A Fortune In Firewalls
By Lea Goldman
Forbes.com
03.18.02
<<Gil Shwed built the world's biggest seller of security software for corporate paranoiacs. Now he wants to protect you at home and on the road.
Four years go virtually unmentioned in the official biography of Israeli billionaire Gil Shwed. This much information can be cobbled together: In 1986 Shwed, just 18 years old, joined the supersecret electronic intelligence arm of the Israeli Defense Forces called Unit 8200. His job most likely was to string together military computer networks in a way that would allow some users access to confidential materials while denying access to others. When he left the service in 1990, Shwed walked off with the idea that would define his career and make him one of the youngest members of FORBES' billionaires list.
Shwed, now 34 years old, has amassed a $1 billion fortune in less than a decade by building firewalls. A firewall is a piece of software that protects networks from outside attacks and inside snoops. The company he cofounded and runs, Check Point Software Technologies, in Ramat Gan, Israel, sells the most popular firewall in the world. Since its inception in 1993, Check Point has installed its products at more than 250,000 sites, including 90% of America's 500 largest firms. An estimated 100 million people safely communicate over the Net as a result. To this day, despite countless well-publicized viruses and hacks, Shwed says its flagship product, FireWall-1, has never been breached.
America may have its Bill Gates, but Israel has its own "Gil Bates," as Shwed is often referred to in the local papers. Last year Check Point earned $322 million on sales of $528 million. That astounding margin is due, in part, to the tremendous tax breaks the company enjoys in Israel, paying just 14.4% on pretax income, while most U.S. firms pay upwards of 34%.
Though Shwed's 12% stake could easily bankroll a life of leisure, he wouldn't consider cashing out at the most critical point in his firm's history. Far bigger rivals are horning in on his turf. Microsoft now bundles firewall features into Windows XP. Cisco includes firewall software with nearly all of its routers, the crucial boxes that move data around networks. In September it rolled out a new firewall device aimed at consumers.
In January the tech spending freeze finally caught up with Check Point when it announced its 2001 results. Although revenue was up 24%, Check Point did some fancy financial footwork to get there, using $4.5 million in deferred revenue, or sales from previous quarters but not yet recognized as revenue. In a market sensitive to any whiff of accounting games, Check Point stock fell 13% to $39 in a single day and has continued to slide. Shwed predicts his revenue will grow only 10% this year, a far cry from the 44% average annual growth investors are used to seeing. Since he first appeared on our billionaires list last year, Shwed has shed $600 million from his personal net worth. (A Check Point cofounder, Marius Nacht, fell off the list.)
Shwed shrugs off questions about his net worth. "It's not how I measure my well-being," he says. "I do what I like, and there's no reason that paper money should change that." Besides, Shwed has a grand plan to expand far beyond his current business. For the last nine years Check Point has soothed the fears of corporate managers leery of hackers, rogue insiders and other baddies prowling the Net. Now Shwed wants to protect people running computers at home.
Many of the 28 million telecommuters in the U.S. log on to their company networks from home. Fifteen million people worldwide already subscribe to residential high-speed Internet service. By 2005 that population should reach 26 million. For hackers, shark bait. These subscribers have their cable and DSL modems always on. Hackers seek out these links and try to steal credit card data, an identity or backdoor access into corporate networks. Last summer Carnegie Mellon's Software Engineering Institute, a clearinghouse for Internet security problems, issued an advisory to consumers warning of four viruses, including the infamous "Code Red" worm, that could expose their computers to hacks.
Vulnerable network points outside the home are spreading like kudzu, too. Already 73 million people worldwide use wireless data phones, a group expected to grow to 502 million by 2006. Shipments of Wi-fi networking chips for PCs and laptops, expected to hit 16 million this year, will grow to 44 million by 2005.>>
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