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Check Point Software Technologies Ltd. (NASDAQ:CHKP)

UBS Technology Conference 2013

March 13, 2013 9:15 am ET

Executives

Kip Meintzer

Analysts

Brent Thill - UBS Investment Bank, Research Division

Brent Thill - UBS Investment Bank, Research Division

Great. So welcome back after lunch. We'd like to have with us Check Point represented by Kip Meintzer, who's in charge of Investor Relations. And you've got a presentation, Kip, and the we'll go through the Q&A.

Kip Meintzer

Yes, we'll go through a quick presentation here and then throw it out to you guys for the Q&A. So obviously, there's the obligatory forward-looking statements. You can take a peek at that, obviously, it just says there's lots of risk and uncertainties that go along with all the forward-looking statements and if you want a comprehensive view of those risks, take a peek in our latest 20-F.

So with that, just going to go through kind of a little quick overview of Check Point. We'll look at some of the financial results from the annual last year and then a quick summary. And so if we look -- for those of you that aren't, shall we say, familiar with Check Point, it's -- we're the company that was founded in 1993. Our Founder, CEO and Chairman still with the company since Day 1. Him and his Army buddies created Check Point way back when. Today, after 20 years, it has about -- approximately $1.3 billion in sales. Market capitalization of approximately $10 billion and we have over 2,500 people that are dedicated purely to security. That's a little bit different than most of the other vendors out there, who, if you think about Cisco or Juniper who do a lot little bit of everything. There are some other smaller vendors out there that don't even -- that pale in comparison to our size.

As far as our customers, we're blue-chip, 100% of the Fortune 100 companies and many of the other enterprises worldwide. So to start out, what do we do? Well, Check Point secures the Internet, that's our goal. If you think about how this category started, you go back to the early 1990s, for those of you that are old enough to remember, that was the advent of the use of the Internet inside the enterprise. When you did that, it's like opening a door, putting a door into your organization. So there's always a need for some type of protection there. So you used to get it by going out to consultants and that was until Check Point came along and provided a packaged solution for addressing those needs.

How that evolved over the years is, every time there was a new technology introduced to the enterprise, you needed a corresponding security product to address those concerns. Some of them aren't even security, some of them are -- have to do with your work like URL filtering that prevent people from looking at obscene photos or things at work and offending other folks there. So it's not always just to deal with the security concerns, sometimes it could be a regulatory concern or something within the organization.

So if you look at the pillars of what makes up Check Point, it's our platforms, it's our management, it's our ability to deliver the latest and greatest security technologies out there and then also, following the data where it goes. So from mobility to data in motion.

So I'll start out with pillars of performance. We became an appliance -- or sorry, delivering appliances in 2007. Just last year, we refreshed our whole line. We used to previously have upwards of 30 appliances, part of which was a result of an acquisition we did at one of our partners, the Nokia security business appliances. We've, since then, pared those down to the items you see here on the screen. When we came out with these new appliances and unified that line, we delivered also 3x the performance of the previous boxes that they replaced. We also added a new high-end platform, a chassis base that's ideal for data centers, telcos or just large environments in need of lots of power. And we also delivered, at that time, or shortly thereafter, a brand new OS called GAiA. It had over 100 security improvements, options added to it from the previous 2 operating systems that it replaced. And it was a nice addition to the family.

With that, we also deliver today, over 30 software blades. These software blades are, well, software blades are a sexy way of saying modules of software. And effectively, what Check Point is doing is we're consolidating the solutions that you see in the market today. Traditionally, you see in a maturing market a type of consolidation takes place. I always like to point back to enterprise software.

You used to have many, many individual point solutions in the enterprise software market. Today, you have 3 companies basically or 4, you have SAP, Oracle, Microsoft, and a little private company, I think, still private named IN4. So not unlike that, I happen to have a vision that I think securities are also going to go through that type of consolidation. Our CEO and the rest of the company also believes that, and they've actually started moving towards a more consolidated platform.

So we did this in 2009, and we've continued to expand -- the blades come in 2 flavors: one is a product blade, which is just part of the product, the other blades, which we have between, I can't remember, we just came out with 2-in-1, I can't remember if there are annuity or not, but we have 8 that are annuity blades, and these are subscription blades and they have a higher value and they're continually updated and they're IPS, our Anti-Bot Blade, our Application Control Blade and several others.

