Staying One Step Ahead of the Worms

But can virus fighter Trend Micro keep its lead over rivals?

Industrial output in Japan is plummeting, blue-chip companies such as Sony and Fujitsu are cutting jobs, and deflation is stalking store aisles. But Steve Chang, the ebullient founder and chief executive of Trend Micro Inc. (TMIC ), isn't spooked. He runs Asia's most successful computer-security firm from Tokyo. So far, the company, which specializes in fighting viruses, has hardly been affected by Japan's stagnant economy. In late October, Trend announced a third-quarter operating profit of $22 million on revenues of $63 million. And it is on track to achieve revenue growth of 30% in 2001, the best showing of any company in Japan's troubled tech sector. "It is one of the shining stars in Japanese tech," says Zachary Liggett, an analyst at WestLB Securities Pacific Ltd. in Tokyo.

Yet there's no downtime for the hyperactive Chang, who is gearing up for the next stage of the cyberwars. The challenge is a new, more complex generation of viruses and worms such as the recent Nimda and Code Red, which are capable of propagating on a massive scale. At the same time, Trend faces growing competition from U.S. rivals in anti-virus software for corporate servers, server-based applications, and corporate Internet gateways. "We're on a death march," quips Chang, mimicking a marching soldier. "Our engineers are working two shifts over a 24-hour day to develop a solution for these new viruses before our competitors do."

Although rivals such as Symantec Corp. (SYMC ) and Network Associates Inc. (NETA ), both of California, are bigger, they're also more diversified. In the antivirus field, Trend is the company to beat, with 33% of the global market for corporate servers and 63% for company Internet gateways.

Still, staying on top will require a whole new set of skills. Symantec, which designs all types of security software, from firewall and anti-intrusion to antivirus, may be better positioned to take on the virulent Nimda, which infects computer data not only through e-mail but also via Web-browsing and computer-network connections. Chang is still hoping that his engineers will get there first, though. "We'll go right on the networks to find these new viruses, isolate them, and provide inoculation," says the 47-year-old Taiwan native, who splits his time between Tokyo, Taipei, and Silicon Valley.

Even while Asian economies stagnate, Trend keeps on hiring engineers (although it has cut its marketing and travel budgets). The strategy seems to be paying off. Trend recently beat Symantec for a contract to outfit Sony Vaio PCs with antivirus software, and it signed on IBM (IBM ) and HSBC (HBC ) as new customers.

JUMPY SHARE PRICE. While a star in Japan, Trend's share price has fallen with those of other tech companies. Over the past year, shares have zigzagged, from a high of $80 to a low of $14. The stock now appears to have stabilized at $22, valuing Trend at $3 billion. "By Japanese standards, it's still a hot-growth company," says Ben Wedmore, an analyst at HSBC Securities Japan Ltd.

To maintain that pace, Chang, like everyone else, has set his sights on China. He just opened his third Chinese office and is working with high-tech players such as Legend and ChinaLink to develop antivirus products for the local market. He also wants to develop security software for mobile-phone networks and already has a tie-up with Japan's largest cellular operator, NTT DoCoMo. Other local industries may be sinking into the Sea of Japan, but as long as there are worms to chase, Trend Micro's prospects look solid.

By Irene M. Kunii in Tokyo

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