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Technology Stocks : Check Point Software (CHKP)
CHKP 111.580.0%Nov 24 4:00 PM EST

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From: D. K. G.10/18/2004 10:45:16 PM
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11:15AM Check Point Software (CHKP) and Service Pak 2 20.62 +2.70: Check Point Software reported earnings this morning of $0.27 per share and revenues of $129 million. Both of these were ahead of consensus estimates. CheckPoint is known for providing firewall and security software for enterprises and consumers. Many investors had the impression that the update to Microsoft's XP operating system (SP2) would hurt the results from the firewall provider as the update included a firewall. Check Point suggested that Microsoft's SP2 was actually a boost to demand in the consumer segment, as it reminded users that they should have a third party firewall on their machines.

The inclusion of the firewall did more to increase awareness of the need for such a product, as it appears that many consumers don't fully trust the Microsoft security products. This bodes well for all the security companies and especially for the anti-virus providers, a space that has had a lot of pressure on it since the idea of Microsoft offering an anti-virus product came out. Stocks that should get some benefit from this idea are Symantec (SYMC) and McAfee (MFE), both of which were constantly targets of selling prior to the release of SP2. The news from Check Point that their consumer market was good, and continues to look good into the fourth quarter, is the first bit of evidence that SP2 did not significantly change the computing environment.

The security software space was hit a few weeks ago when SonicWall and WatchGuard pre-announced. This fanned the flames of the idea that firewall producers would have a difficult quarter. Many pointed to the SP2 inclusion of a firewall, but that did not have as big an effect as many believed. Instead, great execution from Check Point led to share gains and a surprisingly strong enterprise segment. Another idea that had been floated around the security software sector was that enterprises were cutting back on their budgets, but this does not look to be the case.

On the conference call, management noted that they displaced competing products in a number of cases. This displacement was highest in the enterprise segment, although there was some displacement in the medium and small business lines. This certainly led to the idea of growing market share by Check Point over its competitors.

A very important idea came out of the Check Point call and that was that many IT managers were not pleased with the SP2 update. Check Point management noted that people were upset about how certain items were promised but not delivered. This is an early hint that Microsoft security products are not likely to get favorable ratings from many in the IT world. Again, that should bode well for security players such as McAfee and Symantec.

With security reaching mission critical status, its interesting to note that while Microsoft pushed for this idea, it has ended up helping its competitors. Check Point management stated that it did a lot to increase awareness of the need for a firewall, and the strong results in its consumer business showed that third party providers were the solutions of choice.

10:19AM CHKP and Service Pak 2 : This morning CheckPoint (CHKP 20.48 +2.56) released earnings of $0.27 per share and revenues of $129M, both of these metrics were ahead of consensus estimates. CheckPoint is known for providing firewall and security software for enterprises and consumers. Many investors had the impression that with the update to MSFT's XP operating system (SP2) would hurt the results from the firewall provider as the update included a firewall. The company noted that SP2 was a big driver in the consumer segment as it reminded users that they should have a third party firewall on their machines.

The inclusion of the firewall did more to increase awareness of the need for such a product and it appears that many consumers don't fully trust the MSFT security products. This bodes well for all the security companies and especially for the anti-virus providers, a space that has had a lot of pressure on it since the idea of MSFT offering an AV product came out. Stocks that should particularly get some benefit from this idea are SYMC and MFE, both of which were constantly targets of selling prior to the release of SP2. The news from CHKP that their consumer market was good, and continues to look good into the fourth quarter, is the first bit of evidence that SP2 did not significantly change the computing environment.

The security software space was hit a few weeks ago as two providers SNWL and WGRD pre-announced. This fanned the flames of the idea that firewall producers would have difficult quarters. Many pointed to the SP2 inclusion of a firewall, but that did not have as big an effect as many believed. Instead, great execution from CHKP led to share gains and a surprisingly strong enterprise segment. Another idea that had been floated around the security software sector was that enterprises were cutting back on their budgets, but this does not look to be the case.

On the conference call, management noted that they displaced competing products in a number of cases. This displacement was highest in the enterprise segment, although there was some displacement in the medium and small business lines. This certainly led to the idea of growing market share by CHKP over its competitors.

A very important idea came out of the CHKP call and that was that many IT managers were not pleased with the SP2 update. CHKP management noted that people were upset about how certain items were promised by not delivered. This is an early hint that MSFT security products are not likely to get favorable ratings from many in the IT world. Again, that should bode well for security players such as MFE and SYMC.

With security reaching mission critical status, its interesting to note that while MSFT pushed for this idea, it has ended up helping its competitors. CHKP management stated that it did a lot to increase awareness of the need for a firewall, and the strong results in its consumer business showed that third party providers were the solutions of choice.
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