IT security spending disappoints

[InfoSec News <isn () c4i org>]

Forwarded from: William Knowles <wk () c4i org>

http://news.com.com/2100-1001-944252.html?tag=fd_top

By Paul Festa 
Staff Writer, CNET News.com
July 16, 2002, 2:20 PM PT

Investors who had hoped that increased security concerns after Sept.  
11 would yield an immediate bonanza in the information security sector
have been sorely disappointed, according to two new analyses.

The reports come as high-tech companies in the middle of a painful
contraction eagerly seek out security-related work, particularly if it
involves government contracts.

But the IT security market is in for at least another year of doldrums
before sales start to pick up, according to a new report by New
York-based Vista Research. According to Vista, the information
security market will not see significant signs of a revival until
2004, when corporate IT departments upgrade their security systems.

In addition, a panel recently convened by Thomas Weisel Partners
concluded that government expenditures on the cybersecurity front have
been more sporadic and less generous than expected but predicted that
those funds will eventually loosen up.

"All parties present agreed that spending on homeland security
initiatives has taken longer to materialize than initially expected,"  
Thomas Weisel wrote in a summary of its Growth Forum 4.0 conference in
Santa Barbara, Calif., last month. "While bureaucratic process could
slow contract awards, all agreed that incremental funds will flow into
the vendor community over the next 18 to 24 months."

Readers who responded to a recent survey by CNET News.com were more
optimistic. Approximately one-third of the respondents ranked security
as the highest priority in spending in the information technology
industry.

Vista predicted that the security sector--in which it included Cisco
Systems, Check Point Software, Symantec, VeriSign and Internet
Security Systems--will grow 3 percent this year and 11 percent next
year. The growth rate will rise to 18 percent in 2004 with a predicted
upgrade cycle and then taper off to about 15 percent growth annually
in 2005, 2006 and 2007.

The sector should grow to $11.7 billion in 2007 from about $5.9
billion in 2002, according to Vista.

The current doldrums have manifested themselves in a series of summer
downgrades that have hit Internet security stocks including Check
Point and Macrovision.

Following last September's terrorist attacks on New York and
Washington, D.C., there had been an expectation on the part of
investors that information security companies might outperform the
overall market, according to Igor Stenmark, senior adviser of research
at Vista. Now, however, that seems much less likely

"It's not panning out because security at the end of the day does not
save money or generate revenue," Stenmark said. "It's always an
afterthought. It's sacrilegious to admit this in public in this
climate, but from talking to lots of CIOs we've found this to be
true."

While security companies have languished in an era of tight budgets,
disaster recovery specialists have found a high-tech silver lining
post-Sept. 11. Vista singled out SunGard and its recently acquired
Guardian unit as companies that have directly benefited.

Vista also predicted considerable consolidation in the IT security
sector over the next year and a half, with mergers and outright
business failures winnowing the pool of competitors.

"A lot of the private companies are going to shut down," Stenmark
said. "If they haven't broken out yet, they're not going to be able to
get funding right now. There are probably more than 300 vendors in the
security space, and I don't think there are more than two or three
good management teams."


 
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