Check Point Software Technologies Ltd (CHKP) 2011 Q1 法說會逐字稿

Greetings and welcome to the Check Point Software Technologies Ltd.

first-quarter earnings conference call.

At this time, all participants are in a listen-only mode.

A brief question-and-answer session will follow the formal presentation.

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kip E.

Meintzer, Head of Investor Relations for Check Point Software Technologies.

Thank you, Mr.

Meintzer, you may begin.

Thank you.

Good morning to everyone.

I would like to thank you all for joining us today to discuss Check Point's record financial results for the first quarter of 2011.

Joining me on the call today are Gil Shwed, Chairman and CEO and Founder and Tal Payne, Chief Financial Officer.

As a reminder, this call is being webcast live on our website and is being recorded for replay.

To access the live webcast and replay information, please visit the Company's website at checkpoint.com.

For your convenience, the conference call replay will be available through April 21.

If you would like to reach us after the call, please contact Investor Relations by e-mailing kip@checkpoint.com or by calling 650-628-2040.

Before we begin with management's presentation, I would like to bring the following to your attention.

During the course of this call, Check Point representatives will make certain forward-looking statements.

These forward-looking statements may include our expectations regarding demand for our security products, our expectations regarding introduction of new products, programs and the success of those products and programs and our expectations regarding our business and financial outlook for the second quarter of 2011 and full year.

Other statements which may be made in response to questions, which refer to our beliefs, plans, expectations or intentions are also forward-looking statements for the purposes of the Safe Harbor provided by the Private Securities Litigation Reform Act.

Because these statements pertain to future events, they are subject to various risks and uncertainty and actual results could differ materially from Check Point's current expectations and beliefs.

Factors that could cause or contribute to such differences include, but are not limited to, the risks discussed in Check Point's Annual Report on Form 20-F for the year ended December 31, 2010, which is on file with the Securities and Exchange Commission.

As a reminder, Check Point assumes no obligation to update its forward-looking statements.

In our press release, which has been posted on our website, we present GAAP and non-GAAP results, along with a reconciliation table, which highlights this data, as well as the reasons for our presentation of non-GAAP information.

Now I would like to turn the call over to Tal Payne, Check Point's Chief Financial Officer, for a review of the financial results.

Great.

Thank you, Kip.

Good morning and good afternoon to everyone joining us on the call today.

I am happy once again to begin the review of an excellent quarter.

This quarter, we achieved a record first-quarter result, which exceeded the high end of our projections as we continue to demonstrate solid growth.

Our revenues for the first quarter increased by 15% over the same period in 2010, while our non-GAAP EPS was $0.64, representing 16% growth year-over-year.

Before I proceed further into the numbers, let me remind you that our first-quarter GAAP financial results include non-cash, equity-based compensation charges, amortization of acquired intangible assets, gain on sale of marketable securities previously impaired and tax-related effects.

Keep in mind that non-GAAP information is presented excluding these items.

Now let's take a look at the financial highlights for the quarter.

In the first quarter, revenues exceeded the high end of our projections.

Revenues reached $281.3 million, representing an increase of 15% compared to $245.1 million in the first quarter of 2010.

This growth was driven by strong product sales and continued growth in our annuity software blades.

Product and license revenues were $105.3 million, representing a 16% increase year-over-year.

The growth in product sales came mainly from high-end appliances, driven by the Power-1 series.

Our software update, maintenance and service revenues reached an all-time high of $176 million this quarter, a 14% increase year-over-year.

The growth was driven by our annuity software blades that are recognized as services.

Deferred revenues as of March 31, 2011 were $460.4 million, an increase of $40.7 million or 10% over March 31, 2010 with growth in revenues across all geographies, with Americas and Asia-Pacific leading the growth.

Revenue distribution by geography this quarter was as follows.

Americas contributed 44% of the revenues, Europe with 39% and Asia-Pacific and Japan, Middle East and Africa region contributed the remaining 17%.

From a deal size perspective this quarter, we saw an increasing number of large deals.

