Check Point Software Technologies Ltd (CHKP) 2003 Q3 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Check Point third quarter 2003 financial results conference call.

At this time, all participants have been placed on a listen only mode and the floor will be open for your questions following the presentation.

If at any point throughout today's presentation you have a question, you may press the number one, followed by 4 on your telephone key pad.

It is now my pleasure to introduce your host, Janine Zanelli .

Ma'am, You may begin.

Good morning and afternoon, and Thank you for joining us to discuss the third quarter of 2003.

As a reminder, this call is being web cast live from our website and recorded.

To access the live web cast and replay information please visit the company's website at checkpoint.com/IR.

The replay will be available through November 3.

If you'd like to reach us after the call please contact the investor relations department at 650-628-2050.

On the call with me today is Gil Schwed, Chairman and CEO, Jerry Ungerman President, and Eyal Desheh, CFO.

Before we start our management presentation I would like to read the following disclaimer.

During the course of this call, the company may make certain forward-looking statements concerning trends during the fourth quarter and revenue and earnings for the future.

Other statements which may be made in response to questions which refer to our beliefs, plans, expectations, or intentions are also forward-looking statements.

Because such statements deal with future events, actual results could differ materially from the company's current expectations and are subject to various risks and uncertainties as discussed in our report on form 20-F for the year ended December 31, 2002, which has been filed with the Securities & Exchange Commission.

The company assumes no obligation to update information concerning its expectations.

Thank you and I will now turn the call over to Eyal Desheh, CFO.

Thank you, Janine. good morning and afternoon everybody.

Hopefully, you all had a chance to review the press release and our financial results.

Revenues for the third quarter were $106.3 million, up from $103.6 million in the third quarter last year.

October revenues, product revenue contributed $54 million or 51%.

Subscriptions and upgrades were $41.6 million or 39%.

And service revenues were $10.7 million, or 10% of total revenues.

Deferred revenues were $99.1 million this quarter, a $5 million increase over the same period last year and a sequential decrease of $4 million over the second quarter this year.

Operating income was $62.1 million, same as in Q3 last year.

On the expense side, our total costs and operating expenses were $44.2 million, a $2.7 million increase over Q3 last year.

We added more developers to the product development teams, increasing our R&D investment.

This enabled us to drive more new products and solutions.

We also increased sales and marketing activities with more events and seminars for our partners and customers.

Net income was $58.4 million or 23 cents per share diluted, compared to $62.3 million or 25 cents per share diluted in the third quarter of 2002.

Net income and earnings per share reflect a higher tax rate, which increased the from 18% to 20%.

Increasing shares outstanding and lower interest income resulted from interest rates market declines.

During the third quarter, the company generated net cash flow of $62.8 million.

Total cash and interest bearing investment as of September 30, 2003, were $1.53 billion.

Let's look at some additional financial metrics for this quarter.

Account receivables were $57.5 million and DSO day sales outstanding were 51 days this quarter, similar to the previous quarter and well within our regular range.

In Q3, we added over 12,000 Gateways.

Our total Gateway installation now stands at over 295,000 Gateways.

Well this summarizes the financial results, and now I'd like to turn the call over to Jerry.

Thank you, Eyal.

Hello, everyone.

We were pleased with our Q3 results which were up slightly over Q2 in a seasonally slower Q3 period so a nice increase compared to the same quarter last year.

This quarter we saw a continued increase in activity around the world and across all market segments.

Our customers continued to upgrade to NG with application intelligence to obtain the benefits of the best security technology in the market.

The advantages and the in-depth protection afforded them by SmartDefense was proven numerous times.

A very specific example, customers were fully protected from the blaster attack this past August.

We also experienced nice growth in the U.S. and continued [no audio] regions with 45% of our total revenues coming from the Americas, 39% from Europe, Middle East and Africa, and 16% from Asia pacific and Japan.

A lot of our focus has been and will be on growing Check Point's revenues.

And in this regard, we made a number of new product announcements this quarter to support this effort.

These new solutions will allow our customers to better respond to changes in the way they use information technology and changes in the way that attackers attempt to abuse the same technology.

