Check Point on the defensive

Security company faces a licensing pinch. Will a wave of new products catch customers' eyes?

For Check Point Software Technologies, the best defense may be a reinvigorated offense.

The company on Monday plans to unveil a major upgrade across a number of product lines, moving to unify its perimeter, internal and Web security offerings with a common code base. The new NGX platform upgrades the core technology in its VPN, firewall and management software products.

But Check Point, a pioneer in firewalls and virtual private networks, faces vulnerabilities of its own. It has been slow to roll out new products, analysts say, and only recently has started to show signs of a willingness to change. The competitive landscape is looking harsher, too, with the looming presence of networking heavyweights such as Cisco Systems and Juniper Networks and software giants like Microsoft.


What's new:
Check Point is upgrading across a number of product lines, in an effort to unify its security offerings with a common code base.

Bottom line:
The upgrades may not be enough to draw in new customers for the security specialist, which faces a double whammy of lackluster licensing and customer complaints about fees.

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At the same time, there's a cloud over a key source of revenue--licensing dollars--even as some customers are grumbling about increasing fees.

"They're slowly falling behind the ball," said Gene Munster, an analyst with Piper Jaffray. "Check Point says that Cisco has been in their market for years and hasn't affected it, but all you have to do is look at their licensing revenue."

During the quarter just ended and for the first time in Check Point's 12-year history, the company's licensing revenue represented less than half of its total revenue. Check Point generated $137.7 million in first-quarter revenue, of which $65.5 million came from licenses.

License growth is generally a concern to companies and investors because it's the engine that drives the train. New license revenue leads to future subscription, support and maintenance revenue over the long haul.

Check Point is not the only software company facing this issue. It's a matter of concern for a number of large software vendors, from Oracle to BEA Systems, which are increasingly becoming services-oriented businesses that supply support and software subscriptions.

Users of Check Point's products, meanwhile, are balking at the fees confronting them. The SmartDefense automatic update and advisory service, launched in 2002, is a bright spot in the Check Point product lineup, customers say, but they're not so thrilled about having to pay yet another annual subscription fee.

"Customers are concerned that these ongoing fees are significant," said Barry Stiefel, founder and president of CPUG, the Check Point User Group, which has 360 members on its mailing list. "There is the annual software subscription fee, the annual support contract fee, and the SmartDefense fee caused some surprise among the members."

Currently 16 Check Point products are compatible with NGX, and a total of 21 will be ready by May 30 when the software upgrade ships. Customers of Check Point's new Secure Platform Pro will pay a

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