Transactions greater than $50,000 accounted for 61% of total order value compared to 53% in the same period a year ago.

We had 27 customers that each had transactions with a value greater than $1 million compared to 21 in the same period last year.

From an operating perspective, we posted great results.

Our non-GAAP operating income was $160.6 million in the first quarter of 2011, an increase of 17% compared to the same period in 2010.

Non-GAAP operating income margin for the quarter was 57%, an increase from 56% in the same period last year.

GAAP net income for the first quarter of 2011 was $122.1 million or $0.57 per diluted share, up from $98 million or $0.46 per diluted share, representing an increase of 24% year-over-year.

Non-GAAP net income for the quarter was $137.1 million or $0.64 per diluted share, up from $116.8 million or $0.55 per diluted share in the same period a year ago.

Earnings per share exceeded the high end of our guidance, representing 16% growth year-over-year, primarily as a result of our top-line performance.

Our cash balances reached $2.572 billion at the end of the quarter.

This quarter, we generated $212 million from operating cash flow.

Collection continues to be strong with our DSOs, days outstanding, at 65 days, similar to the end of the previous quarter.

In the first quarter of 2010, we started with DSO of 76 days and reduced it to 69 days by the end of the quarter, which resulted in increased cash flow in that period.

This quarter, we also paid $22 million in tax advances compared to $9 million in the comparable period last year as the timing of tax payments can fluctuate between quarters.

In addition, we acquired all the shares of [Software Minority] and fully integrated its activity into Check Point.

Also this quarter, we increased our buyback and purchased approximately 1.5 million shares for a total cost of $75 million.

Now let's turn the call over to Gil and his thoughts on the first quarter.

Thank you, Tal, and thank you, everyone, for joining us on the call today.

I'm glad to report another good quarter.

Q1 produced very good results, higher than our projections.

We always look carefully on the trends in the first quarter, hoping it will set the tone for the year.

While it is always difficult to predict the future, the tone set by the first quarter is a very good one.

Two major trends have contributed to the strong results this quarter.

One is the success of our enterprise in the high-end appliance productline, mainly the Power-1 series of appliances.

The second contributor that demonstrated high growth and provided significant revenue contribution is the annuity software blade, like our IPS and new Application Control software blades, which appear under the Services line in the P&L statement.

Geographically, we have seen continued strength in the US market and high growth in our emerging markets, Asia-Pacific and Latin America.

Shifting to our strategy, the main event of the quarter was the launch of our new vision, the 3D Security.

While there are plenty of technologies to address the many challenges of security, the key to elevating the level of security within the enterprise won't come from simply implementing more technologies from additional companies.

It should start by looking at security as a business process.

Our 3D Security initiative attempts to address this challenge.

We believe companies should start developing their security strategy by focusing on the three dimensions of security -- policy, people and enforcement.

Here at Check Point, we are very focused on raising the level of security awareness, which plays well into the strengths and uniqueness of our software blade architecture.

While the launch of 3D Security is not a product or technology launch, its principles are already implemented throughout our latest R75 productline.

R75, which was launched this quarter, is a major breakthrough in security and the first step in making 3D Security a reality.

R75 incorporates five new or improved software blade applications -- control, identity awareness, data loss prevention, intrusion prevention and mobile access -- enabling businesses to gain greater visibility, user awareness and multidimensional security in a single solution.

We believe that R75 presents a great opportunity to leverage the strength of our technology platform while raising the bar across the industry for functionality, integration and overall security gateway quality.

In conjunction with that, and recently we received nice validation of our technology leadership from NSS Labs, an independent security testing lab.

The reports from the beginning of the year provided us with great ratings for IPS software blades.

The most recent report and evaluation of the key firewalls in the marketplace was even better.

We were the only firewall to pass this test.

For us, it seems obvious that our focus is on security and our people work night and day to provide the best security.

But you can read the NSS and the Forbes blog by Andy Greenberg to get a better glimpse into that.

Simply, not all firewalls are created equal.

Looking at the security marketplace around us, we always expect competition to be good.

