諾頓 (NLOK) 2010 Q3 法說會逐字稿

Good day and welcome to Symantec 's third-quarter 2010 earnings conference call. Today's call is being recorded. At this time, I would like to turn the call over to Ms. Helen Corcos, Vice President of investor relations. Please go ahead.

Thank you, and good afternoon. Thank you for joining our call to discuss the fiscal third-quarter 2010 financial results. With me today are Enrique Salem, Symantec's President and CEO; and James Beer, Symantec's Executive Vice President and CFO. In a moment I will turn the call over to Enrique. He will discuss how Symantec executed during the quarter then James will provide highlights of our financial results, as well as discuss our guidance assumptions as outlined in the press release. This will be followed by a question-and-answer session. Today's call is being recorded and will be available for replay on Symantec's investor relations website at Symantec .com/invest. A copy of today's press release and supplemental financial information are also posted on our website and a copy of today's prepared remarks will be available on the website shortly after the call is completed.

Before we begin I'd like to remind you that we will review our non-GAAP financial results, focusing on year-over-year constant currency growth rate, unless otherwise stated in this prepared remark. Sequential growth rates are based on as-reported basis. For the December 2009 quarter the actual weighted average exchange rate was one -- was $1.48 per EUR1 and the end-of-period rate was $1.43 per EUR1, compared to our guided rate of a $1.47 per EUR1. For the December 2008 quarter, the actual weighted average rate was $1.32 per EUR1 and the end-of-period rate was $1.39 per EUR1. We've included a summary and reconciliation of the year-over-year growth rate in our press release tables and in our supplemental information provided on the website. Given the rapidly fluctuating exchange rate environment, I like to remind everyone to apply the rules of thumb provided on our October 28th call as a guide to estimating the impact of currency fluctuations on our financial metrics

Moving on, some of the information discussed in this call, included our -- including our projections regarding revenue, operating results, deferred revenue, cash flow from operations, amortization of acquisition-related intangibles and stock-based compensation for the quarter contains forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. Addition information concerning these risks and uncertainties can be found in the Company's most-recent periodic reports filed with the SEC. Symantec assumes no obligation to update any forward-looking statements. In addition reporting financial results in accordance with General Accepted Accounting Principles, or GAAP, Symantec reports non-GAAP financial results. Investors are encouraged to review these -- these 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'd like to introduce you to our CEO, Mr. Enrique Salem.

Thank you, Helen, and good afternoon, everyone. I'm very pleased with the solid execution by our team during the December quarter. Our focus on a few priorities enabled us to achieve better-than-expected results. We also benefited from a stabilizing economy and a moderate IT budget flush. The continued strength of our Consumer business, along with our sales and product initiatives, and our Enterprise Security and Compliance portfolio drove the strength of our results this quarter. Looking a4 the geographies, Europe generated strong bookings, the Americas saw continued demand in the government sector, and Asia was driven by strength in China and Australia. We also saw a rebound from customers in the financial services vertical worldwide. Sales activity continued to improve as the sales force effectively used the broader Symantec portfolio to take advantage of upsell and cross-sell opportunities.

During the quarter, 39% of our deals over $1 million included sales from both our Security and Storage segments. Our focused sales initiatives implemented over the last few quarters are starting to have a positive impact on our execution. We won numerous competitive deals with companies in various industries and countries around the world. Our Security and Compliance business benefited from selling solutions rather than just point products. Data Loss Prevention and Compliance Solutions posted double-digits booking growth this quarter. Barklays, a global leader in banging and asset management, signed a multi-year contract spanning our product portfolio. The deal allows Barclays to reduce costs by increasing their vendor count, standardizing technology across multiple business lines, simplifying complex IT processes and taking advantage of both our on-premise and hosted solutions . This is one of the many examples which illustrates that hosted services in an opportunity for us across enterprises of all sizes. In addition, we expanded our security partnership with another global financial institution to include our data loss prevention, compliance and end point security suites.

Our focus on various mid-market product and channel initiatives is also beginning to produce encouraging results. We are receiving positive product feedback and higher net promoter scores from our customers and partners, positioning us well for the future. A recent CRN review praised the latest review of Symantec End Point Protection for being well tailored to small business customers. Partners, including Ingram Micro, Tech Data, CDW and Insight recognized us for delivering programs and resources that are helping them to grow their businesses.

Our Consumer business maintained its momentum. Our 2010 Norton Internet Security, and Norton Antivirus products have gained tremendous market acceptance, winning more than 50 awards in the first four months of availability. AV comparatives awarded Norton Internet Security the best product of the year for it high detection rates, low system impact and ease of use. And our market-leading products continue to drive very high customer loyalty scores. Our reputation-based malware detection technology will be included in our 2010 Norton 360 products, which will ship in the March quarter.

