Waiting For The Security Payout

Tue Jun 4 08:45:44 EDT 2002

http://nl9.newsbank.com/nl-search/we/Archives?p_action=doc&p_docid=0F3EDFC59D1D6971&p_docnum=1

WAITING FOR THE SECURITY PAYOUT

Author(s):    Ross Kerber, Globe Staff
Date: June 3, 2002
Page: C1
Section: Business

Cyber terrorism jitters were supposed to boost the fortunes of information
technology companies specializing in security. But thus far, even as the
fears and attention to network breaches escalate, the promise of increased
business has largely failed to materialize.

Companies such as RSA Security Inc. of Bedford and California-based
VeriSign have reported losses and layoffs lately. Competitors like
Netegrity of Waltham and New York's Predictive Systems, which has a Waltham
operation, haven't fared much better. Most blame weak technology spending
within the private sector and say increased government spending on
technology has yet to offset the drop-off in business from corporations.
Even the FBI's high-profile re structuring of its priorities last week, in
which it announced it would put a new emphasis on thwarting cyber terror
and building its information technology base, didn't include new spending
requests. The omission means the FBI will likely "focus on finding more
efficiencies in their use of resources," said William Whyte, director of
research at Ntru Cryptosystems Inc. in Burlington, a closely held maker of
security software for smart-card systems like those used for subway fares.

The light demand for security products seems counterintuitive. Major
industries including banking, transportation, and energy services have all
established trade groups to improve their defenses against cyber attacks,
cooperating with the White House Office of Homeland Security. Partly as a
result, International Data Corp. in Framingham predicts the market for
Internet security software will grow from $6 billion in 2001 to $14.6
billion by 2006.

At the same time, the government itself has increased information
technology outlays, with a heavy emphasis on security. For fiscal year
2003, the Bush administration requested $52 billion in federal
information-technology spending, a $4 billion increase over 2002.

But these steps thus far have not led to specific purchases, said John
Worrall, the RSA vice president for marketing. "Congress has allocated a
ton of money for security, but that doesn't mean the security industry is
going to see a benefit from that immediately," he said.

"If there's a significant increase in spending after 9/11, no one's seeing
it," Worrall said. For the three months ended March 31, RSA revenue was
$55.5 million, down from $76.3 million a year earlier. It posted a
quarterly loss of $13.7 million, compared with net income of $9.8 million
for the same period in 2001.

RSA's most upbeat announcement lately is that its products are featured in
the new movie thriller "The Sum of All Fears." The movie portrays CIA
agents logging into a computer network using passcodes created by RSA's
random-number generating devices. Ironically, the company's financial
results suggest the devices haven't generated as much excitement in real
life.

In Waltham, Netegrity reported a weakened first-quarter performance, with
revenue falling to $22 million from $26.3 million a year ago. The company
lost $2.7 million, partly due to the costs of an acquisition, compared with
net income of $3.3 million a year earlier.

Netegrity said it's optimistic that federal sales eventually will pick up
the slack left by private-sector demand and notes it has made oversight of
federal sales into a full-time job for an executive, Pete Morrison. "I
can't respond fast enough to the federal opportunities that are there," he
said.

For instance, Morrison said Netegrity is in talks with the FBI about
selling the bureau new management tools such as the company's SiteMinder
software, which can control who has access to a given database. The agency
is interested in the product as its agents' roles expand under new laws
like the Patriot Act, he said.

A few bright spots have come in smaller markets where start-ups have found
niches. Ntru, which has about 30 employees, raised $26 million in a second
round of venture-capital last year, enough to keep running at least through
2004.

Meanwhile, in Waltham, Maria Cirino, chief executive of closely held
Guardent Corp., says the company expects to double its revenue to $30
million this year selling network security services. At its own data center
in Rhode Island, Guardent remotely monitors and stops intrusions into the
computer networks of nearly 1,000 customers.

"Everybody wants better security, but they're realizing they can't get it
just by buying more firewalls" and other products from larger companies,
she said. "They need more specialist firms" that can operate security
software and thwart intrusions.

-- 
-----------------
R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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