CacheFlow Puts on Blue Coat

CacheFlow's changed its name, its focus, and its ticker symbol. Can it survive on security?

August 21, 2002

4 Min Read
CacheFlow Puts on Blue Coat

As if emerging from Clark Kent’s phone booth, Web caching company CacheFlow Inc. (Nasdaq: CFLO) has shed its drab attire and (it hopes) its losing persona, and now it's dashing to the rescue in a brightly-colored cape -- er, coat. A makeover that's taken months culminated today in a name change to Blue Coat Systems (Nasdaq: BCSI), with a new ticker symbol to match.

Started in 1996, the company formerly known as CacheFlow has been feeling the effects of the dwindling caching technology market for over a year. Since many of its customers were using CacheFlow's products for security purposes anyway, the decision was made to reposition the firm to address content-level security and control for carriers and enterprises. The company says about 8,000 of the 12,000 products it has shipped to date have been aimed at solving security problems.

To fit its new focus, the company decided that Blue Coat, slang for security guard or watchman, was a more fitting name.

Industry sources applaud the move. “There aren’t too many companies that started out as caching companies and that are still in the business as caching companies… [Blue Coat] wants to become part of the road map, not the road kill,” says Aberdeen Group Inc. analyst Eric Hemmendinger.

"It’s a good move," says analyst Chris Christiansen of IDC. “The security space is still seeing double-digit growth [every year]. Caching, [however], is seeing double-digit negative growth.” According to his firm's recent research, the market opportunity for products like Blue Coat's that aim at secure content management for enterprise and carrier customers will grow to $4.8 billion by 2006.

In the months leading up to today's final name and image change, CacheFlow made many strategic adjustments aimed at moving it in the direction of Web security. These included setting up new channel business models, solution providers, strategic partners, products, and services.

Blue Coat’s primary focus will be to address the problems associated with port 80, a standard http protocol interface used by most popular email and Web services. Since port 80 traffic is not filtered through traditional firewalls, malicious mobile code attacks and worms can use the port to spread across an entire network. Blue Coat says its research indicates that more than 60 percent of corporate environments aren't protected from Web-based attacks over port 80, and about 70 percent of all intrusion attempts now target the interface.

“It is basically open, a wide-open hole,” says Bob Pratt, Blue Coat's director of marketing. The company aims to solve that problem by plugging the port, he says, allowing only acceptable, clean content through to approved users.

In response to these threats, Blue Coat announced today a new product series, the SG800, which the company claims is the first security appliance that focuses specifically on solving the problem of port 80 (see Blue Coat Plugs Port 80). The SG800 is a 19-inch rack-mountable appliance that offers a 10/100 Base-T Ethernet, 10/100/1000 Base-T Ethernet, or SX interface. It costs between $6,000 and $30,000.

The SG800 secures applications such as Web browsing, instant messaging, and personal Web-based email from attacks. It also performs multiple security functions, including Web-based antivirus detection, content security, and content URL filtering. It is not supposed to function as a firewall, Blue Coat says, but is instead intended to complement firewalls by protecting what they don’t cover.

Blue Coat has already begun shipping the appliances. Several hundred have gone out over the past six weeks, the company says, to eight paying customers and several beta-customers.

Analysts say the concept is solid. “I think there’s a need [for this product],” Hemmendinger says. “Their customers clearly think there’s a need.”

Blue Coat’s success is, however, far from a given. Only last week the firm (still in its CacheFlow guise) announced that, since its shares remained well below the $1 mark, it had received a second delisting warning from the Nasdaq. Changing its name and ticker symbol doesn’t change the fact that the company’s stock is still trading for around 55 cents a share.

According to Charles Dauber, Blue Coat’s vice president of marketing, the company’s shareholders will vote on September 12 to decide whether they’re willing to do a 5:1, 10:1, or 15:1 stock split. Any of these would enable the stock to meet Nasdaq’s requirements. If the shareholders vote against a stock split, the company will simply be moved from the Nasdaq large cap market to the small cap market, Dauber says.

He’s not worried, though. Although the company’s revenues have been flat or down, he insists that the security portion of the business has been growing at a rate of about 20 percent over the past three to four quarters.

“Success is never guaranteed,” says IDC's Christiansen, “but being at the right place, at the right time, with the right solution, increases the probability of success.”

The company plans to announced its earnings results -- the first under its new name -- tomorrow.

— Eugénie Larson, Reporter, Light Reading

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