For Check Point, it’s Acquire or be Acquired

Internet-security mainstay Check Point Software Technologies has stalled. During good quarters, its year-over-over revenue growth now is in the single digits, and when things aren’t as good, as in the quarter it just reported, the company’s year-t0-year quarterly revenue actually declines modestly.

Check Point misread or disregarded important market signals from customers, and it missed lucrative opportunities as a result. It missed the customer-demand shift from buying and installing security software at the network perimeter to simply buying a ready-to-roll appliance for perimeter deployment. It also reacted belatedly and somewhat indifferently to the market demand for inbound messaging security. The company also hasn’t come up with a coherent strategy yet in network access control (NAC), though its major competitors have staked out their positions.

Finally, it tried, unsuccessfully and belatedly, to enter the the intrusion-prevention market via the acquisition of Sourcefire, which was strongly discouraged by the US government on the grounds of national security; Check Point rescinded its offer for Sourcefire before the US government was forced to issue a formal decision preventing it from moving ahead.

Even though Check Point’s executives attempted yesterday to put on a brave face, reaffirming guidance for the year ahead and stating that the company is poised for robust growth, it appears a darker scenario is unfolding. Check Point no longer is the kingpin of the decidedly mature firewall market, where it has been displaced at the high end by Cisco and to a lesser extent by Juniper’s NetScreen products. It also faces formidable competition in the hotly contested SSL VPN market, and it faces a tough battle for uncertain gains in the unified-threat management (UTM) market. When you add it all together, Check Point needs at least one other card to play to keep revenues growing and profit margins respectable.

Check Point will have to choose wisely, because time is running out. I don’t think it wants to be acquired, so Check Point must do a discerning job of acquiring if it is to give itself a second wind as a growth company in the security sector.