Cyber Security Is Ready to Explode

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If the rash of recent high-profile cyber attacks at Sony (NYS: SNE) , Lockheed Martin (NYS: LMT) , and Citigroup (NYS: C) didn't give corporations that naked-to-the-world feeling, then this should: McAfee, the Internet security unit of Intel (NAS: INTC) , discovered network penetrations at 72 international organizations, including governments, the United Nations, and a litany of defense contractors.

Speaking with Bloomberg, George Kurtz of McAfee said, "It sure feels like security Armageddon, and that's what we're hearing from a lot of customers."

So why have McAfee and its main rival Symantec (NAS: SYMC) , along with other top-five cyber security companies, fallen from a 60% share of the market in 2006 to only 44% in 2010? And why have Symantec's sales declined 1.2% between the first and second quarters of this year? Shouldn't frightened companies be beating down the door of every big-name security company out there?

Can't cut it ...
Maybe it's because the attacks pushed present anti-hacking technology to its limits. Some even think that the current state of antivirus and firewall software just can't handle the sophistication of recent intrusions. Mobile and cloud computing add their own unique problems, pushing security perimeters even further outside mainstream security companies' comfort zones.

Next generation security
A spate of smaller security companies are taking network security to the next level. They are designing more effective firewalls, advancing the state of network surveillance, and improving early strike detection. There could be 20 or more of these startups preparing to go public in the coming months ...

... or they could become targets of opportunity for companies like Hewlett-Packard (NYS: HPQ) . Last fall, HP became the fifth-largest security company when it bought security threat management company ArcSight for $1.5 billion. And earlier this year, Dell (NAS: DELL) got into the security game, too, when it bought SecureWorks.

Computer chip maker Intel surprised many when it announced a year ago that it would buy McAfee for $7.7 billion. It intends to merge McAfee security software into the computer chip design. Intel said it would release information on that development this fall.

IPO envy
Q1 Labs
is one security company that wants to escape being acquired and has stated its intent to go public by the middle of next year. Firewall software company Imperva just filed its IPO papers, and Splunk set next year as its IPO target. Other companies that have either stated plans for an IPO (or may just be ripe for the plucking) include Palo Alto Networks and WhiteHat Security.

Net security 3.0
I was a huge fan of William Gibson's futuristic cyberpunk novels. His vision of cyberspace (Gibson's coinage, by the way) held plenty of dangers. Any of his console cowboys who couldn't slip past a corporate firewall undetected would likely get their neurons zapped.

Yes, that kind of network security is a bit extreme for the real Internet -- though perhaps warranted -- but as McAfee claims that the series of recent international intrusions came from a "state actor," the new cyber security has to be able to handle more than just your garden-variety hacker.

I think interest in any security company IPOs will likely build. I will be paying attention and putting Symantec, Intel, Hewlett-Packard, and Dell in our free Watchlist service to stay abreast of their doings. You can put these companies in your own Watchlist by clicking here.

At the time this article was published Fool contributorDan Radovskyhas no financial interest in any of the companies mentioned. The Motley Fool owns shares of Lockheed Martin. The Fool owns shares of and has bought calls on Intel.Motley Fool newsletter serviceshave recommended buying shares of Intel.Motley Fool newsletter serviceshave recommended creating a diagonal call position in Intel. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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