IBM and Cisco Have the Same Security Strategy

With typical deal with different security providers dozen organizations, the two companies intend to offer diversified and integrated solutions.

information security market was $ 75 billion in 2015, and demand is expected to grow rapidly in the coming years that cyber attacks are becoming more frequent and more expensive to treat. The Wall Street Journal estimates that the cost of cyber crime in the US They totaled $ 100 billion in 2013, and the British insurance company Lloyd put the overall figure of $ 400 billion in 2015. Juniper Research predicts that the global cost of cyber crime balloon to more than $ 2 billion in 2019.

It is expected that the demand for cyber security products and services to grow to $ 170 million in 2020, according to a report published by Market sand Markets, driven by the growing threat of cyber crime. Given this growth, buying equities cyber security fast growing may seem obvious. In fact, there is an exchange traded fund, Pure Funds Cyber security ISE ETF (NYSEMKT: Hack), which allows investors to do exactly that.

Unfortunately, this strategy has been disastrous for investors. Hack fell 30% from their highs a year ago, driven by old stocks flying high as Fire Eye (NASDAQ: feye) collapse due to unrealistic expectations. FireEye, while maintaining rapid growth, is extremely profitable, and the stock has lost nearly 70% of its value since June 2015.

Both International Business Machines (NYSE: IBM) and Cisco Systems (NASDAQ: CSCO) is the main market of computer security. Safety is a small part of the IBM product and Cisco, but both companies expect their respective security companies to grow rapidly in the coming years. None of the companies offer the same growth potential that small businesses play pure as Fire Eye, but IBM's strategy and technology giant Cisco will use a good opportunity to become leaders of the dominant industry in the long term.

A fragmented market:  

When a market is growing as fast as the market for computer security, a lot of companies can succeed. As the market matures, however, the consolidation is inevitable that the weakest players are struggling to compete effectively. Last year, Cisco estimates that the typical large company processes more than 54 different security providers. IBM puts the number at 40, during its first quarterly conference call, but anyway, working with dozens of independent providers is inefficient and raises the possibility that something goes wrong.

Cisco, being primarily a hardware company competes in the market for security infrastructure, while providing software and security services. For fiscal 2015, Cisco security firms generated $ 1.75 billion in revenue and increased 12%. Over the next 3-5 years, the company expects revenue to grow at an annual rate of 10% -15%.

IBM security company is the same size, generating $ 2 billion in revenue in 2015 and growth of 12% in constant currency. Security is one of the strategic imperatives of IBM, as well as analysis, cloud, mobile and social. The company invests heavily in these areas, using the resources allocated to the reduction of existing companies in an effort to repel.

Cisco and IBM have the same idea: expand security companies through acquisitions. This strategy enables enterprises to deliver a growing range of security products, which potentially reduces the number of different suppliers of a typical organization depends. Certainly there an incentive for organizations to simplify and deal with fewer vendors, and Cisco and IBM aim to emerge as leaders in diverse industry.

Cisco has been actively acquiring security companies in recent years, buying $ 2.7 billion in 2013. The Sourcefire acquisition of ThreatGRID, OpenDNS and Lancope followed, helping Cisco to accelerate the growth of your business security. The company is moving more towards software and services to these acquisitions, and deferred revenue jumped 26% for the year in the second quarter of Cisco.

IBM was also the purchase of Trusteer security companies, including in 2013, Lighthouse Security Group in 2014, and robust systems earlier this year. IBM now employs more than 7,000 security experts, and the company aims to lead the market in four of its six security segments. IBM business model has long been built around providing integrated solutions, and security companies is no different.

While a large number of companies specializing in cyber security are currently fighting for market share, industry consolidation is inevitable. Cisco and IBM have customer bases that provide companies with an existing major advantage, and both have the resources to grow through acquisitions. Investments in smaller companies, such as FireEye may seem more attractive for growth investors, but Cisco and IBM will be hard to beat.