"We've seen the same softening as everybody else," said Russell Dietz, vice president and chief technology officer for Hifn Inc. (Los Gatos, Calif.), a supplier of encryption accelerator chips. "But while things have fallen off from last year, the interest — and the need — for security hasn't disappeared."

Hifn is in the process of rolling out several new components aimed at Secure Socket Layer (SSL) encryption. SSL is the basic format for securing data passing through the Internet.

Dietz said that establishing SSL transactions can become a bottleneck in a network, especially when a connection is first being made. Hifn's new 6565 device, aimed at entry-level Web servers, takes on the math-intensive task of setting up SSL transactions. It can handle up to 2,000 separate transactions per second, each using 1,000-bit-wide encryption keys. The company will roll out in a few weeks a pair of new designs that also take on the task of processing the ongoing encryption during an SSL session.

Too important to cut

Dietz said that even though the economy has taken a nosedive this year, security applications are considered too important to eliminate from many budgets. "In a lot of cases, security is becoming more crucial," he said. "There are a lot of things that are causing a higher awareness of the need for security."

Joe Byrne, principal analyst at Gartner Dataquest (San Jose, Calif.), said that the market for security chips will grow from about $86 million this year to almost $400 million in 2005. "The general trend is that over time we expect to see e-commerce increasing," he said.

Another component of the security market is the virtual private network (VPN), which allows users to access private networks securely over the Internet. VPNs generally use the IPsec encryption protocol. Tom Lyons, director of product management at Nokia Internet Communications (Mountain View, Calif.), said this technology is considered a money-saving application. His company, which is a branch of the cell phone giant, is trying to gain an early foothold in VPNs on the assumption that future Web enabled cell phones and PDAs will need to use them to access the Internet. Nokia has just released version 3.1 of its VPN software, and also produces dedicated VPN systems for use in corporate networks.

"People are using these technologies to save money," Lyons said. "This makes it easier for their road warriors and telecommuters to get access to the network." Lyons said Nokia sees healthy demand for VPN systems, though customers are taking longer to make buying decisions. But with more people using mobile systems, especially wireless ones, he expects to see VPN technology continue to expand.

Dataquest's Byrne said that Hifn can be seen as a bellwether in this market. In mid-July, the company reported total sales of $6.6 million for its third fiscal quarter. That's down 47 percent from the $12.3 million reported in last year's third quarter. But sales for the nine-month period ending in June were $36.5 million, a gain of 20 percent over the same period in 2000.

"I think it's safe to say that the security market isn't doing as badly as the rest of the industry," said Byrne.