IRE knows how to keep a secret

July 02, 1995|By Michael Dresser | Michael Dresser,Sun Staff Writer

When the Secret Service decided it needed help in protecting its secrets, it turned to a little-known White Marsh company called Information Resource Engineering.

When the National Security Agency was looking for more security for its IBM computing network, it asked IRE for advice. And when the FBI wanted to make sure its investigations weren't being investigated, it bought IRE equipment to confound potential snoops.

IRE, a manufacturer of computer security devices, is riding a wave of new business after years of waiting for the marketplace to catch up with its technology.

The company's first-quarter sales of $1.5 million, buoyed by a flurry of new contracts from businesses and government agencies, were more than four times higher than in the same period in 1994.

Wall Street couldn't help but notice. Since the end of last year, IRE's stock has soared from about $12 to a 52-week high of $28.25 last week, before settling back to $26.50 Friday. IRE has announced a 2-for-1 stock split effective this month, doubling its shares to 3.6 million.

While the company's high-visibility contracts with law enforcement and national security agencies have been valuable testimonials for IRE's products, company Chairman Tony Caputo pointed to another reason for the company's recent success.

"The company has taken off because we're in a business that's a key enabling technology for anyone who wants to do electronic commerce," Mr. Caputo said in an interview. "Since you can't do electronic commerce without cryptography, people are beginning to realize what IRE does."

Cryptography, the science of making and breaking secret codes, has emerged from the secrecy-shrouded government laboratories and has become a lucrative business opportunity.

IRE seems ideally placed to benefit from that trend. The company makes devices that turn words and numbers into a goulash of seemingly random characters -- foiling the wily "crackers" who break into computer networks to steal money and secret information. Not only can IRE's technology scramble and unscramble messages, it can also be used to create a "digital signature" to verify the identity of an information sender.

So far, IRE's best customers have been the government and the banking industry, but the company is interested in breaking out into the broader marketplace.

Mr. Caputo said IRE plans to test the consumer market this summer with a series of products designed to protect transactions over the Internet, the worldwide network of computer networks. He also sees potential customers in on-line services and interactive networks being planned by telephone and cable companies.

Jim Medalia, president of the New York-based Internet services firm, estimated that less than 5 percent of the sites on the Internet's World Wide Web have any kind of security.

"The issue of encryption is on everybody's mind," Mr. Medalia said. "We have talked with companies that want to either sell a product or take orders . . . who are not going to do that until they feel comfortable with the security."

Little attention

Despite its recent surge, IRE has received little attention from stock market analysts outside Barber & Bronson, the Fort Lauderdale, Fla., company that handled a secondary stock offering for the company.

Jonothan S. Martin, an analyst for Barber & Bronson, said he sees few obstacles ahead for IRE. He said the competition in its market niche is insignificant and that demand for its products is just starting to take off in the banking sector and other areas of electronic commerce.

Mr. Martin believes that even though IRE's stock price has doubled since early spring, there is still room for further gains. He said the increased liquidity resulting from the stock split would attract greater attention from both institutional and individual investors.

Big stock jump

IRE's stock took a big jump in early June after a Barber & Bronson partner praised the company on a CNBC television program. The surge put a squeeze on short sellers in the company's stock, who were forced to deliver their stock at a premium, further driving up IRE's price to where its market capitalization now stands at $50 million.

But IRE's stock already was on the upswing when that happened, reflecting its growing customer base. Its products have found their way into some of the nation's busiest and most sensitive computer networks.

According to Mr. Caputo, six of the 10 largest U.S. banks -- including Citibank and J. P. Morgan & Co. -- use IRE equipment to guard the security of their electronic money exchanges.

The Department of Energy's Lawrence Livermore Laboratories has about 1,000 IRE encryptors that it uses to secure transmission related to its nuclear weapons research.

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