The operating loss at the company was reduced to 2.5m pounds ($4.68m) after the 20% reduction made to sales and marketing headcount during 2002 when comparable losses reached 7.7m pounds ($14.40m).

Based on the company’s own $200m estimate of its core market, Cambridge, UK-based nCipher can now claim to have a 10% share of the cryptographic hardware sector. The company competes mostly with the SSL web application-based hardware specialist Chrysalis-ITS Inc, which last year was taken over by Rainbow Technologies Inc, and which itself has fallen as an acquisition target to SafeNet Inc. Other competitors include the Racal division of Thales now known as Thales e-Security, as well as HP, IBM and Sun.

Last year the cryptographic acceleration hardware vendor returned over $100m to investors when its market capitalization fell well below the $160m cash and equivalents it then held on its balance sheet. The company still has a strong cash balance and has some 39.5m pounds ($73.82m) available as a war chest.

The company’s working capital requirements are modest, Alex van Someren, the CEO said. The reason we returned the cash to investors was never because of any resignation of our intention to make acquisitions. It was because we did not accept the pricing levels that prevailed in 2002. The market is much more rational today and I believe if we looked at the very same M&A targets as we might have in 2002 the pricing would be lower by a factor of 10.

The CEO said sales of its core products remained slow and steady. Revenues from PayShield, nCipher’s hardware security module for online payments, have slowed after an initial sales spurt to early adopter credit card companies. But van Someren believes orders will ramp slowly again to 2005 as card issuers eventually are forced to react to legislative pressures.

Future market opportunities for the niche vendor are plentiful, van Someren contends. Security in broadband content distribution and digital rights control, cryptography for end-point security over WiFi, voice over IP security; I see these as areas where the core nCipher intellectual property and technical expertise is highly applicable.

Van Someren said initiatives like the Intel-backed Safer Computing Initiative, the Trusted Computing Group, and Microsoft’s Palladium call for new approaches to security. Ultimately, what might be needed, he suggested, is a hardware security module that retails as a $10 trusted computing component and mimics at the chip level what nCipher’s $10,000 server unit does today. We are already working with a chip vendor. In three months it will be manufacturing chips with nCipher technology built in, he said.

This article is based on material originally published by ComputerWire