So one of the other advantages of our system is we have a single pane of glass for all of the management. So everything is located in one area, it's a tabbed environment. It's one of the things that makes our product the most sticky. That's what we're known for, ease of use. You can see right here, this is just a snapshot of our event viewer, the part of the product. So you have right here everything that is deployed within your security system, is bringing these events back. And the colors are showing you whether it's a severe or how less severe the actual attacks or the events are.

The unique thing about our product is when you have all of our products there, as you see an event that's taking place, you have to remember, you don't prevent for everything, you actually detect for a lot of things and you prevent for the most severe or the things that you believe will damage. But when you see an event that is actually taking place, that is actually severe enough, you can actually drill down them within 2 clicks. You can actually go from detecting to preventing. This is a very big advantageous part of having all of your solutions in one place, gives you more control and it allows you to be a more effective administrator.

So the next thing is, we continue to lead in the security industry. We keep expanding. One of the latest areas that have showed up from a threat aspect, and many of you have probably heard, it began with Stuxnet. Basically, it's a state-sponsored activity or organized crime where they're actually developing. Think of it, if you have in-house developers, they're dedicating resources to creating customized software that has the only intent of either stealing intellectual property, stealing data that will allow them to capture bank accounts. You've just seen, as of late, there was a euro grabber incident where $3 million was stolen from a bank, basically, via one of these are types of attacks. We did actually a little survey over the last year, I think with 900 companies, 120,000 hours of traffic and what we came out was 63% of the organizations that were surveyed or part of this actually were infected with bots. And so from that standpoint, it's very scary. A lot of this was in the R&D organizations of biotech companies and such. So that's not very appealing to shareholders or management, I'm sure.

So one of the areas that we're also looking at as far part of the future, when our offering products here is as data is proliferated and we've seen it move to smartphones, sharing apps through the cloud, et cetera.

As you can see, 90% of organizations allow storing business data on smartphones. This is for basically folks that are just allowing in an iPhone, your regular e-mail to come in to the client. So the only thing protecting your corporate data there is just whatever password you're required to put in to get into that phone, something that's very easily hacked, it's 4 digits. And there's also sharing data in the clouds, which is effectively, if you think about it, the data in the cloud is a very insecure area because they can be attacked much readily than you can inside your corporations. They can -- they know where the data is located at, it's right there in the cloud, and they know where the access is, Inside your corporation, they have to actually to ferret through your network.

If you look at the protections, there's obviously a need in both these areas. I hate this presentation. So the real approach to addressing all of these different areas is through a comprehensive solution and multi-layers.

So if you look at what Check Point is offering today, through 20 years of leadership we've led the firewall industry, this is where it all started, this is the core of the business as it would be. Every organization that you see out there, whether you belong to it or you do business with it, has a firewall. IPS, this is allowing you to stop the exploits. We've been recognized for leadership in this area, recognized as one of the top products. AB is obviously something that's just natural, it's part of that whole stack of what you need to get rid of as that data comes in, as you have threats. Anti-Bot is what we had talked about earlier, ferreting out those machines that have been infected. Anti-Bot actually deals with the -- or approaches the idea that everybody is infected. So you go in and you're looking for the communications of these products. So our product actually allows you to find these infections and then remediate them. There's also a new product that we actually introduced a little over a week ago called Threat Emulation. And it actually looks at pieces of software as it comes in and then explodes it in a virtualized container to see what changes it actually makes to the organization. And then, depending on your rules or however you view that file, it will decide to pass it along or stop it. So that's an area that's going to continue to grow. Within DDoS, this is another area that everybody is affected with. We actually offer a solution here and this is to prevent those denial of service attacks that shut down the system and then allow people to penetrate the organization. And then ThreatCloud, which was the first collaborative network. Think of it as social engineering for security. In the past, when you think about security, what would transpire is somebody would get infected, say, a large bank. They don't tell anybody, they don't ask anybody for help, they try to fight it on their own. What ThreatCloud allows people to do -- I mean, the only person they might tell is maybe another CIO or something that they know and they might just tell them, "Hey, look, I have this issue, you might look out for it." Now with ThreatCloud, you have the social engineering aspect of it where one infection informs everybody that belongs to the ThreatCloud, which is available for all of our customers as a service. It goes 2 ways, so as you get infected, that information goes up, it gets solved and then it gets pushed to everybody that decides to become part of the ThreatCloud. And so it's a -- think of it as an early warning system. If one person gets attacked, everybody else in that sector or on the Internet, in that type of industry, is probably going to be a target also.

