Check Point Software Technologies Ltd. (CHKP)

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Check Point Software Technologies (CHKP)

NASDAQ OMX 29th Investor Program Conference

December 04, 2012 11:45 AM ET


Tal Payne - CFO

Kip E. Meintzer - VP, Investor Relations


Keith Weiss - Morgan Stanley


Keith Weiss - Morgan Stanley

So, we will get started right off. So my name is Keith Weiss. I’m part of the software research team at Morgan Stanley. Very pleased to have with us here today both Tal Payne, CFO, and Kip Meintzer, VP of Investor Relations from Check Point. I think before we’re going to get started, Kip, you want to go through the – your Safe Harbor?

Kip E. Meintzer

Yeah, just highlight the Safe Harbor. During the course of the presentation, there maybe forward-looking statements that are in accordance with the Securities and Exchange Act of 1934. If you would like a comprehensive list of those risks and uncertainties that are associated with those forward-looking statements, you should take a look at our 20-F filed for the year-end of December 31, 2011 and besides that we take no duty to update any of the statements we make during the presentation.

With that, I will toss it back.

Keith Weiss - Morgan Stanley

Excellent. So I want to start off on high level, talking about the overall sort of market – overall market opportunity, security in general network security in particular has come back as a top spending priority and the survey work that we do, pretty much the past year. So two questions. One, do you see this high priority when you talk to your customers and B, to what degree you think this high priority is getting translated into stronger spending trends in the industry?

Tal Payne

So when I talk to investors – when we talk with customers, we see more budgets allocated out of the IT spending. I met a few customers in the recent few weeks then I get the same message. So it’s correlated to what you see. Its obvious, why its happening, there is more and more effect not only general attacks on the public, but a lot of dedicated attacks that are reaching specifically to attack the specific organization, the larger you’re the more you’re under risk. The more assets you have, then there is more attacks. It can be by the way two types. It can be bad guys trying to get your assets and monetize it or it can be cyber attacks between, sometimes even government, it can be activism and so on. So, you see more and more attacks which are much more sophisticated than they used to be. And therefore you see more organizations taking it more seriously.

So one factor or one new phenomena is that there is much more increased awareness in the customers around the world. That’s something relevant. And the spending can be any type of security, so you see a lot of spending on add on security solution because today many believe there is not one solution, but different solution to build different layers to protect your network environment and there is also a trend of also protecting your inside environment because if and when security breach happens and its already entered your organization, historically you didn’t need always to check that. Now you want to check the inside, so if it succeeded to penetrate, how do you track it and then eliminate it.

Keith Weiss - Morgan Stanley

Right. Got it. So bringing them back to Check Point, in particular, an interesting dynamic that’s been going on year-to-date where you guys have seen double-digit unit growth, but declining ASPs. And evidently this stemmed from an appliance refresh that you guys did at the end of last year. Maybe you can walk us through those dynamics playing out? Why is that occurring and sort of when does the – when do those trends play out sort of normalize, if you will?

Tal Payne

Sure. So first the security market is a mature market, it’s not a new market. So the growth rates are not there, the high growth rates, it’s a mature market. The main markets which is firewall plus a few additional solutions can be around 3.5 billion 4 billion, but there is many adjacent markets that relating to its majority of this market is growing in a single-digit growth. So, in order – so typically your number of units actually will increase in a single-digit. Bear in mind, that we’re according to IDC latest report, we’re number one player in the market with 30% of the market. So that report we used to be number two and now we move to number one, which means we’re gaining market share. But it’s very hard when you’re our size to continue and increase your market share.

So typically an organization like us which is a market leader, we will benefit from adding increasing ASP, increasing solutions on that gateway, so number of unit will grow single-digit, but you will benefit from a higher budget allocated to you in the customers and therefore you increase your revenues faster than the growth of the market in general. This year it’s a new phenomenon. We launched a new product line. That product line enables customers who have for the same price levels three-time – on average three times the throughputs. The reason we want high throughput is as more and more customer adopting additional security solution on our appliance, and so it historically had firewall and VPN, now many of them adding additional solutions, they need more throughputs. So we wanted to provide a lot of throughputs for customers so they will be able over the next five years which is the cycle of a product to adopt additional security solution without having a degradation of their performance. So that was the goal behind it.

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