WORLDWIDE REVENUE FROM sales of VPN (virtual private network) and firewall hardware and software will grow by 31 percent from $668 million in the third quarter of 2002 to $874 million in the third quarter of next year, according to research released Wednesday by Infonetics Research.

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Worldwide annual revenue in this market will reach $4.9 billion in 2005, Infonetics said.

A key market driver is the ready availability of low-cost Internet bandwidth which enables users to move to a model of distributed Internet connectivity rather than centralized connectivity. This drives up demand for VPN and firewall sales, Infonetics said.

In the U.S., government spending on security and the need for compliance with privacy provisions of the Health Insurance Portability and Accountability Act (HIPAA) is also helping VPN and firewall sales, according to Infonetics.

North America accounts for 47 percent of VPN and firewall hardware and software revenue in the third quarter of 2002, followed by Europe, the Middle East and Africa with 31 percent and Asia-Pacific at 17 percent. North America will retain that dominant position through 2003, Infonetics said.

VPN and firewall appliance hardware and software account for 60 percent of the market, but sales of routers with integrated security features are growing strongly and now account for 24 percent of the market. In its infancy, but poised for spectacular growth, is the range of devices known as application-layer VPN gateways, Infonetics said.

Cisco Systems is the dominant vendor in this market with an overall 39 percent share of revenue, followed by Check Point Software Technologies which has a 12.7 percent share on its own behalf and a further 7.5 percent share through hardware deals with Nokia, according to Infonetics figures.