Hackers are next on government-spyware company's list of targets

[NEW YORK] A company that helps governments monitor their citizens is now peddling its expertise to corporate America.

Verint Systems Inc, which makes software that sifts through communications such as text messages, phone calls and e- mail to help combat terrorism and crime, is touting its intelligence expertise to help companies defend themselves against hackers.

"Advanced cyberattacks are well-planned, targeted and stealth," Chief Executive Officer Dan Bodner said on a June 3 conference call with analysts. "The mitigation approach needs to be based on intelligence tactics." Mr Bodner said he plans to unveil the new cybersecurity products for corporations at a conference in Las Vegas this week.

Verint's sales push comes as the US government is trying to balance the fight against terrorism with concerns over the privacy of its citizens. With corporate America besieged by computer-systems intruders from around the world bent on stealing confidential information, bringing business to a halt or simply embarrassing ostensibly sophisticated enterprises, Verint is betting its skill at helping governments will give it an edge in the competition for private-sector contracts.

"This is a natural tangential market opportunity for Verint," Daniel Ives, an analyst with FBR Capital Markets who has a buy rating on Verint, said in an e-mail. "While clear challenges are ahead given the competition in the space, we believe Verint has the right product arsenal and strategy to be successful."

The US Congress voted last week to stop its top spy organisation, the National Security Agency, from collecting bulk data records on Americans' phone calls.

Even so, privacy concerns haven't curbed demand for cybersecurity intelligence in either the public or private sectors, said Jeff Kessler, an analyst with Imperial Capital in New York.

"Despite the fact that privacy is a primary concern among Western states, the growth of analytics to decipher abnormal events and abnormal communications has not stopped in any of these Western countries, and has not slowed either," he said.

Verint, based in Melville, New York, went public in 2002 as the security unit of Comverse Technology Inc, which sold recording software to help call centres monitor customer service.

Verint's lawful interception business, which enables phone companies to tap lines for law enforcement, has evolved into a communications and cyber intelligence segment that made up 31 per cent of revenue in the previous fiscal year. About sixty per cent of sales came from using data to help companies improve interactions with customers and make work flow more efficient.

The company surpassed US$1 billion in sales for the first time in the fiscal year ended Jan 31, 2015, and plans to double its revenue from cybersecurity this year, Mr Bodner told investors on June 3. Even if it achieves that goal, revenue from cybersecurity will be less than US$100 million and come mostly from government clients, he said.

Verint delighted analysts on a March 25 conference call when it announced a contract for a cybersecurity project with a government valued at more than US$100 million. The stock shot up 6.2 per cent the next day.

One challenge for Verint may be bringing those types of projects to a smaller scale that individual companies can afford, said Jonathan Ho, an analyst with William Blair & Co in Chicago.

"Verint has to be able to take that product, knock down the price, knock down the features and the complexity of managing it to the point where you can sell it for hundreds of thousands of dollars," Mr Ho said. "That's a tall order, and it's too early to tell whether they're going to be successful in that transition process." Alan Roden, head of investor relations for Verint, declined to comment on the company's cyberstrategy.

Verint's chief competitor, Ra'Anana, Israel-based Nice Systems Ltd, is taking an opposite tack. It sold its own communications intelligence business last month to Israeli defense company Elbit Systems Ltd for as much as US$158 million.

By contrast, Verint's communications intelligence business had US$359 million in revenue in fiscal year 2015.

"The business model of selling software to enterprises, versus collection and interception projects to governments, is very different," Nice CEO Barak Eilam wrote in an e-mailed response to questions about the sale.

"Collection and interception will become more intertwined in the future, possibly even involving an aspect of attack, and therefore we believe it is a business that is becoming a better fit for companies that focus on selling such solutions to governments."

The global market for cybersecurity is growing. It may reach US$40 billion in revenue by 2017, according to IDC and Bloomberg Intelligence data. Shares of Santa Clara, California- based Palo Alto Networks Inc, which focuses on network security, have more than doubled in the past 12 months to trade at 116 times 12-month estimated earnings. Verint shares rose 25 per cent in the same period, valuing the company at 17 times future earnings.

Bloomberg