Palo Alto Networks Inc (PANW), Juniper Networks, Inc. (JNPR), Cisco Systems, Inc. (CSCO): What’s Going On With These Tech Companies?

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Network security is becoming one of the top concerns for industries all across the world. The internet has accelerated the threat from malicious content, which is affecting operating systems, hardware, software, mobile devices, data centers, etc. This has prompted businesses to secure and boost their network security. I have analyzed Palo Alto Networks Inc (NYSE:PANW), Juniper Networks, Inc. (NYSE:JNPR), and Cisco Systems, Inc. (NASDAQ:CSCO) in the network security segment. Let’s see how they are doing.

Palo Alto Networks Inc (NYSE:PANW)

Strongly positioned with security solutions

Palo Alto Networks Inc (NYSE:PANW) is a leading provider of network security solutions. Its Next-Generation Firewalls, or NGFWs, perform multiple network security functions on the firewall, rather than on separate devices behind the firewall. This makes the network platform inherently threat-proof. Its newly-launched WildFire is a step into NGFW. Wildfire is the only advanced malware solution that offers traditional malware detection, sandbox-based malware detection, anti-malware signature generation, IPS signature generation, DNS signature generation, and malware URL list generation all on the same network platform. This gives tough competition to standalone APT vendor FireEye and FireAMP, from IPS vendor Sourcefire.

After its launch, WildFire now has more than 1300 customers (out of the global customer base of 11,000), analyzing more than 500,000 files per month. The WildFire APT, or advanced persistent threat solution, subscription service protects against malware by leveraging the cloud for computing power, scalability, and timeliness of updates. As an add-on service, Wildfire costs customers 20% of the base $75,000, or $15,000. The company will gain $19.8 million of revenue every year from the subscription fees.

Though the company is a new entrant in the firewall market, it is rapidly gaining firewall share next to its competitors. The company won 75% of new deals in 2013, where it was selected as the primary firewall.

Palo Alto Networks Inc (NYSE:PANW)’s other attraction is its huge customer base, which is evidenced by the repeat customer purchasing metric. This shows how many purchases have been made after the initial purchase. On average, customers making purchases after the initial purchase are spending around 4.5 times the initial purchase. Its top 25 customers’ repetitive purchases are 11.4 times the initial purchase, up from 9.9 times in second-quarter 2013.

Currently, around 10% of internet connections are secured using NGFWs. By the end of 2014, this will rise to 35% of the installed base, with 60% of new purchases being NGFWs. With the rapid pace of global growth in NGFWs, Palo Alto Networks Inc (NYSE:PANW) has a huge potential to further solidify its presence in this market.

Fragile security segment

Juniper Networks, Inc. (NYSE:JNPR) posted mixed results in the first quarter of 2013. The point of concern is the network security segment. Since 2011, security sales in Juniper’s Software Solutions Division, or SSD, were flat, which includes products like the SRX line and ScreenOS firewalls. In this quarter, Juniper Networks, Inc. (NYSE:JNPR)’s security software sales fell $32 million, or 19% year over year, to $136.7 million. The service provider segment contributed $20 million to the decline due to high-end SRX. The enterprise segment contributed the remaining $12 million of the decline, as the ScreenOS product declined more rapidly than the growth of SRX.

In enterprise segment, SRX products continued to handle a large number of concurrent sessions, which differentiates Juniper in the service provider LTE deployments. But in the case of the service segment, SRX products are in the middle of a product transition, as the company is making a new generation of service play. When the transition is over, SRX’s session capacity will increase to 100 million sessions.

The company is trying to improve its enterprise firewalls with its next-generation security products, fortified by Junos Spotlight Secure, which includes two products — Junos WebApp Secure, or JWAS, and Juniper Networks (NYSE:JNPR) SRX Series Services Gateways. The Spotlight Secure provides users greater intelligence about attackers, threats, and individual devices and then spreads that intelligence across various network and security products.

However, Gartner does not assess Juniper Networks, Inc. (NYSE:JNPR) as having a highly compelling security vision in comparison to well-known competitors. Its JWAS technology is not effective in competing with the NGFW leaders like Palo Alto and Check Point. Gartner rarely sees Juniper considered on shortlists that are considered by customers looking for an NGFW.

Overall, Juniper Networks, Inc. (NYSE:JNPR)’s present enterprise segment has had flat year over year performance. A lot of the challenges come from the weak public sector, lesser federal spending of the U.S., and weakness in financial services. This is not going to improve in the near term, which will negatively affect Juniper.

A leader will always remain a leader

Cisco Systems, Inc. (NASDAQ:CSCO) reported strong results in the third quarter of 2013. Though it had reported weakness in its security segment, it is still leading the network security market. Sales of security products were down 4% at $327 million due to weakness in content security, which was partly offset by stability and network security. Cisco Systems, Inc. (NASDAQ:CSCO) continues to lead the overall security appliance market with a 15.5% share in factory revenue for the fourth quarter of 2012, as reported by IDC.

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