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Check Point Software Technologies Ltd. (CHKP)
Credit Suisse 2012 Technology Conference
November 27, 2012 12:30 PM ET
Tal Payne – Chief Financial Officer
Kip Meintzer – Head of Global Investor Relations
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So just highlight for everybody, obviously during the course of the presentation there may be some forward looking statements. These are covered in accordance with the Securities and Exchange Act of 1934. The company takes no duty to update any of these forward looking statements. If you’d like a comprehensive list of these statements, you can look at our latest 20-F filed for December 31 2011 and with that, I’ll pass it back to Phil.
Great. Tal, one of the things that’s been talked about a lot this year on your various calls has been the ASP impact of some of the new product and platform, the leases and just sort of the trading down effect of people taking these high performance boxes at low price points. Could you just update everyone that might not be as familiar to where we’ve been and what the impact is going forward and when you see this as getting past this.
Sure. So maybe I’ll start from the beginning just to make sure everybody is with us. Check Point started to sell appliances in 2007 and since then every year we expanded the product line. So we started with UTM and then we expanded to Power-1 and then in 2009 we acquired the Nokia Security business with the IP series appliances and this actually for the first time in our history we refreshed the whole product line at the end of last year. So we took all the products, include the Nokia series and Check Point UTM and Power-1 series and refreshed it to about eight appliances instead of all of the above which in essence provided for every price level on average three times the throughput.
The importance of that for us was that (a) we wanted to provide a lot more throughput to the customers so over time they will be able to adopt our software blades which are software modules and in order to have good performance, they have to have the right products. So that was the idea behind it. The first time we’re doing it and what happened this year we see two phenomena. We started in the beginning of this year to see a big effect and we see on the one hand much more customers buying the product.
So number of units increased significantly. It’s been many years since we saw such an increase in number of units. We see a double digit growth in number of units. Strong growth is going to be between 15% to 25% depends on which quarter from Q1, Q2 and Q3. So we started already for three quarters.
On the other hand, referring to your question, we see a mixed shift of customers choosing on average one level down which created then a reduction in the average ASP. So on the one hand we saw a significant increase in number of units which meant our competitive environment is improving. Our customers liking the product, getting them quickly and buying more units and on the other hand we see a reduction on the ASP which brought us to the results of pretty much flat product revenue growth.
So when you restart – should we just think of it as almost anniversary? Do we just need to get through the 12 months, so Q1, Q2, and then we’re starting to actually compare then to apples to oranges. Is that the right way to think about it I guess?
I think that’s the right way because when you think – luckily for us the transition was quick. So sometimes an anniversary can take two years because if you start only 20% and then 40% and then 605 of your product bookings from the new product line, then it takes longer to see the transition. Lucky or not lucky we saw a very quick transition. That’s why it was a big reduction starting already from the beginning of the year. I think it was more than 50%, probably around 60% of the new product that we sold in Q1 was already the new appliances and in Q3 already around 80%.
It was a very quick transition which means when we get to next year, then Q1 versus Q1 is almost anniversary, like more than 60% is anniversary and then in Q3 it’s already 80% which means next year the comparables when it comes to the ASP is more of a fair comparable and now if we succeed next year to continue to increase the number of units we should see growth in the product booking as well and not only in the units.
Now obliviously where you mentioned you were seeing phenomenal growth in the unit side, but also a key part of your strategy has been your blades and blade attach. Wonder if you could just maybe level that for people. What is your blade strategy where we are in the game so to speak and what we’re seeing in terms of blade attach and renewal rates?