No-one understands what's happening at Check Point. Sales are rising, profits are growing, the quarterly report is better than ever, the management deserves a pat on the back, and the investors need an encouraging hand, because they won't derive encouragement from their brokers' reports. The share is not recovering. In the good old days, it stood at over $50. Now, it's treading water in the vicinity of $23.
"Globes": Gil Shwed, would you invest in your company's shares today?
Shwed: "Yes, certainly. I'm even considering doing so. The decision whether to invest is not ultimately a question of whether the investment is a good one or not. It's a good investment, that's clear."
News.com wrote this week that the Firewall market is contracting.
"That is factually incorrect. I receive all the surveys. On the basis of the most reliable and up to date surveys, I can categorically say that the Firewall market is not contracting. It's a market that is growing very nicely. Besides, the market we serve is much larger. Check Point is a VPN and enterprise security network company."
In conversations on Internet chat sites, such as those of Yahoo! and Silicon Investor, the investors complain that Check Point's management doesn't do enough to support the share. Do you agree there's a problem?
"We talk a great deal to investors, and to bank analysts who cover us, of which there are currently 15, and we do our best to inform, to explain, and to answer questions. We're doing what we've always done."
Maybe that's not enough?
"I wish it was better"
What's your opinion of Check Point US president Deb Triant's performance?
"Deb is doing a great job. She talks to investors, to banks, to funds. The feedback we get is very good. The fund managers like her very much."
Is there pressure in the company, among the employees?
"I repeat to the employees: It's not that the world is good or bad. This is the situation. Sometimes the share price misrepresents the company's position on the plus side, when it's unjustifiably high, and sometimes it misrepresents it to the negative side. You have to quote the numbers and show that the company is a good one. It's not that the share price isn't important or interesting. The aim is to build a company that will generate value for its shareholders, and we are doing this in the way we know how. Some employees aren't happy, but most of them understand, and they have the motivation to carry on working."
Have you come across a logical explanation for the share's position?
"I hear a great deal of speculation from outside. I listen and learn. Check Point is a wonderful company, and no-one has a good explanation."
Have you heard the conspiracy theory, which says that a US investment bank is flooding the market with Check Point share so that the share price will fall, and one of the bank's customers will be able to take over the company?
"I've heard it, and it doesn't make sense to me. It's clear that there are rumours, and people with various aims."
What, for example, are the aims of investment bank Goldman Sachs, which was the leading underwriter in Check Point's issue?
"I don't think they are aiming to depress the share."
What do you think of Robertson Stephens analyst John Powers? How do you explain the decline in his recommendation on the Check Point share?
"I have no explanation. Most people I talk to don't understand what made him change his mind about the share."
Do your bankers, Goldman Sachs, have any explanation that puts your mind at rest?
"Most bankers I talk to can't give an explanation. They don't understand why the market is behaving the way it is. I try not to speculate, but to get on with the job."
It may be possible to avoid speculation, but it's impossible to avoid the facts on the ground. The share price has fallen substantially. Consequently, Check Point is more vulnerable to takeover bids.
"I'm not especially afraid of a takeover. I don't see it happening. If there's a threat, Check Point has bankers and lawyers."
One gets the impression you aren't interested in selling Check Point. If they offer you more than $45 per share, will you say no?
"We'll say no if the offer isn't a good one. Our loyalty is to our shareholders. That is our duty. If the offer is good, we will treat it accordingly. We received offers in the past, and refused. We considered that they did not serve the shareholders' interests."
Have you recently received offers to take over Check Point?
"That's not something I can talk about."
Let's talk about customers. In its latest report, Check Point discloses that business with Sun is steadily shrinking. Is this a positive process of becoming free of dependence on a large customer, or was this trend forced on you?
"Two years ago, sales to Sun represented 60% of our total sales, and in the last quarter, the volume of business with Sun came to 11%. We are selling more to Sun than we were then, but the rest of our business grew even more, and that's positive.
"Last quarter's fall in sales was not connected with Check Point. At Sun, we worked vis-a-vis Sun Soft, their software company. In the second quarter of 1998, Sun Soft was closed down. This naturally caused a drop in activity, and therefore in sales. But we intend to continue working with Sun."
Sun is itself trying to develop network security solutions for its customers. How are you responding?
"Sun has been trying to develop solutions for years. We think their efforts will diminish. They sell much more of our product than of theirs.
Our products work in the environment of various platforms. NT represents about 50% of our business, and we are focusing on NT enterprise network security. But this doesn't mean we'll neglect other environments."
Network Associates, originally an anti-virus producer, has recently redefined the market it is addressing. It seems as though it is determined to step precisely onto your territory of network security and its management. Are you worried?
"Network Associates has just bought a Firewall company called TIS for $160 million. This company offers an old generation of Firewalls, application gateways. The company has not been all that successful in recent years, and lost market share to Check Point. I don't see it working out for them .Check Point's product is the only one that enables company-wide management of network security policy, and support of many sites through a single policy. These are things that Network Associates' product can't do."
Network Associates tried to get Check Point distributors to go over to distributing its products.
"They ran a special-offer campaign among distributors, but we are not aware that the campaign was a success. On the other hand, more and more of their customers are encountering problems with their product, and are transferring to Check Point."
What's your opinion of the aggressive tactics of their CEO, William Larson?
"Larson is one of the high-tech world's most talented people, and his tactics are aggressive. He draws fire, drags competitors to court, comes out with dramatic announcements. At some stage he'll declare: "Would you buy the security system the Mossad uses?" - we don't descend to that kind of level."
At times like these, would you like to be Mirabilis - to invent something and make a quick killing?
"In recent years, many people have formed the impression that, in high-tech, you set up a start-up and get rich quick. I think that when you build a company with the right values: to create and build up a real business with long-term economic value - the share price will come. This is the model I believe in, to run the business, and take care that it will continue to grow and succeed. Not to look to get rich quick."
Published by Israel's Business Arena on August 3, 1998