Security business avoids tech slump

The network and computer security industry will duck the high-tech economic downturn and see a rise in earnings of £6bn over the next few years, according to an IDC report
Written by Robert Lemos, Contributor

The earnings potholes hit by high-technology companies over the past year will be largely avoided by the Internet security industry, according to a report released Wednesday by market researcher IDC.

While PC makers and dot-coms have been hit hard by the tech slump, most network and computer security companies continue to stand their ground. Worldwide revenue grew by more than 33 percent in 2000, and that's expected to continue, IDC said in the report.

By 2005, IDC predicts the Internet security market will tally more than $14bn ($9.7bn) a year in revenue, up from $5.1bn last year.

"For security software vendors, the current economic instability is a double-edged sword," Brian Burke, senior research analyst at IDC, said in a statement.

"On the one hand, it's forcing companies to reduce spending. On the other hand, it's forcing companies to look for ways to cut costs, become more security-proficient and build trusted relationships with customers, partners, suppliers, and channels -- which are areas security software can help."

The report breaks the Internet security industry into four markets: firewalls, encryption, antivirus and the AAA (authentication, authorization and administration) market, each of which is expected to grow 23 percent per year, on average. The AAA market will lead the way, said the report, growing annually by 28 percent on average to amass $9.5bn in revenue in 2005.

That's a break from last year, when firewalls led the pack with annual growth of 42 percent.

Firewall maker Check Point Software announced in July that it beat earnings estimates for the quarter, with revenue up 57 percent from the same quarter the year before. While it fell $3m short of its revenue target, the company expects profits to be up 50 percent this year.

"We are in one of the must-have areas of security," said Asheem Chandna, vice president of product management and business development for Check Point. Firewalls that help keep intruders and unwanted access attempts out are considered a necessity for any company doing business on the Net, he said. In addition, the company's virtual private networking (VPN) software can help cut costs, allowing companies to create secure remote connections to their networks.

"In a tight spending environment, companies who implement VPNs sooner rather than later can save a lot of money," Chandna said.

Some companies in the security industry have fallen on hard times. Internet Security Systems, Entrust, Network Associates and Bindview Development have all posted losses in their most recent quarters.

However, others, such as Symantec and RSA Data Security, continue to be healthy.

"Basically, what is happening is that any company connecting their offices to the Internet or doing business over the Internet needs security," Chandna said. "And we are a beneficiary of that."

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