Predictions '09: Game Makers Will Lead Tech Sector

Networking/Security

With Internet traffic growth rates beginning to moderate, coupled with slower demand as corporations tighten cut their budgets, networking companies will have a tough time in 2009. But companies that have a hand in network security may find that demand for their offerings will continue to grow.

“Cisco is struggling with market share erosion because a number of their products seem to be getting a little dated,” says Erik Suppiger, analyst at Signal Hill Group. “Juniper [Networks] , with its high-end routing products, is performing well and probably taking some market share from Cisco.”

Despite a tough economic climate, Suppiger says the need for data security will continue to grow, particularly as companies deal with the threat of cyber attacks that stem from social networking sites.

L. Mamchenkov/Flickr

“It’s difficult to control corporate access to things like social networks because the content changes dynamically and it’s hard to filter,” Suppiger says. “There’s a lot of opportunities for malware to be embedded into the content on those Web sites.”

Demand for security is also driven by new compliance standards that require companies to show their data networks meet certain security requirements, such as the Payment Card Industry Data Security Standard, PCI DSS.

“If your auditors say you need this [technology] to meet compliance, that money will be found even in tight budget environments,” Suppiger says.

Suppiger lists Juniper Networks, Blue Coat Systems , and Websense [] as companies that can benefit from increased demand for network security.

Video Games

The video game sector is often viewed as a shelter from the storm during an economic slowdown, but from an investment point of view, 2009 will be a mixed bag, according to Todd Mitchell, analyst at Kaufman Brothers.

AP Nintendo Wii

That’s largely because Nintendo is taking market share from the other major players, leaving Electronic Arts , Activision Blizzard , THQ , and Take-Two Interactive with smaller pieces of the pie. The biggest problem facing these companies? Too many products.

“Not everybody can have a hit in every genre in their lineup,” Mitchell says. “It’s more dire for THQ. They’ve got too many games and they need to get rid of the marginal ones.”

Although growth rates are expected to slow, 2009 should be a positive year for the industry.

“I think people are looking for 5- to 10-percent growth next year,” Mitchell says. “I think we’ll come in slightly lower than the 20 percent expected this year, but you come in at the high end of next year’s range because you’re starting from a smaller base.”

Disclosures:

None of the analysts interviewed for this article own shares in the companies commented on. Piper Jaffray makes a market in the securities of Nokia, Research in Motion, and Motorola.

Signal Hill Group makes a market in the securities of Cisco Systems, Juniper Networks, and Blue Coat Systems.

Collins Stewart makes a market in Dell and expects to receive, or intends to seek, compensation for investment banking services from Dell in the next three months.


William Blair & Co. makes a market in the securities of Google and Yahoo, and expects to receive, or intends to seek, compensation for investment banking services from Google in the next three months.
Kaufman Brothers makes a market in the securities of Electronic Arts, Take-Two Interactive, THQ, and Activision Blizzard.

© 2012 CNBC.com

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