The strength of our consumer products gives us a competitive advantage with partners with all of our customer challenges, including OEM, ISP, online and retail. This quarter we had several ISP wins, including a competitive placement at Comcast to provide security for its 15 million high-speed internet customers. We also benefit from strategic marketing initiatives and from the opportunity to cross-sell consumer services. This multi-year deal was driven by the quality of our products, as well as our ability to leverage our Enterprise relationship with Comcast in their data centers. We also signed a deal with Qwest, another top global ISP, to offer security products to their high-speed Internet customers. This expands an existing agreement in which Qwest offers its high-speed internet customers automatic online backup.

Furthermore, in Europe we renewed a multi-year agreement to provide security to Deutsche Telecom's key home customers. Additionally, our Norton security scan solution will be available as a download through four new partnerships this quarter. In Asia we continue to have partnerships with multiple motherboard manufacturers and expanded our relationship with MSI to include Norton Internet Security and Norton Online Backup. We also won an agreement with Positivo, the largest OEM in Brazil.

In the retail channel, we further expanded our relationship with Staples. We have seamlessly rolled out new e-commerce stores in all major markets around the world. The additional customer information we have already acquired is being used to develop enhancements and offers that will benefit our business, both in the short and long term. We are on track to complete the transition on schedule.

Now moving to our cloud and SAAS-based offerings. We are pleased with the record bookings performance by the Symantec hosted services team this quarter. The strong results were driven by leveraging Symantec's go-to-market network, which generated more than 75 deals during the quarter. Our hosted services business now works with 1,800 partners. Additionally, we won multiple deals over $1 million. This is indicative of what we're starting to see with large enterprises adopting hosted solutions.

Also during the quarter we acquired SoftScan, the privately-held SAAS security leader in the Nordic regions. This industry consolidating deal extends our SAAS security leadership. For the healthcare vertical we launched a SAAS solution addressing hospitals' growing need for storing medical images. We will also allow secure access to the images for affiliated and non-affiliated providers over the internet. Other cloud initiatives, including consumer online backup, now host over 45-pedibytes of data for more than 11 million customers. Our new cloud storage platform that supports SAAS services is largely built on the Symantec FileStore architecture. FileStore is the latest in scalable file server technology that is now being used by customers to create their own public and private cloud infrastructures.

In our storage business, customers continue to buy licenses for only their currently needs. We remain focused on leveraging partnerships to drive sales of our storage products. Customers now have the option to select Storage Foundation and Symantec End Point Protection to manage and protect their cloud-based servers with Amazon's EC2 cloud platform. We saw increased adoption of next generation data protection in Enterprise, resulting in solid growth for Net Backup. Pure Disk realized double-digit sequential revenue growth as our deduplication technology is a clear differentiator. Customers are pleased with Pure Disk's faster insulation and more user-friendly interface in the new 6.6 release. Also, Backup Exec sales remain stable as a result of our focused marketing programs and strong partner relationships.

Earlier this week, we were pleased to announce the launch of Net Backup 7 and Backup Exec 2010, providing innovative solutions across all business customer segments. Both releases have integrated deduplication technology so customers can store less data, recover data faster and save more money. Symantec is the only company to provide multiple deduplication options for our customers at the client, the media server and with a variety of third-party appliances through our Symantec open storage technology. Customers participating in our first availability program are excited about the enter grated deduplication features and our making -- and our market-leading virtual machine protection capabilities for both the SMB and Enterprise segments.

Backup Exec 2010 now provides the SMB market an integrated archiving option powered by Enterprise Vault. Our software archives data from the backup data set rather than separately pulling data from the source. This approach is more efficient and reduces costs for our customers. We expect these releases will benefit our cross-selling capabilities during the next fiscal year as we educate our customers and the channel on the benefits of these products. During the quarter we saw strong year-over-year revenue growth for Enterprise Vault. Customers are using Enterprise Vault to improve storage optimization by deduplicating e-mail and file server data. This reduces the backup size and in addition, we are able to house long-term archives on cheaper storage tiers.

In conclusion, the December quarter illustrates the ongoing progress that we're making. The sales team is diligently executing the productivity initiatives put into place earlier in the year and I'm especially pleased with the focus we have on selling our security and backup solutions to Enterprise and Consumer customers. We will continue to deliver product integration across the portfolio and have a healthy pipeline of new product releases, which we will be discussing with our customers in more detail at our user conference in April.

I'll now turn the call over to James to provide you with the financial details for

Thank you, Enrique, and good afternoon, everyone. I am pleased to report that Symantec achieved better-than-expected third-quarter in each of our key financial metrics, both on an as-reported and after adjusting for foreign currency. During the quarter the US dollar weakened 12% against the euro versus the year-ago period, increasing our international revenue, as measured in US dollars. Foreign currency movements positively impacted revenue by $63 million, or by four percentage points year over year. Currency effects had no impact on revenue, as compared to the guidance we provided on October the 28th. Revenue for the third quarter was $1.55 billion, a decline of 3% from the year-ago period and an increase of 5% sequentially. Net income was $326 million, resulting in fully-diluted earnings per share of $0.40 for the December 2009 period. We are encouraged by the improving trends in our license revenue and by the sequential stabilization of our maintenance revenues. In particular, we saw strong performance from our energy and government verticals.

