It goes without saying that the tech-based intelligence, surveillance, and security systems sector is favored here, and with the aforementioned in mind Applied Signal Technology (NASDAQ: APSG) is worth a review.

In general, analysts expect strong demand for Applied's broadband communications equipment and its new Model 680 Raider product to continue.

About a year ago, ArcSight Inc. (NASDAQ: ARST) pulled off an IPO. For the tech sector, it was one of a handful of public offerings.

In fact, the company, which provides compliance and security management technologies, has done quite well since its debut. Revenues increased 30% and the company picked up more than 200 new customers. During this time, cash flow increased by $14 million.

Reasons abound for security protocol surrounding cell phone records at the major carriers. Consumers just don't like hearing about privacy breaches. But as the presidential office moves into the wired age, for the first time a President-elect is a red flag going off in Verizon Communications (NYSE: VZ)'s face.

A personal cell phone account owned by Barack Obama (but that has been inactive for several months) was confirmed to have been accessed by "several" of Verizon's employees -- all of whom have been placed on administrative paid leave pending an internal investigation into which did so for a good reason.

While it's easy to imagine the thrill that might accompany viewing the phone calls of the President-elect (how many minutes to that number in Chappaqua, New York in June?), it's also easy to imagine the potential damage that could arise from such illegal access, both to Obama (or any candidate) and to the trust the public places in its cell phone carriers. Verizon is right to have taken action and made the news public; but the company should have put more preventative measures in place to ensure its sensitive customers' data was secure.

ABI Research says that security alarms are switching over from land line phones to wireless carriers, and AT&T Inc. (NYSE: T), along with a few companies that specialize in Machine-to-Machine (M2M) communications, is poised to benefit. ABI Research named Aeris, Jasper Wireless, Numerex and KORE Telematics as being key players in this field. The only one of those that's traded is Numerex Corp. (NASDAQ: NMRX).

ABI Research says that last year there were 2.5 million wireless security alarm connections, but by 2013 they expect to see three times that many. Alarm companies are switching to digital systems because of changing regulations, cost and -- the idea that's easiest to grasp -- the fact that the line can't be cut. ABI Research's "Home Automation and Security" is an article that analyzes the security market.

For AT&T it's a nice way to boost revenue in case that whole forcing people into iPhone contracts doesn't work out. But AT&T is so huge, will the security market make a difference? Numerex has a market cap of only $100 million. It's still and up and coming area.

Shares of Internet security company McAfee Inc. (NYSE: MFE) have been tumbling after the company reported yesterday after the market closed that its first-quarter profit slipped 27%, hurt by higher expenses related to product development and marketing. The world's second-largest security software maker also slashed its full year earnings guidance, prompting investors to pull the stock down in morning trading.

McAfee said its profit dropped during the first quarter to $31.6 million, or 19 cents per share, compared with $43.4 million, or 27 cents per share reported in the same period a year ago. Excluding one-time items, the company's earnings would have come at 43 cents per share, missing analysts' predictions for a profit of 45 cents per share in the quarter.

The second-biggest maker of security software did post a respectable growth of 17% for its first-quarter revenue which jumped to $370 million. This was above analysts' predictions for quarterly revenue of $352 million, according to Reuters Estimates. However, McAfee's operating costs during this period also increased to $226 million.

Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable global trend as a support. But every once in while an exception is made for a non-conforming but innovative/promising company, and along this line Checkpoint Systems is worth a review.

Checkpoint Systems, Inc. (NYSE: CKP) manufactures electronic article surveillance systems, radio frequency tags, electronic security devices, closed-circuit TV systems, and electronic access control systems used by retailers.

Analysts like the fact that Checkpoint is well-positioned for the U.S. economic slowdown: about two-thirds of CKP's revenue stems from international sources. Analysts are also encouraged by a re-acceleration of longer-standing product lines, and the continued growth of CheckNet. A blue chip clientele adds to the revenue mix.