However, as we look at the marketplace today, I believe that we are in a unique position to demonstrate the superiority of our strategy and product.

In terms of numbers, as we are all aware, there are always risks predicting the future.

That being said, we continue to expect good performance for the year and we are maintaining our annual projection.

For the second quarter, we expect revenues in the range of $290 million to $297 million and non-GAAP earnings per share in the range of $0.63 to $0.67 per share.

GAAP EPS is expected to be approximately $0.08 less.

Once again, I'd like to thank you for being on the call with us.

We had a great Q1 and I hope it is a great sign for the remainder of 2011.

With that, we can open the call for your questions.

Thank you.

(Operator Instructions).

Shaul Eyal, Oppenheimer & Co.

Thank you.

Hi, good afternoon, guys.

Good quarter.

A couple of quick questions on my end.

Gil, which specific blades performed well this quarter?

I know you mentioned the IPS.

Anything else apart from that?

The application -- awareness application control blade had very good results, but keep in mind it is only the first quarter of sales.

So the dollar contribution is not huge, but for a first quarter, it is pretty good.

Our mobile access blade, which we launched in Q4, also had some nice results.

But again, not huge in terms of the overall and the IPS already starts to be important in terms of the overall dollar value in the results.

Got it.

Tal, any currency impact given the continued weakening of the US dollar versus the Israeli shekel and maybe a word about Japan?

What is happening on that front?

Thank you.

Maybe I will start just to remind you our P&L structure, our price list is in dollars in the majority of the world, so our revenues are denominated in dollars.

When we look at the expenses, approximately 40% of our expenses are not in dollar, but in other currencies, mainly Israeli shekels and euros.

And as the dollar is weakening, it is not good for us.

As the dollar is getting stronger, it is better for us.

Bear in mind that we are fully hedged for the balance sheet and partially hedged for the P&L.

So it affects us in a more muted way in the P&L.

It can be -- a 10% move can be $0.02 a quarter if you are not hedged.

Got it.

So what about Japan, any impact whatsoever?

First, it is very hard to predict the future impacts in Japan.

This quarter, Japan actually had an excellent quarter.

They outperformed the plan, they grew nicely year-over-year in a pretty significant way.

So fortunately, despite the terrible disaster in Japan, it didn't have a negative business impact.

Got it.

Good luck.

Thank you very much.

Phil Winslow, Credit Suisse.

Great quarter.

Gil, just wanted to get a sense of just what the early adoption or feedback that you have received on the R75 release.

And then also could you give us an update of just exactly where we stand with R65 and as we kind of transition through into support, how you think that affects just business?

Do you get people moving to R70, R75 and just what opportunity does that present?

In terms of R75, the initial feedback we get is excellent.

The quality is high, the functionality is high and so far, we get only very good feedback on R75.

I think by now, R70 is almost 2 years in the marketplace and many, many customers are moving to the new software version.

And to your question about the previous version, R65, R65 is starting to near its sort of supported lifestyle.

It is now about five years in the marketplace and we expect that many customers will upgrade.

Now the opportunity -- when a customer upgrades, you can see a big part of our revenues are subscription.

So customers can get the upgrade at no additional cost, they already paid for that.

And the opportunity is once customers move to the software blade architecture, they can add more blades, they can add the IPS, which is very popular, they can add DLP, which is starting to catch up, they can add application control, which I expect to be very popular.

It is a very natural and simple thing that you put on every gateway and gives you much more insight and much more control over the existing traffic.

So the more people move I think that presents a great opportunity for selling more software blades.

So far, it is proving itself because from last year, the software blade revenues grew very, very nicely.

Great.

Thanks, guys.

Daniel Ives, FBR.

A few questions.

First, in regards to the linearity in the quarter, were there any changes versus a normal March or anything anecdotal that you saw?

I think the trend in the last year or two is that quarters are becoming slightly more back-end-loaded and this March was no exception.

We had very, very strong end of quarter this time and that is part of the very good results that you are seeing here today.

Okay.

Then just finally, could you just reiterate sort of -- we have seen over the last few years your sort of thesis with guidance for the year and not really changing it until we start to get through the second half.

