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After minimal growth in 2023, the Hardware Security Module (HSM) market is set for another lackluster year. ABI Research, a global technology intelligence firm, estimated only a 2% annual growth rate in 2023. This coming year is looking much the same.

Growth is stymied by several challenges, notably macroeconomic pressures, including inflation, the rising costs of hardware components, and continued fallout from the chipset shortage. “While HSM OEMs have been able to meet demand, lead times are longer, and list prices have gone up to offset those costs,” says Michela Menting, Senior Research Director at ABI Research. “Average Sale Prices rose slightly in 2023, and will again this year, by 2-3% across the board.”

However, probably the main impact has been the less than stellar adoption in markets that were deemed ripe in 2022, notably IoT and Cloud. The use of HSMs in IoT has faced off against cheaper software-based Public Key Infrastructure (PKI) and Key Management Service (KMS) alternatives. At the same time, cloud migration has been slower than expected. Shipments in the Cloud HSM market were a paltry 4% YoY (22-23) and even less in manufacturing and utilities (1-2%), both estimated to be top markets for IoT.

The HSM OEMs that pivoted to cloud-based services have managed to keep revenues afloat. Both Thales and Futurex have done well in that respect, particularly in their payment of HSM services, an emerging market with growing demand. In fact, cloud providers are increasingly looking to payment HSM-as-a-Service (HSMaaS) as a lucrative opportunity, and HSM OEMs can have an important partnership role in that space.  

Ultimately, the HSM market functions on a cyclical basis, with refresh cycles driving demand. “However, there are also plenty of opportunities for expanding that total addressable market, but it is through the marketing of what HSMs can offer in terms of applications, rather than through the sale of the HSM appliance as a product in itself. Whether that is quantum-safe encryption technologies or machine identity, the HSM market will only see significant growth in new segments by focusing on an application-based strategy,” Menting concludes.

These findings are from ABI Research’s Hardware Security Modules market data report. This report is part of the company’s Cybersecurity Applications research service, which includes research, data, and ABI Insights.