OT
Here is an example of an outstanding detailed project hunt report on CHKP using the format much of the thread decided upon. I think the thread has decided SSTI is definitely not a gorilla; exactly where it belongs in gg, if at all, is debateable. Project Hunt reports can go a long way in determining that.
From: Eric Jacobson Thursday, Apr 13, 2000 4:10 PM ET
Reply # of 36418
Check Point Software Technologies Ltd. (CHKP) Project Hunt Report
1. Overview
Information, and the ability to access and distribute it, is the top strategic asset in today's competitive business environment. This need to effectively use and communicate information as well as work more collaboratively has driven the extensive deployment of network-based communications systems. The resulting explosion in connectivity is in turn driving the need for technology to safeguard and manage the access to information available over these increasingly global networks.
The Market
From CHKP's Form 20-F: "The network computing market has undergone two major transitions over the past decade, the convergence of which has contributed to the recent dramatic increase in global connectivity. The first of these transitions was the migration of corporate computing environments from centralized mainframe systems to distributed client/server environments. The ability to access and share information through client/server technology has expanded the need for connectivity beyond workgroup LANs to enterprise-wide networks spanning multiple LANs and WANs. The second major transition has been the widespread adoption of the Internet for business to business communications. Internet-based business applications have rapidly expanded beyond e-mail to a broad range of business applications and services including electronic publishing, direct to customer transactions, product marketing, advertising and customer support.
"At the same time, the convergence of these two major transitions and the need for secure, managed communications, has led to the emergence of virtual private networks, or VPNs, using the public Internet infrastructure and associated protocols and applications to share information and services both within the enterprise and with business partners and customers. As a result, businesses are able to share internal information and to run enterprise applications across geographically dispersed facilities as well as enable customers, suppliers and other business partners to inexpensively link into their enterprise information systems. As Internet protocols and infrastructure gain increasingly widespread acceptance for global communication, new wide-area connectivity services continue to emerge at a rapid rate, such as database access, transaction processing services, audio and telephone services and video teleconferencing services. This expansion of services and applications is further accelerating the use of networks as global communication systems.
"Although the explosion of connectivity and information exchange provides tremendous benefits, it also exposes an organization's sensitive information and mission critical applications to unauthorized access, both through connections to the public Internet and from within the enterprise. In addition, the transmission of data over the Internet also exposes the data to unauthorized interception. These risks create a critical need for enterprises to protect their information and information systems from unauthorized access and use.
"Historical methods for securing information resources are no longer adequate to meet the security requirements of today's global networks. In the centralized mainframe environments that dominated the information systems landscape in previous years, organizations were able to secure a limited number of access points through physical barriers and controlled access to data through log-on procedures and password protection. However, in today's distributed network environments with multiple points of access and multiple network resources, it is impractical to individually secure every application and resource on the network. Therefore, an additional layer of security at the network level is needed to act as a "virtual" barrier to control access to the network and to regulate and protect the flow of data between network segments.
"The increasing demands placed on enterprise security systems by the expansion of Internet services and global enterprise networking are quickly outpacing the capabilities of many traditional Internet firewall architectures. These demands include the need to define and transparently enforce an integrated, enterprise-wide security policy that can be managed centrally and implemented on a distributed basis. An effective network security solution also needs to be open and extensible to enable it to address the rapidly changing requirements of the Internet and intranets, including the addition of new applications, such as authentication, encryption, URL filtering, anti-virus protection, and Java and ActiveX security services and functions."
The Company
Check Point Software Technologies Ltd. is the worldwide leader in securing the Internet. The company's Secure Virtual Network (SVN) architecture provides the infrastructure that enables secure and reliable Internet communications. SVN secures business-to-business (B2B) communications between networks, systems, applications and users across the Internet, intranets and extranets. Check Point's Open Platform for Security (OPSEC) provides the framework for integration and interoperability with "best-of-breed" solutions from over 200 leading industry partners. Some of the primary products include the market-leading enterprise security suite, Check Point FireWall-1 and the VPN-1 family for virtual private networking.
The company was founded in 1993, had its IPO in June 1996. The company is headquartered in Ramat-Gan, Israel with US headquarters in Redwood City, CA. There are currently about 800+ employees. Until March 1999, the company traded under the symbol CHKPF.
From CHKP's Form 20-F: "Check Point Software developed a fundamentally new approach to network security and traffic management that provides a platform for secure enterprise connectivity. Check Point's Stateful Inspection technology, the foundation of Check Point's network security and traffic management product offerings, enables system administrators to define and transparently enforce an integrated, centrally managed, enterprise-wide network traffic policy that provides for secure and reliable communications. In addition, the Company's Open Platform for Secure Enterprise Connectivity (OPSEC) architecture provides a single platform that enables integration with over 200 third-party security applications, computer hardware, internetworking hardware, appliances and enterprise applications from within Check Point's open, extensible management framework."
Check Point products protect and manage the corporate assets of the majority of Fortune 100 companies and other leading companies and government agencies across the globe. As of
January 2000, the company has more than 40,000 registered customers with over 110,000 installations worldwide and 34,000+ networks worldwide using its award-winning VPN solution. The Meta IP and Meta DNS products had some 20,000 installations worldwide.
Competitors
CHKP's principal network security competitors include Cisco Systems, Network Associates, Axent and Secure Computing. Other competitors include Microsoft, Novell, Hewlett Packard, Sun Microsystems, IBM, WatchGuard, Sonic, NetScreen, Xedia, 3Com, Nortel, Lucent and Packeteer.