Just obviously it is a beat this quarter, but just give us philosophy in terms of guidance for the year.

Thanks.

I think we will use the same strategy again.

I think we are -- I am very optimistic after the first quarter.

It was a very good quarter, but again every quarter is a new quarter.

Our products start -- sales start from almost a very low level at each quarter and we need to sell all the products.

So I would rather wait and be cautious about that rather than raise numbers now and see other things later in the year.

I hope by the time we reach the second half, we will see that we are going to have better results than we expected.

Okay.

Have a happy Passover.

Thanks.

Thank you very much.

Michael Turits, Raymond James.

Good morning.

Can you talk a little bit about, on the blade side, what percentage seems to have been bookings and maybe of revenue?

Annuity blades?

We don't break that.

It starts to be right now with the tens of millions of dollars per quarter.

That is on the revenue side or on the booking side?

Both.

Okay, tens of millions.

So is it pretty much about the same percentage as it was last year because you gave that last year?

The growth was higher than our overall growth.

So that means that the percentage went up a little bit, yes.

Okay.

And then a question on cash flow.

Your cash flow is down year-over-year, but I think it is off a tough comp in terms of the working capital contribution last year.

Overall, you had good contribution from non-deferred working capital in 2010.

So will that continue to be a tough comp throughout the year or should we be able to expect that the cash flow will grow about -- at the same rate as net income in 2011?

Yes, I think Q1 was unique in that because our DSO reduced over 2009 and balanced on around 65 days in the middle of the year.

So I think 2010, yes.

So in the middle of 2010, if you look at our days outstanding, you will see that it is around 65 days and that is the level that we have today.

So from Q3, Q4, it should be no effect on our growth of the cash flow.

So cash flow should grow about in line with net income this year?

Yes, yes.

And I think we had very good cash flow for the quarter.

I don't want anybody to make any mistake on that.

I think we generated over $200 million in cash.

That is very strong.

Great.

Thanks, guys.

Thanks very much.

Brad Zelnick, Macquarie.

Thank you.

Great quarter, guys.

Just wanted to touch on something.

Most questions that I had were asked, but, Gil, as long as we have your time, as analysts, we hear a lot out there about next-generation firewalls and was hoping maybe you can just share your thoughts.

Some would say that Check Point would require a dramatic change in architecture to compete, but clearly, just from your numbers this quarter, you are competing very nicely.

Can you just give us a little bit about your view on next-gen firewalls?

Is the application control blade enough to compete there and what does the product look like going forward?

First, we called our products next-generation firewall about 10 years ago, so I don't like that term too much, but other people in the industry are using that.

If I compare it to their terms, we have today a product that is drastically superior to any other product in the marketplace and that is proven on every market by independent labs, by us and by customers.

I got this quarter several huge customers that evaluated products with the requirements specified off everything other people were calling next-generation firewall and we won hands down on everything -- on functionality, on quality and so on.

You can see the NSS test labs that we are the only one which passed the test.

I don't look at it lightly.

When you buy security products, the main thing that you do is that it will keep hackers outside and won't crash.

So of the other firewalls -- not some, all the other firewalls didn't do that, they didn't keep the hackers outside and half of them crashed during the test.

So if you look at everything that we have, we have something not equal, not as good.

We have something much, much better, a generation ahead.

If you look at software blades and what it provides with things like the DLP blade and with the superiority of the IPS blade and with user identity that is extremely easy to configure and with the mobile access and VPN blades, again many (inaudible).

It is completely -- I think it is several years ahead of the people who claim that they are a year ahead.

If you look at other vendors in the marketplace, some larger vendors in the marketplace, they are even more far behind.

Add to that the Check Point management console, our experience, scale of product and focus on security and so on, I think it is nice to hear from some emerging startup claims about new architecture and new things so far as much as I can say completely unbiased and some of these people -- I mean some of these companies are stable companies, good installed base, I think inferior to Check Point.

Some of these companies are going to fail very, very quickly in the marketplace.

