When Sony Corp. discovered that its video game networks had been hacked, the Japanese electronics giant turned to Guidance Software for help.
The Pasadena company develops investigation software, and analysts said nabbing a big-name customer like Sony has helped raise the profile and improve the prospects of the sometimes-sputtering business.
“Sony is a marquee customer,” said Mark Schappel, an enterprise software analyst for New York investment bank Benchmark Co. LLC. “It’s put attention on the space.”
Guidance primarily sells digital forensics software, called EnCase Forensic, to government agencies and police departments. The software helps them find data on personal computers, online servers and other devices for use in criminal investigations. In recent years, the company has expanded to providing businesses with software called EnCase eDiscovery that helps them find and save data that would be important during litigation.
But it’s a third part of Guidance’s business, cybersecurity, that is likely benefiting from the recent Sony attack. In 2009, the company began selling to businesses EnCase CyberSecurity software, which finds and analyzes malware and other evidence of hacking on company servers and networks.
Guidance declined to comment on its ongoing work with Sony, but Schappel said it’s likely that the company is using its cybersecurity software and consultants to help find who the hackers were and what information they took.
Attackers in April first broke into the Tokyo conglomerate’s PlayStation Network, on online destination for PlayStation 3 owners where they can purchase gaming, TV and film content, and play against each other. When the attack was discovered, the company said personal and credit card information of 77 million accounts could have been accessed.
Then a second attack at Sony Online Entertainment, the company’s San Diego division that operates several multiplayer online games, breached security for 24.6 million accounts.
Sony announced in May that it had hired cybersecurity detectives from Guidance, consultants from Menlo Park firm Protiviti and an investigative team from Rancho Cucamonga computer forensics consultancy Data Forte to improve the security of its network and investigate the attacks.
Sony Online Entertainment did not return a request for comment.
Patrick Zeller, vice president of Guidance’s e-discovery business, said that while the Sony case was high profile, it’s hardly unique.
“We do a lot of that kind of work,” Zeller said. “The Sony case isn’t the only one that we’re involved in.”
When Guidance was founded in 1997, it focused exclusively on developing forensics software that would help police departments gather important computer information to solve crimes. For example, the company’s software was used in 2004 to find evidence against Scott Peterson of Modesto, who was later convicted of killing his wife, Laci.
But now that Guidance, which operates out of a low-rise office building just north of Old Pasadena, sells products and services to corporations, the revenue prospects are better: Companies have more money to spend on forensic software than law enforcement agencies.
Zeller said the 370-person company has seen increased demand for its business-focused software as hacking has become more prevalent and corporate lawsuits have relied more heavily on digital data.
“It’s a very hot issue for legal and IT departments,” he said. “The demand has really taken off.”
One reason that the cybersecurity market has expanded is because of a number of high-profile hacking cases, including the Sony attack, in the last year, said Sami Saydjari, chief executive of Cyber Defense Agency, a Wisconsin Rapids, Wis., security consulting firm. As the number and severity of attacks has increased, more businesses have begun looking for ways to secure their digital data.
“The kinds of activities today are much more associated with organized crime instead of kids playing pranks,” Saydjari said. “Businesses are now finding a need to get professional help on arranging their defenses and their security strategy.”
Nevertheless, Guidance has been slow to grow and is not profitable.
The company reported second quarter revenue of $23.9 million, up 5 percent from $22.7 million in the same quarter last year, and a net loss of $1.37 million, compared with $1.26 million.
Schappel, who has a “buy” rating on the company’s stock, said Guidance’s most recent earnings show slow and steady growth.
“They’ve been slowly and surely incrementally beating estimates,” he said. “It’s nothing dramatic, but it follows a long period of almost two years where they had a very difficult time making their numbers.”
In 2007, the company’s Chief Executive John Colbert resigned and was replaced by Victor Limongelli. Eight months later, Limongelli and the board replaced Guidance’s chief financial officer with Barry Plaga.
Schappel said that executive turnover and a sales slump due to the recession caused the company to miss Wall Street guidance for several quarters. But the new executive team has helped Guidance through the recession and has gotten the company’s earnings back on track.
He attributes the company’s steady growth to diversification into the e-discovery and cybersecurity markets.
“They’ve broadened out their business,” he said. “Now they have much more consistency in their sales pipeline.”
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