Blaster Bounce Unravels in Microsoft's Shadow

Internet-security investors wagering on a Blaster worm rally have been sorely disappointed. And as is so often the case, Microsoft (MSFT Quote) is shouldering part of the blame.

The appearance of a widespread computer virus often causes investors to pay more attention to Net security measures and the companies that make them. But the firms that typically benefit from that focus -- including Symantec (SYMC Quote), Network Associates (NET Quote) and SonicWall (SNWL Quote) -- have gained little since the latest threat emerged a week ago.

Ironically, what is instead putting pressure on the sector is Microsoft's anticipated entry into the antivirus market -- even as the behemoth's reputation suffers yet another hit from Blaster.

Opinions vary over when Microsoft might launch its own security products and how much such a threat is figured into the shares of putative rivals. But despite Microsoft's dismal record with security, there seems to be little doubt about the world's largest software maker's ability to parlay its dominance in the operating system market into a successful play in the security sector. If anything, Blaster has put more pressure on Microsoft to sharpen its focus.

"It looks like it's lit a fire under Microsoft," said U.S. Bancorp Piper Jaffray analyst Gene Munster. "You're seeing [security] get a higher level of attention from Microsoft."

Soft Sell

Indeed, shares of Symantec and its peers have been hurting ever since June 10, when Microsoft announced its acquisition of a small company called GeCAD Software, a maker of antivirus technology based in Bucharest, Romania.

Shares of Symantec have inched up only 1.2% since the Microsoft announcement, while the Nasdaq has climbed 7.8%. Shares of Network Associates have tumbled 15.6%, WatchGuard Technologies (WGRD Quote) has dropped 12% and NetScreen Technologies (NSCN Quote) is down 3.1%.

The GeCAD acquisition has been widely viewed as part of an effort by Microsoft to enter the antivirus market by selling a subscription-based product. Gartner has estimated sales in the antivirus market will total $1.7 billion in 2003 and grow nearly 15% to almost $2 billion in 2004. The overall security market, including infrastructure such as firewall and antivirus, and administration such as access management, will total $3.8 billion in 2003 and grow about 10% to $4.2 billion in 2004, according to Gartner estimates.