So with that, now that the perimeters are protected, what about the mobile forces as a hot area, obviously, we all know. Mobile information, protection. It doesn't matter if it's an iPad, laptop or an iPhone or an Android or what have you. But there's a need for protection. We actually have a solution right now available on the Android and the iPhone. It's a simple product that allows your administrator to provide as much access to resources within your organization. None of the information resides on your individual devices. It's all actually on the network and then brings it in to a container. And it's a native experience, so it's not something that's altered. We actually have full use of documents, et cetera. And you can see there, and there, you can use your word documents, whatever you'd like.

So our solution that we have that is really focused on the mobility areas from the devices to disk encryption, which is for your laptops, your desktops. That's to prevent somebody from slaving your drive once they've stolen your laptop or desktop.

On media encryption, providing the access or a removal of information that you would otherwise not want to have done. So it makes sure that, that product is encrypted or you can't even use the USB port and the VPN and DLP, which prevents the malicious or accidental release of proprietary information.

So putting it all together, Check Point delivers a single architecture with some of the most advanced technologies, and we're always continuing to evolve.

Quick look at our financial results for last year. We grew 8% in revenues from '11 to '12, achieved that $1.3 billion mark; operating income, 10% growth with operating margins of 59% for the year. I know that's really low for most of you guys. EPS, a nice 11% growth and obviously, we have quite a bit of cash on the balance sheet.

With that, some of the items that we've been recognized for this year. We scored tops in NSS Labs, which is a third-party evaluator of technologies. We took the top position in next generation firewall, top position or near the top position in IPS and top position in firewall. This is a kind of a testament to the quality of our products. It's across the board when you look at all the places we play, we are recognized 1 or 2 across the board. Some more notoriety.

And with that, jump into questions.

Question-and-Answer Session

Unknown Analyst

Great. Maybe if I start with 1 or 2. If I think about the appliance sort of growth rates, historically, you talked about high single-digit growth and I think in 2012, you had mid-teens growth on the back of the new product side.

Kip Meintzer

On the units, you're talking about?

Unknown Analyst

Yes, units.

Kip Meintzer

So traditionally, we don't disclose the units, the reason why we did last year is because obviously, when you look at the revenue growth and everything along the lines for the year, especially the product and license growth, it was muted. However, what was occurring is we were having actually a phenomenal success on the unit side and for the year, we came out with 15% growth in units, where a typical year is mid- or at least single-digit unit growth. This has resulted from a couple of things: one, we introduced the line of appliances, the unified line of appliances, with the increased power, but what we saw in the year is a trade down and we believe that trade down was affected by one, of the macro conditions in the marketplace, but also the severe moves the dollar made. We saw the dollar go from the prior year in $1.50 range, $1.60 range, against the -- range against the euro, to actually all the way down to $1.20 as we got down towards the end of the year. We believe that resulted in some customers, rather than what they would usually do in a move like that is come back and negotiate for a discount, they were able to, because of the increase in power, the latest introductions, to actually trade down, select one device down or what have you. And if you look at a back of the envelope for the year, we had a 15% increase in units, but we actually had a decrease in ASP of roughly about 15% to 20%. Resulting in, I think, 3% product growth for the year. So as we went through the year, we saw slower and slower as you got to the fourth quarter where the initial introduction of those appliances were made. And so we'll see. Coming year, we're hoping for some unit growth -- or product and license growth in the coming year.

Unknown Analyst

What do you think will happen to the unit growth? Should that sort of -- how about...

