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Two analyst and top management from eight sector firms examine the security products & services sector in this special 38-page Security Products & Services issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info516.htm.

TWST: Would you begin by telling us what you include in your coverage?

Mr. Barry: At Bear, Stearns, I am responsible for a category called Small Companies. A broadly definable category, to be sure, but under a microscope, there are some common denominators that, in my case, would emphasize two distinct subgroups: industrial technology and security products & services. Curiously, in some instances, both are beginning to converge, especially since 9/11. There are clear technological characteristics and overtones surfacing as homeland security/protection begins to take shape.

TWST: Has there been any change in customer base following September 11? Have we seen these companies expand to play into different fields?

Mr. Barry: There's an interesting dynamic going on here. The number of moving parts in this whole security space since 9/11 has increased very dramatically as government agencies attempt to focus on and prioritize exactly what they want to accomplish via the homeland security initiative. Think of the process in terms of: mission, mandate, funding and execution. Compounding the conundrum, the agencies involved are disparate and numerous, including the FAA for airport security, the Department of Defense, the Department of State, and the Immigration and Naturalization Service. The politics and objectives are not always in sync. It seems that the whole concept of homeland security, which really was quite amorphous at best before 9/11, has changed in terms of relevant technologies and services that will inevitably converge. But the process is still taking shape, adding business and investment risk, we believe.

TWST: Have we seen any new products come to the market following September?

Mr. Barry: I think that it's much too soon for such an event to effect a sea change in hardware development, performance or availability. Certainly the sense of urgency has changed dramatically. But for the moment, the major issue appears to be capacity — what are essentially a large number of very small companies able to do and how quickly can they do it in terms of building out capacities to answer the demand for this new high-priority mandate for detection and protection?

TWST: What is the theory on how the security companies will meet demand?

Mr. Barry: I have to believe that a keen sense of urgency will necessitate increased response speed, defined by the need to consolidate within the security industry, producing larger systems solutions capabilities. Getting workable standards in place is yet another challenge.

TWST: What’s the rationale behind your top choices?

Mr. Barry: Regarding Armor Holdings (NYSE:AH), we view them as well-balanced, representing a three-legged stool in this industry, drawing from armor plating on one side to body armor on the other, with a services component as well. Checkpoint (NYSE:CKP) has a variety of growth drivers. A promising initiative that we haven’t talked about thus far, RFID, radio frequency identification, will probably play a greater and greater role in this company’s future. If you think about the information technology roadway that barcoding provides, RFID takes this process to another level. Essentially, a barcode is dumb: you set the information once, either in a series of black-and-white stripes — a linear bar code — or in what looks like scrambled hieroglyphics — 2D symbology. Unlike barcoding, the RFID tag is smart, inasmuch as you can write to it or read from it. The information can be either dynamic or static. What gives barcoding the edge at present is economics. The cost of a chip is still exceedingly high — at or exceeding $1 — whereas the cost of a barcode array is negligible. So while one could argue that the opportunity for RFID is still considerable, its evolution will be slow, we suspect.

This special issue includes:

1) Outlook for Security Stocks - In an in-depth (4,000 words) Analyst Interview, Jeffrey T. Kessler, Senior Vice President at Lehman Brothers, examines the outlook for the sector including and shares specific stock recommendations.

2) Security Products & Services - In an in-depth (2,600 words) Analyst Interview, Peter J. Barry, Managing Director for Small Companies at Bear, Stearns & Company, examines the outlook for the sector including and shares specific stock recommendations.

3) CEO interviews (average 2,500 words). Top management of eight sector firms examine the outlook for their firm and the sector.