Thanks.

Just one quick one if I could for Tal.

Did you enter the quarter with any sort of backlog for R75 that shipped?

Again, that is all for me.

Thank you.

I am not sure I understood the question.

Obviously, we start with a high level of deferred revenues.

Some of the deferred revenues relates to appliances or software that is with R75.

Probably close to nothing actually.

No, we didn't.

Actually, we haven't -- we had some backlog from previous quarters and so on, but nothing was related to the release of R75.

We actually supplied R75 to a few customers even last quarter.

The formal release and the formal launch was this February, but we have already supplied some R75 installation in Q4.

Thanks again.

Great job.

Philip Rueppel, Wells Fargo.

Great.

Thank you very much.

A couple questions.

You mentioned that your blades business is growing faster than the overall business.

Is that a result of just more blades being sold with initial systems or are you starting to see success selling standalone blades back into the growing installed base of R70 and 75 systems?

I think it is both.

We have seen some -- every new system today comes with more blades.

They are part of that and which is growing nicely and this is growing in line with the growth of sales.

But in terms of blades with people buying a la cart and renewing the blades that were bundled for the first year, with the system, we have even better results.

So it is coming from both areas and of course, that is very important because just growing by bundling is not enough.

We need to grow by -- when the customer gets its bundle and sees the value and when the customer has a choice and they choose to renew it or they choose to buy things a la cart and both are growing well, both are contributing I think in terms of the revenue contribution.

It is also -- it's not even, but both are contributing high amounts of dollars.

Great, thanks.

You talked about -- In Japan, you talked about sort of the end user or the issues with end users, but I was curious about the supply chain on your appliance side.

Is there any issues there that you see that impacted the quarter or going forward?

We didn't see any affect this quarter.

Obviously, in the future, we can't predict, but we don't anticipate anything at this stage.

Okay, great.

Thanks.

Then you mentioned some of the blades that were selling well.

DLP is one -- is a segment that had a lot of interest, but it hasn't really, for any vendor, hasn't really emerged as a significant growth arena.

Do you see that changing over the near term and how you view your DLP blade positions against other vendors?

First, I do anticipate the DLP becoming important.

I do believe in this market and I think, not in the short term, but in the midterm, it should become more and more significant.

So far what we have seen with DLP is that we have a good start.

Our success rate in terms of projects is pretty high.

When we get to an account, we are able to win deals very quickly and we are able to demonstrate the value of what we provide within days.

And again, that leads me to comparing it to other vendors and other solutions.

The main difference in our DLP solution is, first, in the results.

Our DLP solution actually blocks files from being sent mistakenly or unmistakably outside the company, 90 some percent of the installations that don't use our solution are not used in active mode.

They are used just in monitoring mode and that is a huge difference.

There are a few reasons to that, but one of the reasons is the extreme simplicity of our products.

Our product is designed so we can sell it to tens of thousands of customers.

It is not a complex system that requires six months of demonstration and installation and configuration.

And it is a system that can be installed and brought to production within days.

Again, all the examples that we have and with customers, it actually happens that way.

Within a day or two, the system was active and running.

The third element, which is very consistent with our 3D Security is involving people.

One of the big differentiators of our product is when there is an incident, if you are sending a file that looks suspicious, you would get a question back that asks you to verify that the file needs to be sent and that alone takes away between 90% to 99% of the incidents because most incidents are simple mistakes and people need to confirm.

They realize that they made the mistake and of course, people that have come bad intention and they are sending data knowing that they shouldn't send it, they usually don't want to send it once they get the message that it has been recorded and they need to explain a reason.

They need to basically take ownership of that.

So these are the sort of three factors that I think make our DLP solution unique.

The challenge, by the way, in bringing to a lot of customers is the perception in the marketplace for DLP that it is a long, expensive, complicated project and we have a very tough education process explaining to people that DLP can be actually quite simple and inexpensive.

Great.

That is it for me.

Thanks very much.

Walter Pritchard, Citi.

Just had another question related to the blades.