Kip Meintzer

What it should do is it should revert back to the mean, as what you would expect. If you look at basically, our guidance for the year, 4% to 6% for the first quarter and 6% to 8% for the full year. It insinuates, it goes back to the mean. Single-digits unit growth. Because we have parity, effectively on the pricing. You're not going to see a trade down or you shouldn't expect a trade down there. I suppose it could happen, but probably not likely. But assuming parity on the pricing, you would assume it to revert back to single-digits.

Unknown Analyst

Okay. And then in terms of the RSA Conference, which has just finished, what were the main buzzwords or takeaways that Check Point had from that? And I think from Brent's perspective, advanced persistent threats are a key issue. What was your strategy there?

Kip Meintzer

So we announced 2 new blades actually at the RSA Conference. And I mentioned one of them during the presentation, which was Threat Emulation. So there's been some hot startups in this area that actually have a nice solution in this area. They approach it in different way. Currently, they're working towards some of the way that we approach it and we're working towards some of the way they approach it. It's basically the data types they're looking, as opposed to the data types we look at. Our Threat Emulation product today looks at all the office documents and PDF. So mostly, we're looking for stuff coming through e-mail, where on the other side, you'd be looking at web traffic or actually executables. And so we're working that way, and my guess is they're probably working our way. Threat emulation is the newest way to actually determine what's going on with these types of files that are being used to infiltrate the organizations. The APTs, that's one way to identify them. The other part is the Anti-Bot blade which I talked about, which is sort of takes the approach that you assume you've already been infected, and so you're trying to ferret them out. And so those are the 2 approaches that we have from that standpoint. The secondary part that -- or the secondary blade that we actually introduced at RSA was something called our compliance blade, which you guys may -- in the industry you're in, you're probably very aware of the risk and compliance groups well within your security industry. When you're administering, you're always administering the policy. Sarbanes-Oxley has impact on your security protocol, HIPAA does, PCI compliance, all of this. And there's always been third parties that provided you a solution to identify if you're in compliance or not. But it's usually a snapshot, and it's not real time. We delivered a compliance blade that -- it's the first time at RSA where I've actually seen customers, I think, almost drooling as they were actually seeing the product on the monitor. But it allows you in real time to see where you're in compliance, where you're out of compliance across many different profiles. It could be ISO 7000, what have you. And all it takes to get back in compliance is to drill down. There'll be a number -- it'll show you a number of how many areas you are out of compliance. In our product, you drill down on that number and then you can actually, just like in our event manager, you can actually rectify and get yourself into compliance. And so this is, from what I could tell from the administrators, this is heaven sent for them. So we will have to see if it actually translates into more use and more dollars in the future, but that's a ways off.

Unknown Analyst

Can you just give us a feel...

Kip Meintzer

Sorry, this is webcast, so if you wait for the mic.

Unknown Analyst

Can you give us a feel of where we are in the threat? I mean, Defense Secretary Panetta's warning as one of the biggest risks to the U.S. We've seen the same out of the DoD. We read actually daily about companies being hacked. At the moment, I think Chase Bank has been hacked last night. Where are corporates in meeting this threat? And can you actually get ahead of the curve, or are they going to continue to fire fight once [indiscernible] have been put through the defenses?

Kip Meintzer

So let me approach an answer to that in a little different way than just directly. If you look at in the last 10 years, how threats have evolved. The threats we used to worry about where kids building scripts that were going to send all of your contacts and e-mail. And so I've been hit by them when I was early in my career, and I'm sure many other people in this room have been hit by them. I always say that those guys disappeared the minute Apple delivered iOS and the App Store, because every little kid that used to build those nuisance apps now can make money putting their head to work, right? It used to be they were bored and they were doing something, now they can do it. What's happened over that period of time, is you've seen more of a move from nuisance-type stuff and there was still people trying to fish and get your account numbers back then. But now what's happened is the level in the investment around these types of attacks, whether they're state-sponsored or organized crime, where you literally have people that are custom making these viruses specifically for one purpose within one company. Such as when Google had Gmail, their Gmail source code taken. That wasn't designed, that attack wasn't designed for anybody else, but just for that specific reason. You had the New York Times attacked where they were looking for the computer of the reporter that actually wrote a story and they were looking for the sources, specifically on those computers. So the short answer to your question is, I don't think anybody is ready, because I think it's very, very hard or very difficult to know how somebody is going to attack. So I think when you see what Anti-Bot, Threat Emulation, these are new areas that are being introduced right now. I would say from that standpoint and from the level of attacks, it's probably something everybody needs. The question is will we get there. You saw the President make a signing statement around the threats, you saw Leon Panetta make his comments. The reality is, the only people that could do the regulatory side of it or pass laws, is Congress. And I think that was more of a prod for them to actually do something. And I don't need to tell anybody from America here, but our political system isn't working too well at the moment, or for the last, who knows how many years. But the real truth is corporates -- corporates are moving that direction. I'm not sure if they're moving fast enough. So time will tell. With the level of attacks and the level of breaches we're seeing, I can only imagine that will hasten over a period of time, either corporates to make decisions more concerted around security or maybe even regulatory pressures that come in. So I don't think anybody's protected enough, that's for sure.

