FINAL TRANSCRIPT. SYMC - Symantec at Goldman Sachs Technology & Internet Conference. Event Date/Time: Feb / 12:40AM GMT

Transcription

1 FINAL TRANSCRIPT SYMC - Symantec at Goldman Sachs Technology & Internet Conference Event Date/Time: Feb / 12:40AM GMT

2 CORPORATE PARTICIPANTS Derek Bingham Goldman Sachs - Analyst Bill Robbins Symantec - EVP, Worldwide Sales Stephanie Withers Goldman Sachs - Analyst PRESENTATION All right guys. Thanks everybody for being with us. I'm Derek Bingham, Stephanie Withers, from software team and we're very pleased to have Bill Robbins here, who's the EVP of Worldwide Sales from Symantec. Thank you for joining us. Thank you for having me. So as we typically do, we'll start kind of highest level possible and kind of work our way down. So just kind of starting from a macro standpoint, you being the man in charge of the field, what can you tell us at this kind of early part in 2011 about how customers are feeling and thinking about the world and IT spending today? We've definitely seen an improvement in the overall macro environment. Obviously we're in our Q4 right now, coming off a pretty good Q3. We saw double digit bookings growth, record deferred revenue and really saw our customers start to do some of the products and the projects that maybe they'd been a little reluctant to do over the past couple of years. So in improvement in the macro economy. Certainly varies by area. We've seen a rebound in the US markets. We're seeing parts of Europe strong, so for us in Nordics, France has been pretty strong. The UK though is weak, particularly the public sector. The Mediterranean region continues to be weak. And then when you look at Asia, kind of a solid market in Japan, not necessarily strong but is kind of floating along. But good growth in China, good growth in India. The Asia South economies are good for us. And we've seen Brazil kick back into gear after a couple of slower quarters. So overall I feel like the environment is people are maybe cautiously optimistic and we look at people's expectations, they're talking about IT budgets for 2011 that are somewhere in the mid single digits and we would expect kind of our portfolio of security and storage to be aligned with that in the mid maybe the upper single digits in terms of overall market growth. Okay. Does it feel like this is kind of back to normal? You mentioned it's an incomplete picture, right. There's still a few areas in the world that aren't great, but that might be just the case at any time in humanity's history. Is this about as normal as you can expect when you compare it to pre downturn? 1

3 Maybe it's the new normal for a while. I think until the economies start adding jobs and people really start seeing some sustained investment patterns and growth opportunities, we're going to have a little bit of caution out there. Enterprises seem to be doing better than the mid mark and small to medium business and given their cash positions maybe they feel like they're in a little bit better position to invest. So I'd say we're certainly not back to where we were in 2005, 2006, early 2007 but we're better off than we were in 2008, 2009 and the first half of So I expect 2011 to show some improvement and ultimately it's going to depend on whether people really start to feel some confidence in their economic growth before they'll start to invest heavily. Got it. Last one on the macro picture and then we'll dig into kind of lines of business and products and all that good stuff. Government spending, that's an area where people are worried. I think Symantec like any big IT franchise does a fair amount of business there. What's the outlook from you can tell, US federal and then maybe even governments beyond the States? I guess maybe a little bit of a tale of two cities relative to us and some of our technology brethren out there. We actually had a terrific September quarter in the US federal sector, kind of at record levels, really saw a lot of traction across our portfolio from the storage side, backup and recovery, data deduplication all the way into the security side, so the September quarter very very strong for us. And then in the December quarter there was a continuing budget resolution out there, but given that relative to where we were in the September quarter it's kind of normal sequential quarterly trends of what we would expect. So where some companies are saying they're really struggling in the US federal sector, we just quite frankly haven't seen that. If you look across public sector in general, clearly at the state level we're seeing some challenges there, given the budget situation and the tax revenues that are no longer at the levels they were a few years ago, so that's an area of challenge. And then as you go across the globe, areas like the UK public sector; they've taken some pretty Draconian steps to cut back on overall spend and I think that's affecting anyone who's doing business with that government. So a little bit of a mixed bag but for us, fortunately in the US federal sector where it's the biggest opportunity from the government perspective for us, we've actually seen an acceleration. And why don't we just dig in a little bit more on Symantec specifics starting at a very high level though. In your role as the sales, what do you view as the top three strategic initiatives for Symantec this year? Our core mission is how do we help our customers secure and manage information and identities, that's really what we're all about. And there are some key megatrends out there. It probably would come as a great disappointment to all of you if I didn't mention the word cloud at some point in the presentation, so I'll check that box. Look, cloud, whatever that may become and I think you could ask 10 people and you'd get 10 different answers, but they're certainly going to -- that's going to create opportunities and challenges for our customers around securing and managing information, about having identity management in that environment. So cloud is going to be an opportunity nearer term. Virtualization is driving a lot of opportunities for us and we've seen a rapid move from mobile being something that was kind 2

