Building the ultimate firewall.
Check Point Software NASDAQ CHKP
| FY 01 Sales | $528 M
| FY 01 profit | $322 M
| Market cap | $4.5 B
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Imagine for a moment an island called Sixty-Three Percent Profit Margin inhabited by a single enterprise software company. Would it be Microsoft? Oracle? Maybe SAP? Try Check Point Software.
The king of that paradise is Gil Shwed, the data-security company's 34-year-old CEO. Fresh from his role as a network defense specialist in the Israeli army, Shwed launched Check Point in 1993. It was a prescient move at a time when many companies didn't even have corporate networks, much less the need for protection from hackers. Since then, Shwed has become a billionaire by securing firewall patents, selling his wares exclusively through 1,900 systems integrators and resellers (saving the cost of a pricey sales force), and providing an open architecture for third-party development.
These days, Check Point, based in Ramat Gan, Israel, has a commanding lead in security, with a 60 percent share of virtual private networks, 40 percent of firewalls, and 20 percent of security appliances. Ninety percent of US Fortune 500 servers use Check Point software. The company says its premier product, Firewall-1, has never been breached.
Weak IT spending has hit Check Point hard in the past two years, but the security industry as a whole is expected to double by 2005. This year, the company anticipates 10 percent growth by tapping new markets, such as small- to medium-size businesses – many of which have no security systems in place.
When tech spending does pick up, Check Point will likely find that the easy growth is over. Competitors, most notably Cisco, are all attacking – and undercutting. Which leads to one unavoidable fact: Check Point must slash prices and eat into its profit margins. Good thing for Shwed there's plenty to cut from.
