To: DlphcOracl who wrote (96449)
From: Lane Hall-Witt Monday, May 8, 2000 7:31 AM ET
Reply # of 96551
Depending on how it does today, I'm looking at FFIV as a potential play on its H&Q presentation this Tuesday. I expect them to work awfully hard at H&Q to clarify its business story, especially since its stock has just been hammered on two misperceptions:
(1) When FFIV announced its earnings, it said sequential sales growth going forward would be in the low- to mid-teens. This was an upward revision of prior guidance, which had called for 10 percent sequential growth. The misperception arose because FFIV delivered 23 percent sequential growth last quarter, which was in fact a huge upside surprise.
(2) The CSCO/ARPT deal has raised obvious concerns about FFIV's competitive position. I'm still DDing this, but it's worth noting that the FFIV CFO and a Bear Stearns analyst have both already come out to defend the company. I would expect them to continue pushing this defense at H&Q.
I must say that I'm surprised at the market's reaction to the CSCO/ARPT deal. To be sure, it's natural to worry about the ability of companies like FFIV and ATON to compete with CSCO. Nonetheless, I would have expected the market to start building consolidation premiums into the remaining takeout candidates. LU, ALA, NT, and COMS all lack in-house intelligent networking solutions. (LU and ALA were using private-label versions of ARPT's switch: will they now be content to write CSCO a check for this technology?)
ATON may be the best takeout candidate, because it builds an actual Web switch (as opposed to a Web appliance or a distributed software solution) and is relatively affordable. FDRY has the technology, but is very expensive. FFIV likely cannot command the premium of an ARPT or ATON, because it's an appliance maker (slower, less scalable solution), but it has the broadest product offering and the most robust architecture for intelligent networking. Most importantly, FFIV's software and architecture can be incorporated into actual switches; indeed, COMS has already licensed FFIV's technology in order to build an intelligent switch of its own. |
