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As Cloud Computing Grows, So Does Need For Security

Posted on Thursday, May 27th 2010

Recent reports estimate worldwide revenue for corporate Web security solutions to grow from $1.1 billion in 2010 to over $2.1 billion in 2014. Experts believe that by 2020 there will be nearly 50 billion devices that will be able to connect to the Internet, compared with the 5 billion devices at present.

Also, computer purchases worldwide are expected to rise 24%–27% in the current year. All these trends portend growth in demand for security products in both the consumer and enterprise segments. Within the market, the SaaS segment is expected to lead the growth brigade. According to IDC, Websense (NASDAQ:WBSN) leads the worldwide Web security market and doubled its share of the SaaS segment of the market in 2008. Websense captured 26.2% of the 2008 worldwide market for Web security software and grew 96.3% in the SaaS Web security segment last year.

The company recently announced its Q1 earnings, and revenues grew 2.8% to $79.8 million. EPS for the quarter came in at $0.26 compared with $0.32 earned a year ago. The market was expecting revenues of $82.6 million with EPS of $0.27.

Websense projects revenues of $82 million–$84million with EPS of $0.26–$0.29. The market was expecting Q2 revenues of $84.3 million with EPS of $0.29.

Websense is basing its core technology strategy on three key pillars. To meet the first goal of unified content analysis, it has invested in resources to improve its Web, e-mail, and data security products. It is the only organization to be recognized as a leader in all three disciplines. To counter the continuously evolving security threats, it created the second pillar, developing unified content security solutions for Web, e-mail, and data and has been named as the sole leader in this area in Forrester’s analysis of consolidated content security suites. Finally, Websense is focusing on unified delivery for which it has invested in SaaS and cloud-based technologies. Websense boasts of over 7 million active end users supported across SaaS Web and e-mail security solutions. Its ThreatSeeker Cloud and Defensio technology and OEM SaaS offerings have helped it become the fastest growing vendor of the top six in the Web SaaS market. To add to its SaaS offerings, it recently launched Web Security Gateway Anywhere, which is the first and the only available unified content security architecture.

The stock is trading at $20.99 with a market capitalization of $907 million. It touched a 52-week high of $25.28 earlier last month.

Meanwhile, Symantec (NASDAQ:SYMC) is making M&A moves to expand its market. Symantec recently reported Q4 results with revenues growing 4% to $1.54 billion and beating the market’s expected $1.52 billion. EPS of $0.40 was also higher than the Street’s projected $0.37. For the full year, revenues fell 3% over the year to $5.99 billion with EPS of $0.87.

Symantec continued expanding its list of network partners and entered into an agreement with Samsung to ship Norton Internet Security on Samsung netbooks and Norton Online Backup on Samsung netbooks and notebooks worldwide. Further, Fujitsu signed an exclusive agreement to ship Norton products globally on its consumer and commercial PCs. Symantec now boasts of partnerships with nine of the top ten OEMs.

Its SaaS business also saw significant growth with Symantec Hosted Services generating record revenues and posting double-digit growth. While growth was seen across all business sizes and geographies, Symantec noted that SMBs were bigger drivers of growth. Its earlier strategy of focusing on the SMB segment should help it to pick up good business. There was also increased adoption of hosted services within the Symantec customer base.

Symantec is on an acquisition spree and in the current quarter announced three acquisitions. Earlier last month, it acquired PGP Corp for $300 million. The privately held Menlo Park-based encryption company is estimated to have annual revenues of $75 million and focuses on file encryption software, hard drive encryption, and secure FTP server applications. Within the same segment, Symantec acquired GuardianEdge Technologies for another $70 million. GuardianEdge provides encryption for hard disks and removable storage, authentication, device control, and smartphone protection and is estimated to have annual revenues of $18 million.

Earlier last week, Symantec also announced the acquisition of VeriSign’s authentication services arm, which encrypts online payments. The deal cost Symantec $1.3 billion and is seen by many as an attempt to solidify its leadership and for the company to become a bigger player in the online authentication and identity protection segment.

Meanwhile, for the current quarter, Symantec predicts revenues of $1.48 billion–$1.50 billion with EPS of $0.35–$0.36. The market was expecting revenues of $1.49 billion with EPS of $0.36.

The stock is trading at $14.14 with a market capitalization of $11.3 billion. It touched a 52-week high of $19.16 earlier this year.

Another player, McAfee (NYSE:MFE), failed to meet the market’s expectations despite reporting its 17th consecutive quarter of double-digit revenue growth. Q1 revenues grew 12% to $502.7 million compared with the market’s projected $513.1 million target. EPS of $0.60 was also short of the market’s expected $0.63.

The management attributed its lackluster performance to problems with order fulfillment and the strengthening dollar, which reduced profits on growing international revenues.

During the quarter, McAfee announced Internet service provider (ISP) consumer partnerships with Verizon in the United States and Yahoo! BB in Japan. It also announced a partnership with SK Telecom, which marks the first time that McAfee is providing McAfee VirusScan Mobile as an Android application download. The company is also expanding its product portfolio and recently released a next generation firewall, Firewall Enterprise version 8, which has expanded the existing application protection delivered by McAfee’s enterprise firewall appliance product line.

McAfee continued its focus on the growing cloud market and recently released a Cloud Secure program, a program for SaaS providers to add additional security to their cloud deployments. It continued to expand its network of partners and added Riverbed Technology, which delivers a best-of-breed, comprehensive security and wide area network optimization solution for organizations with remote offices. With the addition, McAfee’s Security Innovation Alliance partners surpassed the 100 partners milestone.

Recently, McAfee pushed out a flawed software update that crashed some users’ computers. McAfee has offered free subscriptions and is reimbursing those who had to pay to get their computers repaired as part of the foul-up. The company is expecting this to have an impact of $0.01–$0.02 on current quarter earnings. For Q2, the company expects revenues of $500 million–$520 million with EPS of $0.58–$0.62. The numbers were significantly lower than the market’s expected revenues of $526 million and EPS of $0.66.

The stock is currently trading at $31.57 with a market capitalization of $4.92 billion. It touched a 52-week low of $31.01 earlier this month.

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