The expected boom in corporate security-related purchases has yet to materialise. Quarterly results from security software specialists were evidence of continued customer deferrals, heightened competition and generally poor trading conditions.
Check Point Software, for example, blamed cutbacks on corporate IT spending for disappointing results for the first quarter to March 2002. The Israel-based company suffered a 28% fall in revenues to $104.6 million (€119.2m) and a 24% decline in net income to $63.5 million (€72.4m). Analysts suggest the firewall software giant is also under increasing pressure from rivals Cisco Systems and NetScreen. Chief executive Gil Shwed denied this, but had few words or encouragement. “Visibility remains limited,” he sighed.
Stonesoft, which has complained to the European Commission in the recent past that Check Point was abusing its dominant market position, also reported disappointing figures. Sales at the Finnish firewall and virtual private network vendor plummeted 42% to €9.8 million. This was due to weak market conditions and the sale of its systems integration business, the company said. A gain of €10.2 million from the sale at least partly compensated for falling revenues and restructuring charges, pushing the security software group €700,000 into the black. In the same period last year, Stonesoft made losses of €2.2 million.
Meanwhile, Aladdin Knowledge Systems, which sells anti-piracy software, made some progress in building sales and reaching profitability. Revenues at the Israeli company nudged ahead 2% to $12.5 million (€14.3m) thanks to increasing demand for its content and Internet security products. “Efficiency measures,” according to CEO Yanki Margalit, helped narrow losses to $332,000 (€360,000) from $509,000 (€553,000) a year earlier.
In contrast, ActivCard, the French supplier of authentication and identity technology, saw first-quarter losses balloon to $28.6 million (€32.6m) from $371,000 (€404,000) the previous year. Management blamed this on a steep restructuring charge and $15 million (€16.3m) written down to cover the 2001 acquisition of Internet authentication group Authentic8. Sales jumped 15% to $8.2 million (€9.3m) thanks to a series of acquisitions in 2001.
In the US, strong headline figures for Verisign’s first-quarter results masked dismal trading conditions. Sales at the Internet security vendor rose 54% to $327.8 million (€356.5m). This was far lower than expected, given the string of acquisitions Verisign has picked up in recent months. Analysts say that corporate IT spending delays and growing competition in its domain-name business are to blame for the sales shortfall. The company did narrow its loss to $20.9 million (€22.7) from $1.4 billion (€1.5bn) in the first quarter of 2001 — but much of this was due to an accounting change that eliminated its hefty goodwill amortisation charges.
Strong results from anti-virus and network security Network Associates were overshadowed by revelations that it will restate its results for 1998, 1999 and 2000. Sales in the first quarter of 2002 rose by a third to $220.7 million (€239.9m). Combined with a $6.7 million (€7.3m) gain from selling assets, this upturn in sales pushed the company $15.8 million (€17.3m) into the black, from losses of $47.4 million (€51.5m) in the first quarter of 2001.
Network Associates faces a Securities and Exchanges Commission investigation into its accounting practices. The same goes for RSA Security, the Internet security software vendor. That was not its only recent piece of bad news. The company fell $13.7 million (€14.9m) into the red during the first quarter of 2002, from profits of $9.8 million (€10.6m) in the same period last year. Management blamed weak corporate IT spending for a 27% fall in sales to $55.5 million (€60.2m). Analysts point to tougher competition from rivals Secure Computing and Netegrity. The need to get costs in line with lower sales prompted executives to unveil a restructuring plan, a second round of job cuts and news that some product lines will be stopped.