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Increasing Cyberattacks: Good or Bad for Cisco’s Network Security Growth?

Adam Rogers

Cisco's Trending: Updates in the Security and Data Center Segments

(Continued from Prior Part)

Security segment revenue rose by 11% in fiscal 2Q16

As we discussed previously in this series, Cisco Systems (CSCO) has invested heavily in expanding through organic growth and acquisitions. The company is now one of the leading players in the cybersecurity market, having over 5,000 employees in this segment. But Cisco has relied on a number of acquisitions to raise its market share in this space. In fiscal 1Q16, for example, the company agreed to acquire Lancope, OpenDNS, Pawaa Software, and Portcullis in order to boost its security business.

During fiscal 2Q16, Cisco completed the acquisitions of Portcullis, ParStream, Lancope, and 1 Mainstream in the security, data analytics, and video market spaces. The company focuses on building products that are effective against known and emerging threats. Cisco has stated the need to build an integrated architecture to offer a “portfolio of solutions” to customers.

Revenue from Cisco’s (CSCO) Security segment rose by 11% in fiscal 2Q16 to $462 million, and its deferred revenues in this business rose by 26% YoY (year-over-year). Security accounts for 3.9% of the firm’s total revenues. Cisco accounts for 2.4% of the Power Shares ETF QQQ (QQQ).

Other potential acquisitions in the cybersecurity space

In 2015, FireEye (FEYE)—one of the fastest-growing companies in the cyber security space—was looking for potential acquisitions to help it build and diversify its portfolio. Other companies, including Symantec (SYMC) and tech heavyweight IBM (IBM), have also been looking to acquire companies in the high-growth cyberspace so they can enhance their service offerings.

IBM was reportedly competing with FireEye to acquire CyberArk (CYBR)—a company that showed strong year-over-year growth in revenue—in order to expand its position in the privileged access management segment. Meanwhile, Palo Alto Networks (PANW), a market leader in the cyber security space, has been looking for low-cost acquisitions, such as Cyvera, in the range of $200 million.

In the next and final part of this series, we’ll take a look at Cisco’s shareholder value and latest analyst recommendations.

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