They include Check Point Express, security solutions package tailored and priced for medium sized businesses, VPN-1 Edge, a new family of solutions targeted specifically for the branch and remote offices of enterprise customers, which will allow for the deployment of a very cost effective and higher large-scale VPN infrastructure and a new family of solutions for small businesses built on our safe at office technology, which has been significantly enhanced with a new, faster platform and a new version of software which allows our resellers to now propose the fastest and most effective solution to their small business customers.

We also continue to expand our business relationship with our appliance partners.

And in aggregate, They saw a very nice increase in the dollar value of the platforms they sold to run our software.

The range and variety of platforms covering all performance levels and price points continues to be attractive to our customers.

As we have discussed often, we are in a competitive market and that is still true today.

We know and understand our competitors continue to struggle to provide the quality of security solution that we do, and they try to overcome these deficiencies by offering a cheaper product and with marketing messages and hype by claiming they have new and better technology that can inspect traffic at a deeper level than before.

What is important is for Check Point and our resellers to ensure that customers understand it may be deeper than what they have done before, but it is still far behind the capability of staple inspections and application intelligence.

One of the keys is our continued focus on providing the highest level of security at the performance levels required with cost effective solutions on a variety of platforms that best meet the needs of our customers.

That concludes my comments.

And I will now turn the call over to Gil for further discussion.

Thank you, Jerry.

We continue to execute on our strategy to enable secure business interactions via the Internet by expanding the solutions we deliver.

While Check Point has traditionally focused on perimeter security Our strategy to further expand our solution into new fields to better address the evolving security needs of new and existing customers.

To address today's dynamic security environment Check Point believes the organization should base their I.T. security infrastructure on [Inaudible], perimeter security which defines and enforces security policy at the boundary between internal and external systems,nternal security which provides layer defense to protect internal systems from threats originating both internally and externally and web security, which provides secure integrated access to system via web technologies.

In the first quarter, we made three significant announcementswhich focused on addressing perimeter security needs which Jerry discussed.

Going forward, you can expect Check Point to expand it's offering towards the internal and web security needs of the market.

As we look ahead, while we haven't seen the I.T. economy rebound taking place yet, we're cautiously optimistic for the fourth quarter.

At this time, actually, we see pretty good signs for a good Q4.

We currently expect both revenue and EPS to increase and be in the range of $108 to $114 million and earnings per share of 23 to 25 cents.

This concludes my comments and we'll be happy to open the call for your questions.

Thank you.

The floor is now open for questions.

If you do have a question, please press the number 1, followed by 4 on your telephone key pad.

If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. once again, that is one followed by four for any questions at this time.

Our first question is coming from Michael Turits of Prudential.

A couple of questions on the safe outline.

Do you still have appliance partners there or are you going completely alone on the appliance front?

And second, how should we view the effect on margins of both developing and marketing this line, including any cost for pushing it through the channel?

Michael, we still do have appliance partners.

Nokia continues to be a very big very strong partner.

They're going to continue to carry our full line of software across the full range of appliances, including the low end.

As well as some other partners.

I guess the biggest other one that's already announced is NEC in Japan is going to carry the complete line as well.

But we decided, and are augmenting what they can do, because it's a very big market with a lot of channels, a lot of customers around the world, so it's just a matter of helping reach all those requirements.

So you're going to continue to sell the SofaWare (ph) on a software basis, even at the low end?

Do you see any competition, any conflict between the expanded line and your appliance partners?

No, not really.

We think it's going to be very complementary.

There's a very big market.

They're fully committed to it.

They have distributors, resellers and customers but they don't reach the entire marketplace.

We have a number of other appliance partners that don't have a low end that they find it complementary to their offerings.

As you may remember, about 50% of our base is appliance based, 50% is server based that will be reached by these new product lines.

We (indiscernible) think it's very complementary.

It's a big market and we can all coexist and do very well in reaching those opportunities.

Last part of the question was just on investment to push the new line to the VPN edge as well as the new Safe At Office line, marketing costs, channel costs, any effect on margins, where will the investment go.

We don't see any impact today Michael, across that.

It's all part of our marketing campaign, all part of what we do with the channel, the resellers on a continuing base.

