Rainbow Technologies to Begin Expansion and Reorganization
Rainbow Technologies Inc., a leading maker of computer security products, said Tuesday that it would reorganize the company into four business units as part of an aggressive growth plan that will add up to 100 employees to its work force.
The Irvine computer security and encryption company and industry analysts said the reorganization, effective in January, would help Rainbow focus attention on its most promising product lines.
The company’s stock shot up 18% on Tuesday, gaining $2.94 to close at $18.94 a share in Nasdaq trading. Shares of larger computer security firms also rose along with Nasdaq’s 10% increase. VeriSign Inc. in Mountain View gained 16% and Entrust Technologies Inc. in Plano, Texas, gained 13%.
Rainbow and its competitors produce a host of software and information protection products. Among their new technologies is one to verify a person’s identity in cyberspace, which got a boost last summer when President Clinton signed into law a measure that makes so-called digital signatures as legally binding as ink on paper.
Rainbow’s reorganization is aimed at splitting its product lines into separate business units so top executives in each group can devote their energies to more specific goals.
“From an internal management and employee motivation standpoint, we thought it would provide a lot of internal focus,” Rainbow Chief Executive Walt Straub said of the new operating structure. It also will help focus investor and customer attention on the relative strengths of each section, he said.
Straub said the reorganization, which includes two new units, is designed to increase business to match its 39% growth in revenue over the first nine months of this year.
Under the new structure, Rainbow created IVEA Technologies to house its fastest-growing product line--software and equipment that improve the speed and safety of electronic commerce transactions.
“This is the one that has the most promise,” said financial analyst Sean Jackson of SunTrust Equitable Securities in Nashville. “It’s not the most profitable, but it is growing the fastest and has the best prospects.”
Rainbow’s chief technology officer, Shawn Abbott, will become IVEA’s president.
Jim Ricchiuti, an analyst at Needham & Co. in New York, said IVEA revenue could reach $40 million this year, up from $16 million last year for the same business lines.
“I don’t think they’ve really gotten the kind of credit they deserve for this business unit,” Ricchiuti said. The reorganization, he said, “will give it a little bit more recognition in the market.”
The company created another new unit, the Digital Rights Management group, to focus on anti-piracy and identity authentication devices and software. One of these products, the iKey, is a small, key-like device that plugs into a computer and works in conjunction with a password to verify a user’s identity.
The business line is growing more slowly than IVEA but is highly profitable. Ricchiuti said he expects the unit’s revenue will be about $56 million this year, about one-third of what he predicts will be Rainbow’s total revenue of $169 million.
Two divisions of the company will remain the same. The Secure Communications group, which garners 90% of its business from government and defense contracts, specializes in securing satellite communications. Its private sector clients include Citibank and Pitney Bowes.
Spectria, the consulting division, helps e-commerce companies build security into their infrastructures.
Jackson said he believes the reorganization “should be well received” by investors.
