Internet-security investors wagering on a Blaster worm rally have been sorely disappointed. And as is so often the case,

Microsoft

(MSFT) - Get Report

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) - Get Report

,

Network Associates

(NET) - Get Report

and

SonicWall

(SNWL)

-- 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)

has dropped 12% and

NetScreen Technologies

(NSCN)

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.

Alpha Males?

And Microsoft may be further ahead in developing security products than some believe. In a note last month, Munster wrote about an alpha trial, under way at Microsoft, to test an integrated desktop-security solution including both firewall and antivirus features.

"We had not expected Microsoft to have an alpha trial of an integrated desktop security product already under way," he wrote. "This leads us to believe that the start of a product development preceded the GeCAD acquisition announcement."

Microsoft's entry is a huge wild card that Munster argues has not yet been priced into the stock of current players in the security space. "They reflect a partial entrance of Microsoft, but do not reflect the potential," he said Monday. Munster has an outperform rating on Microsoft and an underperform rating on Symantec; his firm has done banking business with Microsoft but not Symantec.

Citigroup Smith Barney analyst Tom Berquist suggests Microsoft would be able to build a $1 billion consumer anitivirus business over five years, becoming the No. 2 player behind Symantec, which forecast its revenue would reach $1.7 billion in fiscal year 2004.

Berquist believes Microsoft will introduce antivirus solutions in the first half of 2004. He believes Symantec is well-positioned in enterprise security, a field the company has been moving into to offset an expected slowdown on the consumer side. But Berquist has an underperform rating on Symantec because he believes its performance will fall short until it becomes clear that enterprise security is doing better than expected. His firm has done banking business with Symantec.

Competing

Others aren't so sure. Rich Parower, co-manager of

(SGTRX) - Get Report

Seligman Global Technology Fund, believes it likely will take Microsoft 12 to 18 months, and possibly even longer, to launch a competitive antivirus product. One possibility is that Microsoft could wait to launch security products with the next version of its operating system, dubbed Longhorn, which isn't expected to be released until 2005.

Meanwhile, Parower expects Symantec to add more features to keep its lead. He argues that concerns about Microsoft are overblown and expects such overhang on Symantec's stock to die out as more time passes without hearing about Microsoft's progress and as Symantec continues to execute in the business market. (The Seligman fund is a large Symantec shareholder.)

Why does Parower think it will take Microsoft so long? Given that Microsoft's security reputation is already "suspect," he says, "they need to get it right the first time."