Unknown Analyst

Related to that, when President Obama made his announcement about cyber security, your stock reacted positively. Would you be able to...

Kip Meintzer

I think the whole market was up that day, so it's not just particularly security, but...

Unknown Analyst

But would you be able to participate with any of these large government contracts, not being a U.S. company?

Kip Meintzer

So first off, I don't his signing statement was directed in particular, at the government. I think he was talking about all corporations and everybody. So from that standpoint, I don't think it was specific to government. When you do look at the government, our government exposure worldwide, all governments is about 10%, 10% or less, we called approximate. From there, we do participate in government, not usually around federal or DoD, but other areas within government, we do participate. Now that may be for, as we look at it, it's by design. Much of the time when you're building for the DoD or the federal, usually they want one-off products. You're not dealing with something that's necessarily a packaged good. So you're dedicating resources that are other than towards the whole benefit of everybody in your install base. It's not always the case, but that's something that can happen. So I would say on purpose, we probably decided not to go down that route. But nonetheless, I'm sure there is some truth to the fact that we're not probably going to be in any contracts on that side.

Unknown Analyst

Another question I had was do you see consolidation in the industry? And with your large cash balance, do you see opportunities to do M&A? And when you tried to acquire Sourcefire a few years ago, you weren't allowed to because you weren't a U.S. company. But a lot of these smaller startups are U.S.-based companies. Would you be able to acquire in the U.S.?

Kip Meintzer

So I think when Sourcefire, when we were going to acquire Source Fire, there are other political issues going on at that -- excuse me, there were other political issues at the time. The Dubai trying to buy the ports, or take over the ports of America. And I think there were other political issues that were a driving force between us not being able to acquire. I'm not sure that would've occurred if it weren't for the Dubai ports uproar at that time. As far as acquiring companies, we definitely have a large cash balance and we'd definitely like to do some M&A. We have actually been quite active over the last couple of years. Mainly though, small tuck-ins of technology. The last one we did of note was probably the Nokia security appliance division, and that was back in 2009. But since then, we've done several small acquisitions. We'd like to do something bigger if it provided the value. I think some of what's preventing us from doing it, either be public company or a private company, is the valuations that are out there today. The ones in the public, they're getting pretty good valuations out there, the smaller companies. Some of it's because probably, of take out potential. Things along that lines. On the private side, when you see those types of valuations, they then start to get the same illusions of grandeur. And so, it's the question is, is the value there? And I think we're key to focus on value when we make an acquisition amongst other things. And so I think that's why you see us probably not doing them probably at the rate people might expect us to with that level of cash.

Unknown Analyst

Also, an update on your dividend policy?

Kip Meintzer

We actually don't have a dividend policy. We don't do a dividend. We did increase our buyback earlier, or was it June quarter of last year, we took it to a $1 billion over 2 years. We did say we'd be opportunistic. We are -- we can do up to our cash flow without having any tax consequences on top of that cash. If we dip into the cash on our balance sheet, there can be a need to pay taxes of approximately 20%. So we do right up near our cash flow. And so we still got quite a bit to go. I think we have about $700 million to go.

Unknown Analyst

My understanding is that there's Israeli tax law changes that could..

