Security Emerges From the Cloud

Trends come and go quickly in the stock market, especially in the technology sector, where the hot money is always looking for the next big thing, but the buzzword for 2010 was most definitely the cloud. It was a year when Marc Benioff's salesforce.com continued to emerge as a leader in the cloud, and investors took notice as shares in the company's stock increased by more than 80%. Other companies such as VMware also made huge advances this year as the cloud business continued to grow. Even Microsoft gave cloud computing the old Mr. Softy try with its advertising campaign that would have you believe it was a cloud computing leader if you didn't know any better.

We also saw a bidding war between rivals Hewlett-Packard (NYSE: HPQ  ) and Dell (Nasdaq: DELL  ) for storage and cloud-computing company 3PAR. HP won, but Dell was not deterred, stalking out similar targets for the rest of the year before settling on Compellent Technologies (NYSE: CML  ) earlier this month. The acquisition price marks a 50% increase from the price at which I mentioned Compellent Technologies as a possible target for Dell at the beginning of September.

These cloud names should continue to be successful, but the same impressive price gains seem unlikely in 2011. While the growth of cloud computing should continue into the new year, I believe investors should look beyond the obvious names for what other companies with strong execution will benefit.

With the recent WikiLeaks drama and the organization's supporter-based website attacks on Visa and MasterCard, I'm looking at ways that this virtual flow of information can better be protected. Add to that the increasing use of mobile smartphones and tablets with applications that deliver banking and other classified information, and more money will need to be spent to protect consumers and enterprises. Investors should focus their attention on some of the software security names in 2011.

Security in the cloud
While Intel's (Nasdaq: INTC  ) recent acquisition of McAfee brought some attention to the software security space, the sector has largely flown under the radar of many investors as it has grown substantially over the past few years. According to research firm Gartner, worldwide revenue for the security software market stands at $16.4 billion in 2010, which is up from only $7.5 billion in 2005.

Cloud computing security is still a small part of this $16.4 billion, but it is expected to grow substantially as more and more enterprises and government agencies begin to embrace it. Some of the largest technology companies have been early to adapt to the need for more cloud-based systems security. For example, the European Union recently announced that IBM (NYSE: IBM  ) would take the lead in its Trustworthy Clouds project. The goal of the project is to research and develop cloud computing technologies to improve data mobility and security. HP has also been active in this space through acquisitions and its Cloud Assure software and services, which it rolled out last year.

More interesting is the continuing shift of strategy for traditional desktop and download anti-virus companies. It wasn't long ago that technology analysts and industry experts were expecting the entire business to go away, but the fact is computer viruses are still increasing rapidly, and so is the amount of protection needed. Traditional anti-virus companies like McAfee and Symantec (Nasdaq: SYMC  ) have taken advantage of this need for additional security while also adding cloud capabilities to existing packages. The shift to cloud-based anti-virus software will allow for more rapid and thorough scans so that threat and protection measures can be updated regularly.

Full service in the cloud
My favorite security name for 2011 flies even further below the radar than the companies I have discussed. Check Point Software Technologies (Nasdaq: CHKP  ) is an Israeli company that is credited with making the first commercially available firewall product. It also is the leading stand-alone security software and appliance provider. The company's sole focus on developing fully integrated software and network protection gives it an advantage over competitors like Cisco and Juniper, which are not as specialized.

Checkpoint recently released an integrated virtual version of its Software Blade Architecture that has made the company a leader in protecting physical networks. In addition, the company has added mobile device protection for smartphones and tablets with its Blade technology. As Checkpoint's customers continue to be more involved in the cloud, the company's innovative and easily integrated software additions should only help grow the business.

Don't look for the cloud to disappear; instead, look for new trends to emerge from it. I believe security is just one way to play the new trends of 2011.