Websense Open For Takeover As Security Firms Strengthen Mobile Offerings

The security market seems to be riding a consolidation wave. Earlier last month, Intel agreed to acquire McAfee for a staggering $7.7 billion. HP also added to its security portfolio by buying the application security provider, Fortify Security. IBM had recently bought another security firm, BigFix, to accelerate its smart data center and security initiatives. Meanwhile, Websense’s (NASDAQ:WBSN) CEO, Gene Hodges, has said that Websense is open to a takeover bid. Before being acquired, McAfee (NASDAQ:MFE) had announced its second quarter results with revenues growing 4% over the year to $495 million but falling short of the Street’s projected $507.4 million. EPS of $0.63 was, however, higher than the market’s expected $0.60.

McAfee had been venturing into the mobile device space. Reports estimate worldwide mobile phone sales to have grown 17% over the year to 315 million units in the first quarter of 2010. In the same period, smartphone sales grew 50% over the year to 54 million units, feeding a growing need to strengthen the company’s mobile device segment. To address the market, McAfee purchased tenCube, a Singapore-based mobile security company. TenCube’s WaveSecure service solution lets mobile users remotely locate and lock the phone in addition to backing up or erasing data from the device and its external memory cards. The service is primarily available in English, Chinese, and Indonesian.

In May of this year, McAfee announced the acquisition of Trust Digital, a provider of enterprise mobility management and security software solutions that enables businesses to deliver critical data to the point of service using iPhones and iPads. The acquisition aimed at extending McAfee’s endpoint market by being able to address a wide range of mobile operating systems including iPhone OS, Android, Web OS, Windows Mobile, and Symbian.

Further, McAfee tied up with Polycom to secure unified communications and entered into an agreement with Verizon Business to market McAfee Verizon cobranded SSL products and solutions using Verizon’s SSL technology and certificates to secure online transactions. I am not convinced of Intel’s need to acquire McAfee, especially at 45 times its earnings, but many believe that McAfee’s growing Internet connected device presence was a strong bait for Intel. As far as I am concerned, Intel is looking confused and panicked, and the McAfee acquisition is an illustration of that lack of clarity and strategy.

McAfee’s stock is trading at a 52-week high of $47.35 with a market capitalization of $7.2 billion.

Meanwhile, Symantec’s (NASDAQ:SYMC) results and outlook disappointed the market. For Q1, the company posted flat revenues of $1.433 billion, missing the market’s projected $1.47 billion. However, it managed to meet the market’s EPS target of $0.35. For the current year, Symantec is projecting revenues to be $1.445 billion–$1.465 billion with EPS of $0.27–$0.28, missing the market’s target of $1.53 billion revenues with EPS of $0.34. The company attributed the slow growth to growing caution within IT spending.

Symantec is working on expanding its technology offerings to help end customers deploy, protect, and manage their essential applications and databases running in virtual environments more effectively. To expand security offerings in the cloud environment, the company is working on Symantec Critical System Protection, which provides real-time hardening and intrusion monitoring while maintaining high performance and availability. Solutions such as the Symantec Protection Center centralize security management, to manage, update, and monitor security policies and configurations across both physical and virtual environments. Symantec Brightmail Gateway 9.0 lets customers scale their messaging security infrastructure while taking advantage of the resource utilization benefits of virtualization.

The company is also expanding its reach within the small and medium business segment and has extended its small business specialization partner program. To help the segment, Symantec is offering a monthly subscription service to better align with the way SMBs function.

The stock is trading at $13.98 with a market capitalization of $11 billion. It touched a 52-week high of $19.16 earlier this year.

Websense’s Q2 revenues of $83.2 million missed the market’s projected $84.3 million target. EPS of $0.31 was, however, significantly higher than the market’s targeted $0.28.

Recently, Websense tied up with Microsoft to extend its Data Loss Prevention offering on Microsoft’s Windows Server 2008 R2 File Classification Infrastructure technology to secure files stored on Windows servers. The combined Websense and Microsoft solution will enable automatic identification, classification, and remediation of sensitive data with centrally managed security policies.

The company projects current quarter revenues to be $82 million–$84 million with EPS of $0.29–$0.32. It expects to end the year with revenues of $333 million–$337 million with EPS of $1.17–$1.22. The market was expecting EPS for Q3 to be $0.32 and for the year to be $1.20.

The stock is trading at $20.67 with a market capitalization of $878 million. It touched a 52-week high of $25.28 in April of this year.

Players such as Oracle, HP, and IBM are looking to expand their product portfolios and offer customers end-to-end solutions aimed at network and data management. Security is a critical link in these offerings. HP, for instance, has been looking to expand its security portfolio and its recent acquisition of Fortify should strengthen its position in application security. Adding Websense will extend its position in the Internet filtering and Web security solutions. IBM’s acquisition of BigFix will help IBM to address PC security, and adding Websense could address network security concerns. Further, given the growth of cloud computing, virtualization leader VMWare could look at purchasing Websense for its virtual offerings.