|Firing Up Check Point's Firewalls|
CHECK POINT SOFTWARE TECHNOLOGIES has always had an interesting business, supplying software that secures corporate networks against hackers and snoops. But the Israeli company hasn't had much of an interesting growth story in recent years. Sales have been flat, and its 10-year stock chart looks like a broad, flat plain, with a spike in the Bubble years that reached 112 (split-adjusted). Last week, the shares were quoted at 23.
Business may be getting more interesting for Check Point. September-quarter results surprised Wall Street, with revenues that grew 22%, to $129 million, and earnings per share that rose 18%, to 26 cents. About a third of sales came from newer products like the ZoneAlarm personal firewall for home PCs and security gateways that allow a company's customers and employees to securely access the network using an Internet browser component called SSL.
Chief executive Gil Shwed says that sales have also been strong this year for Check Point's traditional firewalls, which guard network perimeters against unauthorized traffic, and VPNs, or Virtual Private Networks, which encode company traffic before it crosses the public Internet. Large customers are upgrading their firewalls and standardizing on a single network-security vendor, so that's given Check Point a chance to capture some good-size sales, says Shwed.
Swell Dell: The Nasdaq Composite climbed 2.3% for the week, closing at 2085.34, its highest level in nine months. Dell surged 8.6% Friday to its loftiest close since 2000, after reporting a 25% jump in third-quarter profits.
The company hopes to sustain its growth revival with the new products, knitting them together with the old to form a unified security architecture. With ZoneAlarm on notebooks and home office PCs, corporate security directors could precisely control the permissible network activities of company workers. Personal firewalls from competitors like Microsoft and Symantec don't allow such customization, Shwed says.
Those aren't Check Point's only rivals, of course. Cisco runs a healthy second place in sales of corporate firewalls and VPNs. A longtime partner of Check Point, namely Nokia, is also becoming more of a rival. Check Point gets a third of its sales on battle-hardened network "appliances" made by Nokia. This year, to Nokia's consternation, Check Point started selling its own appliances.
Shwed says that his company's appliance offerings don't compete with Nokia's. At its recent analyst meeting, Nokia said that it would continue to use Check Point firewall software but will increasingly deploy its own technology for security products like VPNs and SSL browser gateways. Mary McDowell, who oversees Nokia's corporate products, said that Nokia will ensure that any strains with Check Point don't disrupt customers: "We've got to work it out for the sake of the kids."
Nokia CEO Jorma Ollila was less conciliatory in discussing the network security business. "We have our own ambitions there," he told me.
But at 23, Check Point shares aren't especially expensive. Its six bucks in cash a share represents nearly 30% of its share value, and the company has used its handsome profit margins and cash flow to buy back stock. With next year's expected earnings at around $1.15 a share, Check Point's earnings multiple is 20 times. If Gil Shwed can keep the growth going, Check Point investors could nudge up that earnings multiple -- and the shares.