Israel Economics

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Looking for the next Check Point
McAfee execs were in Israel this week on a $1b shopping trip for data security companies.

Shmulik Shelach 30 Mar 06 14:48

There is nothing like a visit by executives from a foreign giant to pour cold water on the diatribes of local cynics. “We saw a lot of Israeli companies in Silicon Valley and we wanted to take a closer at them,” explains McAfee Inc.(NYSE: MFE) chief technology officer and executive vice president Christopher Bolin. As reported by “Globes” last week, Bolin and executive vice president, general counsel and secretary Parveen Jain have come on a “shopping spree” in Israel.

Classifying Israel as a security software powerhouse sounds relatively modest when one listens to the compliments from the McAfee managers after they visited a large number of local software security companies last week. “We’ve seen some amazing technologies in our field while we’ve been here and people should take notice of what’s happening over here,” says Bolin.

The McAfee managers came to Israel with a clearly defined goal. The company has adopted a strategy built around mergers and acquisitions and set aside $1 billion for buy-outs. This is a lot of money and would be enough to do more than just acquire a few start-ups. This was the trigger behind the rumors circulating at the beginning of the week about the possibility that McAfee might acquire Israeli security company Aladdin Knowledge Systems (Nasdaq: ALDN; TASE: ALDN).

”If you look at the companies we’ve acquired in recent years, you’ll notice that they are not companies that manufacture anti virus software,” says Jain, “McAfee has acquired 45 companies and various activities in recent years and we don’t plan to buy any specific company, but we are looking for something suitable in Israel. We have a lot of Israeli companies that are working for us at present, and we go where the talent is. We would be happy to have an R&D center here and we won’t hesitate to set one up but this will take time to achieve.”

Globes: Is there a possibility that you may acquire a more established company such as Aladdin, for example, which operates in fields that overlap with yours?

Jain: “We have the funds with which to buy big companies, but we won’t buy anything if there’s no rationale from the commercial standpoint. The maturity and technological capabilities we have seen here are a lot better than what you would find in Silicon Valley; there is simply no comparison between the two. We have seen companies that would be suitable from the strategic perspective, and which are clearly compatible with our company.”

Bolin: “We are cooperating with Finjan in product distribution. The acquisitions we have made differentiate us from our rivals, and buying a company that manufactures anti-virus software is not a logical move for us.”

No conversation with representatives of a company in the software security sector would be complete without mentioning Israel’s own data security powerhouse, Check Point (Nasdaq: CHKP). McAfee’s managers are convinced that the Israelis’ extraordinary abilities in the field of security are due in no small measure to their military experience. They enthuse, however, about Israeli companies for different reasons too.

Bolin: “One of the things we saw in companies that we visited here was the technological quality, which without doubt, stems from military experience. Check Point, for example, is an amazing company that has benefited from the military experience of its team. This is what we feel will definitely create the potential for another Check Point in the Israeli market.”

Aren’t you interested in looking at new technologies in the Far East?

Jain: “We are looking for technologies that would be a logical addition for us from the commercial standpoint. The companies we visited here also devote thought to business issues. Some of them have customers all over the world and this is important to company such as ours. We quite definitely haven’t seen the possibilities in the Far East that we have seen in Israel. They specialize in security here to a greater extent than anywhere else in the world. We have an R&D center in the Far East and the difference between there and Israel is that the people building companies here apply business acumen. We think that Israel has a phenomenal advantage in the security software field for the next five years at least.”

Bolin: “India has the world’s best training programs for computer engineers. Israelis, on the other hand, learn how to secure networks in real time during the course of their military service, rather than in college classrooms. We don’t know if this is the main difference or the entire difference between Israel and India, but it’s natural for graduates of the military to know what to do. Having said this, if we decide to take an interest in IT, we will find the Far East far more attractive.”

Not afraid of Microsoft

McAfee is a pure software security company which employs development teams across the globe and operates laboratories that develop solutions to different security threats 24 hours a day, from new viruses to unauthorized access to organizational networks. The company is traded on the New York Stock Exchange at a value of $4.2 billion and its main competitors are Symantec Corporation (Nasdaq: SYMC), the leading developer of anti virus software) Trend Micro (TSE: 4704, NASDAQ: TMIC), and, gradually, also software giant Microsoft (NasdaqNM; MSFT).

McAfee does not fear the looming battle and has been preparing itself accordingly. “We were, of course, pleased when Microsoft announced it would be postponing the launch of its Vista operating system, says Jain. “We definitely expect competition from Microsoft, mainly in the end user sector. But competition is a task that you have to deal with daily and it doesn’t frighten us.”

Bolin: “Security does not depend solely on technology and developing software is not the same as developing security products. We have the ability to develop software that can respond to threats that are becoming more sophisticated all the time, and this will be a tough task for someone who has not been in the field for long. To deal with the threats we face today, you have to be a step ahead. It took us 25 years to develop security technologies such as these. We are ready to face Microsoft because we rely on our technology and our customers.”

What are the prospects, in your view, for security solutions for cellular networks?

Bolin: “We currently protect 10 million cellular phones, mainly in Japan. This is not meant to the same sort of protection as the type used for PCs but there have been instances of fairly ingenious attacks that have brought down networks or blocked telephone exchanges at public services. Cellular installations are still not mature enough and do not have a diverse range of uses, but several experts have already shown us theoretical applications for protection against Trojan horses, for example as well as other advanced applications. The breakthrough is only a matter of time.”

Jain: “As use becomes more widespread, more people will want to take over the field and they will find ways to achieve this. Junk mail is the key threat today, but we have seen cases of exceptionally heinous things that can be done over cellular networks. We are working with telephony service providers in Japan and Europe and we estimate that the number of protected phones will reach 25 million in 2006 and that’s just the beginning. We have only seen a few examples so far, but we feel that this field will undoubtedly see further development in the future.”

Published by Globes [online], Israel business news - www.globes.co.il - on March 30, 2006

http://www.globes.co.il/serveen/globes/docview.asp?did=1000077260&fid=1724

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