We are pleased with the favorable ruling we received from the US tax court regarding the Veritas tax assessment for 2000 and 2001. After evaluating the December ruling we concluded that our previous accrual related to this matter exceeded our revised estimated incremental tax liability. As a result, we realized a one-time benefit to GAAP net income of $78.5 million, equivalent to $0.10 of benefit to earnings per share. On a non-GAAP basis we recorded a one-time benefit to net income of $16.5, equivalent to $0.02 of earnings per share benefit. The non-GAAP benefit is due to reversal of accrued interest on the original tax assessment, which we'd been recording since the Veritas acquisition. As a result of the judge's ruling, we do not expect to make any additional cash payments related to this matter.

Now I'll review the financial details of the December quarter. By geography, our international revenue of $793 million represented 51% of our total and decreased 5% year over year. The Asia-Pacific/Japan region grew 5%, while the Americas declined 2% and the Europe, Middle East ,Africa region declined by 9%. Now, moving on to revenue by segment, the Consumer business had another strong quarter generating revenue of $478 million, up 3% versus the December 2008 quarter. Sequentially, revenue was up 3%. The is the fifth consecutive quarter of year-over-year growth for the Consumer group. Electronic distribution continues to represent approximately 80% of the unit's revenue, while our award-winning Norton 360 suite grew 41% versus the reported results in the year-ago period and accounted for 36% of Consumer revenue.

Across our Enterprise business we generated a total of 460 transactions valued at more than $300,000 each, up 3% year over year and up 65% sequentially. We generated 108 transactions worth more than $1 million, up 4% year over year and up 54% sequentially. All of our deals valued at more than $300,000, 73% included more than one of our products. The Security and Compliance group generated revenue of $372 million, a decline of 2% year over year and an increase of 7 % sequentially. We are pleased, both with our security deal win rate and the improvement we saw in cross-selling our various security products. In fact, eight of our top ten deals included multiple security offers, with Data Loss Prevention posting double-digit year-over-year growth.

The Storage and Server Management group generated revenue of $594 million, a decline of 8% year over year and an increase of 6% sequentially. This year-over-year performance was driven by the continuation of the near-term focused customer buying behavior that we had experienced during the last two quarters. In addition, the server market deceleration continued to put pressure on the storage business, particularly related to new license sales on the Sun platform. Our Services business generated revenue of $107 million, down 5% year over year, but up 4% sequentially.

Turning now to margins, gross margin was 86.5% for the December 2009 quarter, in line with the comparable year-ago period. Our operating margin of 28.3% was down 390-basis points year over year, due to higher OEM placement fees and the launch of our new e-commerce platform. We expect to see the corresponding benefits of these investments during the next 12 to 24 months. Now, moving on to the balance sheet, we exited the December quarter with a cash position of approximately $2.6 billion. Cash flow from operating activities generated $393 million in the December quarter. Our business continues to deliver strong cash flow from operations, generating approximately $1 billion to date this fiscal year. During the quarter, we spent $121 million to repurchase 6.8 million shares as an average price of $17.76. Day sales outstanding was 53 days. Non-GAAP deferred revenue at the end of the December 2009 quarter was $3.065 billion dollars, up 2% year over year on a FX adjusted basis and up 5% sequentially on an as-reported basis. Foreign currency movements negatively impacted non-GAAP deferred revenue versus our guidance. Had foreign exchange remained at the guided rate for the quarter, deferred revenue would have been $3.1 billion, exceeding guidance by a greater amount than the reported figure.

Now I'd like to discuss our guidance for the March 2010 quarter. We are assuming an exchange rate of $1.40 per EUR1 versus the $1.30 per EUR1 we experienced during the March 2009 quarter, equivalent to approximately an 8% currency tail. Also the end-of-period rate for the March 2009 quarter was $1.34 per EUR1, equivalent to a 4.5% currency tailwind, versus our $1.40 per EUR1 assumption. It is worth noting that sequentially our $1.40 per EUR1 assumption is equivalent to a currency headwind for both revenue and deferred revenue, something we haven't experienced during this fiscal year. Specifically, the sequential revenue headwind is equivalent to approximately 5% and the deferred revenue headwind is equivalent to approximately 2%. Our guidance also assumes a common stock equivalence total for the quarter of approximately 819 million shares and an effective tax rate of 28%.

For the March 2010 quarter, we expect non-GAAP revenue to be in the range of $1.51 billion to $1.525 billion, as compared to revenue of $1.488 billion during the March 2009 quarter. At the mid point of the guided range we expect revenue to increase by approximately 2% year over year on an as-reported basis. Non-GAAP earnings per share are estimated to be between $0.36 and $0.37 as compared to $0.38 in the year-ago period. Approximately $0.02 of delusion is related to the projected increase in consumer OEM unit shipments, which results in higher placement fees. Clearly higher-than-expected PC unit shipments bodes well for our Consumer business. We expect non-GAAP deferred revenue to be between $3.175 billion and $3.205 billion, as compared to $3.083 billion at the end of March 2009. At the mid point of the guided range, we expect deferred revenue to grow 3.5% year over year on an as-reported basis. We expect 65%, or $993 million, of our March quarter revenue to come from the balance sheet.

