Users unfazed by Symantec's $US1B tax bill

Users say they're not overly concerned with the almost $US1 billion tax bill Symantec was slapped with after acquiring storage software vendor Veritas Software last year. But at least one analyst said it could affect spending at the company, as well as what users will choose for backup software in the future.

Michael Lee Sherwood, CIO for the city of Oceanside, Calif., said he doesn't plan to make any changes to his Veritas backup environment "based on this information as it presently stands. However, things could change based on the final outcome."

Symantec announced this week that the U.S. Internal Revenue Service last month ruled that the company and its Veritas subsidiary had misstated the value of intellectual property held by an Irish subsidiary. The IRS claims that both Symantec and Veritas Software underpriced intellectual property that the two companies licensed to their Irish subsidiaries. Both Symantec and Veritas, which was purchased by Symantec in 2005, set up the subsidiaries to do business outside of the U.S.

The IRS believes that Symantec owes about $US900 million, excluding penalties and interest, in connection with the Veritas claim, which covers the company's 2000 and 2001 tax returns. Another $US100 million is due in connection with Symantec's fiscal 2003 and 2004 reports.

An IRS official said the agency does not comment on specific cases. Meanwhile, a Symantec spokeswoman said the company plans to appeal the agency's ruling.

Symantec's stock dropped more than 4 percent after the tax bill became public.

John Webster, an analyst and founder of Data Mobility Group, said that since Symantec's stock price has already taken a hit from the news, "that in itself can sometimes have a negative effect on how users, particularly large users, evaluate their large vendors. You can surmise that there are many heated board meetings going over there [at Symantec] trying to figure out how they're going to respond to this."

Webster also said the tax bill has the potential to stunt spending in many areas, including research and development and support.

Symantec -- which has $US2.8 billion in cash, according to financial analysts -- declined to comment on the matter.

"They have the money to pay it, so I don't see that as a major business changer for them -- even in the worst-case scenario, and I don't think the worst case will transpire," said Gary Spivak, director of equity research at Stanford Group. "It may inhibit their ability to do large acquisitions in the future, but that's not necessarily a bad thing." He noted past criticism leveled at the company for its Veritas acquisition.

Gene Munster, a senior research analyst at Piper Jaffrey, said in a summary report that the core issue is, "How much [intellectual property] was transferred to a subsidiary and the size of the resulting tax shelter?"

"Beginning in 2005, the IRS started the process of trying to change the rules around these tax shelters and simultaneously is in the process of extracting taxes on a retroactive basis from companies who have used these types of tax shelters," Munster said.

"For us, it doesn't really make a difference," said Dong Jin Kim, senior Unix systems administrator for worldwide information systems at Eastman Kodak. "Whatever happens to Symantec, we'll continue to use Veritas, because that's what we depend on."

"We're still happy with everything we've used and continue to do what we've done before," said Joe Kvidera, a consultant at Procedo who works for a large financial services company.

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