The Economic Calendar has three potentially important events this week:

• Personal Income and Outlays on Monday (consensus 0.6% income, 0.5% spending)
• ISM Manufacturing on Tuesday (consensus 51)
• The Employment Situation on Friday (consensus 100,000 jobs added, 4.5% unemployment)

Earnings season continues in full force.

Monday

• Verizon (VZ - Annual Report) - possible upside to sales

Tuesday

• Plantronics (PLT) - anyone’s guess, though our long position gives away our own guess

Wednesday

• Cognizant (CTSH) - one of these days the growth will hit a wall, but probably not this day
• Garmin (GRMN - Annual Report) - shouldn’t need a big surprise to move the stock from this level
• Itron (ITRI) - risk to estimates in both directions due to Actaris acquisition
• Sprint (S - Annual Report) - the worst may be over here
• Symantec (SYMC) - Based on MFE and VDSL should have a big quarter

Thursday

• Ansys (ANSS) - Dassault beat big, and we like Ansys better
• QLogic (QLGC) - too risky for our tastes
• Starbucks (SBUX) - probably no surprise, but risk probably to the downside when they are making this kind of move

Disclosure: Long PLT and ITRI

Disclosure: Author is long Starbucks (SBUX) at time of publication.

Symantec (SYMC) this morning paid investors the joint disservice of issuing disappointing guidance and doing so in a difficult to understand press release. Symantec Reports Preliminary Fiscal Third Quarter 2007 Results:

The company anticipates non-GAAP revenue for its fiscal third quarter of $1.30 billion to $1.32 billion compared to prior guidance of $1.325 billion to $1.355 billion and compared to $1.253 billion in the year ago period. The company also anticipates non-GAAP diluted earnings per share of $0.24 to $0.25 as compared to the previous forecast of $0.29 to $0.30 per share and compared to $0.26 per share in the year ago period. For a reconciliation of GAAP to non-GAAP results, please refer to the attached reconciliations.

GAAP deferred revenue is expected to be between $2.42 billion to $2.45 billion. Non-GAAP deferred revenue is expected to be between $2.43 billion to $2.46 billion as of the end of the fiscal third quarter.

“We experienced weaker than expected performance in our Data Center Management business,” said John W. Thompson, Symantec chairman and chief executive officer. “Our recognized revenue for the quarter was also impacted by a greater proportion of enterprise maintenance contracts, which resulted in higher deferrals than we expected. Additionally, with the implementation of our new ERP system, we incurred higher costs than expected.”

March Quarter Forecast
For the March 2007 quarter, GAAP revenue is estimated between $1.24 billion and $1.27 billion. GAAP diluted earnings per share for the March quarter is estimated between $0.04 and $0.06.

Non-GAAP revenue for the March quarter is estimated between $1.25 billion and $1.28 billion. Non-GAAP diluted earnings per share for the March quarter is estimated between $0.18 and $0.20.

Fiscal Year 2007 Forecast
Symantec is adjusting its previously announced guidance for the fiscal year ending March 2007. GAAP revenue is estimated in the range of $5.08 billion to $5.11 billion. GAAP diluted earnings per share for the fiscal year ending March 2007 is estimated between $0.36 and $0.39.

Non-GAAP revenue is estimated in the range of $5.13 billion to $5.16 billion. Non-GAAP diluted earnings per share is estimated between $0.92 and $0.95.

Deferred revenue is estimated to be in the range of $2.60 billion to $2.65 billion as of the end of 2007 compared to prior guidance of $2.4 billion to $2.6 billion and compared to $2.16 billion in fiscal year 2006.

As we have discussed in the past, an increase in deferred revenue simply means the company has taken in cash from customers for services to be delivered in the future. Although recognized as a liability it is generally a good thing as it provides visibility into future revenue.

So we take out the $125 million increase (relative to prior expectations) in deferred revenue at the midpoint of management’s previous and current forecasts. The issue there is only one of timing, not of fundamental performance.

