F5 Networks reported another quarter of strong sales in Q3 2014 driven by rising customer adoption of its new product portfolio, the ‘Good, Better, Best’ pricing model, and the growing sales momentum of F5′s security and service provider business.
The solid revenue growth and profitability in Q3 2014 was driven by strong uptake of F5′s expanding array of systems and application services.
The company claims to have experienced a very strong increase in its business pipeline in Q3 which it believes will translate into growth in the current quarter as well as fiscal 2015.
A week after some of them temporarily fell in response to Citrix's warning, enterprise IT names are slumping on account of Teradata's Q3/2013 warning, which was largely the result of weaker-than-expected Asian numbers.
Three other data warehousing/business intelligence software providers - Informatica (INFA -4.4%), MicroStrategy (MSTR -4.1%), and Qlik (QLIK -3.3%) are among the biggest decliners. The companies rallied in August in response to Teradata's better-than-feared Q2 report.
"Investors shouldn't read this as purely a macro-driven issue," says Wells Fargo's Jason Maynard about Citrix's (CTXS -11.1%) Q3 warning. He believes Q3 enterprise software spend "trended better than expected," even if a demand tailwind hasn't yet emerged.
Maynard thinks Citrix's Q3 shortfall could be due to "some combination" of weaker NetScaler application delivery controller (ADC) sales (gaining share lately), "execution issues" related to a transition towards mobile software sales, and smaller deal sizes. He also thinks sales of mobile device/app management software simply might not be able to offset "sluggish" PC virtualization sales. Nonetheless, he reiterates an Outperform and $88-$89 PT.
Piper's Mark Murphy thinks VMware (VMW +1%) is providing tougher competition for Citrix in PC virtualization. "VMware resellers had noted Citrix customers approaching them 'more and more,' [they] stated that traction [for] VMware’s desktop virtualization solution (View) is ‘exploding.’"
VMware mentioned on its Q2 CC its end-user computing (PC/mobile software) bookings rose at a mid-teens Y/Y rate. The company recently hired ex-SAP exec Sanjay Poonen to run the business.
BMO is defending Citrix ADC rival F5 (FFIV +1.3%), arguing the company's Sep. quarter results should be solid.
Citrix (CTXS) expects Q3 revenue of $710M-$712M, below a prior guidance range of $730M-$740M and a $737.3M consensus. EPS guidance has been lowered to $0.68-$0.69, below a prior $0.72-$0.73 and a $0.73 consensus. (PR)
The thin client/virtualization software and application delivery controller vendor doesn't give a reason for the shortfall. Full Q3 results arrive on Oct. 23.
Deutsche's Brian Modoff says channel checks point to "a gradual pickup" in sales of F5's (FFIV) BIG-IP virtual application delivery controllers (ADCs), and that new features and software licensing model changes could be helping F5 halt share losses to Citrix's (CTXS) NetScaler virtual ADC line.
Virtual ADCs - software that runs on 3rd-party servers - have been taking share from traditional ADC hardware. Meanwhile, Citrix has been growing its ADC share with the help of its Cisco partnership.
Modoff considers F5's FQ4 (Sep. quarter) consensus "beatable," and also thinks a BIG-IP refresh and strong firewall sales could yield upside to FQ1 estimates.
Long-term, Modoff is encouraged by F5's ability to benefit from the network functions virtualization (NFV) initiatives set to be launched by top carriers (migrates network management software to commodity servers), and growing IT interest in the company's full-proxy architecture for handling complex security needs.
Notable decliners include Citrix (CTXS -2.6%), VMware (VMW -1.9%), SolarWinds (SWI -2.1%), Teradata (TDC -2.1%), CommVault (CVLT -2.1%), and Radware (RDWR -2.4%). Red Hat partly blamed its performance on weak European demand.
Barclays' Ben Reitzes suggests his downgrades of EMC and NetApp are partly valuation calls (both companies are near his PTs). But he adds "there may be more upside in networking names today" in light of "long-term headwinds to storage demand." The growth of cloud infrastructure platforms relying on commodity hardware (AWS being the most notable) is generally viewed as a threat to storage incumbents.
Looking to challenge Cisco (CSCO +0.3%), Check Point (CHKP +0.9%), and market leader Palo Alto Networks (PANW +1.1%) in the growing next-gen firewall (NGFW) hardware market, H-P (HPQ -0.4%) has launched its TippingPoint NGFW line. (PR)
Five models are being offered, the most powerful of which offers 10Gbps of throughput. Palo Alto's high-end PA-5060 firewall offers 20Gbps of throughput. Though H-P plans to continue selling TippingPoint intrusion prevention (IPS) appliances, the functionality of its new hardware leads Gartner's Greg Young to view the latter as a replacement for the former.
Young estimates NGFWs have grown to make up 15% of the $8B firewall market.
H-P is also launching Threat Central, a cloud-based service that analyzes potential threats detected by the company's ArcSight security software.
Consider the moves an escalation of H-P's rivalry with Cisco. Cisco is set to acquire IPS leader Sourcefire, which has also rolled out hardware that combines NGFW and IPS features, and recently formed a managed security services unit.
Meanwhile, F5 (FFIV +0.8%) has acquired Versafe, a developer of online fraud protection software and a cloud-based monitoring service, for an undisclosed sum. F5 declares Versafe's products will complement its firewall and access/policy management hardware, as well as its mobile app management software.
Versafe can already be integrated with F5's mainstay application delivery controllers. In a blog post discussing the deal, F5 argues the ongoing rise of remote/mobile file access increases Versafe's value.
H-P and F5's moves comes amid growing corporate interest in cybersecurity, following well-publicized hacking events.
Nasdaq-100 futures (QQQ, XLK) -0.5% AH after Cisco provides relatively light FQ1 guidance to go with an FQ4 beat, and also reports Asia-Pac/Japan orders were down 3% Y/Y (macro is blamed).
Networking/telecom hardware vendors and some of their suppliers are naturally the biggest decliners. Many of them have run up strongly this year on hopes of gradually improving carrier capex and enterprise IT spending. ALU -3.3% AH. JNPR -2.4%. ARUN -1.4%. FFIV -2%. ARRS -2.4%. RVBD -3.2%. JDSU -1.6%. FNSR -2.8%. CIEN -2.2%. CAVM -2%.
F5 (FFIV) guides for FQ4 revenue of $378M-$388M and EPS of $1.17-$1.20, largely favorable to a consensus of $380.6M and $1.17. Piper and William Blair's upgrades proved prescient. Shares +7.2% AH, CC about to start (webcast). (PR) (FQ3 results)
F5 Networks Inc provides Application Delivery Networking (ADN) technology that secures and optimizes the delivery of network-based applications and the security, performance and availability of servers, and other network resources.