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Cisco Targets Cybersecurity For Productivity, Not Just Defense

Cisco Systems ( CSCO ) wants organizational leaders to understand that improving their competitive advantage, not just responding to fear, should inspire their cybersecurity strategy. Fearful tales, however, are hard to ignore. One recent example: Virtually all IT systems of the largest civilian hospital chain in the nation’s capital, including the MedConnect electronic health records system installed by Cerner ( CERN ), were shut down to prevent the spread of a computer virus in late March. Baltimore-based MedStar Health on March 30 called it a “despicable attack.” The disruption affected thousands of employees and many more patients, and restoration of the systems took days. “Within 48 hours of the malware penetration,” the three main clinical systems were “moving to full restoration,” said MedStar. A Cerner spokeswoman told IBD: “We continue to work closely with our client (MedStar) as the broader IT framework is brought back online.” But a week later, MedStar was still working on it: “Our partner Symantec ( SYMC ) … has been on the ground from the start of the situation and has been conducting a thorough forensic analysis,” MedStar said in an update last week, acknowledging it “has worked closely with the FBI throughout this situation.” The company again assured “that we have no evidence of any compromise of patient or associate data.” The Baltimore Sun reported the hospital’s hackers demanded ransom be paid in Bitcoin to unlock the hospital’s maliciously encrypted data. What a pain. What a danger. What a motivation for every organization to get its cybersecurity in order, as if another example were needed. “We’re very familiar with it,” James Mobley, a Cisco security services vice president, told IBD in an interview last week, acknowledging MedStar is a Cisco client. Cisco: Security-Led Firms More Prepared For Cloud, IoT Cisco, the No. 1 maker of computer networking gear and with a growing business in security, plans early next month to release a security survey of business executives. The company says productivity, growth and competitive advantage ought to be motivating cybersecurity decisions, not just fear. Its report, originally set for release early Tuesday, is titled “Nearly One-Third of Businesses View Cybersecurity Primarily as a Growth Enabler.” Silicon Valley-based Cisco, which briefed IBD and other media on the report, found that only a bit more than 30% of 1,014 corporate directors, vice presidents and C-level executives surveyed online “view cybersecurity primarily as an enabler of growth tied to digitization. “Security-led digitizers feel more prepared than others to address cybersecurity challenges in three key digital technology areas: analytics, Internet of Things and cloud computing,” Cisco said. “As a result, these organizations are far more confident about incorporating digital technologies into their business processes and offerings. “In fact, 44% of executives surveyed consider cybersecurity to be a competitive advantage for their organizations.” Cisco said cybersecurity will drive about $7.6 trillion of digital value over the next decade, with $5.8 trillion resulting from “cybersecurity’s enablement of digital use cases that instigate innovation and growth.” Is this marketing pablum or a legitimate call to action? Cisco has been under pressure to grow as fast as some of the smaller networking and software security firms with which it competes or partners. In its fiscal 2015 ended July 25, Cisco’s overall revenue rose only 4% to $49.16 billion, but its security services sales alone grew 12% to $1.75 billion. Medical IT leader Cerner grew 2015 revenue 30% to $4.42 billion, in part by selling P2Sentinnel and P2Sentinel Security as a Service (P2SaaS) products as a “security, auditing and compliance solution for tracking end-user access to confidential patient data in Mellennium, as well as other non-Cerner clinical solutions and infrastructure systems.” Palo Alto Networks ( PANW ), which specializes in security software, grew sales 55% last year. Rival Check Point Software ( CHKP ) saw revenue rise 9%. Symantec, MedStar’s prime cybersecurity contractor, reported pro forma revenue fell 6.3% year over year for its fiscal Q3 ended Jan. 1, adjusting for the sale of its Veritas business. Cisco’s survey data could serve as grist for its hungry marketing-sales machine, but it also provides a heads-up to companies that there’s more to cybersecurity than preventing hacker disruption. When a company is confident it can prevent disruption, this enables minds to focus on everything else. “It’s critically important that we stop thinking about security as a defense-centric approach that is sold by fear, uncertainty and doubt,” Mike Dahn, head of data security for payments firm Square ( SQ ), said in Cisco’s survey results press release. “We need to start thinking about security as an enablement of innovation that actually helps the business go forward.” Cisco stock touched a nearly one-year low of 22.46 in early February, but it has been on an upswing recently. Cisco closed Monday at 27.62, down a fraction. In the meantime, cybersecurity continues to be top of mind. By executive order, the U.S. Commerce Department will host its first Commission on Enhancing National Cybersecurity meeting on Thursday in Washington, D.C.

