Insecurity at Internet Security Firms (CHKP, FTNT, FIRE, PANW, IBM, INTC)

Internet security providers Check Point Software Technologies Ltd. (NASDAQ: CHKP) and Fortinet Inc. (NASDAQ: FTNT) both reported weaker than expected results for the third quarter and both lowered fourth quarter forecasts. Another competitor, Sourcefire Inc. (NASDAQ: FIRE) is falling just as far and just as fast in sympathy.

Doesn't it seem odd that just a few days ago, U.S. Secretary of Defense Leon Panetta warned of a possible "cyber-Pearl Harbor" that could disable the U.S. power grid, its transportation system, financial networks, and government operations, and the companies that make products to defend against these kinds of attacks are not posting better revenues and profits? Just yesterday a U.S. intelligence official said that Iran was behind an attack on U.S. oil companies and banks that disabled 30,000 computers in Saudi Arabia last summer.

Check Point and Fortinet pointed to softness in European markets and both companies are getting more competition from recently public Palo Alto Networks Inc. (NYSE: PANW). Big-time competition is also threatening from International Business Machines Corp. (NYSE: IBM) and Intel Corp. (NASDAQ: INTC), which now owns McAfee.

Another possible explanation is that the looming fiscal cliff in the U.S. is making companies, and the federal government, more cautious about making investments in security, choosing to take a wait-and-see approach both on funding levels and on a cyber-attack as well. Maybe Panetta's warning is too much, too soon.

Whatever the reason, Check Point's shares are down 12.8% today at $41.37 after posting a new 52-week low of $40.92. The prior range was $43.18 to $ 65.00.

Fortinet's shares are down 20.7% at $19.67 in a 52-week range of $17.54 to $28.82.

Sourcefire is down 13.9% at $41.01 in a 52-week range of $26.12 to $59.64.

Palo Alto Networks is up 1% at $66.26 in a post-IPO range of $51.10 to 72.61.

Paul Ausick