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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: Following the events of the past year, are we seeing an influx of a lot of smaller companies into the industry?

Mr. Kessler: It’s hard to say. At the commodity end, alarm equipment manufacturers and analog closed circuit television equipment manufacturers can enter this market without a lot of barriers to entry. The problem is gaining share with any account that is meaningful. The largest service companies in the service area that buy from the manufacturers, which would include the ADTs and Securitas’s of the world, buy directly and don’t have to go through the dealer system that has more or less dominated the alarm equipment industry for so long. With consolidation comes these large companies that are increasingly buying directly, making it unlikely that anybody small can gain any traction in this industry. It is clear that there is a lot of technology that has been pumped into this industry for the last 20 years. The problem has been turning technology, along with seasoned management, into mature companies that can generate consistent earnings and cash flows over a long period of time. These characteristics have been the exception rather than the rule in the security industry, and the few companies that end up generating consistent revenue growths and cash flows, such as ADT on the services side, end up being acquired. The same thing can be said for those companies on the equipment side that have generated large enough bases of revenue to be attractive to Wall Street. It seems the minute they’re finally attractive to Wall Street, they also become attractive to large players that want to have a security platform of their own.

TWST: What about tracking people?

Mr. Kessler: There are a number of companies out there that have had "people tracking" technologies in place for a while. Sensormatic Electronics, now part of Tyco, bought a company in Germany called Sager Trax. Another hot area is biometrics. We have followed Identix (Nasdaq:IDNX) officially and its competitors unofficially for about nine long, frustrating years. We’ve hung in there because the curve of announcements with regard to actual commercial use and government use of biometrics on a day-to-day basis, not just on a one-time-project basis, is growing dramatically. We are close in this industry to corporate contracts involving multiple-thousand-seat readers and software fees. We’re not there yet, but we’re close. Where we are right now is, as a reaction to September 11, many airports in the United States (and we can count about 40 at this point) have requested big, expensive, biometric registration and authorization systems to make sure that the workers they hire are not only who they say they are, but also have clean historical records. These are installations that are ongoing right now. We are now moving in biometrics toward the same type of standardization and centralization demanded by big end-users that we have been seeing in the more traditional areas of security. This is positive news for a business that has been on the cusp of becoming successful and profitable for the last nine years, but never quite making it.

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.