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In a report published Wednesday, Morgan Stanley analyst Keith Weiss discussed the results of a cyber-security themed survey he conducted with more than 60 Chief Security Officers (CSOs).
“Growth in security spending is expected to improve in 2015 versus 2014, with respondents reporting an average 12.8 percent growth in network security spending in 2015 versus 10.7 percent growth in 2014,” Weiss wrote.
“This suggests that commercial demand for security is at least stable, if not improving, as supported by generally solid first quarter results for security vendors.”
Weiss also highlighted several other key findings from the survey:
- Firewall refreshes are expected to downtick modestly in 2015 but refreshes remain “relatively robust” as 53 percent of respondents plan to refresh in 2016 and beyond.
- Spending on “next gen security solutions” is likely to accelerate as advanced malware protection and security analytics ranked at the top of the priority list for CSOs.
- 79 percent of respondents indicated they have or will purchase Advanced Malware Protection as part of a larger endpoint or network security suite.
- Spending will continue to consolidate traditional “deterministic” functionalities to free up personnel to focus on “next gen” or “probabilistic” technologies that will provide better security protection.
Investment Themes: Palo Alto Networks Market Share Winner
According to Weiss, Palo Alto Networks Inc (NYSE: PANW) continues to gain share with 13 percent of respondents using the firm’s products and services today for their primary firewall, up from 2 percent in the last survey. Twenty three percent of customers expect to use Palo Alto as their firewall vendor with share gains coming at the expense of Cisco Systems, Inc. (NASDAQ: CSCO) and Juniper Networks, Inc. (NYSE: JNPR)
Weiss continued that security buyers will continue to pay for differentiated functionality including “next gen” threat prevention and more robust monitoring functionalities. This will directly benefit Palo Alto Networks and Splunk Inc (NASDAQ: SPLK) as both firms are “best positioned.”
Finally, Weiss noted that FireEye Inc (NASDAQ: FEYE)’s operating losses “keeps us on the sidelines” despite the company’s “broadening” technology portfolio. Similarly, the analyst also suggested Symantec Corporation (NASDAQ: SYMC) investors stay on the sidelines due to secular challenges and execution issues that have resulted in share loss and limited growth opportunities.