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Security Dynamics Reaping Benefits Of Latest Product, Online Stakes
By FRANK BYRT, STAFF REPORTER
BOSTON -- Security Dynamics Technologies Inc., a young firm that is already a big player in designing and selling computer-security products, may have an ace up its sleeve when it comes to share value.
That's because of the Bedford, Mass.-based company's investments in several Internet-related firms, investments that are now worth millions. In addition, a new product is expected to be a big success.
Security Dynamics' primary mission is coming up with products for protecting computer networks from interlopers using changing numerical passwords. The company's flagship product is SecurID, a credit card-type device that provides centralized, nonrepeating numerical passwords for users of computer networks. It is in use by about four million computer users, the company said.
Security Dynamics is now coming to market with Keon, a much more sophisticated Internet security device that will facilitate business-to-business electronic commerce, the company said. It expects Keon will soon become its primary source of revenue, surpassing SecurID, so the company is in a state of transition, Security Dynamics executives said.
Jim Wade, an analyst with the Baltimore office of Deutsche Bank-Alex. Brown, rates Security Dynamics a "strong buy," based on the outlook for Keon. "We think this new product is significant and represents a leading-edge technology for network and Internet security products."
Charles Stuckey, Security Dynamics chief executive, said Keon will have a far-reaching impact on Internet business as it will make sure that others can't access the information being sent. Also, the business placing an order can't come back later and deny it.
Stuckey said the first versions of Keon were released this month and eventually it will become the largest source of company revenue.
Last year, the company reported earnings of $29.4 million, or 45 cents a share, on sales of $171.3 million. The results were before items, including partial proceeds from an investment. For 1997, it reported $17 million, or 58 cents a share, excluding items, on sales of $140.6 million.
The mean estimate of analysts surveyed by First Call is for earnings of 68 cents in 1999 and 89 cents in 2000.
Security Dynamics officials said the company is currently in a quiet period before the release of second-quarter earnings, due July 15, and therefore couldn't comment on the estimates.
Security Dynamics (SDTI) shares edged up 37.5 cents, or 2.1%, to close at $18.125 Monday. The 52-week high was $30.625 set on Jan. 9, and the 52-week low was $5.438, set on Oct. 8, 1998.
Among its Internet investments, the company has a hefty stake in VeriSign Inc. (VRSN). It has an agreement to distribute one of VeriSign's computer-security products, but the pre-initial public offering investment also brought a windfall in terms of share appreciation.
Internet security firm VeriSign went public in January 1998 at $14 a share. The per-share value has climbed steadily from about $19.125 a year ago, adjusted for a stock split. It closed at $74 Monday, up $5.50, or 8%.
The sale of some of the VeriSign shares by Security Dynamics resulted in a $31.3 million gain it recognized in 1998. As of the end of 1998, Security Dynamics still held 3.6 million shares, then worth about $213 million.
After another VeriSign public offering and Security Dynamics sale of additional stock, it recorded a gain of $74.7 million in January, and in the second quarter it will recognize an increase of $12.6 million on VeriSign, the company said in its annual report.
Security Dynamics also has stakes in five other companies that develop Internet-trading security products.
Arthur Coviello, Security Dynamics president, said he thinks the appetite for sophisticated computer-security products will be insatiable once Internet commerce becomes accepted by major companies. "We think the market should grow 100% annually for the foreseeable future and we expect to get our fair share.
"(Keon) is a whole new product line," he said. "And we're encouraged that we're here with the right product at the right time."
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