Check Point on the defensive

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Computer Associates International, based on 2003 revenue, according to the most currently available data from research firm IDC. Recent history, analysts say, suggests that there won't be an immediate bump in new license sales.

"Refreshing products doesn't necessarily kick-start their business," Piper Jaffray's Munster said. "Just increasing the core functionality doesn't change the game. It may get them a step ahead, but doesn't substantially improve demand. You need new products and new markets to make that statement."

Last February, Check Point indicated it expected "exciting growth opportunities that will be starting in 2005, but none of them came to fruition," Munster said. "We were hoping to see some licensing growth from the products that came out at the end of 2004."

For its part, Check Point views the annuities it receives from its subscriptions as the long-term strength of its business, Jerry Ungerman, the company's vice chairman, said in an interview shortly after the company's first-quarter earnings announcement. License revenue for the quarter was up 4 percent from the same period a year earlier.

"The ultimate risk for (Check Point) is at some point they need product growth."

--Gene Munster,
analyst, Piper Jaffray

Nonetheless, analysts say that view has cost the company some market share.

"Check Point missed the move toward a self-contained appliance and was under attack by more aggressive and nimble competitors. They were focused on harvesting revenue from existing businesses and a bit complacent in their outlook," said Ed Maguire, a Merrill Lynch analyst. "But in the past year or so, Check Point has gotten better at defending their market share."

The company is largely a software specialist, relying on hardware makers such as Nokia and Hewlett-Packard to bundle its applications in their equipment and handle the sale. Recently, however, it has started selling its own line of appliances in certain markets.

"Check Point used to say we sell the software and our partner Nokia sells the hardware, and that allowed Check Point to keep its profit margins high. But it was confusing to the customer," said John Pescatore, a Gartner analyst. "Whereas, if Cisco sold you an appliance, it just worked. So Check Point has had to move away from the 'meet in the channel' approach."

Check Point receives the bulk of its revenue from appliance-related

[Steven N]

They are too expensive...

Checkpoints yearly subscription fees are too heavy. They are even charging subscription fees for their smallest appliances, that basically have the functionality of a broadband Internet router.
They may have a good security record, but so do other big players, and they are much less expensive.
The only advantage they currently have compared to those others is a unified management console, but how long will that compensate for the high subscription fees?
My company has invested heavily in a Checkpoint environment, but we're planning to move along, and we'll start using other appliances for remote offices.