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revenues from sales of network security products like Virtual Private Networks (VPNs) and firewalls have risen from an estimated $1.1 billion in 2005 to around $1.9 billion in 2009.

Though Cisco is not as dominant in this area as the routers and switches business, it still commands a respectable 35% to 40% market share. Cisco's primary competitors like


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Check Point

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( MFE) are also seeing revenue growth, contributing to the overall growth of network security market.

While we expect Cisco will continue with its gradual growth trend in network security sales, the Trefis member community predicts a slight decline. We currently have a Trefis price estimate of $24.04 for Cisco's stock, about 24% above the current market price of $19.44.

Growing Demand for Network Security

Cisco's revenues in network security products are tied to its network routers and switches business. Customers generally tend to buy an entire solution to meet their network infrastructure requirements, and Cisco has capitalized on its ability to deliver both core network equipment and security products.

The network security market slowed in 2009 mainly due to restricted spending by companies due to the recession but is now beginning to pick up. According to Infonetics Research, network security appliance and software revenue increased 7% worldwide between the first and second quarters of 2010, totaling $1.4 billion.

The three top vendors saw firm sales growth in the most recent quarter: Juniper (+12%), Check Point (+9%) and Cisco (+8%). Cisco was held back in recent quarters by supply constraints on some of its components that are fixed now. This will allow it make up for lost ground vs. its competitors.

The Trefis community forecasts that the network security revenues will increase from $1.8 billion in 2010 to $2 billion by 2016 while Trefis estimates an increase from $2.1 billion to $3.1 billion during the same period. The lower community forecast corresponds with a slight decrease in price estimate.

Our complete analysis for Cisco's stock is



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