Foundry Capitalizing on Important Online Video Trends

I have recently covered Cisco, 3Com, Alcatel, Juniper, Nortel, Polycom, and Extreme in a series of posts on Online Video Beneficiaries. Here is another one in the series, on Foundry.

Foundry Networks, Inc.(NASDAQ: FDRY) is a leading provider of high-performance enterprise and service provider switching, routing, security, and Web traffic management solutions.

An increasing number of enterprises are shifting to converged environments in which voice, video, and data are carried by the same network. This, coupled with the growing number of high-bandwidth applications such as online video, are pushing the demand for greater bandwidth. 10-Gigabit Ethernet is essential to this need for additional bandwidth and Foundry is a pioneer in this field. It introduced the first Layer 3 10GbE switch in 2001. Today its 10GbE offerings include the EdgeIron product family, FastIron Edge and X Series, FastIron SuperX Series, BigIron RX, ServerIron, NetIron XMR Series and NetIron MLX Series. The two families of MPLS routers, the NetIron MLX and NetIron XMR were introduced in 2006 to expand its presence in the Service Provider market and by the end of the year they accounted for 13% of total revenues.

According to research firm, Dell ‘Oro Group, the Ethernet switch market will continue to grow and 10GbE switches will be a major driver. There was more than 200 percent year-over-year growth in 10GbE port shipments each year for the past three years and the firm forecasts sales of over 5.2 Million 10GbE ports in 2009.

Foundry is doing all it can to lure this market. In August this year, Foundry introduced BigIron® RX-32, the largest Ethernet switch on the market in terms of non blocking capacity with 128 10-GbE ports and 2.2 Bpps of throughput. As with other BigIron products, the BigIron® RX-32 can reduce power and cooling consumption in datacenters. With this product, it has a comprehensive lineup that covers all sizes from 4 slots to 32 slots. Foundry is now well-positioned against Cisco Systems and Force 10 Networks, which both compete heavily for the high capacity Ethernet switching market.

Another trend in the industry is Secure Networking. Foundry uses a layered IronShield Security Model, with advanced device, network, and service protection features. Its products are architected with embedded sFlow support, which allows Foundry switches and routers to simultaneously deliver wire-speed packet forwarding and act as network sensors, delivering data in real-time to security analytics products. Its IronView Network Manager (INM) can act as an sFlow collector, and convert this data for input and analysis by a range of security products, including both signature and anomaly-based intrusion prevention system (IPS) and network based analysis (NBA) solutions.

On the financial front, Foundry reported revenue of $143.2 million in Q2 2007, an increase of 32.1% year-over-year and 5.4% sequentially. Net income was $16.4 million or 11 cents per diluted share. This was later revised to 10 cents per share to account for a $750,000 charge related to stock-option compensation costs. North American commercial revenue accounted for 62% of total revenue. Sales to Europe, the Middle East and Africa (EMEA) accounted for 15% of total revenue, a solid rebound from the weakness experienced in Q1 2007.

Total net revenue in 2006 was $473.3 million, an increase of 17% over 2005 due to the increased breadth and depth of the solutions to both the service provider and enterprise markets and the expansion of its sales organization, which grew over 20% during 2006 and approximately 50% since 2004.

Foundry’s stock is on a steady upward trend. Its stock price is hovering around $18 and its market cap is $2.6 billion.

In the 10 GbE switch market, where Foundry has a key focus, Cisco has a dominating 70% market share and Force10 with 6% is second. Foundry Networks along with Nortel, Extreme and HP ProCurve round out the top six vendors. Foundry continues to be profitable with a strong product line-up with compelling price performance and though it is far from taking over Cisco, its products are still attractive to customers. Interestingly, with Extreme dwindling, and Nortel fumbling, Foundry seems to be executing well, and capitalizing on important trends like corporate adoption of VoIP and Video-over-IP.

Disclosure: no position