We see no real impact on margins today.

Margins expected to be flat?

Margins are expected to be in the same ranges, (indiscernible) at least in the foreseeable future.

Thanks a lot, guys.

Our next question is coming from Steve Sigmond of RBC Capital Markets.

Please go ahead with your question.

Thank you.

What percent of your installed base is [NG].

And of that percent that's upgraded, how many of those customers are on AI and SmartDefense at this point?

I don't know if we know the exact number, Steve.

We know it's well over 50% of the base, has migrated NG.

The challenges with NG now, there's four different versions of it, and I don't know right now how many have actually gone to AI, but we see a very strong growth of people signing up for SmartDefense and the SmartDefense subscription service that we have.

And as I said, in my comments, it's proven very, very effective.

Blaster was one of the specific examples where we had the protection in place in April for a worm that wasn't propagated until August.

We continue to see a very good movement of our base, both into NG and all the way up to application intelligence and then buying the SmartDefense subscription in addition.

And then just a quick follow up for Eyal.

The deferred revenue number was down sequentially for the first time in several quarters.

Can you comment on expectations going forward on deferreds, given some of the subscription based sales potentially kicking in?

Yeah.

If you can look, there's a seasonality impact.

A lot of the renewal of the large subscription contracts happened Q2 and Q4 so you could expect deferred to go down somewhat in Q3.

As to the future, we see our deferred that could move between 5 million up or down, and there's no change in that.

I think the other thing of interest, Steve, is that deferred is up this year over last year by over $4 million.

Thank you.

Our next question is coming from Todd Raker of Credit Suisse First Boston.

Go ahead with your question.

Typically, you give us some insight on big deals.

Can you give us any insight on the quarter?

Yeah.

We -- we're talking about large orders.

We categorize large orders in the order of 50,000, just to remind.

We had, this quarter, a little over 16, about 16.5% of our business came from orders bigger than 50,000.

It was around 21% in Q2, and 13% in Q3 last year.

So we're better than Q3 last year.

Overall, we did get a bigger number of large orders in Q2 than in Q3, but it was fine.

Okay.

And can you guys comment on the SSL VPN market clearly one of your competitors did a major acquisition.

Two questions for you.

Where do you see that product fitting into your product portfolio.

Do you think you need to have an offering in the SSL VPN space?

And can you comment there have been a lot of rumors that you guys were also a bidder for neo terrorist (ph).

Can you talk about that?

I'll try to answer that.

We think that the area of web security is an area of interest and that's why we speak about web security.

We also think that point solutions are not necessarily the answer here and it needs to be much more integrated into the overall security architecture.

So we will come up with a product that will offer much more comprehensive solutions to web security.

And this will come in the next few months, as we've already said, so you can expect to see this coming.

We have some functionality of SSL VPN in our product for a while and we'll have more comprehensive solutions to address much more layers and much more needs of web security.

Just following up, do you think all of your initiatives are going to be organic, or do you expect to do some acquisitions to extend the market opportunities?

It's very hard to predict acquisitions, but I think we might see both.

Okay.

Thanks, guys.

Our next question is coming from Walter Pritchard of Soundview.

Please go ahead with your question.

One quick one on the headcount.

Could you give us that.

On the deferred revenue, a follow-up there.

We've been used to seeing it be flat or up slightly since March of '02.

Last year, we didn't see the seasonal impact.

Can you comment on the difference between this year and last year with regard to the seasonal impact on deferred revenue?

In terms of deferred revenue, basically, the summer season lets people renew subscriptions, because let's when subscriptions expire, because a lot more large deals and a lot more customers have their subscription up for renewal in Q2 and Q4 based on the buying pattern.

That's what we've seen this quarter.

So that's actually pretty consistent and that's mainly a result of higher number of renewals in the last quarter, rather than this one.

What was the other part of the question?

Headcount.

Headcount remains pretty much stable this quarter.

It's close to 1,200.

No big changes there.

Could you just tell us --

Since the last quarter.

Over the last year, we did add many more developers and we did have a change in mixed growing over -- adding 10 to 20 developers to our development team.

