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Earnings outlooks too high for security firms-analyst
From: InfoSec News <isn () c4i org>
Date: Thu, 27 Sep 2001 04:02:59 -0500 (CDT)

http://www.forbes.com/newswire/2001/09/26/rtr371338.html

Reuters
09.26.01
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
growing."

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.

CATALYSTS FOR GROWTH

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
here."

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
securely.

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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