Hacker Attacks Spur Rise in Security Software Stocks

Shares of security software makers surged Wednesday on optimism that recent Internet-related computer crimes will spur increased demand.

ISS Group Inc. (ticker symbol: ISSX), the No. 1 maker of software to detect hacker attacks and network weaknesses, jumped $7.88, or 11%, to $81.75. SonicWall Inc. (SNWL), which makes software used to guard consumers’ computers, surged $10.50, or 17%, to $72.75. RSA Security Inc. (RSAS), whose products scramble data, gained $10.75, or 20%, to $63.75.

Investors are betting that companies that rely on the Internet to do business will scoop up security software after attacks this week temporarily disabled Web sites run by Yahoo Inc., EBay Inc., Amazon.com Inc., Buy.com Inc. and others.

“All of the companies in the security space could see rising demand because of one aspect of security being highlighted,” said David Zale, an analyst with Sands Bros. & Co., who rates ISS Group a “buy.” “As the Internet grows, security has the opportunity to grow with it.”

Last year, companies worldwide spent billions of dollars to correct computers that might have read the year 2000 as 1900. Now they’re likely to switch their focus to improving security on their systems, said Jim Gildea, marketing director for Network-1 Security Solutions Inc. (NSSI), whose shares rocketed $5.44, or 33%, to $21.69.

“Now that Y2K is past, the next piece of work for business is that of increasing network security,” Gildea said.

Thomas Noonan, chairman, president and chief executive of Atlanta-based ISS Group, said companies are racing to get on the Internet to stay competitive--without giving security much thought.

“We are building the foundation of this new economy on a network that is very vulnerable,” he said.

Unlike many other Internet-related firms, many security software firms are already profitable. SonicWall, for example, is expected to earn 29 cents a share this year; ISS Group is expected to earn 34 cents a share. But relative to those expected profits, the stocks were already highly priced--even before the latest run-up.

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Security Securities

Shares of several Internet security specialists jumped Wednesday as the spate of Web site hacker attacks widened. A sampling of the stocks, ranked by year-to-date return:

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Ticker Wednesday YTD % Estimated Company symbol close change change ’00 EPS* Network-1 Security NSSI $21.69 +$5.44 +100.6% NA SonicWall SNWL 72.75 +10.50 +80.8 +$0.29 WatchGuard Tech WGRD 49.13 +15.50 +62.4 -0.30 Axent Tech AXNT 28.25 +5.00 +34.5 +0.35 Entrust Tech ENTU 70.63 +6.81 +17.8 +0.36 ISS Group ISSX 81.75 +7.88 +14.9 +0.34 VeriSign VRSN 194.81 +5.38 +2.0 +0.23 RSA Security RSAS 63.75 +10.75 -17.8 +0.87 S&P; 500 index SPX 1,411.71 -30.01 -3.9 56.24

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*Earnings per share

NA: Not available

Sources: Bloomberg News, Times research