Israel’s ‘Rough Neighborhood’ Forges Leaders Check Point, CyberArk

Check Point Software Technology ( CHKP ) CEO Gil Shwed tipped the domino in 1994 when he unveiled the world’s first commercially available firewall. Ten years later, CyberArk Software ( CYBR ) jumped into the nascent privileged-account security field. Their commonality? Both are based in security-minded Israel and led by men with military backgrounds. Both have also outperformed the sluggish 2016 cybersecurity market that, in January, was tugged down by gloomy guidance from LinkedIn ( LNKD ) and Tableau Software ( DATA ). Wall Street quickly panicked, fearing a big slowdown in IT spending. IBD’s 41-company Computer Software-Security industry group is down a collective 11% this year. Check Point stock withstood the fall and is up 6.6% year to date. CyberArk stock is down, but by just 6.4%. That’s not to say non-Israeli cybersecurity firms didn’t also buck the trend. Symantec ( SYMC ) stock is up 9%. Shares of Fortinet ( FTNT ) and Palo Alto Networks ( PANW ) have fallen a fraction and 8.5%, respectively, also outperforming the sector overall. As the industry recovers, BlueStar Global Investors analyst Joshua Kaplan says investors should turn to the Israeli security software companies Check Point, CyberArk, Imperva ( IMPV ) and Radware ( RDWR ) for innovative products and rising earnings. Israel Steeped In Security Efforts “Israel is in a rough neighborhood. It’s surrounded by enemies on all three sides,” Kaplan told IBD. For that reason, cybersecurity “is a critical part of Israel’s military edge.” Check Point was borne out of Shwed’s Israel Defense Forces (IDF) service, where he was a member of Intelligence Corps Unit 8200. But he began coding long before that: At age 12, he took a coding position at a language-translation software company, according to online news magazine Israel21c . Udi Mokady, too, served in the IDF military intelligence unit before he was tapped to lead CyberArk in 2005. CyberArk made its IPO in 2014, opened at 25 — above the 16 listing price — and ramped 26% in its first two days. (Note that Israeli cybersecurity firms aren’t alone with a military influence at the top. Silicon Valley-based Palo Alto Networks CEO Mark McLaughlin served in the U.S. Army, where he flew an attack helicopter before his 2011 appointment to that security firm’s top spot.) Israel’s innovative tech stems largely from required military service, Kaplan says, noting the silos separating private, public and government sectors are less clear-cut than those in the U.S. Those military skills typically translate well to the private sector. Shwed did as much with his firewall, originally an airtight setup to tie two top-secret Israeli military computer networks. He launched Check Point’s firewall — a software system designed to monitor a network and keep out any unauthorized users — shortly before Silicon Valley-based Cisco Systems ( CSCO ) entered the perimeter market. Now, Kaplan says U.S. and other firms will have to innovate as quickly as their Israeli counterparts to keep pace. The cybersecurity sector is poised for a shake-up as the industry matures, and a number of companies may not survive, he said. “IT spending is not going to drop, it’s going to stabilize at a higher level than it was before,” he told IBD. “When an industry’s growth starts to slow down a little bit, sometimes there’s forced consolidation and companies that just don’t make it.” Check Point is going to stay ahead of that curve by pushing into the platform market. “Platform” is currently the word du jour for the industry, with pure players and tech giants alike touting their wholesale approach to security. Palo Alto Networks, Fortinet, IBM ( IBM ), FireEye ( FEYE ) and many others market security platforms. “There are going to be several companies who are industry leaders and who gain share,” Kaplan said. “But I do believe Check Point started this initiative first.” Imperva: Not ‘A Household Name’ Cloud-based security firm Imperva also ramped up after its 2011 IPO priced at 18, jumping 47% on day one and peaking last November above 77. Imperva has a heavy focus on data center security. Over the years, though, the stock has had big up and down moves after earnings, Kaplan says. Now that the industry’s highest growth, at least for now, seems to have passed, he says it’s unlikely Imperva will gain much notoriety. “I’m not sure Imperva is ever going to be a household name,” he said. “And Radware, I don’t think it’s ever really going to get that investor excitement that it should have.” But the PureFunds ISE Cyber Security ( HACK ) ETF has helped some under-the-radar security firms get noticed, Kaplan says. “Until the HACK ETF came along, a lot of people probably hadn’t heard of the other three Israeli cybersecurity companies outside of Check Point,” he said. “That’s the reason you want to be invested in these companies. Maybe they weren’t on your radar before, and they should have been.” The PureFunds Cyber Security ETF debuted in 2014 and is down 7% this year, after taking some software-related licks in January. Andrew Chanin, CEO of PureFunds, stresses the fund’s diversification. “Before we launched, there was a lot of demand for investing in cybersecurity, but being it’s a constantly adapting, evolving and changing industry, many people don’t understand the companies, their products and services,” he told IBD. PureFunds tries to do the investing legwork. The HACK ETF currently features 35 distinctive cybersecurity firms, including Check Point, CyberArk, Imperva and Radware. But Chanin questions whether investors know — or care — that the four are Israeli. Israel is an obvious tech hub, “but (the companies) weren’t going around saying, ‘Hey, we’re an Israeli company, use us,’ ” he said. More than ever, big tech companies are taking the security plunge, Chanin says, and acquisition rumors are rumbling, including talk that Check Point might be eyeing CyberArk. “We’ve seen many larger, diversified companies come out and say it’s a goal of theirs to increase their cybersecurity footprint,” Chanin said. “Building something organically isn’t easy and acquisitions could save time and money in that plan.”

