Recent warnings from tech security companies Websense ( WBSN) and ActivIdentity ( ACTI) have stirred worries in the sector, but a general slowdown in spending by businesses doesn't seem at hand. Companies are continuing to buy core products such as antivirus software and newer technologies such as encryption and data leak prevention, say analysts. Websense said Thursday it expects third-quarter revenue of $50.4 million, net of about $950,000 in joint marketing. Analysts polled by Thomson Financial are expecting revenue of $50.8 million. The company's $52.2 million in billings also was below guidance, and the company said it saw weakness in its North American enterprise renewals business. Websense closed Thursday off about 7%; the stock was gaining 1.4% in recent Friday trading to $20.34. Websense's peer, ActivIdentity, which offers digital identity products, also cut its outlook after several large orders slipped from the fourth quarter to the first quarter. Shares of ActivIdentity fell more than 7% Thursday and were off another 1% Friday to $4.52. But the smaller companies' problems are unlikely to have any impact on the larger security players such as McAfee ( MFE), Symantec ( SYMC), or Check Point ( CHKP). That's because these big players have recently changed their product mix and have introduced new suites that are likely to capture areas where security dollars are flowing, say analysts.
"From the sector perspective, there is a lot of strong product cycles going on and the warnings today
are not something that is overall going to spook investors on the sector," says Daniel Ives, an analyst with Friedman, Billings, Ramsey. FBR does not own shares or have an investment banking relationship with the companies mentioned. With changing security needs, businesses are shifting their spending on mitigating technology threats that they see as most critical, says John Pescatore, vice-president, IT security for research firm Gartner. "Security areas that are gaining traction among businesses are desktop and laptop encryption software, and data leak detection spending along with core security products like anti-virus," says Pescatore. For Symantec and McAfee, this could translate into a robust quarter relative to their peers. McAfee said Monday it will acquire SafeBoot, an encryption and mobile security company for $350 million in cash. While investors are unlikely to see any immediate results of that acquisition, it signals the company's intent to move into areas where its users are most interested, say analysts. McAfee rival Symantec has been touting its set of data-leak prevention products launched earlier this year. Coupled with its core antivirus and Internet security products, Symantec seems poised to weather any turbulence this quarter, although they are likely to face greater price pressure, say industry watchers. Shares of Symantec are up more than 9% in the past three months July 11, while McAfee is up about 13% in the same period. For Websense, however, it will be an uphill battle winning back investor love. "Websense is in an area that is a lot more competitive, and they are currently in a transitional time with their product and sales strategy," says Ives.