In closing, I'd like to emphasize that while we are pleased with our revenue and deferred revenue performance in the December quarter we will continue to focus intently on our cost structure as we work to offset the near-term P&L impact of the growth in our Consumer OEM fees. . And now I'll turn it back to Helen so that we can take some of

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

Thank you. (Operator Instructions).

While Gwen is polling for questions I'd like to update you on a few upcoming events. We will be presenting at the Goldman Sachs conference on February 23rd and at the Morgan Stanley conference on March 4th. We will be reporting our fiscal fourth-quarter results on May 5th. In addition, please mark your calendars for Symantec 's financial analyst day on May 27th. We be sending out information shortly. Also, we encourage you to attend our annual customer user conference during the week of April 12th in Las Vegas. For a complete list of our investor related events please visit our investors -- our event calendar on the IR website.

Gwen, we're ready for our first question.

We'll take our first question from Heather Bellini with ISI Group.

Hi, Heather.

Hi. Sorry, this is Perry Wong for Heather.

Hey, Perry.

Hi. Was just hoping to ask a quick question about the EPS headwind due to an improving PC shipment environment. Should we think about it for the March quarter the same framework that you provided for the December quarter?

Yes,, directionally that's right. We talked, in December about $0.02 worth of dilution from OEM fees, came in a little ahead of that, but I would offer the same guidance for the March quarter.

Great, thank you.

We'll go next to John DiFucci with JPMorgan.

Thank you. It's good to see another quarter of solid results, at least relative to expectations out there. But James, is there -- other than the Consumer headwind, which you said is a little more than $0.02, is there anything else -- especially given -- it looks like the corporate security business was stronger than at least we had modeled, and I'm just curious. Is there any other timing of expense versus revenue actually hitting operating expenses a little higher than expected, especially that sales and marketing line?

Really, the OEM fee issue is the driver here. The other thing I would point to, of course, is the new Consumer e-commerce platform. While we're pleased with its performance and so forth, that also is delusive to the P&L in the near term.

Okay. Okay, thanks, and if I might a follow up, Enrique, on the Storage business that continues to be a little better than it was bur it still continues to be somewhat weak. I'm just curious, is there any reason that we should anticipate that the new versions of the back up products that you talked about in your prepared remarks would cause some purchase delays here? And I guess how much of that business is impacted by what's been going on at Sun and could that soften going forward? Thanks.

When you look at server sales, that is something that is directly tied to what we see in the storage and server business, and I do think, as you get clarity around the Sun/Oracle merger, I think that'll help to stabilize the Solaris platform, so that combination should provide stabilization. Now, the two new releases, Net Backup 7 and BE 2010, our expectation is the new Pure Disk capability should be something that will get quick adoption based on the need for deduplication, reducing the amount of storage that people have to manage. I do expect BE 2010, given the new capabilities to get a lot of folks to move forward with that upgrade process. So pure disk and BE 2010, given the new capability, to get a lot of folks to move forward with that upgrade process. So Pure Disk and BE 2010 should do very well for us. And then, over the long term, my expectation is we'll start seeing the migration from the Net Backup 6 platform to 7, but I do expect a stabilizing storage business for us given the server sales and the new releases.

Thanks. Is that a -- and I'm sorry, but is that -- in the Storage business, do you think people hesitated in anticipation of these new products coming out, or do you think business just is what it is and you hope to see an uptake with these new products?

I think on the BE platform, you will get folks waiting for the new version, as soon as we do our [town] notifications, because as you know, a lot of the product goes through our channel partners, and so given the upcoming release there's always a little bit of a slowdown or lag in the sale of the new product. I'm expecting, though, this will be similar to all of the other major releases of BE, that as we put the new product into the marketplace you start seeing people go through the upgrade process.

Okay, thanks a lot, guys.

Thanks, John.

We'll go next to Sarah Friar with Goldman Sachs.

Hi, this is (inaudible) for Sarah. Sarah apologized for not being able to make the call. Just had a couple of quick questions. Firstly, I was wondering if you see any difference in SMB and Enterprise levels (inaudible) across geographies?

SMB across geographies? I think it's similar around the world. I would tell you, as we look at the global landscape there's definitely been similar characteristics. EMEA, the Europe, Middle East and Africa region may be a little bit weaker, but in general very similar around the globe. And it's the same for the Enterprise level, as well?

Similar characteristics. What I would say is what we saw is China and Australia, I think, are the stronger geographies. We definitely saw financial services improvements. I think that the public sector here in the United States and the Americas did well, the government sector. So that's a little bit of color on what we've seen geographically, and there are some differences in the various markets.

Great. And secondly, do you mind elaborating a little further on an earlier question? How do you see -- how does the upcoming backup product refresh cycle improve the Company competitively, and if you could elaborate a little on new features and what you expect the product cycle to be?

