With Reuters and Neta Yacoby

J.P. Morgan and Kaufman Bros. today joined Goldman Sachs in downgrading Israeli information-security company Check Point Software Technologies (Nasdaq:CHKP).

J.P. Morgan cut the ratings of several information technology security firms on Tuesday, due to an expectation that June-quarter earnings will not surprise on the upside. One was Check Point, cut from Buy to Market Perform.

Other companies J.P. reduced from Buy to Market Perform were Macrovision Corp. (Nasdaq:MVSN) and Netegrity (Nasdaq:NETE). SonicWALL (Nasdaq:SNWL) was downgraded to Market Performer from Long-Term Buy.

In a research note, J.P. Morgan analyst Sterling Auty said "security remains the top IT priority, but just like in March that is not enough to drive results. Should see mixed a mixed bag with few relative strong areas (and) a lot of sluggishness."

The firm also lowered its earnings estimates on several companies in the sector and said it expects many of these companies to issue pre-announcements soon.

The weakness in technology spending has also found its way into the security sector, Morgan said.

"Over the last 12-18 months, the IT security industry, initially less affected by the recession compared to other areas within the tech sector, has experienced the tighter IT spending environment," the firm said in its research note.

Kaufman Bros. related to statements from Check Point manager Gil Shwed a month ago, saying that April and May had met expectations, but that it was too soon to say the same for June. Traditionally the final month of each quarter has brought the most income, but Kaufman's analyst points out that the slowdown has persisted, hence the chances of disappointment are reasonable.

Most investment banks seem to feel that even if Check Point meets expectations this quarter, it will falter in the quarters to come as the IT spending crunch continues. The third quarter is usually a weak one in any case because of summer holidays.

Check Point stock has lost 70% of its value but it isn't attractive enough to buy yet, the Kaufman Bros. analyst wrote: the rally has not arrived, and even if some buds are showing it isn't enough to boost the company's second quarter results.

Price pressure and eroding profit margins will persist for the time being, Kaufman Bros. concludes. Despite Check Point's claim that it doesn't feel price pressure, competition with NetScreen and Cisco has to be taking its toll, the analyst writes.

Its updated forecast is for second-quarter revenues of $109.3 million, the lower end of the company's guidance. The analyst sees the company netting 25 cents per share, one cent below Check Point's own forecast.

Kaufman Bros. sees Check Point ending 2002 on $450.9 million revenues, down 15% from 2001, and netting $1.04 per share, compared with $1.24 in 2001.

For 2002 Kaufman Bros. sees Check Point making $562.6 million revenues, and earning $1.21 per share.