From an Israeli standpoint, it will interesting to see Cisco Systems’ (Nasdaq: CSCO) results in the fourth quarter of 2005 for the information security sector, where it competes with Check Point (Nasdaq: CHKP). At a Merrill Lynch conference last Thursday, Check Point president Jerry Ungerman explained that Cisco and Juniper Networks (Nasdaq: JNPR) sold routers and switches, but that most companies, particularly the larger ones, wanted an additional layer of security, and usually went to pure information security companies like Check Point to get it. He said that Check Point would hold its annual analysts day, which it usually does early in the year, during the second quarter this year, and would explain at length how it plans to accelerate its growth.
The second layer of information security is same target marked by Check Point competitor Juniper, which acquired NetScreen Technologies two years ago. Ungerman says that NetScreen has “vanished”, meaning that it is no longer the same competitive factor that it was when it was an independent company. NetScreen is apparently set for a new incarnation as Juniper’s information security division, with a series of new products; that, at any rate, is what Reuters says. NetScreen’s products include anti-virus software, protection for enterprise branches, protection of communications with employees at remote locations and at home, and so forth. Juniper regards Cisco as a bigger competitor than Check Point, since Cisco offers its own security products, in addition to routers and switches.
Risky, but interesting
One of the small and risky companies in my portfolio is Metalink (Nasdaq: MTLK;TASE: MTLK), which published its results last week. Metalink is risky because it is like a start-up, with $4.4 million in sales and a $2.9 million loss in the fourth quarter of 2005. Fortunately for Metalink, it has $38 million in cash, the result of its large secondary issue in 2000, before the market collapsed.
Although risky, Metalink is also interesting for people willing to take a risk for a chance at a pretty big jackpot. Between the lines of its announcements (the company does not conduct conference calls because no one comes on the line with questions; I like companies like that), I detect that, this time, Metalink chairman and CEO Tzvi Shukhman is taking a different tack with the wireless chip he developed, rather than the unsuccessful path he took with other chips in recent years.
Shukhman is apparently cooperating with large semiconductor and equipment manufacturers in order to quickly leverage the chip, which still enjoys a technological advantage over giants like Broadcom (Nasdaq: BRCM) and Marvell Technology Group (Nasdaq: MRVL). In an exhibition in Las Vegas early this year, Metalink’s exhibit was swamped with interested visitors, because it dealt with the hottest thing in today’s communications sector high definition television (HDTV) home broadcasts over the Internet and on wireless local area networks (WLAN), meaning between different rooms in digital homes. Metalink says that its WLANPlus chip is 5-10 times as fast at doing this as other chips.
Metalink’s very high-speed digital subscriber line (VDSL) chip, with Internet speed of 100 mega, was also a big breakthrough when it was displayed several years ago. At that time, Shukhman’s attempt to conquer the world almost by himself failed, and he also chose a standard that did not pass. His competitor, then a very small private company named Ikanos Communications (Nasdaq: IKAN), chose the standard that was accepted. Today, Ikanos is the queen of VDSL chips almost everywhere in the world, and its share soared, reaching $21 last Friday, compared with $12 in the company’s September 2005 offering.
As far as the standard for Metalink’s wireless chip is concerned, Shukhman did his homework this time. All the semiconductor and consumer electronics giants recently approved the draft 802.11n standard, which will go into effect at the end of this year. Analysts expect the market for chipsets using this standard to reach $2 billion a year in 2008. Broadcom and Marvell are not waiting for Shukhman; they are working at full speed to come out with a better chip. The $64,000 question is how Shukhman will play his hand against them in this poker game, during the short window of opportunity left to him. He will also get offers to acquire the entire company, but past experience shows that he is in no hurry to sell, which makes the share very risky.
Published by Globes [online] - www.globes.co.il - on February 7, 2006