Yes. A couple of things that are important to our customers is, we want them to not think about backup and archiving separately; we want them to look at that as one integrative capability. So instead of having to perform a backup on, let's say, an exchange server and then do a separate archive, what we've done is to optimize the entire process and we're uniquely positioned to do this. What you're able to do is basically archive off of the backup data set, that makes the utilization of the exchange server much more efficient. And so that example of bringing together archiving and backup is an important thing that we've been talking about because it simplifies deployment, better utilizes the resources. We've reintegrated deduplication facilities, we've improved the virtualization or virtualized environment support, and so the new capabilities and the integration of the market-leading archiving technology starts to provide greater differentiation for both of those market-leading products.

Thank you.

We'll go next to Phil Winslow with Credit Suisse.

Hi, guys, good quarter. Just got a question, Enrique, on the sales force. On the last conference call you mentioned a program where you're in a couple geographies or a of regions in the US, looking at specialization on the sales force between Security and Storage. Wonder if you could give us an update, now we're three quarters through the fiscal year, how that's going? Then I have one quick follow up.

Sure. Phil, when you look at what we're doing, we're always going to keep evaluating, looking for potential improvements, and I think as we look at the selling process, you know, we'll make minor refinements; but at this point I don't plan to make any big changes to the sales structure as we go fiscal year 2011. During the December quarter you saw great performance utilizing the currently structure and I'm very happy with those results. So I think at this point it's going to be -- continue to look at what refinements we can make, but don't expect any big changes as we go into fiscal year 2011.

Got it. And then, James, just one quick housekeeping item. That interest and other income line has been moving around a little built quarter to quarter, what would your expectation be for that for the March quarter? Thanks.

My expectation will be modestly improved. We're going through an accounting process change with our joint venture, Huawei. That'll drive about $1.5 million worth of benefit into the March quarter. Aside from that, I would expect a continuation of what we've seen in recent quarters .

Gwen, can we take the next question, please?

We'll go next to Kash Rangan with Banc of America-Merrill Lynch.

Hi, this is [Jay Minsonni] for Kash here, I just have a very quick question. On the size of the Enterprise deals, it's been growing and growing well, the $1 million plus deals, and I was wondering if this is basically a reflection of seasonality, or if you guys see some material improvement, and what are expectations here going forward?

What you want to look at is one of the stats I called out in my comments is that we're starting to see better cross-selling of the portfolio. 39% of the deals above $1 million had products from both our Security segment and our Storage segment, and that's what I think is starting to drive some of the success in the large enterprise or in the larger deals. We've been talking about, for the last year, further integration of our technologies. When you look at what we're doing with products like Net Backup and Archiving, that's just an example. You'll be hearing more from us at our user conference about how we're leveraging our DLP technology more broadly. So it's really about integration, enabling us to cross-sell across the entire portfolio.

The other thing I want to just call out, which is also encouraging for me, is to look at the ability to work across the Consumer business and the Enterprise business. If you look at the Comcast deal, our great relationships with Comcast in the data center enabled them to have a very favorable view toward Symantec that very supportive of the work we did on the Consumer side. And so, when you look at what we're doing is we're starting to get leverage across the portfolio and also across business segments.

Okay. Thanks, Enrique.

Jamie?

We'll go next to Brad Zelnick with Macquarie.

Thanks. Enrique, on the Consumer business, in years past it was Symantec's goal to grow the Consumer business at or better than the overall market rate, and obviously there's been a lot of unforeseen disruption since then. But at this point, given you have greater visibility to Consumer bookings than we do, can you give us any sense of how you believe you're performing relative to the market and what you expect the trend to be going forward? And also, are there any updates that you can share with us on your relationship to HP?

Starting with the variety of what we're seeing from a bookings' perspective, what we're seeing is that across the channels, you're seeing us -- the Comcast deal, the Qwest extension, the Positivo deal, we're starting to get a lot of performance across the various channels and what's differentiating us, Brad, is we're incredibly pleased with how well the products are doing. We were having a discussion internally here the other day where we said, winning 50 awards in four months, I mean, that's almost becoming, to us, like second nature. That's unheard of, very few companies. We win every award now with our Consumer products. So from our perspective, the ability to have the best products on the market is allowing us to go across the channels. And so, as James has mentioned, one of the places you are going to see some benefit is, while the OEM fees have gone up -- and there is a lag between when the OMPs go up and when the bookings come in and then when the ratable revenue materializes, so there's definitely a lag there -- but we are encouraged by the cross channel and some of the things that we're seeing given the capabilities.

Now to the HP deal, I don't have anything new to report. Clearly we're always looking at all of the different OEM deals. We stand by what we've always said, which we're not going do deals that don't make economic sense for Symantec, and given what I just commented, Brad, we're not dependent upon any one partner. . We've got such a broad distribution capability that HP, quite frankly, is just

Thanks, Enrique. James, just real quickly, how would you characterize your assumptions for guidance? I know that in the prepared remarks you spoke about customers continuing to purchase just for their current needs, but if you can characterize guidance and the assumptions going into it relative to the last couple of quarters. Thanks again, and nice quarter.

Thank you, Brad.

