Troubled Internet security company Baltimore Technologies has announced new contracts with six European banks. The news is a much-needed boost for the market for the firm's mainstay public key infrastructure (PKI) products, as loss-making Baltimore tries to recover from the effects of two profit warnings this year.
The announcement pulled Baltimore's ailing share price back up 8% in morning trading.
The six banks that have contracted to use Baltimore PKIs to secure online banking procedures and internal communications are Germany's HypoVereinsbank, Dutch company Staalbankiers, Belgium's Dexia Bank, Allied Irish Bank, Anglo Irish Bank, and Croatia's Zagrebacka Banka.
PKI technology - which uses encrypted public and private keys to privately sign, track and store Internet communications between organizations and individuals - hasn't achieved the penetration of e-commerce that industry analysts foresaw just a year ago. Because PKIs are so difficult and expensive to integrate with banking and corporate back-end computing systems, their use has largely been restricted to financial services organizations, which raced to secure Web-based transactions for fear of being left behind by competitors; government departments, which are obliged to protect Internet communications by legislation; and healthcare industries, which are similarly obliged to ensure the privacy of Web-based data.
"PKI is a fundamental technology of the future," said Baltimore CEO Fran Rooney. "It's going to be big, but it's going to take a while to happen."
Rooney refused to divulge how many of the new contracts had been deferred from Baltimore's previous quarter, but said there is still plenty of opportunity for Baltimore to sell into the banking industries.
Those deferred contracts forced Baltimore to downgrade earnings estimates twice this year - from around $43 million to 23.7 million for the first quarter of 2001 at an operating loss of 17.2 million. Baltimore announced that it met these revised targets in May and said it will target savings of 30-35 million pounds during 2001 by laying off employees, revising its sales and marketing strategies, and making PKI products quicker and easier to install.
Although analysts still believe PKI is the only technological means to secure business-to-business e-commerce, they have been forced to increase the timescale of the huge revenue forecasts. Market analyst Datamonitor predicts that global investment in PKI products and services will grow from $436 million in 2000 to $3.4 billion in 2006.
Out of the 1,000 PKI-associated customers, Baltimore has some 100 customers in the financial services sector. A bank might pay anywhere upwards of $500,000 for a PKI. But as the US economic slowdown spreads to Europe, it is becoming more difficult to win expensive software contracts from brokerages and banks.
Financial services companies are expected to spend $34.2 billion on technology in 2004, up from $25.3 billion in 2000, according to research from the TowerGroup. But the annual growth rate of spending is expected to slow to 7.8% between 2000 and 2004, down from 17.3% in the 1998-2000 period.
Of the $34 billion to be spent by financial services firms on technology in 2004, just $4 billion will be spent on the Internet, according to the TowerGroup. The research firm says Internet spending in the financial services sector dropped $800 million, from $3.9 billion to $3.1 billion, between 1998 and 2000.
Much of the problem with PKI has been that many organizations have deployed secure Internet infrastructure before the applications are in place to utilize the infrastructure. Baltimore has been working diligently with Microsoft, Oracle and other IT vendors to integrate more easily with their technology, which should help firms build PKI-enabled applications and realize a quicker return on investment from installing PKIs.
"The key to this is getting the applications enabled," said Rooney." A lot of technical work has to be done to get the technology right."
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