4 of talked about 18 months ago, two years ago and it was of interest, to now, I can't do a briefing with any of our customers where they don't bring it up very early in the conversation and say hey look, you've got to help me solve some of the problems and challenges around data and device security and protection in the mobile space that I'm really being pressed with today. So those will be the kind of big three megatrends. And we're just going to stay focused on how do we help customers manage and secure their information in those environments, how do you do it in a world where information volumes are growing 30 to 50% a year, where the threat landscape has dramatically shifted from a few years ago to where now over 85% of all malicious code that's being written is very targeted, very specific to gain access to information for financial benefit or information benefit, industrial espionage, you name it, some state to state activity. And where the world's becoming a more complex place because data is more dispersed, there's more electronic connections and the ability to secure and manage and ultimately be able to back up that information to restore that information and to ensure that as an enterprise or as a government you don't have a WikiLeaks type event is at the top of everybody's mind. Those are the key things we're focused on helping our customers solve. And since you brought up mobile, it is obviously one of the biggest trends we're seeing across all of tech today, but can you remind us specifically what it is that Symantec is doing in mobile, is there an opportunity to bring kind of the traditional end point protection like products we've seen from Symantec to the mobile world or is it very different and more about identity and access management, encryption, etc? It's a combination of the two. Perhaps the traditional virus activity of the past when people still think about the Melissas and the Blaster and I love you and the vandalism activity like to cause harm may not be as big of an issue but as mobile devices, whether they be tablet devices or smart phones are used more and more for web browsing and conducting financial transactions or transferring information, that's where we see the opportunity to bring true end point protection to those devices and it opens up a whole new market for us. And then clearly, customers really worry about the fact that a small mobile device is easier to lose than a big mobile device, so people losing a Blackberry or an Android phone or an iphone, how can you remotely wipe information on that if that happens, how can you make sure that that device is secure. So those are the challenges that customers are saying we've got to address these from a good governance perspective and they're looking for companies like Symantec to help them solve it. Okay. So I guess what does that really mean though in terms of monetization, growth in your enterprise security business? I think we have seen growth kind of slow in that business over the past few years. So does mobile need to kind of pick up and your products there need to be monetized more rapidly to sort of offset maybe what has become a little bit less strategic on the end point in the enterprise? Again, I think it's going to be a combination. I think the traditional end point will continue to have a place and it will need to continue to be protected, the information volumes will continue to grow, so they'll need to be protected, backed up, recovered, managed. And the mobile platform will add a level of complexity to that for enterprises and clearly for Symantec to benefit 3