Well, we're not expecting there to be any significant uptake in the IT budgets of our customers. We're looking for some modest improvement over 2009, which is obviously a particularly weak year for IT spending. So I would say our guidance is just consistent with that theme of modest improvement.

Thanks.

Thanks, Brad.

We'll go next to Rob Owens with Pacific Crest.

Great, thank you. Enrique, could you expand a little bit on your Consumer backup business? I think you mentioned 11 million customers, are those all paying customers, or are some of those trial, and what's the paying total right now?

Yes, the way you want to look at it is the biggest driver of the 11 million is what's in Norton 360. It's the biggest component, and so that basically brings and improves the ability to renew Norton 360. As I think I've mentioned, what we get is an improvement in renewal rates when someone is using the online backup in Norton 360. As you know, we have four of the top five ISP -- I'm sorry, OEMs are using the online backup as a part of their offering. And so some of those units are trial that over a period of time we look to convert to paying customers. BUt the nice thing that backup is doing -- it's doing two things. One, because we can offer a unique capability we're landing lots of OEMs and ISPs. And two, it definitely improves the retention rate on Norton 360.

And as you saw from the continued growth of Norton 360 we're very pleased with that product and the price premium that it affords us over Norton Internet Security.

Great. And then on -- in your prepared remarks you called out both government and energy as strong verticals, can you expand on that a little bit? And this being the federal government's first fiscal quarter what did you see there, was it better than expected? Thanks.

When you look at the public sector and the federal government, you definitely are benefiting from the focus on cyber security and the range of threats that are out there. I think the federal government is absolutely, begin the President's comments in May about the importance of protecting the critical infrastructure of the United States and his view that we were, as he said, under attack, I think that's putting a lot of emphasis on the public sector on this notion of cyber security. The second point is, given the concern about insider or external threats, there's definitely also a focus on information assurance or protecting information, and so that combination of how do you protect critical information, how do you protect against cyber threats, I think boded very well for our Public Sector business.

Great, thank you.

We'll go next to Todd Raker with Deutsche Bank.

Hey, guys, how are you?

Good, Todd.

So a few questions for you. First, on the Consumer side, can you guys give us a sense -- as you start to broaden the Consumer chance, ISPs and some of these new OEM-type transactions, how should we think about the economic model, and is the revenue opportunity per customer equivalent to the OEM or traditional retail model?

Each channel has a different set of economics. I think you want to think about the customer lifetime value and our opportunity to bring on a customer in any part of our portfolio, whether it be a point product like Antivirus, whether it be online backup, and then cross-sell them through Norton Internet Security all way to Norton 360 and each channel has different economics. If you look at the retail channel, while we bring in a lot of customers, even to this day, through retail, it has a different characteristic than how we work with OEMs, which is a combination, typically, of -- potentially a placement fee and rev share. So each channel has different customer acquisition economics, and what we focus on, though, is what's the total value of that customer for a multi-year period. And so, while it may be a little more expensive on one channel than the other, our goal -- and we look at it by channel, by partner, what is the CLV.

So if I step back and look at the Consumer business more from a holistic perspective, if I look at OEM preload, which I think is viewed as the most natural way to capture a customer when they're making that purchase decision on the machine, are you seeing OEM preload as a percentage of the Consumer business as a general statement continue to capture share, starting to decline. How should we be thinking about that dynamic?

It's actually flattening out. We're seeing some of the alternative channels. For example, some of the work we're doing with PC tools, which is more of an online lower price-point product as a changing dynamic, so I definitely would tell you OEM has flattened out, given that the OEM -- the top ten OEM's total share is not growing in any significant way, and so that percentage of customer acquisition in OEM has flattened now.

Okay. And then shifting gears on you here, I want to understand the Sun situation a little bit better. The weakness on the server side continues, should we be thinking about the Sun relationship just going away and going to zero? Any sense with what Oracle's going to do on the storage side?

I think when you look at it it's still a little bit too early to say what Oracle will ultimately do, but you definitely have seen that the Spark platform has been slowing for some time and I think the uncertainty of the transaction accelerated what was happening on the Spark platform. I expect that there'll be a continuing relationship with Oracle on the various Sun products. I also think, though, that the maintenance streams generate very healthy and positive cash flow for us and I expect that to definitely continue, but will be very tied to what happens with server sales. And quite frankly, given some of the new capabilities, File Store and some of the other products, what we're doing is we're saying is this is an opportunity to move to other architectures beyond the Spark.

And just from a modeling perspective, should we think about on the Storage side, when you anniversary the impact of Sun of your Q1, calendar Q2, should we start to see that business accelerate? Is it meaningful enough that we should start to see an uptick?

I would tell you it flattens. I don't know that you would see a different trajectory -- a meaningful change in trajectory, only because -- again, it just depends on what's happening with how big and how many new unit are shipped, and you also have the maintenance base, which is fairly substantial.

Okay. Thanks, guys.

You bet. Thanks, Todd.

We'll go next to Brent Sill with UBS.