And I guess, Tal, you have always talked about a fairly modest expectation around the renewal of the embedded blades that have come bundled with R70 and R71.

And I am wondering if you could maybe give us an update on where that has come in versus where your expectations are.

And then second question also related to blades and a follow-up to the question on R65, should we expect that this year you see a significant acceleration in the deployments of R70 driven by the end of sale or is that a relatively less important event in the process of customers uptaking the R70 and above versions of the product?

Do you want to take the second part of the question?

Actually we've seen an increase in the move from the R65 to the R70.

We are growing the numbers.

We reported last quarter I think in the low 10% -- above 10% and now we are close to third, which is a very significant growth in that rate and bear in mind what deal related to is as we see an increase in the conversion so is the opportunity for us to be able to sell them additional blades as an a la cart opportunity.

So that is regarding the second part of the question.

The first part -- can you repeat the first part again?

Tal, I think you had talked about having fairly modest expectations around the renewal rate on the embedded blades or the bundled blades that came with the R70 and R71 bundles.

And I am wondering if you could just give us an update on sort of where your expectations were and where that has come in as you have had -- I guess you are about 18 months to start renewing those blades?

Sure.

Bear in mind that the renewal is two quarters into it.

We had Q4 and Q1 really more significant numbers than previously because we just started in the middle of 2009, so the renewals actually came towards the end of 2010 and now are increasing.

My expectation was that in the low percentage, like maybe 10%, maybe 15%, maybe 20%, depends and the reason was that the majority of those came from bundles and therefore, we needed to accumulate experience and seeing how many of them are actually renewing for the second year when they paid separately as a la cart.

I was pleasantly surprised, as I said in the previous quarter.

It is less than 15%, but more than I expected, which my expectation was 10%, 15%.

So it is somewhere in between.

Pretty good, at least I think by any standards of the industry.

It is a very high renewal rate that is actually even improving.

So that is even the good news about that.

And then just a clarification on the one-third comment around the R70 and above, was that one-third of the installed base is now on R70?

Yes.

Okay, great.

Thanks a lot for taking the questions.

Of the active install base, yes.

Robert Breza, RBC Capital Markets.

Hi, congratulations on the quarter.

Gil, I was wondering -- I know on your prepared remarks, you talked about the high end doing extremely well.

I was wondering if you could just give us some additional color on what you're seeing in the mid-market and maybe the smaller business, specifically by geography would be helpful?

Thanks.

First, the high-end product, not necessarily high-end customers, so I mean in terms of product family.

I think we have seen stable -- stability and even slight growth in the mid-market product and I don't know if we should attribute it to the fact that we are more successful or serve more high-end customers or to the fact that simply more customers are choosing to buy the higher-end model product.

So I don't have a good answer to that.

Both cases, again, I think are -- if I look at the multi-quarter trend, the trends are very, very positive.

In Q4, we had all productlines growing very, very nicely.

In Q1, we had the high-end Power-1 and other type of appliances growing in huge numbers.

So that is pretty good.

We also see, by the way, some of that is also a shift from the previous high-end appliances, the IP series to the Power series from Check Point and that is also a positive move.

Yes, I would just add that it can easily fluctuate between quarters.

Each quarter a different family does better than the other.

So I wouldn't read too much into that.

Great, thank you.

By the way, this quarter, I said that the main contribution came from the high-end appliances, but the second biggest growth came from the very low-end appliances that we have, the ones under $2000 and that family has very, very high growth.

It is not huge in terms of dollar contribution because of the low prices, but we have very good growth in unit numbers and in the dollar value, as well.

So again, you can't read into any of the -- I can't say what these numbers actually mean on that.

Thank you.

Rob Owens, Pacific Crest.

You guys have seen continued momentum in large deals and impressive metrics on that front.

Can you give us a little color there in terms of either market dynamics or effectively what is driving that and how far along are we in this firewall refresh cycle?

Thanks.

First, I think we will constantly be in the firewall refresh cycle.

Again, I think it is -- most or all the large companies in the world have some firewall infrastructure for many years, since the late '90s and now we are refreshing and renewing.

