Boston Globe article: Waiting for the security payout

[InfoSec News <isn () c4i org>]

Forwarded from: "Boivin, Patrice J" <BoivinP () mar dfo-mpo gc ca>

http://www.boston.com/dailyglobe2/154/business/Waiting_for_the_security_payout+.shtml

By Ross Kerber 
Globe Staff
6/3/2002

Cyber terrorism jitters were supposed to boost the fortunes of
information technology companies specializing in security. But thus
far, even as the fears and attention to network breaches escalate, the
promise of increased business has largely failed to materialize.

Companies such as RSA Security Inc. of Bedford and California-based
VeriSign have reported losses and layoffs lately. Competitors like
Netegrity of Waltham and New York's Predictive Systems, which has a
Waltham operation, haven't fared much better. Most blame weak
technology spending within the private sector and say increased
government spending on technology has yet to offset the drop-off in
business from corporations.

Even the FBI's high-profile restructuring of its priorities last week,
in which it announced it would put a new emphasis on thwarting cyber
terror and building its information technology base, didn't include
new spending requests. The omission means the FBI will likely ''focus
on finding more efficiencies in their use of resources,'' said William
Whyte, director of research at Ntru Cryptosystems Inc. in Burlington,
a closely held maker of security software for smart-card systems like
those used for subway fares.

The light demand for security products seems counterintuitive. Major
industries including banking, transportation, and energy services have
all established trade groups to improve their defenses against cyber
attacks, cooperating with the White House Office of Homeland Security.
Partly as a result, International Data Corp. in Framingham predicts
the market for Internet security software will grow from $6 billion in
2001 to $14.6 billion by 2006.

At the same time, the government itself has increased information
technology outlays, with a heavy emphasis on security. For fiscal year
2003, the Bush administration requested $52 billion in federal
information-technology spending, a $4 billion increase over 2002.

But these steps thus far have not led to specific purchases, said John
Worrall, the RSA vice president for marketing. ''Congress has
allocated a ton of money for security, but that doesn't mean the
security industry is going to see a benefit from that immediately,''
he said.

''If there's a significant increase in spending after 9/11, no one's
seeing it,'' Worrall said. For the three months ended March 31, RSA
revenue was $55.5 million, down from $76.3 million a year earlier. It
posted a quarterly loss of $13.7 million, compared with net income of
$9.8 million for the same period in 2001.

RSA's most upbeat announcement lately is that its products are
featured in the new movie thriller ''The Sum of All Fears.'' The movie
portrays CIA agents logging into a computer network using passcodes
created by RSA's random-number generating devices. Ironically, the
company's financial results suggest the devices haven't generated as
much excitement in real life.

In Waltham, Netegrity reported a weakened first-quarter performance,
with revenue falling to $22 million from $26.3 million a year ago. The
company lost $2.7 million, partly due to the costs of an acquisition,
compared with net income of $3.3 million a year earlier.

Netegrity said it's optimistic that federal sales eventually will pick
up the slack left by private-sector demand and notes it has made
oversight of federal sales into a full-time job for an executive, Pete
Morrison. ''I can't respond fast enough to the federal opportunities
that are there,'' he said.

For instance, Morrison said Netegrity is in talks with the FBI about
selling the bureau new management tools such as the company's
SiteMinder software, which can control who has access to a given
database. The agency is interested in the product as its agents' roles
expand under new laws like the Patriot Act, he said.

A few bright spots have come in smaller markets where start-ups have
found niches. Ntru, which has about 30 employees, raised $26 million
in a second round of venture-capital last year, enough to keep running
at least through 2004.

Meanwhile, in Waltham, Maria Cirino, chief executive of closely held
Guardent Corp., says the company expects to double its revenue to $30
million this year selling network security services. At its own data
center in Rhode Island, Guardent remotely monitors and stops
intrusions into the computer networks of nearly 1,000 customers.

''Everybody wants better security, but they're realizing they can't
get it just by buying more firewalls'' and other products from larger
companies, she said. ''They need more specialist firms'' that can
operate security software and thwart intrusions.

Ross Kerber can be reached at kerber () globe com.



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