Will Symantec's Next Step Be A Breakup?


Symantec's decision to fire Enrique Salem, a move applauded by investors, signals a coming change in the company's strategy that could include a breakup of Symantec along its storage and security lines, according to channel partners and industry analysts.

Symantec Wednesday said Salem stepped down from his position as president and CEO, which he has held for the past three years, and is being replaced by Chairman Steve Bennett, who will add the titles of president and CEO to his list of duties.

The surprising news of Salem's firing came as Symantec reported that for its first fiscal quarter ended June 29 it saw 1 percent year-over-year growth in revenue but a drop in profit of 9.9 percent to $172 million from $191 million one year earlier. The news of the executive change, however, caused investors to push Symantec's share price up more than 13 percent to nearly $15 per share near the end of the trading Wednesday.

[Related: Symantec's Top Exec Outlines IT Challenges As Users Merge Personal And Business Tech]

Symantec has been struggling with several issues in the past few years, including trying to find a strategy to turn its business model from one that relies on the sale of shrink-wrapped software and software licenses to a Software-as-a-Service model that provides recurring revenue to the company and its channel partners.

With cloud computing and mobility challenges increasing every day, the need to find the right model becomes even more imperative for Symantec.

Symantec remains the top security software vendor with 20.6 percent market share in 2011, which exceeded the combined market share of its three closest competitors, according to research firm Gartner.

However, Symantec never successfully leveraged its 2005 acquisition of storage vendor Veritas, for which it paid about $13 billion, and its share price never approached the high it achieved months before the acquisition was revealed.

Symantec is still the second-largest storage software vendor, but its market share has been slowly slipping over the past few years as EMC and a host of smaller vendors have been growing. Research firm IDC estimated Symantec's share of the 2011 storage software market at 15.8 percent, down from 16.3 percent in 2010.

As a result, many in the industry have been calling for Symantec to clear up its strategy and possibly even divide into more manageable security and storage components, calls that were amplified in the wake of Salem's firing.

NEXT: Big Changes Coming For Symantec?

Daniel Ives, an analyst at FBR Capital Markets, Arlington, Va., wrote in a Wednesday research report that Symantec's decision to replace Salem with Bennett is "a major step in the right direction" after a series of missteps including acquisitions and execution issues.

Ives also called Salem's departure "the first step in a potential strategic change at the company," which could lead to Symantec's breakup or to its paying of dividends.

The Wall Street Journal quoted Wunderlich Securities analyst Brian Freed as saying that analysts had become disillusioned with Salem in part because of inconsistent execution.

"At this point in time, any change will be viewed as a positive," Freed was quoted as saying. "And in the case of Steve Bennett, it's a change with hope."

Allan Krans, a senior analyst at Technology Business Research (TBR), Hampton, N.H., wrote in a Wednesday research report that new leadership at Symantec will make it easier for the company to take advantage of cloud and mobile markets.

Krans said he expects the focus at Symantec under Bennett will be on transitioning its information management and security business to being successful in the cloud and mobility markets.

"What won't change for Symantec will be the company’s constant focus on partnerships and product releases that bridge the gap between traditionally deployed solutions to be more cloud- and mobile-ready," Krans wrote.

The CEO for a CRN Solution Provider 500 firm, who did not want to be identified, said Symantec's troubles began when the then-security powerhouse acquired Veritas.

"They lost their identity after that acquisition," the CEO said. "They couldn't digest that acquisition. It put the whole company into an uproar and it has never fully recovered from that."

Dan Serpico, president of FusionStorm, a San Francisco-based solution provider and longtime Symantec partner, said he knew Salem well and was surprised to see him go.

"Our business relationship has been a great one," Serpico said.

NEXT: Channel Waits To See What Happens Next At Symantec