All Fired up Over Cyber Threats

FireEye poised to prosper as IT security concerns grow

Jan 6, 2014 at 10:00PM

There have been several high-profile computer network breaches in the news lately. Serious intrusions have struck the retail industry and social networks. Customers' banking information and other data has been stolen, and it is reportedly on sale by the thieves.

The issue won't go away anytime soon. The latest annual study performed by International Business Machines (NYSE:IBM)indicates that cybersecurity will be a top tech trend over the next half-decade, at least. The century-old Big Blue is gearing up for the challenge with a host of products and services planned to meet the needs of its clients. 

However, a much newer and smaller company may benefit even more. 

Lighting a fire
FireEye (NASDAQ:FEYE), a cloud-based security firm that went public in September 2013, made big waves recently -- and saw its market value explode by a third -- by paying $1 billion to acquire the privately held Mandiant, experts in cyber forensic software. Customers now can go directly to one company for both front-end and back-end solutions for network threat protection and recovery. 

Instead of taking on debt, the company used cash and issued an additional 21.5 million shares of stock. The move could add $150 million to the company's top line this year alone, double its target market, and set the stage for future growth, according to one report. 

Things are heating up for the company. Investors may want to pay attention. 

Switching gears
Larger companies like Cisco Systems (NASDAQ:CSCO) and IBM are also involved in cybersecurity, but it is not as important to them as it is for FireEye.

Network protection is only a fraction of Cisco's business right now. But with the anticipated trend that the overall market will grow, products like VPNs and firewalls may add a bit to overall revenue growth.

Most of the company's current success is derived from network routers and switches. The company has better than a 70% market share in those products, and that dominant position will probably not change all that much going forward. 

IBM needs to attract investors and prop up its stock price by actually growing revenue instead of artificially increasing EPS by buying back shares. Getting involved more in network protection may speed that up a little. 

There is reason to be optimistic; IBM has been successful in reinventing itself in the past as it moved from being primarily a hardware manufacturer, selling mainframe and personal computers, to a business-to-business software-and-services enterprise. The company's IT security activities are part of the division that is the most important to its success today.  

Foolish conclusion
As network intrusions increase in the future, FireEye, and to a lesser extent Cisco and IBM, are developing products and making acquisitions to help clients beat the threats.

Investors need to keep an eye out as the cybersecurity industry heats up. 

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Mark Morelli owns shares of International Business Machines. The Motley Fool recommends Cisco Systems. The Motley Fool owns shares of International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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