Check Point on the defensive

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sales, either appliances it sells directly or partners' gear on which its software is loaded, such as Nokia's firewall-VPN appliance.

Historically, Check Point has been slow to roll out new product lines, remaining largely dependent on its existing customers to renew their subscriptions every year, analysts say. They say the company's desire to maintain its high profit margins have impeded its willingness to take on risks, thereby affecting its ability to be first to market with new products, and that same desire keeps a lid on its spending for research and development.

Check Point has been a "fast follower, rather than an early leader," Merrill Lynch's Maguire said. "That approach has prevented them from taking an early lead and market share, but it has also minimized their risk and provided customers with a measure of comfort that their development and expansion was deliberate."

Check Point executives disagree. The company considers itself a leader in combining firewalls and VPN into a single software product in 1998 and in creating a constantly updated network security subscription service in 2002.

Gil Shwed, Check Point's chief executive, noted in an interview after the company's first-quarter results that the company's research and development expenditures are appropriate.

In the first quarter, Check Point's research and development costs represented 9 percent of the company's total revenue, compared with 14 percent for Symantec and 15 percent for McAfee.

"We believe we spend as much as we need to," Shwed said. "Our R&D budget is more efficient since most of our development is in Israel, where the costs are lower, and we have a unified architecture, so there are efficiencies in the way our software is developed."

Efficiencies are a good thing, but are they enough to carry the company?

"The ultimate risk for the company is at some point they need product growth," said Munster of Piper Jaffray. "They have a phenomenal brand and their core users aren't going anywhere, but they can't find a way to get more money out of their existing customers...They've got to give their customers something new to purchase."

[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.