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Technology Stocks : Check Point Software (CHKP) -- Ignore unavailable to you. Want to Upgrade?

To: Elmer Flugum who wrote (4198)	6/29/1999 10:05:00 PM
From: P.M.Freedman	Respond to of 7150

news.com

To: Elmer Flugum who wrote (4198)	6/30/1999 8:31:00 PM
From: Freeflight	Read Replies (2) \| Respond to of 7150

Check Point struggles for respect By Tim Clark Staff Writer, CNET News.com July 27, 1998, 4:00 a.m. PT special feature REDWOOD CITY, California--For a hot company in a hot sector, Check Point Software gets little respect on Wall Street. "We feel that the company has made no indication how its going to segue out of the firewall market into a higher-growth, less-commoditized business, something that's not in the direct line of fire of Cisco or Microsoft," said Cameron Hight, analyst with CIBC Oppenheimer, which rates Check Point a "hold." Never mind that Check Point has dominated the firewall market with its FireWall-1 software. Never mind that it claims to be the No. 1 provider of virtual private networks. Never mind that its security management software controls products from other companies, not just its own. All that is history. Investors worry about the future. Mostly they fear that software giant Microsoft and networking powerhouse Cisco Systems will get really serious about security and crush Check Point. "When you start throwing around names like Cisco and Microsoft--either one of them would be scary enough to an investor," said Deborah Triant, Check Point's U.S. chief executive. "And when you throw both names in at the same time--my God!--it sounds like a scary business." In January, for example, Morgan Stanley Dean Witter downgraded the company's stock because it speculated that the two giants were headed into Check Point's market sooner than expected. In April, Microsoft's No. 2 executive and newly named president, Steve Ballmer, told a publication in Israel, where Check Point was founded and maintains research operations, that Microsoft was heading into its territory. Check Point's stock fell 16 percent to 34 and hasn't recovered yet, despite a joint announcement weeks later--conspicuously quoting Ballmer--affirming the Check Point-Microsoft relationship. Even Check Point's upbeat earnings report last week, with net income of 44 cents share beating the Wall Street consensus of 36 cents, failed to rally the stock, which closed Friday at 24.625. Operating revenues were $34.2 million, up from $18 million a year earlier. So why does Check Point's stock keep going down? "That's a question I ask a lot," said Eric Zimits, who's maintained a "buy" recommendation on Check Point for brokerage Hambrecht & Quist for a year. "The implication to certain investors is that company is struggling to generate [revenue] growth, but the company remains very, very profitable." But Check Point's chief problem is that the firewall market, with which it is closely identified, is in decline. "We are forecasting that the standalone firewall market decelerates very quickly in next three years," said Jim Hurley, security analyst and consultant with Aberdeen Group. He sees firewall capabilities becoming embedded in network devices like routers or attached to individual desktop PCs or workstations. "The result of all this is not lost on Check Point, and they've been trying to reposition what they do in the security management space, managing security across multiple devices and services," Hurley adds. In fact, Check Point's gross profit margins are so fat that they're not considered sustainable. The company has warned Wall Street that in moving from start-up to established player--the company now has 400 employees, half in the United States--Check Point will build a corporate infrastructure, including a low-return technical support operation. Research costs remain high as the company diversifies into new areas like bandwidth and network management. Check Point also has launched a security consulting business, a near-necessity in the current market, but services are less profitable than products. "We feel that the company has made no indication how its going to segue out of the firewall market into a higher-growth, less-commoditized business, something that's not in the direct line of fire of Cisco or Microsoft," said Cameron Hight, analyst with CIBC Oppenheimer, which rates Check Point a "hold."