Hi, this is Reed, actually, on for Brent. James, just a question on margins. I was wondering if you could give us a sense of where you efficiencies in your cost structure to help offset the higher (inaudible) placement fees?

Well, I think there are opportunities for us across our organization to continue to focus on our cost structure. That's very much our message internally, so we very much will maintain that focus and momentum during the coming year. So no change in perspective there, and I don't think we're running out of ideas at all. We have plenty of things to work on. That said, clearly the OEM fees, because of this timing dislocation between when we pay the OEMs and when we actually receive a ratable revenue, is going to be putting pressure on the near-term operating margins, no question.

Okay, thanks.

We'll go next to Katherine Egbert with Jefferies.

Hi, good afternoon. My question is on the Altiris products. Can you talk about the upcoming Windows 7 cycle may be a catalyst for those, and how you expect those to play out?

Our expectation is that as businesses start migrating to Windows 7 -- because we haven't seen yet a big move to Windows 7, we definitely are seeing a lot of folks test it in the Enterprise space -- but the Symantec and the Altiris products have been the main way, the primary way that customers have migrated, we definitely expect that to be a benefit. But you don't -- we won't see that probably until some point in our fiscal year 2011 and my best estimation would be that post the summer months, getting into the back half of the fiscal year, is when you'll start probably seeing some of the benefit to -- in that migration.

Okay, great. And then, if I missed it -- can you give us some more color on the Comcast and the Qwest deals? You said they're both placement fees and revenue share, can you just tell us how that breaks down versus some other deals you've done in the past? Is there any change among those two buckets?

Yes, let me give you two comments. As far as the structure, I don't intend to comment on any particular deal structure given the confidentiality clauses in these agreements, but what I can tell you is the following. With Qwest it started as our strength in the online backup business that then allowed us to expand into security products. And with Comcast, they clearly saw the great performance of our products, the quality of the products, plus the relationship they were enjoying with us in the data center that drove our ability to expand into being the provider for the 15 million internet users at Comcast. As far as the go-forward model for us, what we're very focused on is, given the strength of our products, we want to get more units into the marketplace, and so we are absolutely working across all of the different channels to get as many of the 2010 products into the marketplace.

Are these two deals fully expensed now, meaning you only have the revenue share portion left?

In terms of Comcast and Qwest?

Yes, --

No, we're very much just getting started with these deals. Comcast is not a placement fee-type arrangement, it's an arrangement where we get get paid a royalty based on the number of customers that take up our product, so it's a different accounting structure to the placement fee structure.

How about Qwest?

Qwest is a backup offering, so we have not done the placement fee arrangements with our online backup OEM partners, so those are more so on a revenue sharing arrangement.

Okay, so nothing on the front. Okay, thanks a lot.

We'll go next to Brian Freed with Morgan Keegan.

Good afternoon, thanks for taking the call. If you look at the Huawei -- any of the Huawei-Symantec joint venture, can you talk a little bit about the size of that joint venture at this time and the growth rates, as well as where you see the impacts to the bottom line trending as that business achieves greater scale?

When you look at what we're doing in the joint venture, it's definitely something where the Company, Huawei HS, has commented on a bookings model that represents about $300 million in bookings, and what we're doing is we're accounting for it, as James described, in the other income line and so we're continuing to track that and it's stayed pretty constantly. I don't expect that to go up or down. Now what we're pleased by is the motion that the product portfolio is getting very strong and everything from new NAS capabilities, network-attached storage devices, to solid state technology, some of the work they're doing in security appliances, I think it's a nice complement to what we've been doing in the softwares to service or hosted business and software business. So we're pleased with where we are with the joint venture. Obviously we continue to track to very carefully, and we're comfortable with the investment level that we're currently making.

Okay, thanks.

We'll go next to Daniel Ives with FBR Capital Markets.

Yes, just a more high-level question for you, Enrique. What surprised you in the quarter in terms of just customer buying behaviors, whether on the security side, storage? Anything you saw geographically or on the large deal front that maybe surprised you than where you thought three months ago?

I think the one comment I would make is financial services. I think global financial services -- globally, financial services companies came back a little stronger than I would have expected. That'd be the one comment I would make. Everything else tracked pretty much as I would have expected.

Thanks.

We'll go next to Steve Ashley with Robert W. Baird.

Can you maybe give us an update on what's going on with the SPS SMB product that shipped in May? I know it's still early, but maybe you can talk about if you are seeing any booking activity with that product?

Yes, we definitely are seeing the bookings improvement. The comments we're getting from customers an partners are very positive. The technology is definitely suited for that segment, which is one of the things we wanted to address with the product. Now, our partner, loyalty scores are going up as a result of the capabilities of the product, so overall you are starting -- we are starting to see a benefit, and I think you -- we're seeing it in the bookings benefit, you're starting to see a little bit of the benefit on the as-reported revenue, and that's part of the reason for the improvements in the Security and Compliance segment.

Yes, I was quite pleased with the sequential bookings performance.

