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Wednesday 06 November 2019

Shrinking hardware sales trim Sophos H1 growth

Shrinking hardware sales trim Sophos growthSophos’ interim results indicate the Abingdon-headquartered cyber security firm is seeing impressive double digit growth in its software and SaaS revenue, partially offset by the shrinkage of its hardware business.

Overall revenue grew 5% year on year to US$366m. But while subscriptions expanded 11% in constant currency to US$313m hardware sales dipped 5% to US$49m. Billings followed an almost identical pattern, also up by 5% yoy to US$372m overall (a considerable improvement on the flatlining seen in FY19) but with subscriptions growing 12% to US$322m and hardware declining 5% to US$48m.

Management cited the steep decline in pre-tax profits from US$26m in H119 to a loss of US$1.5m this time around was due to “exceptional restructuring and legal costs” combined with one off credits in the previous period. Indeed Sophos’ adjusted operating profit remained flat yoy at US$49m.

Segment performance illustrate the broader trend amongst cyber security suppliers which sees hardware sales, support and maintenance turnover disappearing into cloud hosted provision and leasing arrangements (read more in our latest UK SITS Market Trends and Forecasts 2019 report here) leading to big changes in the revenue mix.

Sophos has indicated it would like to see itself more as a managed security service provider (MSSP) than a product supplier in the future. The recent acquisitions of start-ups Avid Secure and Dark Bytes build out those MSSP capabilities with additional security orchestration automation response (SOAR), analytics and monitoring tools dovetailing nicely with Sophos’ endpoint and network security portfolio.

No first half shareholder dividends were proposed while the finer detail of Sophos’ pending US$3.1bn acquisition by Thoma Bravo is worked out. We wait to see what the new owners have in mind for its new asset but doubt drastic restructuring is needed. Other than declines in sales of on-premise hardware - which Sophos has taken measures to counteract with increased emphasis on SaaS, protecting its customers cloud-hosted workloads and managed service provision – the company looks in much better shape than it did a year ago.

Posted by: Martin Courtney

Tags: results   compliance   H1   firewall   endpointprotection   cybersecurity   SOAR  

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