5 from it, we need to be able to port solutions from a management perspective, we need to be able to leverage things like the identity management and multi factor authentication tools that we acquired in our VeriSign security acquisition into the mobile environment and then kind of core security, data loss prevention, data leakage both on the traditional end point as well as the mobile end points. Obviously it's interesting to talk about, but at the end of the day we have to monetize it and that's the direction we're headed. How do the recent acquisitions all fit into this? PGP, Guardian Edge, VeriSign, all seem to be looking toward a world that is a little bit more mobile and a little bit more cloud focused. What are the real drivers behind those businesses? Clearly as data is transferred more and more ubiquitously across enterprises from consumer to enterprise, enterprise to consumer, consumer to consumer, it's just there's more opportunities for that data to be lost or compromised than ever before, so being able to do things like encryption, being able to do things like encryption and manage that through cloud based PKI cloud management tools as we acquired from VeriSign is key. Being able to do identity management and allow people to leverage a smart phone essentially as their ATM card with their financial institution, so rather than ask them to carry around multiple hard tokens, utilize the phone and push out a soft token that's updated via the cloud that they can then authenticate with a four or six digit PIN to get that strong multifactor authentication and do transactions. That's going to be an area where we're already monetizing that and we expect it to continue to accelerate. We've seen nice growth in that since we acquired that part of the business from VeriSign. Those are going to be the key areas when you look at the acquisitions we've made and they clearly augment one of our most successful acquisitions over the last couple of years in the DLP space. So you kind of combine data loss prevention with encryption, with identity management and verification and it provides a pretty strong set of tools for enterprises to use, whether they're doing business internally, doing business with partners or trying to offer electronic based commerce solutions to their customers. Great. And then maybe just to switch gears a little bit into the consumer side, which I'm sure is probably not really exactly where you spend most of your time, but internally what are your views right now at Symantec on the consumer business and what about the threat that we hear a lot about on Wall Street of the kind of new emerging business model at the premium vendors? Look, it's something we're clearly cognizant of and we take that threat very seriously. What I would tell you is over the last couple of years that threat has been around and we've seen it maybe not have the detrimental effects that people were crying that it might have three or four years ago. There will be a segment of the market that will choose to do a free or kind of a premium play. There's a segment of the market, very small, some chose the old Microsoft One Care. They never really cracked 1% market share there and they basically have not shut it down but they're just reactively pushing that versus proactively pushing it. So we believe, given the products that we have with Norton, the ability to do more than just provide antivirus but really provide full protection and then to kind of up-sell with things like our Norton 360 backup technology where we're backing up over 60 petabytes of consumer information today, helping them protect that information from traditional threats as well as just loss. Allows us to maintain kind of the premium price, if you will, in a world that has a lot of new challengers. So very aware of the threats out there and we certainly take them seriously, but we continue to see revenue growth there and we feel pretty comfortable with our position. 4

6 Do you think about different routes to market in that business? We do. There are a lot of different markets from the traditional retail markets to different OEM relationships that we have in place. We look at it from how do we acquire new customers and there's different ways of doing that and then ultimately we have a pretty good platform through an e-store to do renewals and kind of up selling to the existing customer base. So we'll always look at new ways to attach to that space, whether it's on the traditional end point or as consumers start to do more business maybe on tablets or looking for solutions from a phone perspective. We may work with -- kind of see the combination of consumer and enterprise where we work with some of my enterprise customers, large telcos around the world to provide a level of security to their consumers in the smart phone space. Okay. Last one from me before I turn it back over to Derek. Could you give us an update generally on the sales force? I know you had -- maybe experiment isn't the right word, but you reconfigured the sales force differently in different geographies; how's that going? How are you structured in the US currently and any plans to make any changes there? About two years ago, particularly in a handful of districts out here in the Western half of the United States, we ran an experiment where we sort of split the lanes, if you will and had a sales force focused in the enterprise markets, so our customers kind of in the 1,000 to 5,000 employee base segment had a sales rep focused on the security portfolio and a sales rep focused on the storage portfolio. After two years what we've basically seen is it's a coin toss. It's statistically insignificant. You can find areas where we did a little bit better in markets where we were segmented. You could find areas where we did better in markets where we had a single face to the customer. But overall in getting feedback from our customers, from our partners, what they've said to us is look, we're okay having a single account manager. What we like is to have that single relationship but then you need to be able to bring in the technology specialist, your SEs and your technology evangelist when we have a very deep dive need for a specific technology, whether it's data loss prevention or backup technology, storage foundation. So the model that we've kind of settled in on and will be going forward is one where we have a single account management structure but very strong and uniquely focused technical sales specialization behind them. And that seems to be paying dividends and I think we've seen that in our results over the past couple quarters. So you now feel kind of good with where the sales force is and execution? Yes, we're really pleased with it. We've made a lot of changes over the last couple of years. We've taken out over $250 million of cost since FY '08. That's a big number but it's allowed us to get more effective from an expense to revenue or expense to bookings perspective while also increasing our productivity by being more efficient in how we go to market. We're getting better utilization and leverage out of our channel. We're getting better productivity per head by getting higher levels of specialization within our technical sales force and I think the core discipline and blocking and tackling that we've put in place, 5

