Financial results

In its survey of business priorities for the CIO in 2006, analyst firm Gartner noted that ‘security breaches and disruptions’ had dropped from its position of second highest in 2005 to just seventh.

“This does not mean that security is no longer an issue,” said Gartner’s Martin Blosch of the finding. “Rather, it indicates that in 2006, the business expects IT to be secure, and is looking to the CIO to keep it that way.”

That short summary represents a seismic shift in spending patterns for the security industry to adjust to: security spending is set to become part of routine expenditure, rather than funding being allocated to specific projects. Judging by the cluster of results from some of the affected vendors published in February 2006, the industry has been slow to react to this change.

RSA Security, the maker of authentication tokens, saw little growth during 2005, and revenues actually shrank in its first fiscal quarter of 2006, down to $81.7 million, a 2% drop on the same quarter a year earlier. That is disappointing from a company that was rated by industry observers as being among the ten fastest growing technology companies as recently as 2003.

RSA derives most of its revenues from internal security implementations, but it is seeking to extend its reach, targeting businesses which are engaged in implementing federated identity systems. However, this has yet to translate into bottom-line improvements, and RSA is not the only company going after this market.

Meanwhile, antivirus vendor McAfee also reported below-par results. It reported 4% revenue growth for its quarter ending 31 December 2005, up from $244.2 million in the same quarter in the previous year, to $253.3 million. But while revenues were growing, such small growth was a disappointment.

In contrast to these showings, a brace of companies in the security market reported impressive performances, including Internet security software vendors Check Point and Internet Security Systems (ISS). Revenues at Check Point grew by 9% to $143.0 million in its fourth quarter of 2004 to $156.1 million in the same period of 2005. At ISS, revenues grew by 13% to reach $91 million from $80.6 million in the previous year.

 It is clear that both the industry and users are changing the way security services are paid for. And while one or two companies might be currently struggling to keep up with the changing times, the demand for security services is as strong as ever.

Financial management

Systems management software vendor BMC software, reported a dip in revenues of 2% during its third fiscal quarter of 2006, ending 31 December 2005, down to $380.3 million from $386.8 in the year-ago quarter. Nevertheless, its profits increased 29% year-on-year, up to $46.9 million from $36.4 million. The increase in profits reflects the progress the company has made in cutting back costs.

BMC also managed to grow revenues in its IT service management division. But while this will please its management board, Ovum analyst David Bradshaw warns that the company cannot rely on this division going forward, as competition here is set to intensify. “BMC is an early leader in this space,” he writes, “but eventually this market is likely to be dominated by three very large players, CA, Hewlett-Packard and IBM. BMC will face a very tough fight to maintain its position in this market.”

One tactic to maintain market leadership open to BMC’s management is taking the company private. This would allow it to concentrate resources on building market share, while easing the pressure to please the financial community.

Rumours of a private equity buyout have swirled around the company recently, and the cash-rich vendor has already implemented a share buy-back scheme. According to one report, the company is in a position buy as much as 41% of its own shares back, should it chose to do so.

Another company identified as being in a position to buy a significant proportion of its own shares is application server maker BEA Systems. It reported revenue growth of 17% for the quarter ending 31 January 2006, at $341.4 million compared $290.8 million in the same of period the previous year.

The company’s licence and service revenues also grew 18% and 17% respectively compared to the year-ago quarter. This growth was attributed to a strong performance in the Asia-Pacific market by David Rudow, senior research analyst at financial advisory firm Piper Jaffray. “We believe that service-oriented architecture (SOA) is on the radar of the majority of enterprise customers and that BEA could benefit from increasing customer interest in this area,” says Rudow.

But BEA faces stiff competition: the SOA market – if it can be defined – encompasses a huge range of software vendors, from application makers to middleware vendors to integration companies. BEA’s management has placed significant store in its ability to deliver a credible SOA strategy to its customers, having seen its domination of the application server market eroded. Its management could strengthen control over the organisation through an extended stock buy-back programme and in the process ensure its strategic intentions remain fixed.

However, BEA’s priority must be to integrate its various technology components into a compelling unified suite.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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