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Security vendors hit by IT spending slowdown

Security vendors hit by IT spending slowdown

Security software vendors that until recently seemed immune to the broad slowdown in IT spending are now feeling the pinch, with several companies issuing warnings about deteriorating business conditions this week.

The latest example came Thursday, when Baltimore Technologies said it's planning a "major restructuring" of its operations, in a bid to preserve cash. The upcoming cutbacks, which follow an 18 per cent workforce reduction in May, come as Baltimore anticipates second-quarter revenue to drop from $US24.6 million a year ago to about $22 million.

Earlier this week, Internet Security Systems Inc. (ISS) announced that its second-quarter results would range from a loss of about $860,000 to break-even performance on a pro forma basis, with revenue finishing in the $50 million range. The company also said it plans to take $6.9 million worth of charges related to amortisation of goodwill, a write-off of some research and development work, and other costs associated with a recent acquisition.

The second-quarter revenue figure will be up from the year-earlier total of $44 million. But ISS, which is mainly known for its intrusion-detection technologies, conducted $61 million worth of business in this year's first quarter, and analysts polled by First Call/Thomson Financial in Boston had expected a second-quarter profit of about $6.5 million on revenue of $65 million.

Network security vendor Check Point Software Technologies also warned that its second-quarter revenue would come in slightly below expectations, at about $140 million, though that total would be up sharply from the year-earlier level of $90.7 million. Like ISS, Check Point blamed a slowdown in corporate spending for the lowered outlook.

The warnings - and a resulting sell-off on Wall Street that battered the stocks of numerous security vendors - show that the IT security market isn't as protected from the economic softening as some observers had expected it would be, said IDC analyst Charles Kolodgy.

"I thought the security sector would hold up better than some of the other [technology] areas," Kolodgy said. He wasn't alone: Spending on security was seen as relatively safe because of heightening hacker threats and the increasing importance of data privacy. But the same deferred spending, delayed upgrades and canceled projects that have affected other parts of the IT industry now appear to have hit the security business as well, Kolodgy said.

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