquisition? That was a new segment of the market you were going after, and what has been the success there to date?

What we are seeing with PC Tools is -- you have it exactly right. We are going after a couple of different target new markets. One is a different segment, so a more price sensitive buyer, and two is emerging markets where quite frankly, they're looking for probably again more price sensitive. We are pleased with the integration. That has been completed successfully. The leadership team -- we have got a leader who is running that, somebody who has been a long time Symantec employee. And I am pleased with the progress we have made. I expect to see that business continue to expand, because there's a number of segments that I believe are price sensitive we haven't yet tapped into. So I believe at this point that we've started to see the initial possibilities of PC Tools, and I think the brand strategy is absolutely going to serve us well, especially when we think about markets like Asia, the market in China. And so from my perspective, that strategy is on track and I expect to see it performing better as we go into fiscal year 2010.

Thank you.

We are ready for one last question, please.

Yes, ma'am. Our final question comes from Robert Breza with RBC Capital Markets.

Hi. Thanks for taking my questions. Enrique, in your comments you talked about netbook and the fact that it is more about the value of the information. Can you tell us or help us understand quantitatively what you are seeing? Are you seeing the OEM adoption rate stay the same on netbooks, or what gives you that confidence that netbooks won't hurt the consumer side? Thanks.

Absolutely. So ASUS was the first one we shipped. We getting to the end of the trial period. So we are starting to get a little data. We are comparing the data we get on the netbook or mini lines to the underlying adoption of the software, take rates on the software for the non-netbook lines. We don't have enough data yet to give you a conclusive answer.

But what I have seen is that absolutely, prices in hardware have been dropping for the last ten years, and prices of our software have increased over the last 10 years, or at least over the last couple of years where we have been able to move people to Norton 360. So that clearly highlights the point that it is not the price of the hardware that matters, it is what you are doing. When I talk to a lot of the manufacturers and they talk about the user scenarios, kids potentially using them to go online, people are very concerned about what the online usage is going to look like, and I think Norton Internet Security and Norton 360 will absolutely continue to do well in that lineup of netbooks and minis.

Thank you.

That does conclude the question-and-answer session. At this time, I would like to turn the call back to Mr. Salem for closing remarks.

Thanks everyone for attending today's earnings call. I am excited about the opportunity to lead Symantec, and moving forward our focus is on investments that will extend our leadership, improve the product quality, and integrate our solutions to help our customers secure and manage their information. As we continue to focus, I want to make sure we improve execution and drive operational efficiencies as many of you have commented. And I definitely look forward to spending time with you over the next couple of weeks and look forward to seeing you at our analyst day in June. Thank you.

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