Could you tell us how many of the Gateway units shipped in the quarter were either the low end products F-Fox (ph) or equivalent?

About 2,000 to [3,000] units -- a little over 3,000 were in the low end, the rest in the medium and high end.

Thank you very much.

Our next question is coming from Greg Moskowitz from Susquehanna Financial.

Please go ahead with your question.

Thanks very much.

Gentlemen, wondering if you can provide any further insight into Check Point Express.

It's I guess a couple of months at this point old.

There are four price points ranging from 50 to 500 users as you well know.

Any update on early demand and if you're seeing the very low end get, essentially, more adoption at this point or if it's more for the higher end of that range on the mid-market, closer to 500 users or so?

It's across-the-board.

I mean, we spent a lot of time, a lot of effort on researching this, working with our partners, working with customers, and the reaction has been very, very positive.

I don't know how many channel checks (indiscernible) there, but around the world, we get very strong positive comments out of the partners.

Especially those that have been carrying products that address medium business products that were not necessarily Check Point before that have reacted very positively to the positioning and pricing.

I think we're going to see a good blend.

It's only been two months into it so there's still a lot of activity.

We're very early from getting traction.

I think it's going to be very balanced across all four models.

I don't think it's going to lend itself to one or the other at this point in time.

Okay.

And then a question for Eyal on expenses.

It Sounds like you added about 10 to 20 developers and ramped up a little bit some seminars and events on the sales and marketing side.

Should we expect that to continue into Q4 and going forward?

We're not going to predict precisely the expenses for Q4, but our [inaudible] of expenses will probably be similar to what you've seen now.

Maybe a little more, but not much.

Thank you.

You're welcome.

Our next question is coming from Chris Russ of Wachovia Securities.

Please go ahead with your question.

Yes, hi.

I just want to know if, you know if you're seeing any gradual improvement in overall demand.

Also if you could comment on the pricing environment, vis-à-vis Cisco or Net Screen, whether or not pricing -- any improvement in terms of unit pricing, are you having to bundle in additional features to maintain pricing.

Or do you think, in general, pricing is starting to stabilize?

I think they have been stable for a long time, Chris.

I mean, we still have competitors where their primary thrust is to sell product cheaper than we do, because that's their reason for being.

But we've still been able to maintain very, very good pricing and very good margins, as you can well tell.

And we see very strong demand out there now, and especially on our new products.

You know, we've just made three announcements over the course of the last six or seven weeks, expressed for mid-size businesses, the Edge product line for remote offices, large scale VPN infrastructure depoloyments.

And the new (indiscernible) and modernized solution there that we have for small businesses.

We're really excited about what that means and our partners are excited about it because it's opening new doors and opportunities for them.

We think with the market opportunity, the need for security, the ability to put in very large scale VPNs, we're very well positioned going forward with these announcements let alone additional announcements we'll be making over the next few months.

So I really like the be position we're in, where we're at, the position we have in the marketplace and the price and -- we can command.

Great.

Any industry vertical that stood out this quarter?

I know Service Provider was 10% of revenue last quarter.

I think it's been pretty consistent.

I think we still did well in government.

We continue to always do well in financial, as our two biggest sectors.

Retail picked up, but, you know, we're very horizontal.

You know, we did very well in wireless, Gil just mentioned, on the GX family.

We continue to do well.

The VSX products the [Inaudible] one continues to do well with service providers and very large enterprises where We're doing the aggregation and consolidation as they go through technology refresh.

So it's been pretty consistent across-the-board.

But I can't say there's any one that stands out, because we're doing well in a number of them.

Great.

Thanks.

Thank you.

Our next question is coming from Matt Barzowskas of First Albany.

First of all I don't know if you said this already what was the percentage between existing customers and new customers from a revenue standpoint.

Second of all, on a distribution are there any programs in place that you're kind of weeding out some distributors, bringing new in?

Just get a feeling of what's going on out there.

Or everything has been pretty stable in the distribution channel?

Matt, there's no program per se.

That's something that we always do, on a continual basis, to work with our distributors, our resellers, our integrators, our OEMs, our service providers.