Kip Meintzer

So the tax law change, we adopted at the beginning of 2012, which allows us to use our cash flow or our net income to buy back stock or do a dividend without any further tax consequences. However, there was a law passed last November. And the law that was passed in November is to deal -- I assume, they have a budget hole and they need to fill it, so the ITA passed this new law, and it allows Israeli corporations that have this cash on their balance sheet that was basically accumulated at little or no tax, to actually buy down their tax rate by paying an advanced tax on that cash. So the way to think about it is, the cash on our balance sheet, the majority of it is subject to, if we were to use it for dividend or buyback, it would be subject to us paying 20% on the dollar to the ITA. That's the tax that was forgone on that money that was allowed to be accumulated, that we could use for M&A or business purposes without further taxation. So what this law says, is that if you wish to pay in advance, they'll provide you a discount on that tax. And that discount -- if it's usually 20%, and it's based on how much you're willing to buy down. So let's say at $1 billion, they'll do like 15%, at $2 billion, they would do a 12%, or something. I'm making those numbers up, but it gives you an idea. So you're going to pay a pretty good chunk less than you would if you were going to eventually use it and have to pay the full amount. So we have until November to either adopt that law or say no. The problem with the law -- or it's not a problem, but there's some gray area in that law and it's -- the question is whether it's been beneficial or not. In other words, it may end up being net-net, not a gain, but we'll see when we get there. We'll be able to make a decision and probably have a better decision as we get closer, okay?

Unknown Analyst

You talk about a shift back toward unit growth. I think one of the main concerns investors had post the results was just whether you would see unit growth through 2013. Is that something that you've already started to see coming through so far?

Kip Meintzer

Don't comment on the quarter, inter-quarter. What I would tell you is we expect to see -- our anticipation is flat ASP. And I'll tell you what we gave when we gave guidance for the first quarter in January, I guess it was. We said we anticipate to have a flat ASP. We don't expect an uptick or a further trade down. And we do expect unit growth, but we expect it to revert back. We're not anticipating the teams of unit growth.

Unknown Analyst

Okay. Can I just go back to your Threat Emulation. Because a lot of the debate about APT was that this extra layer needed to come through. So how does that sit with your current portfolio in terms of Threat Emulation? Is that an incremental piece of software? And apologies if it was a stupid question.

Kip Meintzer

No, no, no. It's not a stupid question.

Unknown Analyst

And where does it sit? Is it sitting above layer 4 through to 7? And then also, to add to that, you talked about how you were going to move towards some of the other players. I'm assuming you're talking about Bromium and Fireeye.

Kip Meintzer

Well, I won't name players, but there's -- we started at a different point, which we started at the actual documents and stuff that you see normally through e-mail. So what I would tell you is it is a step or piece of software, it's a blade, it's another module. And from the standpoint of where it sits, we actually have it available in 3 ways. We have a cloud service, so think about somebody wants to try it or a smaller company who may not what invest in a module or what have you, then they would choose the actual cloud service. Then we have an in-line blade that actually is part of the device. And that would be, depending on the size of the organization and the size of the box they chose to deploy, or we actually can take it out and put it in dedicated appliances. And so it really depends on the approach that the organization wants to take and what the level of need is. But nonetheless, we -- as we always do, we're trying to address each one of the areas of our install base and what it is that they would choose. And so, we don't want anybody to be subject to having to do something a certain way when it may not be appropriate for them. So we've given those 3 flavors and that's where it exists today. All right?

Unknown Analyst

You mentioned that the cloud is less secure in some ways than an on-premise environment. Would you be able to give more color around that? And are you seeing more attacks actually be successful in cloud environments rather than on-premise?

Kip Meintzer

Well, so I don't want to characterize it either way, other than to say that when you're not controlling your own data, you don't know what's going on, right? And so from that standpoint, if you're in the public cloud or you're in something that's a shared environment, you don't have the control over that environment. So by definition, to me, that is less secure. Plus, when you're looking at public cloud, you don't probably see the same levels of security. And so I would just point out that Facebook, your information in Facebook, your information in your e-mail accounts, at any other given place, there's nothing, not the same level of protection you would expect for mission-critical information. And so what I mean by cloud being less secure is, if you're putting mission-critical information for your organization in the cloud, you're -- it's inherently insecure compared to if it was in your own organization. And so there are things out there where people are approaching it, where they're actually starting to encrypt their data that's in the cloud. And so, there are advances made in this area. But by definition, I think anything outside of your control is less secure. So that's what I was trying to point to. I thought I was going to have an easy q&a.

