SonicWALL Will Restructure

Staff cuts and restructuring are a cost-cutting measure to offset the RedCreek acquisition, but the IP security company may be suffering from a post September 11 syndrome.

by Michael Singer of siliconvalley.internet.com [May 1, 2002]

Internet security company SonicWALL Tuesday said it is restructuring parts of its business to stay competitive.

The Sunnyvale, Calif.-based firm said it is cutting staff levels somewhere between 15 and 20 percent. The changes include consolidation of office facilities, and the elimination of duplicate resources resulting from the company's October 2001 acquisition of RedCreek Communications, a privately-held VPN provider, for $12.5 million in cash.

SonicWALL said the restructuring will cost approximately $2 to $4 million. In addition to severance costs, these charges are expected to include facilities consolidation costs, including the write down of leasehold improvements, the write down of other property and equipment and contract terminations.

"We are quickly moving to improve the productivity of our organization," said SonicWALL president and CEO Cosmo Santullo. "While these measures are difficult, we believe that by focusing our resources and leveraging the strengths of this company, we can more profitably grow our business and continue to extend our market leadership."

The company has had several wins lately, considerably with its new SonicWALL VPN Client, its relationship with BellSouth's DSL (digital subscriber line) to serve customers in nine southern states and partnership with Websense Inc. over network protection against Internet security threats.

But there are indications of a plateau, despite a surge in Internet security spending following the September 11 attacks, since companies like SonicWALL, Check Point, and Network Associates recently reported poor financial performances suggesting that the interest has dipped significantly.

For example, Check Point's last quarter ended with the company showing a decrease in net income and revenues in the 20 percent range and SonicWALL showed $24.6 million in revenues for Q1 but a net loss of $0.6 million, or $(0.01) per share, compared to the net loss of $5.5 million during the same period of the previous year.

Network Associates, has had its own share of legal problems, not to mention getting a recent downgrade by Bear Stearns.

The companies are blaming the dip on weaker demand for Internet security solutions in the marketplace, which are partially offset by increased financial income.

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