Continually upgrade and refocus on them, their business model, what their focus is, what they're trying to accomplish.

But that's an ongoing.

So there's no program in place, per se.

The first part of the question?

I'll answer that.

Matt, we generate 65 to 70 percent of the business we generate every quarter is considered new business.

Some of it is sold to our existing installed based, , some to new customers.

The precise breakdown is not available yet so I can't tell you exactly where it is right now.

We generate about 70% of what we do is pure new businessto both existing and new clients.

Thanks, guys.

Our next question is coming from Sterling Auty of J.P. Morgan.

Please go ahead with your question.

I want to revisit the macro view.

If you look at the growth in revenue sequentially, plus the decline in deferred revenue sequentially, putting that in context, can you talk about the macro view of what's happening in the fire wall and VPN market.

Do You feel that it is growing overall?

Is it constrained or flat quarter over quarter?

I think what we've seen In the last year and a half, it's been pretty stable.

We've seen The two biggest players in that space maintained -- we maintained our market share and maintained the level of revenues.

The smaller players changed places and some grew, some have been shrinking and so on.

What we've seen in the last quarter was actually a positive change.

We've seen, we've actually seen signs of improvement in the overall market.

I think the future for that is -- has a lot of opportunity in that, you can look at the VPN, still far less than 10% of the world data communication is done through [IP] VPN.

If you look at all the future investments in data communication, it's almost all around IP networks so IP VPNs will be very much needed.

The market opportunity there remains very large.

Business right now is stable and we hope it's going to start accelerating soon and products like our VPN-1 Edge and the mid-size products that we have with the ability to manage multiple sites [Inaudible] setting up the stage for this market to accelerate growth.

And our appliance partners saw very nice growth this quarter over last quarter.

They're doing very well as well.

They saw a nice increase in revenue.

Assuming that that's more on the product side versus you guys have the subscription and upgrade, does that mean that more of the pricing or opportunity is actually going to the hardware partner?

No I think some of the hardware partner -- some of the models are being sold on bigger and bigger platforms that are more expensive.

Like I said, you've got to look at the whole thing of what customers are spending and what customers are buying.

We see a good market out there that we think is only going to get better especially as we move into new market segments and bring out new solutions.

Remember that the hardware business has a hardware refresh (indiscernible) so some of the hardware being sold is replacing four and five years old computer systems, when the software reachrf actually parts of the quarterly software subscription.

That's a good point, because the next question is that we hear lots of evidence of existing Check Point customers upgrading to NG and NG with application security SmartDefense.

But do you guys, while you don't have perfect data, do you have quantitative evidence that you're expanding outside the core Check Point install base. [Inaudible] Hardware refresh there are still tons of old TIS gauntlet systems that are out there that have started to refresh over the last couple of quarters.

Do you feel that you're maintaining your market share as those come up for renewal?

Absolutely.

We gained significant new customers from competitive installs all the time.

That's a big part of our new business.

Okay.

New business with new customers that had old technology installed from other vendors.

Last question, would be, of the three pillars that Gil, you outlined, you said you're expanding into the other two, who would you expect to be the new vendor that you'd compete with in those areas?

Who is going to be the competition going forward in those two areas.

I think These are generally newer markets.

While there's a bunch of companies that offer some kinds of technologies around those areas, but I don't think there's anyone that has the same solutions that we tend to have.

And that's part of our strategy.

Our strategy is not follow the leader.

Our strategy is be the leader and define new marketplaces and provide comprehensive solutions that don't exist today.

I think it's early to tell who will emerge as the major competitors at this point, because in reality, I think we'll offer differentiated solutions that don't exist today in the marketplace.

Thank you.

Thank you.

Our next question is coming have from Shawn Jackson of Avondale Partners.

Please go ahead.

I want to get distribution again, specifically with the introduction of VPN Edge.

How are you going to continue to manage those relationships, given that, you know, many of them are also selling the Nokia small business appliance?

But many of them are not.

And that's what I said.

This is complementary and augmenting.

We don't or any of our partners have 100% coverage on a global basis.

So there's a lot of other partners out there that are looking for solutions that have reached into either geographies or market segments or areas or resellers, et cetera, that are not working with one of our current partners.