III. Financial Information
FY95 FY96 FY97 FY98 FY99
Net Rev 10,070 34,580 86,352 141,941 219,567
Cost of Sales 779 2,884 6,839 13,623 22,423
Gross Profit 9,291 31,696 79,513 128,318 197,144
Op. Expense 4,346 17,719 41,482 61,481 100,221
Op. Income 4,945 13,977 38,031 66,837 96,923
Other Income -24 1,490 3,796 6,987 12,962
Income bef Tax 4,921 15,467 41,827 73,824 109,885
Income Tax -10 346 2,309 3,947 14,104
Net Income 4,931 15,121 39,518 69,877 95,781
Outst. Shares 67,572 72,000 76,104 77,390 82,152
EPS (diluted) $0.07 $0.21 $0.52 $0.90 $1.17
Gross Margin 92.3% 91.7% 92.1% 90.4% 89.8%
Net Margin 49.0% 43.7% 45.8% 49.2% 43.6%
YOY Rev Growth 1168.3% 243.4% 149.7% 64.4% 54.7%
YOY NI Growth 20449% 206.7% 161.3% 76.8% 37.1%
3/31/99 6/30/99 9/30/99 12/31/99 3/31/00
Net Rev 43,772 50,051 57,799 67,945 78,166
Cost of Sales 4,711 5,092 6,053 6,567 7,644
Gross Profit 39,061 44,959 51,746 61,378 70,522
Op. Expense 19,548 23,316 26,620 30,737 35,592
Op. Income 19,513 21,643 25,126 30,641 34,930
Int. Income 2,624 2,897 3,609 3,832 5,494
Other Income 0 0 0 0 0
Inc bef Tax 22,137 24,540 28,735 34,473 40,424
Income Tax 2,434 3,008 4,010 4,652 5,545
Net Income 19,703 21,532 24,725 29,821 34,879
Outst. Shares 80,610 81,118 82,842 85,568 87,647
EPS (diluted) $0.24 $0.27 $0.30 $0.35 $0.40
Gross Margin 89.2% 89.8% 89.5% 90.3% 90.2%
Net Margin 45.0% 43.0% 42.8% 43.9% 44.6%
QOQ Rev Growth n/a n/a n/a 55.2% 56.2%
QOQ NI Growth n/a n/a n/a 51.4% 62.0%
Seq. Quarterly Rev. Growth
n/a 14.3% 15.5% 17.6% 15.0%
Seq Quarterly NI Growth
n/a 9.3% 14.8% 20.6% 17.0%
IV. Stock Information
Shares Outstanding: 87 M
Float: 52.2 M
% owned by insiders 30%
% owned by institutions: 50%
52 week hi/lo: $295 - $15
Market Capitalization: $13 billion
G/K Characteristics
A. Is there a discontinuous innovation or a proprietary open architecture?
Yes, there is a discontinuous innovation. In addition, CHKP's products appear to be leaders in the market in terms of speed, reliability, and interoperability.
Yes, there is a proprietary open architecture. CHKP relies on patents, trade secrets, and innovation to create new products and protect its market leadership. CHKP's Open Platform for Secure Enterprise Connectivity (OPSEC) architecture provides a single platform that enables integration with over 200 third-party security applications, computer hardware, internetworking hardware, appliances and enterprise applications from within Check Point's open, extensible management framework."
B. Does it have the potential to grow into a mass market phenomenon, become a standard?
Yes. The worldwide Internet security software market is estimated to reach $7.4
billion by 2002 from $4.2 billion in 1999. See
personalwealth.com.
C. Are there high barriers to entry and high switching costs?
I do not currently see any exceptionally high barriers to entry. CHKP's leadership appears to be based on the speed, reliability, and interoperability of it's products, as well as being the "first mover" in the market.
The interoperability of CHKP's software with the hardware and software from a variety of vendors appears to represent a significant switching cost.
D. Have value chains developed?
Yes. According to the manual, a value chain is a cooperative enterprise whereby numerous entities link up to fulfill a specific value proposition to a target customer (p. 44).
One example of CHKP's value chain is that a number of companies include pre-installed, pre-configured Check Point security software in their hardware. These companies include Sun, Nortel, IBM, Compaq, Alcatal, Nokia, Dell, and others. In addition, through OPSEC, CHKP has enabled more then 200 companies to produce products that are interoperable.
E. Have they crossed the chasm?
Yes, CHKP has crossed the chasm, been through the bowling alley, generated a tornado, and is now on Main Street
F. Existance of hypergrowth?
CHKP generated YOY revenue growth greater than 300% in 1995, greater than 200% in 1996, and greater than 100% in 1997. YOY revenue growth has slowed to 55% in the most recent 1999 FY.
The company is no longer in hypergrowth mode. The company recently gave guidance to expect YOY revenue growth around 50% and YOY earnings growth in the 45-50% range. See
cbs.marketwatch.com.
V. Summary and Analysis
The market in which Check Point Software Technologies competes is applications software for the network security solutions for enterprise networks, including virtual private networks (VPNs), firewalls, intranet and extranet security and managed service provider (MSP) management software. This market has been through a tornado and CHKP has emerged as the market leader. It is likely CHKP is the Gorilla in this space. However, CHKP appears to be subject to increasing competition, and has had both gross and net margins erode slightly over the past two years. This could be a sign the company has entered into a new, somewhat slower growth phase characteristic of Main Street. However, this could also support an argument that CHKP is a King that is subject to competitive and margin pressures.
VI. References
Company Webpage
checkpoint.com
Check Point Software Technologies Ltd. Reports Record Financial Results for First Quarter 2000
biz.yahoo.com
Performance Puts Check Point on Top
networkcomputing.com |
