It's for RDWR, but FFIV was in similar position regarding CSCO/ARPT.
RDWR: Response to Negative Barrons Article
Salomon Smith Barney
Monday, May 15, 2000
--SUMMARY:--RADWARE, Ltd.--Server & Enterprise Hardware
* The recently proposed $6B Cisco (CSCO-$60-1M) acquisition of Arrowpoint
(ARPT) appears to us to be more targeted at Foundry(FDRY) and Alteon(ATON)
than at F5 or Radware.
* Foundry and Alteon are more noted for routers and switches, rather than
load balancing capabilities. However, both have a load balancing package
as part of their router and switch offering.
* Importantly, Cisco's switching division is doing the ARPT acq., not the
Local Director Division which produces the load balancing product. So,
while the Cisco offering is now stronger, it has removed a focused
competitor and may create customer confusion for its own products.
* We are maintaining our 2000 and 2001 EPS estimates of $0.20 and $0.40,
respectively and reiterate our Buy rating and $55 target.
--EARNINGS PER SHARE--------------------------------------------------------
FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year
Actual 12/99 EPS $(0.02)A $0.00A $(0.01)A $0.03A $0.02A
Previous 12/00 EPS $0.05A $0.05E $0.04E $0.06E $0.20E
Current 12/00 EPS $0.05A $0.05E $0.04E $0.06E $0.20E
Previous 12/01 EPS $0.07E $0.09E $0.10E $0.14E $0.40E
Current 12/01 EPS $0.07E $0.09E $0.10E $0.14E $0.40E
Previous 12/02 EPS $N/A $N/A $N/A $N/A $N/A
Current 12/02 EPS $N/A $N/A $N/A $N/A $N/A
Footnotes:
--FUNDAMENTALS--------------------------------------------------------------
Current Rank........:1S Prior:No Change Price (05/15/00)....:$21.62
P/E Ratio 12/00.....:108.1x Target Price..:$55.00 Prior:No Change
P/E Ratio 12/01.....:54.0x Proj.5yr EPS Grth...:50.0%
Return on Eqty 99...:N/A% Book Value/Shr(00)..:7.55
LT Debt-to-Capital(a)0% Dividend............:$N/A
Revenue (00)........:30612.00thous Yield...............:N/A%
Shares Outstanding..:17.0mil Convertible.........:No
Mkt. Capitalization.:367.5mil Hedge Clause(s).....:#
Comments............:(a) Data as of the most recently reported quarter.
Comments............:
--OPINION:------------------------------------------------------------------
This note is in response to Sunday's Barron's article discussing Radware,
which is summarized at the end of this note.
The proposed $6B Cisco acquisition of ArrowPoint(ARPT) appears to us to
be more targeted at Foundry(FDRY) and Alteon(ATON), than at F5 or
Radware. Foundry and Alteon are more noted for routers and switches,
rather than load balancing capabilities. However, both have a load
balancing package as part of their router and switch offering.
Importantly the ARPT acquisition is being done by the switching division
at Cisco, rather than the Local Director Division which produces the load
balancing product. We would also note that the current Cisco load
balancing product is a stand alone box, just like Radware, F5 and
others. So, while the Cisco offering is now stronger, it has removed a
focused competitor from the market. There are now two divisions within
Cisco that must rationalize how they will bring product to the market and
to their customers. There may also be some Cisco customer confusion
coming from this acquisition.
The next shoe to drop is possible pushback from Lucent and Nortel - will
they stick with OEM relationships or look for an acquisition??
Competition in this space has been heavy for some time, but we believe
all of the healthy players have been growing their businesses at very
healthy rates(above 100%) and are therefore investing in infrastructure.
We would reiterate our BUY rating and $55 target price.
We would characterize comments about RADWARE from a fund manager
expressed in Barron's in the following way. In general, the fund gets
concerned when it identifies a company that it believes is trying to fill
a hole left by a market leader. In this case it identified Cisco and its
Catalyst line of switches, which contain the Local Director
load-balancing solution. In the fund manager's view, Local Director has
been considered somewhat deficient in load balancing. The fund manager
defines Load balancing, or content management, as critical in routing
user requests to different servers in e-commerce transactions and
believes that Radware stepped into this niche with a software suite of
products to fill the hole in the Cisco product.
Concern with the Radware recent quarter revenue run rate of $6 million
versus a run rate for Cisco's Local Director in the tens of millions
quarterly was expressed. The fund manager believes Cisco's deal to buy
ArrowPoint gives it a superior hardware base to compete with Radware, and
also indicated that for IT managers, Cisco is a safe purchase option.
Lastly, the fund manager referenced last quarter's increased operating
expenses. |
