Internet security software firms take a hit on Wall Street

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http://www0.mercurycenter.com/svtech/news/indepth/docs/secure122800.htm

BY ELISE ACKERMAN
Mercury News
Posted at 7:56 p.m. PST Wednesday, Dec. 27, 2000

The abrupt resignations of three top executives from Network
Associates Inc. sent a brief chill through the security sector
Wednesday as stock in the well-known maker of anti-virus software
plunged 62 percent, sweeping the shares of at least three other
leading security companies along in the downdraft.

But analysts say the outlook for sales of security software products
remains healthy, especially compared with the sickly condition of
other Internet-focused sectors, like consumer-targeted online retail
or Web content.

``We are still bullish on the market,'' said Erik Suppiger, senior
networking analyst at Chase H&Q.

After the close of trading on the Nasdaq stock market Tuesday, Network
Associates announced the resignation of Chairman and CEO William
Larson, President and COO Peter Watkins and Chief Financial Officer
Prabhat Goyal. The Santa Clara company also warned it is likely to
report an unexpected fourth-quarter loss of $130 million to $140
million, due to slowing demand and a new accounting policy.

The company's stock began to fall in after-hours trading Tuesday. By
the market's close on Wednesday it had dropped 62 percent to $4.50, a
52-week low. Its 52-week high was $37.19 on March 22.

Shares in Entrust Technologies Inc., which makes public-key
infrastructure products, skidded 15 percent to $10.44 on Wednesday,
and shares in firewall maker Check Point Software Technologies Ltd.
fell 4 percent to $135.19.

Symantec Corp., Network Associates' chief competitor, saw its stock
dip 4 percent to close at $30.94. Symantec CEO John Thompson issued a
statement asserting it was a mistake to link Symantec with the
problems of Network Associates.

``According to the latest PC Data figures, seven of the top 20
best-selling business software comes from Symantec,'' Thompson said.
``The problems of one company are not indicative of the entire
industry segment. We believe the Internet security opportunity
represents tremendous potential for long-term growth.''

Charles Kolodgy, research manager for Internet security at IDC, agreed
that companies that make software to protect computer networks are in
better financial condition than other technology stocks, despite the
overall decline in the tech sector. ``With few exceptions, most
security companies have been profitable,'' he said.

According to IDC, the total security sector is estimated to grow from
about $3.98 billion in 1999 sales to $11.25 billion in 2004.

Kolodgy divides the security sector into four categories: anti-virus
products, which detect and remove viruses and other bugs; makers of
firewall products and virtual private networks, which help isolate a
network from electronic intruders or malicious code; encryption
products; and products that enable companies to handle tasks related
to authentication, authorization and administration of network users.

Besides Network Associates and Symantec, which sell most anti-virus
products, other major players in computer security include Check
Point; Cisco Systems Inc., which sells firewall hardware; RSA Security
Inc., a longtime provider of encryption and authentication tools; and
Internet Security Systems Inc., a leader in intrusion detection and
vulnerability assessment.

``The way I look at it is security enables electronic business on the
Web,'' Kolodgy said. ``So security companies are here to stay because
the Web is here to stay and e-business is here to stay.''

Even if the economic slowdown intensifies, some do not foresee a major
reduction in the demand for security products.

``Security is one of the last bastions of IT budgets that will be
cut,'' said Chuck Jones, an analyst at Salomon Smith Barney. ``These
are very good stocks to be in for the long term.''

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