Security: a fast-growing sector, still relatively unexplored

So how can such events be explained, especially when it is known that governments, companies and individuals have been devoting increasing resources to security during the past ten years? The answer is simple: hackers and other criminals are getting cleverer all the time. Furthermore, their opportunities to do damage are expanding thanks to the arrival of new technologies such as cloud computing, which allows individuals to make use of external storage capacity – remotely and on demand – in order to increase their computer power temporarily, without needing to have physical access to the corresponding infrastructure.

Before we continue, let's take a look at a few figures to help us understand how the security sector is looking at present. The global security market is worth between 500 and 650 billion Swiss francs per annum. The leading companies in this sector are estimated to be lifting their profits by 10% to 12% a year, compared with an average of 7% to 8% for the world's other companies.

So how can companies active in the security industry be expected to perform over the next few years? Everything seems to indicate that a number of enduring factors will help them sustain a steady rate of growth. One such factor is a world population of 9.1 billion people in 2050 according to the United Nations, compared with nearly 7 billion today, but the growing proportion of individuals who belong to the middle classes – particularly in the emerging countries – looks set to become an even more powerful growth driver. It will boost demand in areas ranging from mobile telephony and Internet to motorised transport, resulting in higher spending on security in many sectors. This presents attractive investment opportunities, particularly as regards shares in companies that already generate 30% of their sales in the BRIC markets (Brazil, Russia, India and China) and peripheral countries. Brazil is an interesting example here. This country, which is about to become the world's fourth-biggest car market, recently tightened up its road safety laws, requiring all new vehicles to be fitted with front airbags by 2014.

The development of security infrastructures related to urbanisation is another major growth driver for the security sector, since between now and 2030, 60% of the world's population will live in urban areas, compared with 48% in 2006. This means that expenditure on the safe expansion of road networks and public facilities such as railway stations and metro systems is also set to increase. Globalisation is another growth driver for the sector. Airports, rail and sea freight, nuclear power stations and hydroelectric dams all require security, and it seems virtually certain that video surveillance, biometry, X-ray scanners and detection technologies will continue to grow rapidly. The airport security market is one of the biggest in this segment, with average annual growth of around 12% since 2006 – including in 2011.

The world economy is thus becoming increasingly dependent on technology and reliable information technology systems. For companies, the reliability of their systems will henceforth be a competitive advantage. The multinationals are therefore recruiting the best IT specialists, some of whom are former hackers. Indeed, in 2007 Apple led the way by recruiting Lucas Newman, an American developer who had come up with a comprehensive unofficial software development kit for the iPhone.

This trend can be explained by the fact that the multinationals are the victims of ten or more serious cyber attacks on average per year. In 2008, for example, computer piracy cost companies around the world some 1000 billion dollars, according to data security company McAfee. However, growing employee mobility, and the consequent need to secure the data that people use on the move, is another factor that explains why firms are planning to spend 12% of their IT budgets on security next year, compared with just 2% at the start of the millennium.

All in all, these trends create a very promising environment for the investor. In addition to above-average growth and reasonable valuations, shareholder value will also be created as a result of continuing merger and acquisitions activity, such as the purchase of McAfee by Intel in 2010. The sector would thus appear to be a highly attractive one.