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Symantec blames deferrals for missing Q3 target

Analyst says there's more to it

The next step in data security

Symantec said its third-quarter revenue and profit fell below its forecast, as sales of data center management products failed to perform as expected.

Sales for the period that ended Dec. 29 were in the range of $1.29bn to $1.31bn, lower than a forecast of $1.315 bn to $1.345bn. Revenue was $1.149bn in the year ago period.

Net income was 10 cents to 11 cents a share, compared with a forecast of 14 cents to 15 cents per share and compared with eight cents per share last year.

Symantec shares fell more than 12 per cent in early afternoon trading.

The Silicon Valley company also forecast lower-than-expected results for the current quarter. Earnings before certain costs will be 18 cents to 20 cents on revenue of $1.25bn to 1.28bn, versus consensus estimates of 31 cents and sales of $1.4bn.

In addition to weaker than expected sales of products for the data center, the provider of security software to consumers and businesses blamed the shortfall on a higher proportion of enterprise maintenance contracts, which resulted in higher number of deferrals than expected, the company said.

Costs for the implementation of a new ERP system also increased more than expected.

Bear Stearns analyst John DiFucci said Symantec's problems likely are worse than the company indicated. For one, the revenue shortfall was likely a result of lower sales, as opposed to deferrals.

"Maintenance is very predictable, so we assume this essentially means there was a license shortfall," he wrote in a research note.

Another reason Symantec's business is worse off than it indicated is that consumer revenue, which helped contain the shortfall, is artificially inflated by about 13 per cent, according to DiFucci. Consumer sales, which account for about 30 per cent of Symantec's sales, are also likely to decline in future quarters, thanks to increased to free offerings being offered by ISPs, he added.

Symantec, along with McAfee, also faces a newer challenge as Microsoft adds new products to its portfolio. Both companies have complained to regulators about Microsoft's implementation of a kernel patch protection feature, designed to defend against rootkits, in an increasing number of its operating systems. They say it makes it difficult for them to plug in third-party anti-malware and intrusion prevention technologies. ®

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