Since consensus was calling for $5.3 billion in FY07 (ends March) revenue, the new guidance of $5.13-5.16 implies a shortfall of $140-$170 million, of which $125 million relates to the timing issue. Given that $1.7 billion in market capitalization has been eliminated on the basis of this $15-45 million in sales, it seems investors are concerned there are more than one cockroach in this kitchen.

With indications of a consumer spending slowdown building, hopes for real GDP growing at 2.5% must anticipate a fairly significant contribution from business spending (since the consumer accounts for roughly two thirds of the economy.) However, the latest poll of Chief Information Officers (CIOs) by CIO Magazine does not paint a particularly rosy picture. In fact, the only thread on which the bulls can cling is that CIO sentiment is frequently more of a lagging than a leading indicator of tech spending. As evidence, consider this quote from the poll findings:

In the December Poll, panelists project IT budgets will grow by 5.8% over the next 12 months, down from 6.5% in the September poll. In addition, CIOs report that IT budgets increased by an average of 5.8% over the last 12 months, up from 5.0% last quarter.

Hmm… the estimate for the next twelve months happens to be exactly what happened over the last 12 months? Definitely has the ring of a lagging indicator. But regardless, the results offer something of a glimpse into CIO plans.

Findings from the quarterly CIO Magazine Tech Poll(TM - Annual Report) show IT spending projections decreased in October-December with CIOs predicting IT spending increases of 5.8% over the next 12 months, down from 6.5% in the previous quarter. Poll results also show the majority of CIOs (63.6%) have no plans to invest in Office 2007 or Vista 2007 next year. Key focus categories of growth are Computer Hardware, Storage and Security.

So mixed news for Microsoft (MSFT - Annual Report) and a glimmer of hope for DELL. Since storage and security have recently been key spending areas anyway, it is hard to say whether calling them a focus area means improvement or not. As evidence, consider this quote from the poll findings:

In the December Poll, panelists project IT budgets will grow by 5.8% over the next 12 months, down from 6.5% in the September poll. In addition, CIOs report that IT budgets increased by an average of 5.8% over the last 12 months, up from 5.0% last quarter.

Hmm… the estimate for the next twelve months happens to be exactly what happened over the last 12 months? Definitely has the ring of a lagging indicator.

The CIO Magazine Tech Poll results are used to construct the CIO Magazine Tech Future Growth Index (TFGI), which projects IT activity over the next 12 months1. In December the TFGI is 2.3, down from 2.5 in September.

The problem is, even if considered as a contrary indicator, the stock market hasn’t priced much calamity into tech stocks of late.

William Trent currently has a short position in put options related to Office Depot (ODP).

Oracle’s application software company acquisition spree was about more than adding the revenue lines of multiple companies to create the illusion of growth. Ideally the companies, when integrated, will save customers the hassle of integrating them themselves. We wrote in June of Oracle’s attempts to build an end-to-end platform for telecommunications carriers.

According to Convergence TechPlanet, With recent acquisitions like HotSip (a telco infrastructure software company looking at IMS), Net4Call (maker of Parlay/OSA delivery components, which supports legacy telco networks) and Portal (billing and revenue management solutions for telcos and media), Oracle is cobbling together an end-to-end service delivery platform (SDP) offering for telcos.

Besides these telco-specific acquisitions, Oracle claims it has a comprehensive offering, with much of the middleware stack (e.g. E-business suite), analytics (e.g. Siebel and Peoplesoft) and backend database (e.g. Oracle 10g) in place.

But industry-specific platforms are one thing. Better still would be to integrate solutions for problems that all businesses face. And according to this week’s Information Week, Oracle is attempting just that:

Last year Oracle purchased three companies specializing in security…. Oracle plans to have its security technology working behind the scenes to ensure that users will have access only to data and applications in [Oracles integrated package called] Fusion that they’re authorized to get.