So we, in conjunction with them, are doing what we think is a very complementary approach to the market, versus a competitive one.

So far, it's worked very well and will continue to work very well.

We're committed to it.

Thanks.

Eyal, on the tax rates, what is the sort of expectation?

Is it going to continue to rise from here in Q4 and 2004 or is it fairly steady at 20%?

Should be around where it is now.

Could move, oh, up a point up or down because it's a little difficult to predict.

But that is the area.

Thank you.

You're welcome.

Our next question is coming from Jonathan Ruykhaver of Raymond James.

Go ahead.

My questions have been answered.

Our next question is coming from Gary Spivak of Kaufman Brothers.

One clarification, please, on the deferred revenue, I believe, Gil, you mentioned to look at something between flat or plus or minus $5 million.

Was that guidance for Q4?

If it wasn't, can you give us an expectation for Q4 deferred revenues?

Eyal mentioned that deferred revenues should be plus, minus $5 million.

It's sometimes hard to predict how this will shape up.

So there's nothing unique to Q4 about it.

That's our general guidance for Q4.

Then second, can you point to any specific impact on demand, given the well-publicized virus and worm attacks of the quarter?

You know, I guess we have them every quarter.

It's always out there, it's always present.

I think one of the things that the markets realize now is that the quality of application intelligence and our SmartDefense solution as to how that dealt with these worms, that they may not have thought of a fire wall company being able to do that.

We're the only one that proactively stopped blaster.

We're seeing a big pickup and a lot more interest in our technology with both our current and new customers to go straight into application intelligence because of the strength that it has in dealing with these known and unknown attacks that are happening in the marketplace.

Thank you.

Our next question is coming from Eric Suppinger of Pacific Growth Equities.

Please go ahead.

On the SSL side, VPN side, what are the chances that you could be introducing a hardware based solution?

Are you evaluating that?

[Inaudible] we announce something, we show what it is.

So we won't do anything before that.

But I think there's a fundamental issue about our market.

There aren't really hardware solutions.

Our solutions that come when you sell the hardware and software separately, when the customer has the benefit to choose whatever hardware they want, to enjoy the benefits of a very competitive platform market.

And there are solutions that are offered in an integrated [inaudible] way. the customer gets easier purchasing process.

In many cases, by the way, they get to pay more for the vendor doing the integration for them.

So, I mean, there's no hardware or software solution here.

There's how you sell them.

Our strategy was obviously most of the vending (ph) in our marketplace is in the software.

Both For Check Point and for other companies (indiscernible).

Our strategy is to rely on the good hardware partners when we can and to enable the market, when we think it's going to accelerate the marketplace, which is what we've done with the VPN-1 Edge and the SafePay (ph) office solution.

We're basically on the low end of the market.

There aren't widely available hardware platforms so we have to enable that market and we have to come up with that to show the market how to do it.

With regards to the, to the web security or internal security, I think time will tell and based on the involvement of the market, we'll see whether our solution would be purely software, having other vendors provide the hardware or to accelerate market growth will provide some more bundles of the hardware and software.

Again, it's all service for the customers to make the deployment of the solution easy, simple and the most cost effective for the customer.

Then secondly, Eyal, when you offer discounts or when you offer promotions or whatnot, does any of that get included in your cost of sales or your sales and marketing?

No.

It's a [inaudible] revenue.

We take it right off our revenue numbers.

It doesn't appear in our expense lines.

Were there any regions that had any particular promotions or discounting during the course of the quarter?

No, not other than normal.

I mean, we always -- we've had promotions for five years on an ongoing basis, a variety of products and solutions, but there's nothing this quarter, Eric, that was any different than any other quarter.

Very good.

Thank you very much.

You're welcome.

Our next question is coming from Dan Harverd of HSBC.

Please go ahead with your question.

Can you give an indication of the number of subscribers that you have to SmartDefense and also revenue levels?

Hi, Dan, it's Eyal.

It's not a number that we break out.

We saw very, very nice and impressive acceleration of SmartDefense subscriber in Q3 and we expect to see more of that as we go along.

