F5 Networks (NASDAQ:FFIV) is the dominant player in load balancers. For years, its products have been cutting out share from networking giant Cisco (NASDAQ:CSCO). Last week, Cisco acknowledged what most already knew -- that it wouldn't be able to win back its lost share.
In choosing to stop development of future ACE load balancing products, Cisco is handing its remaining 11% market share off to smaller players, including F5, Citrix Systems (NASDAQ:CTXS) and Radware (NASDAQ:RDWR).
This is a needle-moving win for players like F5.
Cisco's 11% represents some $40 million in incremental quarterly revenue for remaining players.
A lot of that revenue will end up with F5, which is the gorilla in the space controlling 48% of the market. It's likely all but the most cost conscious Cisco customers will move to the market leader BIG-IP ADC product line. Even if F5 captures just half this revenue, it would mean a quick 5% lift to F5's $352 million in total Q2 sales.
Citrix also benefits from Cisco's exit, given it has carved out 20% market share with its NetScaler ADCs, and will likely be among those aggressively courting Cisco customers.
However, unlike F5, load balancers are less a driver of revenue at Citrix, which had total sales of $615 million last quarter.
Cisco's decision could also have an outsized impact on small players, such as Radware, which sells the Alteon ADC. The company wouldn't need to win a lot of business to make an impact, given its $46 million in total sales last quarter. Brocade (NASDAQ:BRCD) is another small player through its ServerIron ADX switches.
The market is growing too.
Big data has created big time headaches for CIOs tasked with harnessing networks. Load balancers are critical to helping networks more efficiently compress and move information. By using balancers to avoid bottlenecks, improved server performance means less money spent by data centers on new equipment. Those interested in learning more about load balancing and market trends can read this Cisco white paper here.
Market research firm Dell'Oro predicts the market will grow to $1.6 billion this year, and reach above $2 billion by 2016.
Some of the fastest growth is coming from virtual appliances. which saw a tripling in Q1, yet still represent roughly 8% of the ADC market. As demand for virtual solutions continues to grow, look for Citrix, which leads in this sub-segment; F5 and Riverbed (NASDAQ:RVBD), which sells its Stingray ADC solution, to benefit.
Regardless, shareholders of all these companies are likely to be rewarded with revenue tailwinds over the coming quarters as the market grows and Cisco's legacy clients start migrating. This suggests investors should use weakness to build positions.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in RVBD, RDWR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.