Microsoft Buys Hexadite to Strengthen Windows 10 Security

Microsoft Corp MSFT has often relied upon the acquisition strategy to expand product portfolio. Timely acquisitions have aided the company to add new features to existing products, which enhanced their potency to address growing customer needs.

Microsoft is doing the same thing with its recently announced Hexadite acquisition. The Boston-based company's Automated Incident Response Solution (AIRS) will be integrated with Windows Defender Advanced Threat Protection (WDATP) service for Windows 10 business users.

Hexadite's AIRS investigate alerts and remediate threats by using artificial intelligence AI and machine learning. The integration will boost WDATP capabilities in detecting and solving zero-day attacks, ransomware and other advanced cyber threats.

Although the financial details of the transaction were not made public, Microsoft is reportedly paying $100 million for Hexadite. The price reflects growing importance of cyber security solution providers due to intensifying attacks on connected services and devices. Per Microsoft, data breaches can cost between $12 million and $17 million per incident, costing millions in lost productivity.

Improved Security to Boost Windows 10 Adoption

Windows 10 operating system (OS) has been one of the top-line growth drivers along with Office 365 and Azure in the last few quarters. The strong top-line has helped share price to increase in recent times. We note that Microsoft has outperformed the S&P 500 on a year-to-date basis. While the index returned 9.1%, the stock gained 15.8%.

According to Endpoint Solutions Review, which quoted Gartner's 2017 Magic Quadrant for Endpoint Protection Platforms EPP, Microsoft is a major challenger along with Intel INTC security (now divested) in the security software market. Kaspersky, Trend Micro, Sophos, and Symantec SYMC are the leaders in the EPP market.
 

We believe that Microsoft's dominant position in the PC market definitely provides it leverage in the software security market. Additionally, improving security features in the Windows 10 systems will boost further adoption going forward.

Higher Spending on Security Positive for Microsoft

Per market research firm IDC, global spending on security solutions is expected to grow at a CAGR of 8.7% to hit almost $105 billion over 2015-2020 time frame, which presents significant growth opportunity for Microsoft.

We note that Microsoft plans to spend more than $1 billion annually on cyber-security research & development (R&D), which will further boost its security offerings in the long haul.

Zacks Rank & Key Picks

Currently, Microsoft carries a Zacks Rank #3 (Hold). Fortinet FTNT carries Zacks Rank #2 (Buy) is a better-ranked stock worth watching in the broader sector. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth for Fortinet is currently pegged at 20.62%.

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