As you know, it is part of our software subscription, and it's increasing.

But we're not breaking out how many are on the surface.

Okay.

Then can you give some sort of indication in terms or guidance in terms of where you see product revenues going in Q4, since they've more or less stabilized in Q3?

Yeah, we gave our guidance for the overall revenues.

We believe the product revenue will be higher than they were in Q3.

But I won't -- I think we could give specific numbers to track.

We expect them to be higher.

Okay.

Just one final question.

Given that your net margins have come down from about 60% a year ago to 55% currently, and a lot of that is related to the cash pile and interest income, do you have any changes in your plans relating to the cash?

No.

Okay.

I mean, we will have more news about that, any kind of ideas, like stock buy-backs, dividends or acquisition of technologies will obviously make all of you very much aware of them.

Okay.

Thank you very much.

You're welcome.

Our next question is coming from Dan Cummings (ph) of UBS.

Please go ahead with your question.

I was wondering if we could get more specific on your appliance based revenues the last three quarters, versus the server based.

Then looking at the server based side if you could give us more color on what platforms, what operating systems that's being placed on and how's the Solaris based sales doing?

Generally, our open system versus appliances stayed pretty stable in the last few quarters, around the 45%.

It's been a stable environment. 55% of systems are on open servers and 45 are on the dedicated appliances.

In terms of operating systems, the rising operating system is the Linux and that's clearly a very important, very important factor.

I think between windows and Solaris, they both lose shares to Linux equally.

So you're essentially saying that the appliance revenues are flat the last three quarters?

I don't know if they're exactly flat.

It's 45% plus/minus the [3-4] %.

Around 45.

We haven't seen any trends going in a certain -- with continuous trends.

Sometimes we reach 48% with appliance, sometimes it's 44%, but it's around the 45% range.

Thanks.

Keep in mind, by the way, it's also one thing that is important [inaudible] providing estimates, because from the software license perspective we provide a software license.

So [inaudible] software license, whether you run it on an appliance or open server, we ask the question what [inaudible] they deploy it on.

It's estimated and we do it after the fact when they actually register with us.

Our next question is coming from Shaul Eyal of CIBC World Markets.

Go ahead with your question.

Thank you.

My questions have been answered.

Many thanks.

Operator, we have time for one more question, please.

Thank you.

Our final question is coming from Ed Maguire of Merrill Lynch.

Please go ahead with your question.

Yes, good morning.

I noticed that the revenues in Asia pacific last quarter were slightly weak, attributed to SARS and slowed a bit this quarter.

Can you comment on the outlook there?

Is there something that we should be aware of in terms of the macro environment there?

No, I don't think so Ed.

I've been there.

In fact, I just got back from Japan.

I don't see anything.

It feels the same, looks the same.

I think it's going to be the same.

It doesn't vary by more than a percent or two within our business, you know, as we look from quarter to quarter.

I don't see any macro issues affecting us in that marketplace today.

Also comment on how the Sun relationship is tracking.

I'll finish the geography one.

I think Express and small business are very, very attractive for the Asian marketplace.

If you look at studies on the number of small businesses in the world, you'll see that a disproportionate number are in Asia.

I think we'll do very well there with that.

Sun is still in the early stages but we see great traction.

Some geographies are better than others but there's a lot of -- very positive momentum in a number of different places as some focuses on rolling out and focuses more on the value-added security on top of their platform, which we see a lot of their distributors doing right now and some of their resellers are starting to launch and announce.l ast month, and we see some this month in certain geographies where they're coming out with new marketing campaigns and new promotions and starting to do seminars, et cetera.

So I think there's a good opportunity for Sun co-branding and supplying a Check Point security solution to the market.

Thanks very much.

Okay.

Well, I'd like to thank everybody for participation -- participating in our conference call this morning and this afternoon.

If you want to speak to management or to our investor relations department following this call, please call investor relations department in our Redwood City office at 650-628-2050.

Again, 650-628-2050.

I'd like to thank you again, and we'll talk to all of you next quarter.

Thanks, everybody.

Talk to you later.

Thank you.

This does conclude today's teleconference.

You may disconnect your lines at this time and have a wonderful day.