Cisco Confidential: Q3 CY14 network security market share results

The move to cloud and virtual based security is a trend we are seeing from the top 3 competitors to Cisco. Palo Alto Networks is clearly the fastest growth major player for the last year. PAN is expected to continue to see double-digit revenue growth as it moves into high-performance and virtualized datacenter solutions.

New York City:   Wed, 12/10/14 - 9:29pm    View comments
 

A leaked confidential Cisco email reported Q3 CY14 network security market share results as provided by Infonetics on December 2, 2014.

Infonetics highlighted:
 

Worldwide network security appliance and software revenue is heading into the last quarter on something of a roll, though they project that quarterly revenue growth will slow by next year.

Some very large data center and cloud projects that have been driving high-end revenue for several years are starting to slow, and we are beginning a transition in earnest to the world of virtualized security.

That said, there will be pockets of high growth over the next 5 years for traditional network security appliances; many mobile providers are making large purchases for their Gi/SGi footprints, and we're entering an era of delivering traditional network security solutions for industrial environments (SCADA/ICS) and the Internet of Things.
 

Q3 CY14 Network Security Market Shares

Palo Alto Networks moved into the #4 market share position position with 7.8% of revenue and showed the most growth of all the vendors at 17% Q-Q and 56% Y-Y. Palo Alto Networks is clearly the fastest growth major player for the last year. PAN is expected to continue to see double-digit revenue growth as it moves into high-performance and virtualized datacenter solutions.

Palo Alto had a couple of product/service announcements in Q3. First, PAN announced introduced Advanced Endpoint Protection as a subscription service to its customers. This service leverages the intelligence gathered within their Wildfire network and extends protection to the endpoints themselves. This is a bit of a catch-up move as most competitors offer this today.

Next release is a bit more significant with the introduction of NGFW security as a cloud based service. This service offering is provided as part of the partnership with VMware. The solution design includes the Palo Alto VM-1000-HV (designed specifically for VMware NSX interoperability) and VMware vCloud Air.

The move to cloud and virtual based security is a trend we are seeing from the top 3 competitors to Cisco.

Fortinet continued double-digit Y-Y revenue growth, with +25% growth in Q3. Fortinet has surged to the #3 market share position this calendar year. Fortinet with 8% of revenue; they increased 7% Q-Q and posted a Y-Y increase of 25%.
 

Looking at the long term, Fortinet has established a strong brand as a UTM player and is working to position themselves as an NGFW player as well as many customers have accepted that language and are only looking at NGFW products for future purchases.

Fortinet should be considered a very strong competitor to Cisco.

Fortinet continues on its trend of rolling out new appliances on a quarterly basis. This quarter they have released the new FortiGate 3810D appliance. This appliance is designed for large scale enterprises and carriers. The 3810D 3U appliance includes 100GbE interfaces and 300+ Gbps throughput.

Earlier this year Fortinet introduced their high-end 5000 series appliance. Clearly Fortinet is looking to move upstream and attack the high-end enterprise and carrier market where Juniper is seen as very vulnerable.

One interesting item of note is Fortinet calling out the marketing tactics of Palo Alto Networks within their earnings call. Fortinet states that they believe there should be a regulated method for testing firewall performance to prevent exaggerated claims by vendors. While they did not call out Palo Alto specifically, they did refer to the most recent NSS performance testing as a good standard, of which Palo Alto did not perform well.

Cisco's strong performance in Q3 produced the highest revenue quarter in Cisco security history. 24% Y-Y growth and +4 points of market share growth Y-Y. Sourcefire contributed ≈$94M this quarter (a revenue record in itself) and the ASA w/ Firepower announcement helped drive awareness.

Check Point Q3 revenue came in at +10% Y-Y, however market share growth remained flat this quarter. While Check Point is seeing success with its blade strategy, their share growth is being stymied by growth of Cisco, Fortinet, and Palo Alto.
 

Check Point remained in second place with 14% of revenue in 3Q14 (down 0.5 points from 2Q14) with a 3% revenue increase. Since the introduction of their software blade architecture and the new appliance platforms supporting it, they've seen strong acceptance of the new direction and will also see a change in their revenue mix as more revenue becomes subscription revenue over time (typical subscriptions are 1 year, and they started hitting their first-year renewals for many customers in early 2012).

This quarter they announced the ability of a virtualized firewall offering for deployment on Microsoft Azure (who has been quite innovative in partnering for security services on their cloud platform).

While Check Point data center and high-end integrated appliances make up a larger portion of revenue, their software blade business continues to grow and now represents 18% of total revenues. This is an important strategy for them because as they get customers to purchase more software blades, there is pull-through with their high-end appliances due to customers needing more capacity.

A couple of items of note... Typically Check Point will tout their customer momentum during their earnings call, however they were noticeably reserved with this in Q3. I believe Check Point is currently focused on upgrading their existing base with software blades and higher capacity hardware. Also, Check Point was focused on gross profit vs. revenue this quarter. This is likely due to the fact that they are in transition to more subscription based revenue, which is recognized over time, and impacts their quarterly revenue reporting.

Most vendors will experience this moving forward as cloud and virtualization become more prevalent.

Juniper Networks' revenue down -16% Y-Y as Juniper continues to struggle to grow their security business. Dropped to the #5 market share position and anticipate continued struggle before the business gets better.

Juniper's revenue increased 8.5% in 3Q14, keeping them in fifth place with 6.9%. They're down 16% Y-Y and not out of the woods yet, but do appear to be stabilizing. This is the final quarter that they'll be reporting revenue for SSL VPNs after selling the Pulse business unit to a private equity firm.

They should be emerging from the challenge of moving security customers away from ScreenOS and toward Junos, but the process is taking longer than most expected, and they obviously shed some customers in the process. Junipers Q-Q growth in Q3 is primarily attributed to their high-end SRX firewall products for service providers.

Expect Juniper to continue to struggle a bit for the next couple of quarters as they attempt to execute against a new security strategy.

As noted by their -2 points market share loss, competitors smell blood in the water and are actively targeting Junipers customer base with competitive offers. Cisco should be targeting them as well.

Related stories:

The Rayno Report: Palo Alto Climbs the Security Charts

Cisco funded patent troll, Finjan, sues Palo Alto Networks

Rumor Cisco cloud web security (ScanSafe) going end-of-life (EOL) imminently
 

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