Daily Management Review

Bottom Lines Of Security Firms Boosted By SolarWinds Hacking Incident


Bottom Lines Of Security Firms Boosted By SolarWinds Hacking Incident
Despite the fact that the United States based cyber security providing companies, including FireEye Inc and Microsoft Corp, were not able to prevent a huge network breach that came to the forefront this month in which numerous US agencies and companies were reportedly affected, the shares of the company continued to soar for a second straight week.
Shares across an entire industry are impacted because of events such as recalls and scandals related to products such as automobiles, food and toys because of fear of investors of a fall in confidence of consumers on the brands and products, and consequently sales, said analysts and experts who have closely examined such situations.
However the effect on the share market of the cyber security scare has not brought out a similar impact on the share price of cyber security firms. Investors at Wall Street are of the view that purchases of the latest IT tools will only be accelerated by the events by governments and businesses  since they have invested years in moving to digital infrastructure.
"What's the alternative?" said Venkatesh Shankar, marketing professor at Texas A&M University.
He said that a narrow supply chain, from restaurants and auto dealers down to parts and ingredients suppliers, are affected by incidents such as airbag recalls or Listeria outbreaks. But "the magnitude of this breach is not just within the software industry," he said, noting SolarWinds' customers span countless industries.
Investors and traders are expecting that companies and other organizations will increase their defenses of their IT and networks, even if that translates into making more service purchases from companies that were hacked, said Kartik Kalaignanam, a University of South Carolina marketing professor.
"Although one could argue each one of them has some sort of flaw in their system, there's a feeling there's going to be more spending happening, and the market will be pushed up overall," Kalaignanam said.
Last week, there was an almost 10 per cent rise in the shares of a BlackRock iShares fund of cybersecurity stocks while again rising by another 3,5 per cent this week. The stocks of FireEye rose to a 5-year high earlier this week. And shares of Microsoft reached a 90-day peak while an all-time high in their stock price was attained by Palo Alto Networks, which said it blocked intrusions related to SolarWinds.
The SolarWinds breach "will certainly benefit" security companies, said Mark Cash, who analyzes stocks for research firm Morningstar. Cash said that they inevitably get a contract to stick aroundeven though they were once called in to repair defences.
The expect industry shares to stay elevated for about six months to a year, said Shankar and Kalaignanam.