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Symantec Cost Cuts To Target Operational Efficiencies, Product Portfolio Reassessment, Research Report Says

A report Wednesday by investment banking firm and adviser Piper Jaffray said the $400 million in planned cost cuts at Symantec will take the form of transition services agreements with Veritas, procurement changes, staff cuts, real estate and a re-evaluation of the company's portfolio of products.

Symantec has preached a return to operational efficiency and profitability since its split from Veritas earlier this year, and now partners have some clarity about where some of those cuts might occur.

The Mountain View, Calif.-based company has said for months that it is is looking to cut about $400 million in costs primarily from its enterprise security business over the next two years. A research report from investment banker and M&A adviser Piper Jaffray on Wednesday dug into those cuts based on conversations with management, laying out the security vendor's five-step plan for improving the efficiency of the business.

Partners praised Symantec's move to cut costs in its enterprise business, which has struggled in recent quarters and was down in sales 6.7 percent year over year in fiscal 2016. Jason Eberhardt, vice president of strategic alliances at Chicago-based Conventus, a longtime Symantec partner, said he thinks the cuts will help align the security vendor better for the future.

[Related: Symantec Partners Hope New CEO Will Kick-Start Next Phase Of Transformation]

"It's a pretty good plan. It doesn't change my day-to-day and it doesn't change my connection with Symantec, but I think there's an internal plan in place to make sure it's more stable going forward," Eberhardt said. "It's great for me as a partner."

The majority of the cost savings will come from cuts inside the business, said Andrew Nowinski, Piper Jaffray senior research analyst. Around $100 million of savings will come from "organizational improvements," which includes shifting back-office positions to India and laying off about 1,200 employees, or roughly 10 percent of its workforce. Nowinski said those layoffs will not come from sales or core product development teams.

Other organizational improvements include $130 million in savings around the transition services agreement related to the sale of Veritas earlier this year. Those costs include IT and other shared services, the report said. Symantec will also cut around $35 million in costs related to real estate and moving to consolidate and virtualize its data centers, as well as aim to achieve $100 million savings from improving how it procures the products and services it consumes.

"The enterprise [business] is really being run unprofitably. … They're making a lot of very smart changes to their cost structure," Nowinski said.

Eberhardt praised the operational changes Symantec was making in particular, saying that changes around procurement, staff and real estate will help streamline the security vendor down the road.

"I commend them for making this part of the plan," Eberhardt said. "What makes me excited is it will create a good foundation for years to come."

Finally, Nowinski said, Symantec said it plans to make some portfolio adjustments around underperforming product lines, resulting in $50 million in cost savings. Those adjustments could include SKU consolidation and the end of life of some products, though it remains to be seen which product lines that will include.

The report said Symantec aims to have at least half of these cost cuts completed by the end of 2017, with the remainder happening in 2018. Piper Jaffray says it is "confident" that Symantec will remain on track with its cost-cutting schedule, particularly with the help of strategic investor Silver Lake Partners.

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