The ever-expanding corporate perimeter continues to drive demand for security appliances, firewalls and virtual private networks (VPNs), says market analyst In-Stat/MDR. As a result, it expects the firewall/VPN appliance market to grow to $4.1 billion by 2007, with the majority of the growth in revenues coming from the low-end market.

“The continued threat of hacker and other malicious attacks has compelled companies to take a more serious approach to securing their networks,” says Jaclynn Bumback, an In-Stat/MDR analyst. But vendors are having to integrate more and more functionality into their products as the line between networking equipment and security devices blurs.

According to In-Stat/MDR, the key challenge for suppliers of firewall/VPN appliances is to integrate new security technologies into their products, such as intrusion detection and prevention, and application layer filtering.

Cisco is the leading supplier in the firewall/VPN appliance market, but the market remains very competitive, with lots of start-up vendors competing for share.