In what may end up being a net positive for eBay, albeit possibly an expensive one, a settlement has been reached in the litigation over patent infringement between eBay Inc. (NASDAQ: EBAY) and MercExchange. Financial figures of the settlement have not been disclosed, but a report from Computerworld indicates that eBay shall purchase the three patents which were the subject of the litigation, as well as a number of other related technologies and developments.

Mike Jacobson, eBay senior vice president and general counsel, was quoted by Computerworld as stating: "In addition to resolving the litigation, this settlement gives us access to additional intellectual property that will help improve and further secure our marketplaces." MercExchange founder and CEO Thomas Woolston, is quoted in the same report as stating: "It seemed like the right time to put it behind us."

In May of 2003, a jury in the case found eBay guilty of patent infringement and an injunction was sought and granted. However, in reviewing the US Court of Appeals decision, the Supreme Court unanimously derailed the long standing practice of issuing immediate injunctions in cases of intellectual property infringement, insisting that in the future, such injunctions must meet the requirements of a four-factor test.

So far this year, the IPO market has been meager. But we did see a deal yesterday; that is, ArcSight (NASDAQ: ARST). Unfortunately, the stock fell 2.4% to $8.78 on its debut (the company's price range was $9-$11).

Although, the company is in the red-hot security space and has more than 400 customers. For the first six months ended October 31, 2007, revenues came to $44.4 million, which was up from $27.7 million.

So, might there be an opportunity here?

Well, I had a chance to interview the CEO of LogLogic, Pat Sueltz. The company plays in the same space as ArcSight. In fact, her company recently snagged $13.5 million in venture capital.

Here's her take on things:

Background on your company? What are some of the trends in your industry?

Funded by Sequoia Capital and Telesoft Partners in 2004, San Jose-based LogLogic is the largest independent vendor in the multi-billion dollar log management market. LogLogic attributes its hyper-growth to compliance mandates such as the Payment Card Industry Data Security Standard (PCI DSS) as well as pressures to automate the tracking of user activity and business performance while reducing costs.

One of the promising applications for log management is Security Information and Event Management (SIEM), as addressed by vendors such as ArcSight. According to recent studies from ESG and the SANS Institute, security, risk and compliance issues comprise only 30% of all log management use cases.

Log management continues to be a house-keeping best practice for IT managers but, today, failure to meet governance, risk and compliance standards carries serious consequences for a company and its C-level executives. Organizations are making log management a priority and they are quickly reaping the benefits, from the sys-admin up the chain of command to the CEO.

Your thoughts on the ArcSight IPO?

Log management is a multi-billion dollar market opportunity and growing rapidly. It is too early to tell on the first day of an IPO, but ArcSight is valued at a quarter of a billion dollars, which speaks to the sector's promise.

ArcSight's public offering is an important statement indicating the market requirement for stand-alone security management. Similarly, log management solutions cut across all enterprise application silos. Every application with an IP address or digital heart-beat generates important activity records that need to be monitored, managed and archived for future reference. LogLogic provides open web-services enabled platforms that are vendor neutral for this market place.

What was the recent venture funding process like?

Our series D round was straightforward and quick. We reached cash flow positive last fall and have seen more than 100% growth year-to-year due to industry demand. In 2007 alone, LogLogic signed over 160 new customers in the enterprise, mid-market and MSSP channels, bringing its total to more than 400 customers. As a result of our 2007 success, we received interest from a number of outside investors, which was an opportunity for us to ramp up global sales and marketing initiatives and accelerate our technology innovation.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

MAJOR PAPERS:

• The SEC has moved closer to approving the issuance of active exchange-traded funds by Invesco Plc's (NYSE: IVZ) PowerShares Capital Management. The Wall Street Journal reported that this is the start of additional SEC approvals that will change the face of the mutual fund industry.
• The Wall Street Journal also reported that despite some major cost cutting efforts, General Motors Corporation (NYSE: GM) may be challenged to come close to breaking even this year. The company still has "serious kinks" in its core automotive business in North America.
• According to the Financial Times, Morgan Stanley (NYSE: MS) will not be able to form a landmark securities joint venture in Vietnam after the government gave in to pressure from rival banks that did not approve of the deal.