Great. And then, just turning to the Consumer business, the backup part of it, I understand you are now at four of the top five OEMs and maybe HP was maybe the first one. Are you seeing -- we're just trying to get some understanding of, are you seeing that contribute to new bookings in the Consumer business, does it represent 10% of the business today, and have you started to market that to the install base?

Yes, it's still a very small part of the overall Consumer business on a stand-alone basis. As far as how we market the product, we see backup as a way of acquiring new customers, bringing new people into the Norton portfolio, and then upselling them in two directions. One, selling them more storage, and two, trying to cross-sell them to our suite products, whether it be Norton Internet Security or Norton 360.

Right. And just lastly, obviously a lot of talk in the news about these Chinese attacks on 34 US companies, what might that mean to Symantec and what kind of products might benefit from those kinds of things going on, if any?

First and foremost, it really reinforces the message that we've been talking about to our customers where attacks are going to become very, very targeted. The bad guys, whoever they are, are going to figure out that it's much more effective and efficient to go after specific individuals or businesses. That's been what we have been saying and that's what you saw in this attack. I expect that to continue to increase and more than anything what it's done is it's raised awareness for some of these cyber threats and target attacks. From our product portfolio perspective, a range of our technologies would absolutely detect that threat today. Some of our new heuristic technologies, our reputation-based technologies are intrusion-prevention technologies so there's a whole range of things that could be utilized to detect the threat.

The second part of it is, what are people targeting ultimately is information, whether that information is intellectual property in the form of source code, customer data, credit card data, we can absolutely use our Data Loss Prevention products to better monitor and make sure that these types of threats and attacks don't or aren't capable of stealing proprietary confidential information. So it really is both on the direct protection, malware detection and other capabilities like that, and then also on protecting the information with the market-leading DLP products.

Thanks much.

We'll go next to Tim Klasell as Thomas Weisel Partners.

Yes, just two quick questions here. First, on the e-commerce platform, how is the progress going there, and can you give us any idea of -- or an update of when that turns into be a tailwind rather than a headwind on margins?

We're very pleased with where we are . We've been rolling out new stores around the world very efficiently. We monitor it, we've got a very clear set of metrics that allow us to see how they perform and so we're pleased with where we are. It's definitely on track. Some of the big benefits that I'm most pleased with is our ability to be -- to react more quickly to changes that we want to make. The ability to gather inspection that allows us to better target customers to specific products, and so, my sense is -- a couple comments. One, we're on track, and second, it's absolutely going to have a positive effect over time on our ability to retain and

And I would expect it to be this coming December quarter, so it would be the first quarter in which the platform will be accretive.

Okay, great. And then I'll -- sort of a follow-up broader picture question. With Oracle, Sun and of course Cisco and EMC and several of the others out there trying to sell the complete stack, they're also advertising storage management capabilities, and how do you think that affects your business, or would it, maybe even a worst, just cause confusion and a slowing of your storage market?

What you want to do is look at, why do people go to Symantec ? What they're trying to do is make sure they don't get locked into a vertical stack or into one vendor, and quite frankly, all of these situations, they absolutely do not have a -- they're not having an impact only our ability to sell our backup products. We're seeing -- given the new backup features like deduplication and Pure Disk we definitely are seeing a strengthening of the opportunity, and a lot of demand for those products. So while we see definitely see these -- a couple of these stacks, those stacks are trying to lock you in. They're trying to basically say, you have to use our approach, and most large companies understand the importance of having some amount of flexibility. And because we offer them that choice, we can help them to commoditize some of the underlying hardware we're definitely seeing people move to using our storage

Okay, great. Thank you very much.

Hi, Gwen, looks like we have time for one more question.

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

Hi, thanks for fitting me in. Maybe, Enrique, if you just pull back and look at the Consumer business overall, I wonder if you can just summarize from us -- or for us what you're seeing. Is it really -- what's driving? Is it the PC Tools subsegment and market strategy, the OEM relationship, the online backup? Obviously there's a lot of different moving parts to the strategy, if you could maybe just summarize it for us that'd be helpful. Thanks.

I'd summarize it this way. One, we've got the very best products on the market, and it starts -- in a tech companies it starts with products. Two, I think we've taken a multi-brand approach where it allows us to basically use different products or different brands in different segments, and we did see PC Tools showing double-digit growth, so that's just saying that pretty clearly our ability to serve customers across the ranges of price points is important. And then, lastly, we're not dependent on any one channel. We go OEM, we go online, we go through retail, and we've got strength in all of those different channels. So I would tell you it's a combination of great products, having a dual-brand strategy and being able to leverage the breadth of our distribution and channels. So those three things are what are really making the difference to our Consumer business.

Great, nice quarter.

Thank you, Rob.

And that concludes our question-and-answer session. I'd like to turn the conference back to Enrique Salem for closing remarks.

Well, thank you, everyone, for participating in our call this afternoon. I'm very proud of our team and the results that they delivered in the December quarter. I'm definitely confident that the strength of our portfolio and that areas that we've chosen to focus on are absolutely allowing us to continue to execute against our plans and deliver what we think is appropriate for this business. Thank you.

And that concludes today's conference. We thank you for your participation.