Unknown Analyst

A bit of a woolly question, I guess, long-term.

Kip Meintzer

What type of question?

Unknown Analyst

A woolly one. So very much longer term, there's a lot of chat about software defined networking and so on. Just wondering what impact that has to you as a company, longer term? Are there any changes to the way that you think you go about securing the perimeter, the impacts on the network, how that's secured. Is that a threat or an opportunity? I know you're investing for that now if that...

Kip Meintzer

So let's start out by saying, SDN is not something that's really out there in full force today. So it's only in theory, no one's really implemented it wisely or there's not a lot of companies that have started implementing it. But let's look at it from the standpoint of our heritage. So we're a software company and if you look at the way the company has evolved, we've evolved this software platform, improving it all along the way. And so, we used to sell perpetual licenses until 2007, and then we started selling appliances. The hardware we run on, if you think about the dynamics around SDN, it's the same dynamics around us. We run on Intel, generic hardware, basically x86, we actually have purpose made boxes for our appliances, but our customers that have software licenses or choose to buy software licenses can deploy it on any x86 server they wish. So there's some similarities. Now the interesting thing about our product is, we have one single management console. We have virtualized software also that runs within the VM sphere environment. We also have a virtualized solution that runs on an appliance, which is called our virtual system software for creating virtual firewalls in a managed service or hosting environment. And so we're very familiar with this area. And what I would tell you is one of the unique things about us compared to our competitors, all of our competitors are relying upon a6 or field-programmable chips, et cetera. And so when you look at virtualization, you don't get the use of a chip, right? It's all in there in the virtualization. And so for our standpoint, when we use our management console, whether you have an appliance, a software license or virtual, it's just an object within our management console. So you get to share all the intellectual property you've created, the way you've designed your system, the signatures, the protection, everything within your organization. You can drag and drop each -- all those collections onto brand new products. So you're not moving from one management console to the other and not being able to share that intellectual property. So I think we're very well positioned in that market. Still, it remains to be seen how that will pan out or if it will pan out. But I do think we're best positioned to address that market. But if it takes 5, if it take 7 years for that market to evolve, it's still plenty of time for our competitors to better position themselves. But today and for the future, I still think we'd have a headstart or at least, quite a big of a lead on everybody. Have we run out of time yet?

Unknown Analyst

Maybe just a final one for me. Just on the competition. So I guess Cisco and Juniper, you're used to getting the ones there, but also Palo Alto and how you see them, so win rates or competitive?

Kip Meintzer

Our largest competitor is still today -- 2 largest competitors, that's going to be Juniper and Cisco. They have the largest market share out there. They're approaching every deal, and so they still remain our largest competitors. When you look at the individual categories that the other players play in, some play in the mid to the lower end of the market and some play in specific categories. We -- in any given instance, we're playing in their market, they're not necessarily playing in our market. And so what I mean by that is usually, we're going and now competing against them because we now have the products that they deliver. Application Control for Palo Alto in specific, and then when you look at affording net [ph], we actually have products that can push down stream further than we used to. We also have our new 61,000 box that actually plays very nicely over in the telco or the high throughput areas of the marketplace. So what I would tell you is I don't think, from a competitive standpoint, we've seen anything really change. When you talk about win rates, it's very difficult because we're an indirect, but we have wins against everybody on a regular basis. But it's, the question is, was that what impacted us last year, and I would say no. And if that -- if it were true, then we wouldn't have been recognized for #1 in the marketplace now. First-time ever, we overtook Cisco to be #1 in market share. And we also wouldn't have had 15% unit growth. One way is to look at revenue, but what you're really looking at is units out there. And so if you see a 15% increase in units, it usually means you're not losing market share.

Unknown Analyst

All right, thanks a lot for your time.

Kip Meintzer

Thank you. Thanks, everybody. You're a really nice crowd.

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Source: Check Point Software Technologies' Management Presents at UBS Technology Conference 2013 (Transcript)
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