The Hindu Business Line : `To us, India spells growth'

John Thompson, CEO, Symantec, was recently in India to announce a new unit in Chennai. This, at a time when his company is embarking on a structured cost-cutting exercise that would help save $200 million a year!

Thompson spoke to eWorld about internal issues that he has recently addressed to get the act together, about the IT spending environment and about his faith in the Indian talent pool. Excerpts:

In your recent call with analysts, you had indicated that your cost-cutting exercise would not impact your expansion in India and China. What lies behind that line of thought?

Regardless of what's going on in business in general, we always have to have a vigilant eye out for talent. And there's no question about the availability of talent in India.

As we grow top-line revenue we have to have a cost structure that underpins the revenue growth expectations.

But, equally important is to position the company in markets that have the talent to facilitate top-line revenue growth. That's what India represents to us.

It also represents an enormous market opportunity.

The continued growth and development of the country suggests that we have to have a stronger presence here, so we can help our customers here take advantage of the advances in our technologies. This is as much about access to talent as it is about access to the market.

In the Indian market, what gives you a bigger chunk of revenue - data services (including anti-virus protection) or data centres (which contribute to the storage part of the business)?

Our relationship with the largest service providers here in this market suggests that our technologies give them an opportunity to take complexity out of their cost structure to service their customers.

Further, our portfolio of capability targeted at the SME segment is enormous. We are the most prolific producers of technology for the small and medium-sized businesses. Client side Anti-Virus and security technology, our back-up and recovery technology, initiatives to deliver software as a service (that is, software use that is charged per transaction over the Web, or SaaS), all find place in the global mid market, where India is a fast growing participant.

Again, in your call, you had talked of longer call hold times at your call centres that led to more resources needing to be allocated. Is that a reflection of more and more attacks in the market?

In that instance, it was not. We had made changes to our licensing portal. Those led to longer hold times as customers were getting approval authorisation to download software. It had nothing to do with the attack landscape.

But the number of attacks continues to grow. The diversity of attacks is also changing. From malicious attacks targeted at PCs indiscriminately to discreet attacks targeted at the individual to perpetrate online fraud, identity theft ... that would suggest that all devices are susceptible and all users are as susceptible.

This is not about Windows only. It's about any individual who operates online on a mobile or on a PC irrespective of the Operating System (OS). And our technology has to cover that full gamut. We recently introduced mobile client software for small form factor device, not dissimilar to what we do for the PC or the laptop.

The December 2006 quarter growth wasn't to your satisfaction. Was it internal or is the IT spending environment slowing?

IT spending is where we thought it would be. Annualised, it is growing between 2 and 4 per cent. The issues for us relate as much to change in the demand environment for our security products, for sure, with fewer high power threats out there, there is less demand in the SMB space.

We have had a process under way for two quarters, where we are transitioning the data centre business, to one that is more rateable.

It tends to depress recognised revenue but shows rapid growth of deferred revenue. For the last quarter, the former grew 5 per cent and the latter grew 25 per cent. Over a period of time, that will all normalise.

Then, the deferred revenue and recognised revenue will grow at similar rates. Initially, that could be painful. The cost structure is in place to produce both kinds of revenue and your P&L only shows recognised revenues.

I see no alarm signals for IT spending. The global IT environment is as stable as it has been in the last couple of years.

As to IT spending in Asia, studies show that security is the No 1 priority for customers, followed by storage. We are market leaders in both spaces.

Europe seemed a cause for concern. There was weakness for some time there.

Not last quarter. Two quarters ago, there was weakness. It bounced back last quarter. We are still not satisfied with our performance in Germany. But we have got new leadership in Germany and are taking steps to address concerns there. But the December quarter saw us rebound in Europe in general. And we'll continue working on Germany, for sure.

You have about 2,100 people in Pune today. With the Chennai centre, your total should touch 4,000 in the next two years?

We have capacity in Pune for 2,500. Start out with goal of 1,000 in Chennai. 4,000 would not disappoint me. It's a statement of availability of talent here compared to elsewhere in the world. In addition, we have contractors and outsourced employees, the number could go to 5-6 k. We work with Wipro, Sutherland and a range of others. About 1,000 employees would be the total contracted workers.

Assuming a slowdown hits us, what would your clients' reaction be?

We are in the two highest priority spending areas for medium to large companies in the world. More and more digital content is being created every day. If I create content, I have no choice but to manage and secure it. I don't know that a global slowdown in IT spending would have the same effect on our business as it would for others, because we are in the segment of the market that is capturing the attention of those managing and spending on IT.

