is trying to assess how Internet security company
(Nasdaq:CHKP) has fared in the fourth quarter.
To this end, Goldman Sachs conducted a survey among thirty of Check Point's suppliers and distributors. 100% of the company's revenue is generated through indirect sales.
Based on this survey and its own analysis, the investment house has concluded that the sales trend in the fourth quarter was positive compared with the third quarter.
It appears that especially in the first part of the fourth quarter, Check Point experienced a sharp rebound in its business, wrote analyst Elan Zivotofsky. He estimates that the company showed a strong positive trend early in the fourth quarter, and that this trend was sustained throughout the quarter, although in a more moderated form.
The investment house has in the past estimated that security companies will be among the first to benefit from the recovery in the budgets of the information technology sector. Accordingly, Check Point's rebound is indicative of a general economic rebound.
NG boosting deal volume, market standing
The analyst takes note of the sales of Check Point's next generation product line.
NG software products are designed to make management and upgrading more efficient in Check Point's firewall products and virtual private network products. NG software products were launched in July last year, and in September already constituted 15% of total revenue.
Goldman Sachs estimates that NG revenue has not markedly increased in the fourth quarter, but believes that the products have other positive implications.
Based on Goldman Sachs' talks with the company's distributors and providers, the investment house said that NG products have increased the volume of the company's average deal. In addition, the NG products have strengthened the company's competitive standing, especially in relation to end-users in the security products market.
The investment house said that one of the distributors had told them that the number of people registering for NG training courses is soaring.
VPN price pressure
Check Point's improved standing in the information security market cannot be underrated given the competition in this market. Goldman Sachs views the increased competition in this market as indicative of increased momentum. But at the same time the analyst notes that slight erosion in the company's market share should not be unexpected given its large market segment, and the growing number of smaller players.
Goldman Sachs is probably referring to NetScreen Technologies (Nasdaq:NSCN), which raised $185 million on its IPO in September.
Over two thirds of Check Point's distributors with whom Goldman Sachs spoke claimed that the high price of Check Point's products is its main weakness. The analyst estimates that the company is coming under price pressure in the VPN market. But given that Check Point is a software rather than hardware company, with profit margins of over 90%, it can allow itself more price flexibility than its rivals.
Meanwhile, Check Point's main rival
(Nasdaq:CSCO) has over the last half year been aggressively cutting prices.