7 kind of the metrics and the process and the culture that we've implemented is really resulting in the performance that we've seen over the past couple of quarters. I think we'll shift back to storage just for a few, to touch on that area away from security for a second. Could you just maybe start by giving us a quick overview of your storage portfolio and what are the star growers there, what's the more mature stable, steady Eddie stuff and then anything you'd highlight that's kind of new or coming down the pipe that you're excited about? Roughly you can kind of break our storage into two different areas. We have what we call our SAMG business unit which are products like our storage foundation technologies and our clustering technologies and that's a business that we've certainly seen some headwinds in over the last couple of years and I'll come back to that in a second. The other part of our business, our IMG, information management group consists of our Net Backup technology, our Backup Exec technology which is our backup for the small to medium business mid-market space, it's our Enterprise Vault which is our archiving technologies and it's our data deduplication technologies. That business we've seen two consecutive quarters of double-digit year-over-year bookings growth. If we look at just the Backup Exec segment we've seen three consecutive quarters, so year-to-date we're at over 10% growth for that market segment. And we're seeing a strong interest in our data deduplication technologies and the integration of those with our backup portfolio with our most recent releases of Net Backup 7.0 and our Backup Exec 2012 technology. So that business growing quite well, a lot of continued growth in the archiving space and we feel pretty good about our position there. The SAMG portfolio or the storage foundation and clustering has certainly seen its challenges over the past 2.5 years. That's a business that five, six, seven years ago was about 80-85% on the Solaris platform. Today we do about 50% of our business on the Solaris platform, but we get no revenue directly from Sun/Oracle. Sun used to be a big OEM partner and reseller for us, as they went through their transition of becoming part of Oracle, Oracle said they're not going to resell third party products and so we've lost that as a channel. So we've had to kind of backfill into that space. What we saw was a stabilization though of that space as it kind of went full cycle in the September and December quarters, actually saw some year-over-year growth in the December quarter for the first time in several years. And while we certainly don't view that as a market that's going to -- it's not going to grow and recapture some of the lost revenue that we've seen, we do think it's a market that can be kind of flat, maybe it will be down a couple of percentage points, maybe it will be up a couple of percentage points like it was this last quarter. But it's a good strategic business for us. It's highly profitable and it resonates with our customers. So you kind of divide the two markets there. From a new product perspective, talking about the SAMG technology we rolled out in conjunction with VMware at VM World, two products, our application HA technology which allows you to get the same level of application high availability in a virtualized environment as you can in a physical environment. That solves a key problem for VMware customers so it allows them to virtualize mission critical applications. So we're seeing a good uptake there. As well as with a technology called Virtual Store, which allows you to manage and optimize your storage in virtualized environments which has been one of the areas that customers have been concerned, because they've seen an increase in their storage costs as you go to virtualized instances. So working with VMware to solve those two issues and we're seeing a good growth from product launch in September through the December quarter. So those will be some of the key things we're excited about. 6

8 In the backup space what we continue to do is shrink the time required to do backup, so really strong focus on fast backup as the amount of data continues to increase it needs to be backed up and the backup windows continue to decrease, customers are looking for ways to even accelerate the backup environments and we've got some pretty interesting things on the roadmap there that make us excited about the future of those technologies. I just have one more and then we'll have a chance for questions from the audience if you've got any out there. And that is cloud storage, is this happening now, how important is this going to be, where is it happening first, can you just tell us how you're thinking about that? It's very early days for that. I think there's a mental block that companies have to get over before they're going to put their storage out there and let their information be stored in data centers or environments that they can't physically touch and control. But I do think the technologies of today versus maybe 10 years ago, when there were some thoughts of doing this, are ultimately going to get a percentage of people over that hump. And I think it will start more in the kind of SMB mid-market space, maybe branch office doing online in the cloud storage. And I think from a backup perspective we see a big opportunity with some of our dot cloud offerings where like backup in the cloud for SMB and midmarkets can take off. I referenced earlier around consumer, the fact we have over 60 petabytes of data stored and growing very very rapidly. We think we can apply that same technology and solution into the SMB and mid-market space. Large enterprises might be a little bit more reluctant to push their data for both backup or online storage into the cloud or at least into public clouds and that is a challenge for them. It creates an opportunity for us. Managing that information whether it's in the cloud or on premise is going to be a challenge that we can help them solve with our Storage Foundation technologies and then backing it up in virtualized or cloud based environments is something Net Backup technology is very very well positioned to do. And then of course securing information in the cloud is something that everybody talks about the advantages of but they're really worried as they say hey, my information is now distributed across many many places, how can you assure that I don't have data leakage and that I don't have corruption of that data when I don't control it the same way I would in a traditional on premise enterprise. When it starts to take off a little bit more, is it going to be a function of you going out and forming relationships with service providers and cloud operators so they're using your technology and customers are working across, using your technology and sending your stuff to that service provider; is that the way it's going to work? I think it will be multi, in fact we're already doing that today with several kinds of cloud based providers of storage management so we're doing that today. We'll provide services through the cloud ourselves. We have our Symantec End Point protection dot cloud offering through our Message Labs acquisition that we did about two years ago, so we'll continue to provide hosted software as a service offering via the cloud. And I think, you know, we want to be seen as the company that can help enable the adoption of cloud, but from a securing and managing the information that you're going to have flowing throughout cloud 7

