Intel And Microsoft Squeeze Symantec In Security Software

Not in an enviable spot

Microsoft recently started to offer an antivirus software product “Security Essentials” for free to businesses with 10 or fewer PCs and started to distribute the software through its Microsoft Update distribution system. ^[]

We believe that this step could further hurt antivirus software companies, especially Symantec, which is the dominant player in this market through its flagship product Norton. Intel also announced its acquisition of McAfee, which is in the process of being finalized and could present future challenges for Symantec given that it is a well known brand for antivirus software.

With Microsoft and Intel moving more aggressively into this space, we could see the landscape for antivirus software quickly change in the coming years. Below we assess the potential market share impact for Symantec. We currently have a price estimate of $22.33, roughly 30% above the current market price.

Special Offer:? Once a month, Jim Oberweis updates his model portfolio of small cap growth stocks that often return 1,000% and more–a hit parade of monster stock tickers like HANS, BIDU, NTES, FMCN, CTRP, CHS, LULU. His readers bought Netflix in 2003 at $13 per share. What’s new for December and yearend? Click here for the December Oberweis Report.

Microsoft Security Essentials

Security Essentials was introduced in September 2009 and replaced Microsoft’s paid Windows Live OneCare subscription service. According to an accuracy rating agency, Security Essentials identified 98% of over half a million malware samples, ^[] which was second behind Symantec’s Norton. ^[]

The fact that Microsoft’s Security Essentials is free and conveniently installed through the Windows Update system gives Microsoft a distribution advantage and so consumers could opt for Security Essentials and replace Symantec’s Norton antivirus software. Moreover, the decision to provide Security Essential to businesses with 10 or fewer PCs for free could also enable Microsoft to gain a foothold with growing businesses that could become larger paying enterprise clients in the future.

Norton’s Current Leadership Threatened

Norton antivirus software constitutes around 29% of the $22.33 Trefis price estimate for Symantec’s stock. Symantec’s Norton is the market leader in the antivirus software market with a share of around 52% as of 2009. We believe that Symantec will slowly continue to lose market share to around 46% by the end of Trefis forecast period; however this could accelerate if competition heats up from tech giants Microsoft and Intel.

Symantec has lost share in the past in part due to higher prices than competitors and due to the fact that Norton’s PC requirements frustrates some users. Norton antivirus software is priced at $39.95 ^[], which is much higher than many antivirus products in the market (like AVG, Kaspersky Labs, Trend Micro and CA), and its software can be difficult to uninstall which frustrates some users.

Norton Antivirus 2011 promises better features like faster installation and faster virus scans. Another important security feature includes Norton’s approeach to virus and spam detection. Its new software will run behavior and reputation-based checks rather than the signature-based check which should make it more accurate. It works on the principle that a file or an email credentials will first be checked against Symantec’s server, which will have an extensive database of known issues. This proactive rather than reactive approach to software security holds a lot of promise in our view.

Due to its market leadership and new products, our base case suggests that Norton’s market share may not decline at a faster rate. However, the dual threats of Microsoft and Intel in its core businesses is a concern.

There could be downside of more than 10% for Symantec’s stock if its market share declines to 30% by the end of Trefis forecast period, instead of 46% that we forecast. This does not factor in potential pricing declines due to heightened competition which could add further pressure in this scenario.

You can see the complete $22.33 Trefis Price estimate for Symantec stock here.

Like our charts? Embed them in your own posts using the Trefis Wordpress Plugin.

This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php
Five Filters featured site: So, Why is Wikileaks a Good Thing Again?.

View the original article here

Heartbreak Ahead For JDA Software Bulls

Nov. 30 2010 - 3:09 pm | 444 views | 0 recommendations |

It's not easy going up against Oracle

JDA Software Group (JDAS) is one of November’s Most Dan-ger-ous Stocks. To earn this dubious designation, the company?has mis-lead-ing earn-ings (account-ing prof-its are pos-i-tive and ris-ing while true, eco-nomic prof-its are neg-a-tive and falling) and high val-u-a-tion (very high expec-ta-tions embed-ded in the cur-rent valuation).

Below are the specific red flags my research reveals:

1. Mis-lead-ing earn-ings: JDAS reported a $14.6mm increase in GAAP earn-ings while our model shows eco-nomic earn-ings declined by $12.9mm (a dif-fer-ence of $27.5mm or 155% of reported net income).
2. Very dan-ger-ous val-u-a-tion: stock price of $27 implies JDAS must grow its NOPAT at over 20% com-pounded annu-ally for 10 years. A 10-year growth appre-ci-a-tion period with a 20%+ com-pound-ing growth rate sets expectations for future cash flow performance quite high.
3. JDAS competes with industry giants Oracle (ORCL)?and SAP (SAP), whose businesses are growing stronger while JDAS appears to be weakening. I doubt a comeback is in the cards for JDAS.
4. Free Cash Flow was -$203mm or -15% of the company’s enterprise value last year.
5. Asset write-offs of $21mm or 3% of net assets – this means that management has written off at least $0.03 of assets for every $1 on the current balance sheet. Writing off assets is the opposite of creating shareholder value as it reflects management’s inability to derive any profits for the investments it makes with shareholder funds.
6. Off-balance sheet debt of $40mm or 6% of net assets.
7. Outstanding stock option liability of $13mm or 1% of current market value.

Special Offer: Trade foreign currency proxies, specific emerging markets and even global income securities with ETFs and closed-end funds.? Click here for all current recommendations in Forbes ISA ETF Investor newsletter.

Over-all, the risk/reward of invest-ing in JDAS’s stock looks “very dan-ger-ous” to me. There is lots of down-side risk given the mis-lead-ing earn-ings and red flags while there is lit-tle upside reward given the already-rich expec-ta-tions embed-ded in the stock?price.

Our report on JDAS has detailed appendices for you to see how we perform all calculations. The primary cause of the dif-fer-ence between eco-nomic ver-sus account-ing earn-ings is that JDAS’s NOPAT rose much slower than its invested cap-i-tal. See Appen-dix 4 to learn how JDAS’s NOPAT rose more slowly than Net Income. See Appen-dix 5 for details on JDAS’s invested cap-i-tal and how off-balance sheet debt and asset write-offs are added back to provide a more accurate reflection of the capital invested in the business. Appen-dix 7 (in the return on invested cap-i-tal sec-tion) shows how a slight rise in NOPAT mar-gin paired with a big decrease in invested cap-i-tal turns result in a decrease in return on invested capital (from 6.9% to 4.7%) and eco-nomic earnings.

In a business where investors make money by buying stocks with low expectations relative to their future potential, JDAS fits the pro-file of a great stock to short or?sell.

Post Your Comment

You must be logged in to post a comment

Members

Log in with your Forbes account

This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php
Five Filters featured article: Beyond Hiroshima - The Non-Reporting of Falluja's Cancer Catastrophe.

View the original article here