Security Heavyweights Issue Warnings

IT security firms are not insulated from the IT downturn, as previously thought in many circles. Companies are finding out the hard way that security spending also feels the pinch of corporate belt tightening. Both Check Point Technologies Ltd. (Nasdaq-CHKP) and Internet Security Systems (Nasdaq-ISSX) have warned that they wouldn't meet second-quarter expectations.

Check Point says revenue for the second quarter will fall between $140 million and $142 million, short of the $150 million estimated by stock-market analysis firm First Call. For the same period last year, Check Point had revenue of $90.7 million. However, the company expects earnings of 32 cents a share, meeting First Call's estimate, and beating the 17 cents logged a year ago.

Check Point CEO Gil Shwed says the company expects fiscal 2001 revenue to rise 30% to 50% over last year's total. First Call says the consensus estimate among market analysts is $630 million--a 48% increase. Shwed says the wide percentage spread is due to the volatility of the market. If things remain the same, he says, Check Point will report closer to a 30% increase. "The 50% [figure] is dependent on real improvement on the general economy," he says.

For its part, ISS has reduced second-quarter expectations. The company's management says it will post earnings of $50 million to $52 million. Earnings, according to the company, will be between flat or as much as a 2-cent-a-share loss.

Previous revenue expectations for the second quarter were $64 million to $67 million; expected earnings were between 15 and 16 cents a share. For the same period last year, ISS posted revenue of $44 million and earnings of 9 cents a share.

Pete Lindstrom, a senior analyst at Hurwitz Group, says companies are becoming increasingly sensitive to security costs and no longer will to simply "throw money at security." "The jig is up. Security vendors are finding that they have to work much harder to justify why and how security is to be deployed as companies become smarter regarding its total cost," he adds.

In related news, public-key-infrastructure vendor Baltimore Technologies announced a new restructuring and a second round of job cuts. The news comes just two months after Baltimore slashed 250 positions. Baltimore declined to say how many of its 1,200 employees face termination. Details of the restructuring will be made in August, when the company reports second-quarter performance and guidance for the remainder of the year.