OTHER PAPERS:

• The Associated Press reported that Google Inc (NASDAQ: GOOG), looking to compete with Microsoft Corporation (NASDAQ: MSFT) in the e-mail security for businesses space, is expected to announce tools today that will build upon technology acquired last year from Postini and are designed to protect against leaks of information and to weed out potential viruses.

Shares in Israeli security company Magal Security Systems Ltd. (USA) (NASDAQ: MAGS) closed up over 17% today on the news that the company has signed a series of deals worth over $45 million. This is huge for a company with a market-cap of $74 million.

Magal develops, manufactures and markets computerized security systems, which automatically detect, locate and identify the nature of unauthorized intrusions. The products are used to protect national borders, airports, correctional facilities, nuclear power stations, and other sensitive facilities from terrorism, theft and other threats.

Magal stock was down almost 60% until last week, when a bottom seems to have been hit. Over the last week the stock has surged almost 40%. This little Israeli company is at the forefront of the physical security space, and with what appears to be a very strong pipeline, Magal looks very interesting going forward.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC, and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has a position and owns stock in MAGS and is long the stock. He has no positions in any other stock mentioned as of 1/30/08.

Aladdin Knowledge Systems Ltd. (NASDAQ: ALDN) is surging more than 18%, as the company posted strong earnings and upped its 2008 guidance. The Israeli company produces security products that are used to manage network security, including applications for managing content and guarding against computer viruses, spyware, and spam.

Commenting on the results Yanki Margalit, Chairman and CEO of Aladdin Knowledge Systems, stated, "2007 was an exceptional year for Aladdin as we crossed the $100 million mark in annual revenues while driving record levels of operating cash flow and bottom line profitability. Our software security business grew 9 percent year- over-year supported by the launch of HASP SRM, the industry's first software protection and licensing system that offers customers both hardware- and software-based security in a unified solution, while our eToken and eSafe businesses combined to drive enterprise security revenues up a truly impressive 40 percent year-over-year. Overall, Aladdin delivered full year results at the high end of our stated 2007 revenue and net income guidance, excluding the impact of the non-recurring cost recognized in the fourth quarter of 2007.

"From an operational perspective Aladdin made excellent strides in 2007 in terms of leveraging its global presence and driving new customer growth across geographies as well as key business verticals. Overall, demand for content, Internet and enterprise security solutions remains robust, driven by the rising range of IT security threats in mature as well as emerging markets. Based on the combined strength of our portfolio of software and enterprise security solutions, Aladdin has never been better positioned to capitalize on these industry growth trends, building upon our significant financial and operational achievements in 2007," concluded Margalit.

Even with today's surge the stock is trading at a PEG of just 0.95, and is still 20% of its' 52 week high. Aladdin looks like a winner at these levels.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer has a position and is long ALDN. He has no positions in any stock mentioned as of 1/23408

Stories of stolen laptops and credit card information theft come out on a regular basis. It's hard to imagine that sensitive customer data is kept on a laptop computer in many cases, but that's happening every day. Data security is obviously not a top priority for some of these companies that handle massive amounts of customer data.

In many cases, this kind of electronic theft is due to data being kept locally on a laptop's hard drive. Hewlett-Packard (NYSE: HPQ) wagers a newer product may alleviate that risk, as it has introduced a "thin client" laptop PC that has no internal data storage function at all. The new computer is classified as a "connected laptop," and performs all its functions when connected to a server through a wired or wireless network. The data the machine interacts with is somewhere on a remote, secure server -- not on the laptop's insecure hard drive.