So I don't know if there is one cycle or anything like that.

We don't see a cycle.

We don't see a cycle, we see a constant process when customers are upgrading.

The good news is when customers are upgrading, they get now much more functionality, they need more performance, they scale their environment.

In many cases, we win competitive wins and customers that came from -- that used other vendors' environments are moving to us.

Overall, if I would say the dynamics that we have seen for us is very, very positive.

We have seen some comments from very large other vendors with their business in the last few quarters was declining at the same time that we have experienced double-digit growth and that should say that we are gaining marketshare nicely.

So I am very pleased with what we have seen so far.

Then can you give us an early update on R80 in your endpoint business?

That started pretty much this quarter that we shipped late last year, in December 30 or something.

The new endpoint solution that has a unified client and a unified management, slow start, the beginning, so there is not much I can say at this point.

There is a lot that we can and should do there and I think, at the same time, we have a very, very unique value proposition, combining all the elements of endpoint, the anti-malware, the data security, the remote access VPN capabilities and I think today is a very unique offering in the marketplace.

All right, thanks.

Keith Weiss, Morgan Stanley.

Excellent.

Thank you guys for taking my question and again, good quarter.

With the release of the R75 platform, I believe you added a couple of new blades into the standard configurations for the gateways, application control and identity control and if I am not mistaken raised prices along with it, or what the average list price is.

I was wondering if you could give us some color on how well those increases in average list price translate into the marketplace, how well were they accepted by the end customers and did you see a subsequent improvement in your average pricing due to those price increases?

Yes.

I mean that is the short answer.

I can elaborate a little bit more.

I think we provided more value and charged a little bit more for that.

From the reactions that we get, the reactions are positive to that.

Our ASP moved up this quarter nicely and so all we are hearing so far is positive.

The nice thing about the software blade architecture is we have full flexibility to match any customer requirement.

So while our bundles or our standard products carry a certain price and have more and more functionality and the ASP is growing, we have the full flexibility to add more or to reduce functionality and reduce price if the customer wants it.

So far, I haven't seen any pushback on that.

Got it.

And if I could ask one follow-up.

Just from a competitive environment perspective, it looks like Cisco has been really struggling.

Their security revenues were down in their most recent quarter, which has to be a positive for you guys.

What degree have you guys been seeing share gains from Cisco and to what degree has that continued into 2011 into your first quarter?

To be honest, I think we are gaining share from Cisco, but Cisco wasn't, for a couple of years, one of the most aggressive competitors.

So Cisco sells a lot into their installed base and I think we are gaining some share there.

Cisco wasn't one of the more aggressive competitors in real competitive situations and complicated environments.

There we are seeing other companies competing and I think we are doing very well as well.

But if you ask me on the top 10 or 100 deals, I don't know if Cisco was in most of them.

Cisco was in a small minority of them and other vendors like Juniper have been active.

I think we are winning very well as well in both these.

Excellent.

Thank you.

Brent Thill, UBS.

Good morning.

Gil, if you could just maybe assess your performance in Europe versus what you are seeing in the Americas and Asia.

And the second question around mobile.

There is a lot of competitors that are scrambling to figure out how to address this market.

I guess just from your perspective, what you are seeing -- is this a shifting on the mobile side?

What steps do you need to put in place from your perspective to ramp up this initiative here?

So first, I mean looking at Europe -- in the US, I could look at it, it is a relatively unified or homogeneous market.

In Europe, it is not.

I mean I can talk about the total number for Europe, but it is -- we have seen last quarter certain countries growing very well and this quarter, we have seen other countries growing very well, not necessarily the same countries.

In the last two quarters, I mean Europe last quarter was very strong.

This quarter, Europe was modest growth, not this high growth, which the US did.

And again, if I look at the breakdown per country, it is a very complicated picture.

Actually, this quarter, the countries that did very well were the emerging markets in Europe, which is a good sign, but again each country is a different story.

So the second part --

Can you repeat the second part again?

Yes, just on mobile, where do you sit relative to the competitive landscape and others still are scrambling to figure out how to address this market.