In a slowdown, they would need our solution more - it reduces cost and complexity and helps them achieve compliance.

Our view is that IT spending over the next year would be similar to what it was last year. You would see similar regional performance now as in '06. In other words, Asia-Pacific would see the fastest growth in all of IT. It represents the fastest growing economies in the world.

And so, our issue is, can we invest to stay ahead of that growth opportunity. I spend my time more thinking about how we invest and not a hypothetical slowdown in spending.

You are on a cost-cutting spree that would see you save $200 million annually. What are the things you are doing?

We are doing what all well-managed companies do, which is now looking every now and then at your inventory of people and processes and make changes to both based on what revenues you are able to produce.

In this recent round, we found we were grossly inefficient in terms of what we spend on buildings and facilities. We have acquired so many companies around the world, and we have more facilities than we need. We needed to rationalise those.

As we did that, it took cost out of our company but it also says that we have double down or add resources elsewhere, because there's work that needs to be done. When we close down a site in the US, that work ends up in India.

When we decided we wanted fewer people travelling - we spend $75 million on travel - we decided to use video-conferencing technology to allow employees from multiple sites online to meet without having to do.

Those are the things that well-managed companies ought to do.

While we were growing like crazy and buying companies like crazy, we got off that discipline a bit and now we've gotten back on that track.

All of the cost structure initiatives we have will yield annualised savings of $200 million and we think that's the right path for us to be on at this point.

Does that mean that expansion, wherever in the world, would be leased? The DLF IT Park in Chennai, for instance?

In Chennai, it is leased space because it is difficult to acquire land here. But, we make choices about leased versus buy based on the availability of land at a reasonable price where we want to have a permanent location.

Had we been able to get land, we would have bought it out. Since it wasn't readily available to us, we did the next best thing, we obtained a lease from a landlord whose interests are aligned with ours.

Since it was a special economic zone (SEZ), in terms of speed of ramp-up, it offers advantages.

How fast are you expanding in China?

Our presence in China is much smaller. Only 200 engineers there today. They are predominantly in Beijing. We are looking for a second site in China. It would double in a year. Similar growth rate as in India, but on a much smaller base.

In a recent conference, you had talked of conflict of interest for Microsoft as it offered security solutions. Some industry watchers say that if Symantec publishes reports on vulnerabilities that exist in various software that is as much a conflict of interest. Comments?

I am not sure how that would be a conflict of interest. We believe in keeping users as informed as we can, about exposures to their computing infrastructure. That's why we have the world's largest network of sensors so that we can sense and respond to attacks quickly. The most effective way to protect customers is to give them intelligence on what to protect against. We don't subscribe to the view that we want to keep information inside Symantec. We help our customers protect their environment by sharing with them everything we know.

As to Microsoft, I think about it just as I do the financial management of our company. If you believe that the world has become significantly dependent on digital infrastructure, you want to have the right checks and balances in that infrastructure. In our world, it is completely dependent on checks and balances. You need someone who produces the technology and another who audits the technology. So, we are protected when one side does something that is not appropriate or is not anticipatory on what the attack vectors must be. I think it is only appropriate, given the dependency the economy has on digitised content.

The ideal scenario would be to have Microsoft do all it can to have a secure operating platform and for companies like Symantec and others to complement what they do with technologies that protect that Operating platform.

For them to close the platform down and say that we would give you all of what you need would be like having people who account for my revenues also audit my revenues. That would be a little bit of a conflict of interest.

Would the average retail buyer be comfortable using pirated copies of popular operating systems but caring enough to buy genuine copies of anti virus software? After all, he cares more about protection...

Piracy is an issue in any market. Anti-virus software is no less susceptible to piracy than office productivity software.

Because of the breadth of our portfolio and popularity of our products, we are one of the companies affected more by piracy than most others.

What we do see is growth in intellectual property (IP)-based economies in the world and their desire to protect those IPs. As companies in those economies start to produce more products, their governments want to protect that, because they want to protect revenue sources. As more emerging market participate in the IP-based markets, more respect for IP and lowering of piracy will result. It has happened around the world.

A colleague of yours talked about pricing pressure easing - that people are talking more about endpoint security rather than just anti-virus software.

I think that the notion of endpoint protection is changing. Moving from a sense of anti-virus to a collection of tech that protect against all forms of threats. As you deliver that combination of technologies in simpler-to-use-and-manage packages, you should be able to arrest price erosion and even see price expansion.

bharatk@thehindu.co.in