The recent Colonial Pipeline Co. hack brought cybersecurity to the minds of investors and legislators. This most recent hack follows the massive attack in 2019 on US information technology company SolarWinds, the biggest cyber intrusion to date, which went undetected for months and affected Fortune 500 companies and federal government agencies alike. These hacks are now leading to a rethink of network security so something similar doesn’t happen again.
“The SolarWinds hack, followed shortly after by an attack on the Microsoft Exchange Server software, elevated conversations around cybersecurity preparedness to the board level,” says Fidelity Portfolio Manager Caroline Tall. “Cybersecurity can no longer take a backseat as a spending priority.”
“Looking ahead, I think this historic hack could accelerate the trend of networking and security being bundled together as either a single hybrid hardware and software solution, or integrated software, presenting opportunities for companies leading this trend,” says Tall, who manages Fidelity® Select Communications Equipment Portfolio (FSDCX).
Traditionally, networking equipment providers and cybersecurity firms performed separate functions, which Tall contends forced large companies to integrate security into networks on their own or with third-party help—often creating vulnerabilities.
In the future, she believes large companies will prioritize cybersecurity like never before and target their spending on software-centric, next-generation communications offerings with built-in security features.
Tall says Cloudflare (NET) is perhaps the “poster child” for this new trend. It offers networking and security as a service, via a secure combination of software and infrastructure. The service is designed to optimize security, performance, and reliability for customers’ websites, apps, and workers—without the bloat and vulnerabilities of legacy technologies.
Similarly, Tall contends that F5 Networks (FFIV), a more established networking-equipment provider, is adding next-generation secure capabilities—including fraud detection—and transitioning to a cloud-based delivery model with help from several recent acquisitions.
In late 2020, networking-equipment giant Cisco Systems (CSCO) purchased Portshift, an Israel-based, privately held application security provider. Tall believes that, over time, Portshift will help Cisco integrate better security into all phases of the application development life cycle.
“I believe all 3 companies—fund holdings as of April 30—are helping to create more secure networks and can help drive the next phase of industry growth,” she says.
Fidelity® Select Communications Equipment Portfolio held securities mentioned in this article as of its most recent holdings disclosure. For specific fund information, including holdings, please click on the fund trading symbol above.
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