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Five analysts and top management from seventeen sector firms examine the Hi -Tech Security sector in this 144 - page Special Focus - Hi -Tech Security Issue from The Wall Street Transcript available at (212/952-7433) or www.twst.com/info582.htm

TWST: Chris, how are you approaching the group today? What are your top names?

Mr. Hovis: Again, I think it’s a similar thought process, in terms of being cautious about the group short term. I think you have to start drawing some distinctions with regard to which companies can grow in this environment. Based on who can take market share, I believe NetScreen is probably best positioned currently to continue doing that because of the attractive price performance and uniqueness of their solution across an enterprise’s requirements — all the way from the high end to the low end. There has been some pressure on the stock, ahead of a lockup expiration which occurred on June 10 for the first tranche. I believe to a large degree that is factored into the stock price now. I am recommending investors begin accumulating shares at these levels. The other criterion I would mention is areas of security that are underpenetrated but have a catalyst for bringing that more to the mass market. I would highlight the areas of intrusion detection and vulnerability assessment. In the past, intrusion detection solutions were somewhat painful to manage (the pain point has been high). From a security standpoint, unless you had very high security needs, intrusion detection has often been a solution that was not at the top of the shopping list. Increasingly, though, we hear a lot of inquiries about it and interest in it. We believe that ISS is the best way to play that from the public company perspective as a pure play. We also would highlight that ISS has new product introductions. Their next-generation intrusion detection solution, which incorporates the best features of ISS’ historical product as well as new, under-the-hood technology acquired from Network ICE, shipped today. We’ve heard good things about it from people who have had an early opportunity to see the product, and believe that can serve as a catalyst to help ISS grow faster than the rest of the group over the next six months to a year.

TWST: Chris, what are your general concerns today?

Mr. Hovis: I think the biggest concern is just when CFOs are going to begin signing off on bigger deals. We hear a lot of the same things — that budget dollars are being allocated. But people have been through this environment over at least the last 12 months, where they, on a quarterly basis (perhaps more frequently), saw their budgets get cut. So they have been very unwilling to spend just because of the psychological damage they’ve had after this experience, and they’re storing some of those budgets. We believe that the environment itself is flattening out. If you can get some confidence among senior executives in the economic recovery that seems to be indicated by some of the early economic data we’re receiving, it would lead to an uptick, perhaps as early as the fourth quarter of this year. And the budget — what’s typically referred to as a budget flush quarter — the biggest concern I have is just what happens in Q2, because what most investors tend to focus on, particularly in this environment, is very short term in nature. We hear from a lot of investors that while they may find the valuations much more attractive than they have seen them over the last three or four years, and while they also believe in the long-term growth prospects of the sectors, they’re unwilling to step into these stocks aggressively ahead of the Q2 earnings season, where you’re likely to see earnings warnings from software companies and other tech companies, whether they are specific security companies or not.

TWST: Chris, how would you advise investors to approach the group today?

Mr. Hovis: Even if you’re unwilling to pull the trigger ahead of the Q2 earnings season, my advice is to build a shopping list of some of the better companies that we have mentioned — NetScreen, ISS, Secure Computing, Symantec and Check Point, although we think it will take a little longer for Check Point to rebound. As to whether or not investors should put some money in today and gradually begin building a position, in my mind we’re on the cusp of an almost 180-degree view from two years ago, when prices had investor expectations reflected in them that growth was going to continue at a 50% plus clip for the foreseeable future in a linear fashion. That perception of growth versus the reality of growth made it very difficult for the stocks to ever justify their current valuations and certainly, as growth slowed, brought the stocks way down. I think we’re at the point now where stocks are not pricing in very high expectations. And in my mind, the greatest driver of stocks is how reality ends up differing from expectations. So with expectations having been reset to a fairly low point, even now you’re hearing among many people in the Wall Street community that growth in technology is not going to come back — certainly not this year and it may not come back until the middle of next year. Even if that’s true, you probably don’t have a lot of additional downside because stock prices are already building in that scenario, and if you get any kind of upside to that, you could see these stocks beginning to work. Again, at this point I would have to pick Q4 as having the greatest potential to start showing evidence of that, so you’d want to be buying ahead of Q4.

TWST: Chris, do you see any industry changes coming over the next 12-18 months?

Mr. Hovis: I think we’ve talked a bit about raised awareness and a higher profile for intrusion detection solutions. I believe that you’ll see increased recognition that firewalls, in and of themselves, are no longer sufficient in terms of protecting the enterprise. You can’t just build walls around your business any longer because it is increasingly open, whether you’re dealing with customers, suppliers or other types of business partners. And that is going to drive a need for security to be more pervasive within an organization. One of the areas within intrusion detection that I’ve been somewhat surprised to hear is picking up steam is host-based intrusion protection. And I think even within that application layer, security is going to be increasingly important. One of the reasons for that is that most Web-based applications are allowed to come in freely through a firewall. But there are still a lot of security holes that a trusted application or a misconfigured application or server that it’s running on can leave open for hackers to exploit. So I think you’ll see that transition over the next 12-18 months. And then, increasingly, I see over that same time a lot of interest in security management solutions. That’s one of the areas that is different from my perspective right now. In some of the other more popular areas over the past couple of years within security — such as PKI and, most recently, managed security services — you saw a lot of publicity from a vendor perspective or from at least a private company investment perspective and a lot of money flowing in. But there wasn't that connect on the customer side. It was more of a push/sell from the vendors having to educate customers on why it made sense and why they should want to consider outsourcing their security. Contrast that to security management solutions, where we see a lot of customers asking what’s going on in that space and highlighting their need for solutions in it. So I think there’s a more "ready and willing" customer base for those solutions that will make them attractive and important over the next 12-18 months.

This special Issue includes:

1) Special Focus - Internet Security - In an in-depth (11,100 words) Analyst Roundtable, Sterling Auty, a Senior Equity Research Analyst at JPMorgan H&Q, Garrett A. Becker III, Vice President, Equity Research, at Kaufman Bros., Christopher T. Hovisan, Equity Research Analyst, Internet Security and Infrastructure at SunTrust Robinson Humphrey, examine the outlook for the sector and share specific stock recommendations.

2) Special Focus - Biometrics & Security Technology- In an in-depth (3,400 words) Analyst Interview, Brian Ruttenbur, Analyst for Morgan Keegan & Co., examines the outlook for the sector and shares specific stock recommendations.

3) Special Focus - Biometrics & Security Technology - In an in-depth (1,800 words) Analyst Interview, Prianka Chopra, a member of the automatic identification/security research team at Frost & Sullivan, examines the outlook for the sector and shares specific stock recommendations.

4) CEO interviews (average 2,500 words). Top management of 17 - sector firms examine the outlook for their firm and the sector. Firms include:
Bioscrypt, Inc., Communications Intelligence Corporation, CyberGuard Corporation, Cylink Corporation, Datakey, Inc., Digital Descriptor Systems, Inc., ePresence, Inc., Hifn, Inc., Imagis Technologies, Inc., Internet Security Systems, Inc., Network-1 Security Solutions, Inc., PEC Solutions, Inc., RSA Security Inc., Secure Computing Corporation, VASCO Data Security International, Inc., Watchguard Technologies, Inc., ZixIt Corporation