CyberArk Software Stock Upgraded Amid Lingering Acquisition Chatter

Analysts backpedaled Monday from a collective theory in February that cybersecurity spending would slump in 2016, while CyberArk Software ( CYBR ) garnered an upgrade on continued acquisition chatter. IBD’s 25-company Computer Software-Security industry group toppled 7.4% and 7.2% in back-to-back sessions last month after Tableau Software ( DATA ) and LinkedIn ( LNKD ) issued gloomy guidance. Since then, however, the group has rebounded 28%. “Based on conversations post-RSA, our security spending concerns have diminished,” Summit Research analyst Srini Nandury wrote in a research report Monday, referring to the annual RSA cybersecurity conference this month in San Francisco, which more than 40,000 people attended. CyberArk’s bread and butter — privileged account security — remains a top spending priority in 2016, Nandury wrote. He upgraded CyberArk stock to a buy and boosted his price target to 50 from 30. Nandury noted his upgrade is supported “with persistent chatter of CyberArk as a potential acquisition candidate, while limiting downside from current levels.” Last month, rumors arose that fellow Israeli firm Check Point Software Technology ( CHKP ) might be eyeing CyberArk. In afternoon trading on the stock market today , CyberArk stock was flat, near 38.50. The IBD security software group was also flat, hurt by a 16% plunge for NQ Mobile ( NQ ) stock. NQ announced Monday that a subsidiary of China’s Tsinghua Holdings would not be able to proceed with a planned acquisition of NQ subsidiary FL Mobile. Spending Seen Moving To CyberArk Specialty Enterprises are shifting some spending from endpoints to privileged account spending, where CyberArk leads, Nandury wrote. Surveys show cybersecurity spending at the forefront of chief information officers’ minds driven by “state-sponsored breaches and hacker collectives.” “Chief information officers understand that once hackers penetrate the perimeter, they look to hack privileged accounts (super-user and administrative accounts) to get to the data,” he wrote. “Securing privileged accounts then takes on great importance.” Nandury sees CyberArk hitting its 30% sales growth target as it aggressively expands headcount. Sales and marketing spending is expected to remain in the 35%-40% range, he says. But days before Nandury’s upgrade, William Blair analyst Jonathan Ho cut his 2017 estimates on CyberArk to take a conservative investment viewpoint. However, Ho still rates CyberArk stock at outperform. For 2017, Ho sees $1.12 earnings per share ex items vs. earlier views for $1.37. He cut pro forma operating margin to 21.2% from 26.3%, and projects 27.3% billings growth vs. earlier expectations for 33.6% growth. CyberArk’s December-quarter results were impressive, considering their difficult comparison, Ho wrote in his report. He expects CyberArk to continue market share gains against CA Technologies ( CA ) and Dell. Like Nandury, he noted that CyberArk says it hasn’t seen a drop-off in demand. A January CIO survey by Piper Jaffray shows internal access management, which includes CyberArk’s crown-jewel-protecting core, as the fifth-most-important spending target for 2016. Endpoint, compliance and Web-access firewall led the survey in terms of spending priorities.