[ISN] Earnings outlooks too high for security firms-analyst

From: InfoSec News (isnat_private)
Date: Thu Sep 27 2001 - 02:02:59 PDT

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    By Elinor Mills Abreu
    MENLO PARK, Calif., Sept 26 (Reuters) - Growth rate forecasts for the
    computer security sector, which range between 25 percent and 50
    percent, are too high and need to come down at least 8 percentage
    points to be realigned with a slower economy, a financial analyst said
    on Wednesday.
    Last week's Nimda virus outbreak and the events of Sept. 11
    demonstrate how computer security will become more vital to business
    going forward, said Gene Munster, a senior research analyst at
    investment bank USBancorp Piper Jaffray.
    However, nothing can eclipse the economic fallout from last year's
    Internet bubble burst and the slowdown in the global economy, he told
    a group of venture capitalists during a presentation on the future of
    the computer security market.
    "The fundamental market is really bad right now," Munster said.
    "People are not spending money as fast as these companies are
    Munster said the deadly Sept. 11 attacks -- which came at a crucial
    time for many companies that do a lot of their business in September
    following slow summer months -- could result in revenue shortfalls of
    20 percent to 30 percent for software companies.
    While customers have cut their spending across-the-board, computer
    security companies are planning to spend 10 percent to 15 percent more
    than they did last year, according to Munster.
    "Budget cycles and sales cycles need to be realigned," he said.
    Meanwhile, computer security stocks have dropped an average of 70
    percent over the past year, compared to the 58 percent drop of the
    Nasdaq, Munster noted.
    Wall Street analysts recently cut their revenue projections for
    computer security companies an average of 8 percent as a result of the
    continued economic atrophy and the Sept. 11 attacks.
    While the timing of the deadly attacks was bad for many companies, for
    computer security companies it will mean more sales in the long run as
    security and disaster recovery become more of a priority than cost
    reduction, Munster said.
    "We're not talking about a bubble effect here," said Munster. "We're
    talking about real changes."
    In addition, the Nimda virus that wormed its way into thousands of
    computers last week, spreading through e-mails and holes in Microsoft
    Corp.'s Web server software, also raised a red flag.
    For example, a large financial institution, with more than 50,000
    employees, lost its Internet access for eight days as a result of the
    virus, according to Munster.
    "This is just the beginning; at least once a year we'll see a massive
    attack, and they're getting more sophisticated," he said. "I'm not
    trying to be an alarmist. I'm just trying to talk about the reality
    Recent legislation mandating the protection of financial and medical
    data, requiring large companies to report security strategies and
    codifying digital signatures will also provide a boost.
    That's good news for companies that sell firewalls, antivirus,
    authentication and virtual private network products and services.
    Virtual private networks allow companies to use public networks
    Other key growth areas will be vulnerability assessment, intrusion
    prevention, biometrics and managed security services, Munster said.
    One security area where investments could be reduced is wireless.
    "The theme with companies is we've got to get back to basics," he
    said. As a result, "I think you're going to see investments pull back"
    from wireless.
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