Mixed fortunes for security vendors

Mixed results from security software vendors suggest that the expected boom in security-related purchases has yet to materialise to lift the sector out of the doldrums.

Israel-based Internet security vendor Check Point Software pointed to an "upward trend in the business environment" in the fourth quarter, but signalled that prospects for a return to rapid revenue growth remained uncertain. In fact, net profits for the three months to December fell 5% to $81.0 million on revenues down 13% to $122.5 million. Despite the tough quarter, Check Point delivered solid full-year results. Profits rose 45% to $321.9 million thanks to lower costs and a 24% rise in revenues to $527.6 million as Check Point extended its lead in the virtual private network and firewall markets.

Meanwhile, encryption specialist Entrust Technologies' efforts to broaden its appeal beyond public key infrastructure-based products failed to bolster sales. Total revenues for the fourth quarter dropped 41% to $28.4 million. Licence sales were particularly badly hit, more than halving to $12.6 million. There was also little evidence that its focus on attracting customers outside its core markets of financial services and government had paid off, with most new customer wins still within these sectors. Management's focus on "expense management" did deliver benefits: net losses were trimmed by 80% to $5.7 million.

Fourth quarter results from Network Associates failed to shed much light on the state of its business. The anti-virus and network security software vendor reported sales of $259.2 million. But the comparative figure for 2000 – $58.8 million – was affected by a controversial change in earlier revenue recognition practices which entailed recognising sales when distributors took delivery of products rather than when these were actually sold on to end users. CEO George Samenuk, appointed in January 2001, has since reversed this decision.

Results for the 12 months to December 2001 were more illuminating. Excluding McAfee.com, its separately-listed web security services unit, sales were up 12% to $834.5 million. The group reported net losses of $99.3 million, down from $102.7 million in 2000.

Network Associates' arch-rival, Symantec, enjoyed considerably stronger growth in both its business and consumer divisions. In particular, sales of its anti-virus product, buoyed by frequent virus scares, jumped 53%. This contributed to a solid 32% rise in third quarter revenues to the end of December 2001. However, a hefty $57.3 million amortisation charges from the July 2000 acquisition of corporate specialist Axent impacted the bottom line. Net profits plunged 99% to $100,000 from $13.9 million the previous year.

Results were more stable at network and server protection company Internet Security Systems. Revenues for its closing quarter of 2001 fell a modest 3% to $58.0 million. Although net losses increased from $6.1 million to $10.3 million, reflect the company's acquisition of software security specialist Network ICE.

Security software vendors
  Description   Period   Period end   Revenue ($m)   Rev change   Net inc ($m)   Prev net inc ($m)  
Check Point Software Technology Ltd Firewall/VPN s/w 4Q01 31-Dec 122.5 -13% 771.0 81.0
Entrust Technologies Inc Internet security s/w 4Q01 31-Dec 28.4 -41% -5.7 -27.9
Internet Security Systems Inc Internet security s/w 4Q01 31-Dec 58.0 -3% -10.3 6.3
Network Associates Inc Anti-virus/network security s/w 4Q01 31-Dec 259.2 341% -3.5 -147.2
Symantec Corp Enterprise security s/w 3Q02 28-Dec 290.2 32% 0.1 13.9

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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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