9 environments throughout virtual environments or throughout traditional physical environments, so being able to apply the same principles that we've traditionally done for our customers into the cloud based environment is where we see us playing. We're not going to be building clouds out. That's not our business but we think we can enable the building of cloud environments that are secure and well managed. Okay. Any questions? I'll happily ask another one. Obviously you've been quite acquisitive, so where do you think there are still pockets or holes in the portfolio, what are areas that we might expect you to be filling in? We'll always look at acquisitions in a couple of ways. One is just consolidation or market share and seeing if there's a good roll on acquisition that we could do, so that's something that we would look to do if it made sense financially. Other areas that we'll continue to look at, maybe where we see a gap. Encryption was a great example where we felt that was something our customers were looking for us to fill and we went out there and did it. I'm always asked the question around network security/firewalls, would that be an area we would look at and that's a decision we have to make. It's a very competitive market, there are some big players out there between Check Point and Juniper and Cisco, lots of smaller players, would it make sense for us to build to buy or to partner. So we may not do something via acquisition. It may make more sense for us to partner in that space. Those would be the key areas, maybe some things we can do in say the search space when we look at our archiving capabilities. That's an area where I think we're at that point of saying do we continue to invest on our current path, do we look to partner. I would look to acquire to fill an area where perhaps we have a gap or deficiency in the product technology set. And then mobile is kind of the top of everybody's mind. We certainly have a core set of assets in place today but we're always looking to see would it make sense for us to do an acquisition in that space that would get us down that road even faster. And competitively with MacAfee's recent acquisition by Intel, have you seen any disruptions there? Have you been able to kind of use that to your advantage? It's been a net positive for us. We've got a couple of handfuls of customers who we've already signed that had just said look, this was kind of the last straw and there was probably already issues between them and MacAfee to begin with to push them over. But we've had in the hundreds of customers have come to us and said hey, we don't know for sure if this is going to be a problem for us but we're a little bit leery about MacAfee being part of a much bigger company. Are they going to maintain their security focus? Are they going get the investment? Could this be disruptive to them? We'd like to at least have a dialog and understand your product roadmap, where you guys are going and see if maybe it would make sense when nine months from now, 12 months from now when our contract comes up for renewal, we might consider making a change. So we think that's going to be ultimately we will capture a percentage of those and we think that's to our benefit. 8

10 Also seeing a lot of disruption, quite candidly, from MacAfee partners who are worried about what this might mean from them. If Intel kind of starts to skip them and go directly to the PC manufacturers, do they feel like somehow they get cut out. So we've seen conversion by a couple of key MacAfee partners who have come over to us and get lots of resumes. We get a lot of unsolicited resumes which tells me there's got to be a level of distraction or angst among their employee base. Right. Okay great, we are actually over the time limit now. So thank you so much for being here. We really appreciate it. There is a break out session somewhere. Terrific. Thank you. DISCLAIMER Thomson Reuters reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes. In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically identified in the companies' most recent SEC filings. Although the companies may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. 2011, Thomson Reuters. All Rights Reserved T00:24: