In an effort to further uplift its security business, Cisco acquired Cognitive Security this year, which provides artificial intelligence techniques to detect advanced cyber threats. The acquisition is expected to give benefits from the second half of 2013.
Cisco has lost around 10% of its market share in network security over the past five years to Juniper Networks, Checkpoint Systems, and Palo Alto Networks (NYSE:PANW). Cisco Systems, Inc. (NASDAQ:CSCO) is hoping to cover this loss by gaining a reasonably early start in software defined networking, or SDN. Cisco sees SDN as an opportunity to open the value of $180 billion worth of its installed hardware and to double its software revenue in the next five years by developing APIs, or application programming interfaces. These APIs will work for network programmability. Cisco’s SDN fixes virtualized services to hardware across access networks, clouds, and wide area networks.
The SDN enhances security in three ways. First, it makes the network more threat-proof. Second, it can quickly act on advanced threats no matter where they are in the network or the data center. Third, security can now be built into the network. SDN will bring security services closer to the applications and allow making decisions at an initial level. According to IDC forecast, the SDN market will be worth $360 million in 2013, and by 2016 it will grow to $3.7 billion. This will give Cisco extra benefits in revenue from SDN in coming years.
Cisco Systems, Inc. (NASDAQ:CSCO) is also a leader in the $1.2 billion secure web gateways, or SWGs, market. SWGs use URL filtering, malware detection, and application control technology to protect organizations and impose internet policy compliance. The combined SWG revenue in 2012 was $1.18 billion, which grew approximately 15% over 2011. The market for secure web gateways increased 15% year over year in 2012, and IDC forecasts that this market will further grow 13% to 15% in 2013, fueled by the increase in cyber threats targeting enterprises.
Source: Gartner, May 2013
Investors’ take
To sum up, I recommend buying both Palo Alto Networks Inc (NYSE:PANW) and Cisco for long-term growth.
Palo Alto Network is strongly positioned in the network security segment, more so than Juniper Networks, Inc. (NYSE:JNPR) and Cisco, via its NGWF product WildFire.
Cisco Systems, Inc. (NASDAQ:CSCO) has reported a decline in its security segment, but its continuous improving efforts in the network security market, SWGs, and its SDN investment makes this stock favorable for your portfolio.
However, I am cautious about the future prospects of Juniper. The continuous weakness in the U.S. federal spending and financial services will challenge its enterprise vertical. I recommend investors put this stock on hold.
The article What’s Going On With These Tech Companies? originally appeared on Fool.com and is written by Ranu Devi.
Ranu Devi has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. Ranu is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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