Can you give us just a perspective on what you are seeing as this shifts more increasingly the traffic on the networks going to mobile, how you would assess your position and what else you need to do on this side?

There are several parts to mobile.

I will relate to two big ones that we are involved in.

One in the mobile is the telcos are operating their infrastructure because they need to support much higher loads of traffic with basically what has happened in the last two years, which is moving to a 3G communication in very high quality deals.

That is a great opportunity for us.

We had some nice wins and this can contribute very large infrastructure, high-end sales to ourselves and it exists and it is there and we are just at the beginning of these opportunities.

The other side is the enterprise side, for the enterprise to allow mobile users with their iPhones, androids connect back to the enterprise in a secure manner.

There, we have the mobile blade.

It had a good start.

I think a very good start actually, but I think there is much more to be done on that side.

It is not again -- there are some dependencies.

For example, we talk about iPhone.

There is a lot of dependency on what Apple allows companies to do or not to do, what to release and not to release.

So far, we have a very good solution.

It has a nice uptake, there are things that we can and should update and improve on that product.

But I am using it every day and every minute and it works very well.

Thank you.

Stephen Patel, Gleacher & Co.

Thank you for taking my questions and great quarter.

Can you give us some insight on where you are focusing your R&D activities and your product roadmap?

I know you have been working on merging the IPSO and SPLAT operating systems and a merged family of appliances.

What type of enhancements or new capabilities should customers look for in the second half and next year?

I think if I look let's say -- I don't want to give any timeframes or any expectation for a certain product, but if I look 6 to 18 months ahead of us, yes, we will have a unified operating system.

When we release new appliances, they are going to be unified and they're not going to be again in multiple families like the IP series from Nokia and the average one from Check Point and that is very obvious and that is part of what our R&D is doing.

I think we also work very, very hard to bring additional layers and additional security technology into the software blade family and those things that we have already started like VLP to make it a bigger reality and to expand on what we are doing.

So I think on the platform and operating system side, we will see better, faster, unified things.

On the security front, we will see new security innovation from Check Point and on the existing technology, we will see a lot of expansion of those.

We just made the first few steps with things like application control, DLP and others and we are going to see more of that in the coming quarters.

I also wanted to follow up on the blades.

Can you give us a sense for what the growth and contribution was for blades excluding the IPS blade?

We don't break that by blade.

I think the other blades actually probably have grown, I don't remember it, but I think it probably had even grown faster than the IPS, but the dollar amount is much smaller.

But we have seen very nice growth.

Application control came from zero to very nice numbers.

Mobility in a similar way and I mean it is doing quite well.

And obviously antivirus (multiple speakers) --

Actually all of those have done quite well this quarter.

Great, thank you very much.

Ladies and gentlemen, we are nearing the end of our allotted time for the question-and-answer session and have time for one last question.

Israel Hernandez, Barclays Capital.

Hey, guys.

Most of my questions have been answered, but Gil, can you give us maybe an update on the Nokia refresh opportunity?

It has now been a couple of years since you have acquired that installed base?

Where are we in terms of that upgrade process, how much opportunity remains in front of us and anything you can share around that process would be great?

Thanks.

So first, the good news that we acquired Nokia two years ago, we said that we are acquiring it in a very good shape because they have a relatively new appliance line and a loyal installed base.

And I must say that I was positively surprised by how sales held up.

We were actually expecting a very quick shift from the Nokia appliances to the Check Point appliances and we have seen that the Nokia appliances are holding up pretty nicely, which is a good sign.

We are starting to see the shift and the combination of the productline and again, a lot of customers are upgrading their infrastructure.

I think maybe this quarter, we have seen the first sign for that when the IP series was stable and the Power-1 series was really growing very, very fast.

So that is maybe a good sign to beginning a shift to a more unified product family.

All right, guys.

Thank you very much.

We appreciate you joining the call today and we look forward to catching up with you all during the quarter and we will see you sometime in July for another earnings.

Have a great day and enjoy.

Bye-bye.

Thank you very much.

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