Check Point and Radware: Match Made in Heaven?

Includes: ALLT, CHKP, RDWR
by: Shlomi Cohen

Among the Israeli shares that I own in my portfolio tracked by "Globes", it was another stormy week for Radware Ltd. (Nasdaq: RDWR), which rose 22%, in a week in which essentially its entire float changed hands - about 14 million shares, not including those held by the Zisapel family.

Despite the fact that the company has not said a word since the story broke three months ago that the company was on the verge of being acquired for a billion dollars, the share price movement and huge turnover speak for themselves.

It appears that there is a sort of auction process around the acquisition of Radware, between the giant companies that are expressing interest in the company's technology - Cisco (NASDAQ:CSCO), IBM, HP (NYSE:HPQ), and maybe also Riverbed (NASDAQ:RVBD), Dell (NASDAQ:DELL), and Juniper (NYSE:JNPR). In contrast to the public bidding for 3PAR (NYSE:PAR), in the case of Radware all the participants apparently prefer secrecy.

Hacker attacks last week on financial sites of firms such as PayPal, Visa (NYSE:V), and MasterCard (NYSE:MA) only increased-- in my opinion-- the efforts that giant companies are making to buy companies such as Radware, which has, among other things, security platforms to prevent such attacks.

Those attacks only increase the attractiveness of security companies even more, because someone who dreams about a trillion dollar market in several years in "cloud computing" knows that it has no chance without security at the highest level.

A minute before Radware is sold to a foreign giant, I would advise Check Point Software Technologies Ltd. (Nasdaq: CHKP) CEO Gil Shwed to rise to the challenge, and utilize the mountain of cash that his company has to buy Radware, and establish an Israeli empire for network security and optimization, ahead of the new era of "cloud computing".

The positive market reaction to the brave move by Mellanox Technologies Ltd. (Nasdaq:MLNX) CEO Eyal Waldman with his mountain of cash, in buying Voltaire Ltd. (Nasdaq:VOLT), proves that investors no longer "punish" companies for such bold moves.

Allot of potential in the US, eventually

After a stunning move from a low of $1.40 per share in March, 2009, to $9.40 last week, Allot Communications Ltd. (Nasdaq:ALLT) published a shelf prospectus for up to $100 million, half its market cap. Investors were not intimidated, because they learned in the past year from several Israeli companies which I hold in my portfolio here - Orbotech Ltd. (Nasdaq: ORBK), EZchip Semiconductor Ltd. (Nasdaq: EZCH), and ClickSoftware Technologies Ltd. (Nasdaq: CKSW), that such large registration statements usually stay on the shelf unused, unless an opportunity for a large and very attractive acquisition falls into their hands.

With the prospectus, Allot is signaling to investors that in addition to the strong internal growth it has enjoyed in recent years, this is the appropriate time to acquire a complementary firm or technology, which will boost that growth to even higher. Allot is a leading player in the DPI sector.

Smartphones, and recently tablet computers led by Apple's (NASDAQ:AAPL) iPad, have been loading cellular networks with huge video content traffic, such as YouTube clips or interactive video games. The network infrastructure was originally built only for conversations, and this load requires new investment in infrastructure, which cost a lot of money. But with the DPI of companies like Allot, suppliers can charge higher prices for carrying video.

In addition, the free VoIP calls that have gained popularity through Skype or others, can be likened to putting free cars on a toll road, a challenge for suppliers. With DPI solutions, companies such as Allot allow telecommunications suppliers to halt the theft of their infrastructure at no cost.

Allot is doing very well in the East, in Europe, and in South America. Only in the US it has nearly no presence, because US regulators have until now prevented DPI on the basis that it discriminates against customers.

Allot is apparently preparing itself for the day that the US market will allow the entrance of DPI systems on a large scale, and I assume that its next acquisition , for which it published the shelf prospectus, will be in the US.

Published by Globes [online], Israel business news - - on December 14, 2010 Reprinted on Seeking Alpha with permission © Copyright of Globes Publisher Itonut (1983) Ltd. 2010