Optical/IP Networks

Check Point Enters Box Market

Check Point Software Technologies Ltd. (Nasdaq: CHKP) has thrown its hat into the security appliance ring.

In the past two weeks, the company announced two platforms -- the [email protected] appliance designed for small to medium businesses, and the VPN-1 Edge appliance for remote office sites (see Check Point Targets Small Biz and Check Point Intros VPN Appliance).

The announcements are a shift in Check Point's product strategy and raise questions about its relationship with appliance partners, such as Nokia Corp. (NYSE: NOK).

Check Point has traditionally generated about half its revenue from selling pure software solutions, and the other half has been generated from software licenses to hardware resellers. The largest of these partnerships is with Nokia, which generates roughly 90 percent of Check Point’s appliance reseller business. In total, Nokia is responsible for about 40 percent of Check Point’s overall sales, says Erik Suppiger, an analyst with Pacific Growth Equities Inc.

“I think there has always been tension between the companies,” says Suppiger. “But there’s no indication that they are going their separate ways any time soon.”

Check Point claims the two product lines will not compete with one another. Nokia’s IP40 is targeted at high-end enterprise customers, while the new Check Point appliances are geared toward the low-end of the market.

Sweta Duseja, product marketing manager for Check Point, also says the company has no intention of competing with Nokia in the enterprise market.

“We have strong partnerships that focus on the high-end segments,” she says. “There’s no need for us to introduce any appliances there.”

Dan Reis, director of platform product marketing for Nokia, acknowledges that there may be some instances of overlap between the different products, but he says that the two companies have always operated in a quasi-competitive environment.

“They’ve always partnered with other appliance vendors,” he says. “I can’t predict what, if any, issues will come up with respect to Check Point’s new appliances, but it doesn’t seem much different from how we’ve always done business.”

In the short term, the two companies are likely to keep the partnership as it is, since Nokia is as dependent on Check Point as Check Point is on Nokia. Without the Check Point relationship, Nokia would be forced to develop its own firewall and VPN technology from scratch. And it would lose the brand recognition that comes with reselling Check Point’s software.

But in the long run, both companies might fare better on their own.

“Both companies are trying to make profits from the business,” says David Flynn, vice president of marketing at NetScreen Technologies Inc. (Nasdaq: NSCN), a VPN and firewall appliance competitor to both Nokia and Check Point. “But there isn’t enough margin to go around.”

Another issue for Check Point is that the security market is growing more rapidly for bundled appliances than for standalone software solutions (see Security God in the Making?). Large site-to-site and broadband VPN deployments, along with more-demanding firewall requirements, are pushing this trend, said Jeff Wilson, an analyst with Infonetics Research Inc., in a report earlier this year (see VPN/Firewall Market Still Growing). As a result, Check Point will likely grow even more dependent on its relationship with Nokia.

“If Check Point wants to control the firewall appliance market, they’ll need their own hardware,” says Suppiger. “And the same goes for Nokia. If they want to be successful [in the] long term, it would make sense to own the software.”

The two companies have already begun competing head-to-head in the secure socket layer (SSL) VPN market. Instead of leasing Check Point’s software, Nokia announced back in June that it had developed its own SSL solution (see Nokia Sweetens SSL ). At the time the product was announced, Dan MacDonald, vice president of product marketing for Nokia, said Check Point’s solution was not robust enough. Duseja says that Check Point is working on a new solution.

Aside from a possible overlap with Nokia, the new Check Point firewall and VPN appliances will also face tough competition from other appliance vendors. The small business platform will compete with Cisco Systems Inc. (Nasdaq: CSCO), Sonic Solutions (Nasdaq: SNIC), and WatchGuard Technologies Inc. (Nasdaq: WGRD), while the remote site box will compete with Cisco and NetScreen.

— Marguerite Reardon, Senior Editor, Light Reading

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