Kardan Capital Markets has reiterated its Hold rating for

Aladdin Knowledge Systems

(Nasdaq:ALDN), but slashed the firm's price target from $5.48 to $4.95, which is still 30% higher than the market.

CIBC Oppenheimer

has also reiterated its Hold rating, but does not set a target in light of the company's low visibility, and inability to forecast future results.

Kardan analysts Yaniv Pagot and Yair Spalter believe that Aladdin's visibility is low by any acceptable standard. They relate this to the nature of the company's sales, which are made up of many small deals.

The analysts say that Aladdin is undergoing strategic changes that involve a shift in its marketing policy, away from the independent marketing of its products to single users, towards sales via marketing agreements. They believe that the future of the company depends on how fast it "opens" new marketing channels, and on the quality of those channels.

One of Aladdin's most significant agreements is with the

IBM Corporation

(NYSE:IBM), which has pledged to acquire $4 million in Aladdin products.

Pagot and Spalter expect the firm's sales to come to $52.1 million in 2001, compared with Oppenheimer's forecast of $48 million.

While Kardan expects Aladdin to lose $978,000 in 2001, Oppenheimer expects the company to show a profit of $3 million. Oppenheimer believes that the company's earnings will be mostly generated by financial revenues.

Content-security market is rising

Pagot and Spalter note that there has been no weakness in the content-security market, and that the security-solutions market is growing, despite the slowdown in recent months. Aladdin expects that sales of its eSafe content-security products will this year reach $10 million, out of which sales of $4 million are certain.

This means that the company must meet its $6 million target by the end of this year. The volume is expected to come from hundreds of thousands of small distributor deals. The analysts believe that Aladdin will meet its goal, notwithstanding the difficulty involved in closing such a large number of deals.

Pagot and Spalter note that Aladdin's Hardware Against Software Piracy (HASP) product continues to be the company's best seller. But they expect sales to be affected as Aladdin ceases to manufacture certain low-demand HASP models.

Aladdin recently launched its eToken product for authenticating users when accessing a network, and for securing e-business applications. The company claims that this is the product for which customers have been waiting. At this stage the product does not appear to be substantially affecting sales. The analysts mention Aladdin's commitment to invest $10 million in

Tamir Fishman

's venture capital fund. Aladdin has already invested $4 million. Once the investment is complete, Aladdin's cash will decrease from $28 million, to just $18 million.

Given the state of the hi-tech, venture capital, and capital markets, the analysts claim that this investment was wrong, as it shifts the focus of the company's resources and damages its financial strength. The analysts believe that the company should look for opportunities within its own sector, rather than elsewhere.

The Tamir Fishman fund has NIS 160 million cash, but its market value comes to NIS 140 million. This means that unless the fund makes some impressive progress soon - which is unlikely given current market conditions, Aladdin's investment will probably not show significant yields in the near future.