Check Point Software Technologies

(CHKP) - Get Report

on Tuesday reported that net income dropped 5% year-over-year in the first quarter on essentially flat revenue. And the company said earnings and revenue in the June quarter will be similar or somewhat better.

The Israeli-owned Internet security company met Wall Street's expectations, posting net income of $60.1 million, or 24 cents a share, compared with $63.5 million, or 26 cents a share, a year earlier. Revenue in the March quarter was $104.8 million, up less than 1% from $104.6 million in 2002.

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Looked at more closely, the revenue picture is mixed, said analyst Erik Suppiger of Pacific Growth Equities. One key measure, product revenue, totaled $58.2 million in the first quarter, down both year-over-year and sequentially. Product revenue in the first quarter of 2002 was $64.2 million; in the fourth quarter it was $65.5 million. "I look at product revenue as an indicator of how well the company is able to grow new business and expand its presence with existing customers," he said.

Conversely, revenue from subscription and upgrades was up year-over-year and sequentially from the seasonally strong fourth quarter: $36.9 million in the first quarter of 2003, compared with $29.6 million in the year-ago quarter, and $35.3 million in the December quarter. "This indicates they are doing a good job holding on to existing customers," said Suppiger, whose company does not have an investment banking relationship with Check Point.

The company did not provide detailed guidance but did say that the second quarter will be at least as good as the first quarter "with many opportunities for upside."

Deferred revenue, also an important measure, increased by $2.5 million in the first quarter, to a total of $101.7 million. The company generated net cash flow of $79.5 million, bringing total cash and interest-bearing investments as of March 31, 2003 to $1.4 billion.

Check Point made its earnings announcement before the market opened Tuesday. In recent trading, the stock is up 48 cents, or 3.2% to $15.58.