Integrating security into applications is, to some extent, the holy grail. As we noted when Microsoft launched its security suite, called Microsoft One:

Of course, the other way to protect Windows users from malicious threats would be to make the operating system more secure in the first place. It remains to be seen whether consumers will be willing to fork over extra money to Microsoft and create a conflict of interest for the company: do we improve Windows or sell more OneCare?

At least Oracle’s system is designed to work behind the scenes rather than as an add-on product that fixes bugs introduced by other Oracle applications. And if it works, the market will embrace it.

Back in May the market was abuzz with the news that Microsoft had released a consumer antivirus program that would compete with those offered by Symantec and McAfee.

The launch marks Microsoft’sbiggest formal push into the PC security market yet, and pits the world’s largest software firm directly against security-software makers like Symantec Corp. (SYMC) and McAfee (MFE)….

Microsoft’s launch followed months of testing of the product, which it says offers an “all-in-one, automatic and self-updating PC care service” to help users of its dominant Windows operating system protect their data and easily maintain their computers.

Used to power over 90% of the world’s computers, Windows is often the target of malicious attacks like viruses and worms.

As we said at the time, the other way to protect Windows users from malicious threats would be to make the operating system more secure in the first place. We also said that Microsoft needed to get Vista done right, rather than just get it done, for much the same reason.

Now we get a progress report:

Microsoft Patches Same Explorer Hole for 3rd Time - Microsoft Informer - Blog - CIO

Among the security patches released by Microsoft Tuesday is an Internet Explorer fix that is now being distributed for the third time, due to problems that weren’t fixed on the patch’s first or second releases, the company has admitted.Last month, eEye Digital Security warned users that Microsoft’s August security update, MS06-042, had in fact introduced a new critical security bug. Microsoft responded with a “hotfix” repairing the problem.

The two companies also engaged in a war of words over eEye’s disclosure of the seriousness of the problem introduced by MS06-042. While Microsoft described the problem as relatively minor, involving browser crashes, eEye discovered that the hole could be exploited to run malicious code. Microsoft called this disclosure “irresponsible” and removed eEye from the flaw credits.

That wasn’t the end of the story, however: the “hotfix” of 24 August failed to completely fix the problem, eEye discovered. This week’s second update fixes the problems missed by the first re-release, Microsoft said.

Symantec and McAfee have little to fear, it would seem.

We talked about Microsoft’s recent entry into the security software market here. While we noted that Symantec and McAfee appeared concerned, we also questioned whether consumers would pay Microsoft to defend against viruses and worms exploiting Microsoft’s Windows operating system. It appears to create a moral hazzard for Microsoft - do they improve Windows or let it stay buggy so they can sell more security software?

Recently it became clear that Symantec and McAfee weren’t the only ones concerned.  Some channel partners and competitors have vocally alleged that Microsoft is pricing its new OneCare suite at predatory levels. Techdirt weighs in here.

For some time there’s been concern about how Microsoft’s push into security software might square with its reputation (and conviction) as a monopolist…. There’s no doubt that Microsoft does want to take shots at its competitors — that’s what all businesses do. What’s funny though is that the argument boils down to the fact that OneCare is too good of a deal, that its licensing terms are too flexible, and that a software package of its caliber just shouldn’t be so affordable. All this sounds pretty good for consumers, whom the law should ultimately be designed to protect. If security software is such a commodity that price is the only concern for customers, then the price should be dropping. In addition to the direct concerns about pricing, the company argues that Microsoft will establish a monopoly in the space, and that investment in new research and startups will dry up. One reason this isn’t likely is that security software doesn’t lend itself to a natural monopoly the way an OS does (not to mention the fact that the vaunted Windows monopoly itself is seen as weakening).

Besides, wasn’t the antitrust argument always that they were trying to kill competition so they could turn around and raise prices? How much did you pay for your last Internet Explorer download? Then, as soon as IE quit being adequate for many users Firefox was developed.

