Symantec smiles, Wall Street scowls at Veritas buy

It will take some convincing for Wall Street to feel comfortable with Symantec Corp.’s US$13 billion acquisition of Veritas Software.

The company’s stock has lost nearly half its value since the acquisition was first announced in December 2004, and the recent departures of former Chief Financial Officer Greg Myers and President and Chief Operating Officer John Schwartz have only exacerbated fears that the acquisition may prove to be more than the 23-year-old software company can manage.

But for Symantec Chief Technology Officer Mark Bregman, the combination of the storage and security software giants represents a brand-new opportunity: the chance to build a world-class research organization.

Bregman knows the value of research. With a Columbia University Ph.D. in physics, he was a manager within IBM Corp.’s Research division, and in the mid-1990s he had a hand in revamping Big Blue’s patent policy.

The former Veritas employee has some busy days ahead, though, as he struggles to bring his company’s nascent research operation, Symantec Research Labs, into the big leagues. Symantec is better known for acquiring companies than for doing basic research, and at present, the company has only one employee who spends any time on the kind of unfettered research that has made IBM’s program famous. That employee, noted computer scientist Michael Spertus, came to Symantec as part of the Veritas acquisition.

The post-Veritas Symantec, however, is now a much larger company, with a total of about 14,000 employees, and Veritas brings it an extra $1.5 billion in revenue to add to its balance sheet each year. With the acquisition, Symantec now has the financial clout to build a first-class research organization, Bregman said during a recent press event for Symantec Research Labs, held in Mountain View, California. “It gives us scale,” he said. “There’s a critical mass [required] to do this work.”

Right now, Symantec Research Labs is primarily focused on developing technology that will be used in future products. With a staff of about 50 workers who are generally co-located with product development teams in Mountain View and Santa Monica, California, as well as Pune, India, it draws about one percent of the company’s total revenue in funding. Symantec’s total spending on new product research and development is about 15 percent of revenue, Bregman said.

Symantec’s CTO plans to boost the number of employees doing basic research and development, however. “We’re just starting to invest in that basic research piece,” he said.

By building up its labs staff, Symantec is not only placing a bet on its next generation of products, it will also be better able to motivate employees and attract top technical talent, Bregman said.

Whether a bigger R&D arm will help observers better understand the Veritas acquisition is unclear. At the press event earlier this month, Symantec researchers displayed a number of projects, including a database auditing appliance and a new storage file system called StarFS, but none of the projects reflected Symantec’s stated belief that the future of storage and security technologies will be intertwined.

In fact, Bregman could name only one lab project that involved a marriage of Symantec and Veritas technology: a “deep antivirus scan” project that the company has not yet discussed in detail.

It’s been less than five months since the formal conclusion of the Veritas acquisition, however, and Bregman is going to need more time to set a strategic research direction for the new company, said Andrew Janquith, a senior analyst with Yankee Group Inc. “There’s bound to be a lot of stuff that isn’t obviously going to overlap at first,” he said. “Symantec’s challenge is to identify the areas where combining research and product development makes sense.”

Janquith and other analysts give Symantec high marks for integrating its Symantec Mail Security for Exchange product with the Veritas Enterprise Vault software, but when will they see cutting-edge storage security technology coming from Symantec’s fledgling labs?

Soon, said Bregman. “I think that’s going to become a bit more clear as more of the interesting solutions start to come out.”

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