These "thin client" machines are not a new concept, but very few portable, real-world laptop PCs have featured a working model that allows full productivity while almost completely eliminating data security issues inherent in any portable data product. Based on HP's recent acquisition of thin client product maker Neoware, the new Compaq model 6720t has no data at all residing on it. If the laptop is stolen or damaged, the data is retrievable, since it sits on a server, not on the machine itself. The laptop would be worthless to thieves.

Although the model does indeed feature a solid-state disk drive, it's designed only to exchange data on a network (wired or wireless). If HP can make inroads into those companies and entities who require portable computing without security risks, it may just create a whole new market for itself that now barely even exists.

The Associated Press reports that France's second-largest bank by market capitalization, Societe Generale, has uncovered a rogue trader who reportedly stole $7.14 billion -- forcing the bank to raise $8.02 billion and suspending trading in its stock on the Paris stock exchange.

Details are sketchy. The bank discovered the fraud on January 19 and 20th. It said a trader at the futures desk had misled investors in 2007 and 2008 through a "scheme of elaborate fictitious transactions." The trader used his knowledge of the group's security systems to conceal his fraudulent positions. The unnamed trader beats Nicholas Leeson, whose 1995 $1.38 billion trading fraud in Singapore brought down Barings Bank and was made into a movie.

Societe General, whose stock has lost about half its value over the last six months, has already taken a $3 billion charge for bad subprime mortgages. No word on what happened to the trader's $7 billion -- or whether this discovery will have repercussions throughout the global financial markets.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

With the Virginia Tech massacre last year, universities certainly understand the extreme importance of security. As a result, notification systems – which can deal with things like cell phones, SMS, email and so on – are top-of-mind for chief information officers in universities.

The leading provider of notification services for educational institutions is NTI Group. This week NTI Group agreed to sell itself to Blackboard (NASDAQ: BBBB), a leading provider of learning management systems for universities. The deal amounts to about $182 million (there is also an earnout for $17 million).

With Blackboard's large customer base, there should be a large cross-selling opportunity. Besides, it will help the company's mobile efforts (after all, students are big-time users of cell phones and PDAs).

According to a report from the Yankee Group, the notification and alert market is expected to reach about $1.2 billion by 2011 (which translates into a 30% annual growth rate). Although, in the case of NTI, the company's growth rate is more than 50% per annum (the revenues last year were about $30 million).

Interestingly enough, NTI has a strong presence in the K12 market. This should be a nice boost for Blackboard, which is targeting this category.

In other words, this deal looks like a great fit -- and could help continue the nice growth ramp for Blackboard.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

News out of TASER International Inc. (NASDAQ: TASR) has been ... how shall I put it ... somewhat odd as of late.

First, a few days ago, we heard of Taser Parties. Indeed, like Tupperware Parties, Taser Parties have women gather in someone's home. They get a demo of the recent TASER C2 and even try it out for themselves (on targets, not each other). While this isn't exactly a TASER official marketing strategy, rather a saleswoman's vision, it may not be a stretch to see the stun gun maker endorsing this as one sales tactic out of many.

In fact, TASER has already adopted the concept for its booth at this year's Consumer Electronics Show, where Taser Parties were held. TASER didn't just throw "parties" at CES, but brought Playboy Playmates to ... ahem ... sign autographs.

But wait, that's not all in the odd tidbits realm. At CES, TASER also showcased designer colors for the TASER C2 in addition to the classic black model: fire-engine red, blue, silver or pink. Pink, by the way, in some sort of a "girl power" thing is actually the company's biggest seller. The company also unveiled a new Taser holster in leopard print with a built-in 1 GB MP3 player (preloaded with songs from AC/DC, Shock G, Lightning Bolt and S.T.U.N. ... not really). The reason for the MP3 player, you may ask? "You're more likely to carry it, and it will be there when you need it," VP of communications Steve Tuttle said. How's that for marketing?