Israeli Internet security provider CheckPoint Software Technologies Ltd, which filed to go public on NASDAQ, offering 3.4m shares for the US, 800,000 internationally at $13 (CI No 2,932), plans to use proceeds to develop its North American sales and marketing operations and spend more on research and development and its administrative infrastructure, further cutting into its operating margins. CheckPoint spent $1.1m last year on research and development and $378,000 for the three months ended March 31. It plans to move to more systems and is beta testing its FireWall-1 for Windows NT, the FireWall-1 Management Module for Windows95 and SecuRemote client encryption software. It has almost completed implementing FireWall-1 for Bay Networks routers. It plans to enhance its graphical user interface and support additional encryption standards. The firm’s existing shareholders will still hold about 86% of the company after the offering; CheckPoint’s book value was $7.8m on March 31. After losses of $116,583 in 1993, its first year of operation, the company made a profit of $4.8m on revenue of $9.5m for the year ended December 31. Its most recent results show profits up 228.4% at $2.8m on revenue up 195% at $4.8m for the three months ended March 31. Total investment in the company was $7.8m as of March 31, 1996, with working capital of $7.2m and total assets of $11.3m. CheckPoint expects its margins to decline this year due to the lower price of its latest security product, FireWall-First! compared with its Internet gateway and enterprise security packages. It claims it has shipped 40% of all firewalls in 1995. Royalties to third parties and increasing competition will also contribute to lower margins. The 49-person compa ny is heavily dependent on three resellers, which together accounted for 80% of revenue last year, and says it will continue to rely on a narrow channel for its products. Its largest reseller, SunSoft Inc, represented 64% of CheckPoint’s revenue last year; Forval Creative Inc represented 13%; and Internet Security Corp accounted for 11%. SunSoft has the right to terminate its contract with CheckPoint with 12 months’ notice from the end of next year. CheckPoint believes its relationship with Su nSoft is stable, but SunSoft’s parent, Sun Microsystems Inc, has developed a rival product, SunScreen, which may endanger the arrangement. In the network security arena, the firm says its main competitors are America Online Inc subsidiary Advanced N etwork & Services, Border Network Technologies Inc, Harris Corp, Morningstar Inc, Raptor Systems Inc, Secure Computing Corp, Sun and Trusted Information Systems Inc. Its enterprise network market rivals include Cisco Systems Inc, Digital Equipment Corp, IBM Corp and Microsoft Corp. Another competitor on the horizon is AT&T Corp, which will soon launch a line of network security products. Another threat comes from Compaq Computer Corp, which recently took a financial stake in Raptor and agreed to bundle Raptor’s network security software with some of its line. CheckPoint could face problems in light of its OEM deal with RSA Data Security Inc, from which it licenses encryption technology. RSA is in litigation with Cylink Corp, which claims RSA’s encryption technology infringes on its patents and that it therefore it has no right to sublicense. If Cylink wins, CheckPoint may be required to pay damages and royalties. CheckPoint established a US subsidiary in 1995. Its research and deve lopment and main offices are located in Jerusalem.