No, we say to hell with the antitrust argument. The moral hazard is the more compelling case here.

We recently admitted to being baffled by a series of financial transactions made by Symantec. As we were unable to figure out the intricacies of the deal, we said “To us this sounds like a way for investment banks to earn a fee and for hedge funds to get a sweetheart deal on the debt issuance.”

A commenter posited that we did not understand the deal (how true!) and explained what was happening on their website. We asked for a walk-through and they kindly obliged here. We thank them for explaining the deal, which we now understand.

To us it sounds like a way for investment banks to earn a fee and for hedge funds to get a sweetheart deal on the debt issuance. First let me give you a synopsis of their argument: More »

Punny Money hosted the Carnival of the Vanities, which included our post Symantec 360, Microsoft One. Nick did a great job hosting, taking the time to comment on every post and put them in order (in his opinion) from best to worst. We won’t say where we ended up, but promise to try harder next time. Keep scrolling and you’ll find us.

Offering a modicum of vindication was the Carnival of Entrepreneurship at A Thought over Coffee. That Carnival’s rules call for only the best 7 submissions to be accepted, and we made the cut with our assertion that Plantronics is now offering Green headsets.

The Carnival of the New Jersey Bloggers is at Enlighten-NewJersey and includes our article on Cognizant.

The Canadian Capitalist hosted this week’s Carnival of Investing, where we presented Microchips getting crowded out?

This week’s Carnival of Business was hosted at Journey to Financial Freedom and includes our post Intel ups the Ante. The Carnival of Business will be hosted here at Stock Market Beat next week, so please send us any good submissions you may have using the submission form.

Financial Fruition hosted this week’s anniversary edition of the Carnival of Personal Finance. We used the opportunity to discuss Last Week’s Employment Number.

Aridni hosted the Festival of Frugality, where we presented the post from our guest blogging appearance at Blueprint for Financial Prosperity.

Finally, this week’s Carnival of the Capitalists was hosted at Value Investing, and a Few Cigar Butts. It included our post regarding Apple’s decision not to outsource support to India.

If you found us through one of the carnivals, please have a look around. We thank the hosts for putting together a great line-up.

On Monday Symanted announced it will offer convertible debt and use the proceeds to repurchase shares. Here’s the SEC filing.

In a press release (the “Release”) issued on June 12, 2006, Symantec Corporation (the “Company”) announced that it expects to use a portion of the net proceeds from an offering of convertible senior notes to repurchase approximately $1.5 billion worth of its common stock. The Company anticipates that a substantial portion of this repurchase will be completed concurrently with the offering, and the remainder will be executed during the September quarter. This repurchase amount is in addition to repurchases under the Company’s previously announced repurchase program, under which approximately $710 million remained authorized as of May 31, 2006.

OK, we’re a little confused. They are issuing convertible bonds, which one day may be converted into shares, so they can buy back shares? To us this sounds like a way for investment banks to earn a fee and for hedge funds to get a sweetheart deal on the debt issuance. For more of our thoughts on convertible debt see this article. More »

Symantec Software Buy Symantec Software in Australia

We talked about Microsoft’s recent entry into the security software market here. While we noted that Symantec and McAfee appeared concerned, we also questioned whether consumers would pay Microsoft to defend against viruses and worms exploiting Microsoft’s Windows operating system. It appears to create a moral hazzard for Microsoft - do they improve Windows or let it stay buggy so they can sell more security software?

For now, at least, its partners and competitors in the security space are concerned that Microsoft is pricing too aggressively and aiming for a large chunk of market share at their expense.

BetaNews | Microsoft Security Pricing Irks Partners

When Microsoft first hinted that it would enter the security software market three years ago, the company’s partners began to worry behind closed doors about the implications. With Microsoft’s security push now in full swing, the doors have opened and once bedfellows have turned adversaries.

More »