More data Sam. Now there's also a lawsuit (against FDRY)....but the data's more important, I would think:
_____________
Internet Infrastructure : The Foundry Networks (FDRY) earnings warning was the first hint that something was amiss in this sector, and yesterday's f5 (FFIV) warning provided further reason for concern. As we wrote yesterday on this page, negative comments from Bear Stearns about CacheFlow (CFLO) and Inktomi (INKT) added to the worries. This morning, Bear Stearns officially downgraded both stocks. We listened to the f5 conference call to try to get some more color on just what is going wrong in this sector. The company said that almost all of its fairly dramatic revenue shortfall was due to a "rapid" slowdown in North American business. It was also noted that this was generally not a competitive issue, but was an issue of weakening demand for all players in the industry. f5 said that the dotcom market was clearly the greatest single point of weakness. But -- and this should be a concern for investors in other networking companies -- f5 officials clearly stated that they are seeing a slowdown in the core enterprise networking market. In the enterprise market, the company noted that it was generally an issue of project delays, but they have significant concerns about the duration of these delays which is prompting both a restructuring and layoffs. The only company-specific issue that was mentioned was weaker than expected sales of f5's caching product, which was due to the lack of streaming functionality. Overall, this was not a comforting call for investors in Internet infrastructure companies. The fact that sales weakness was seen at both dotcoms and enterprises is worrisome. The direct competition in this space includes Nortel's (NT) Alteon acquisition, Cisco's (CSCO) Arrowpoint acquisition, Radware (RDWR), Foundry, and to a lesser extent Extreme (EXTR). Radware reaffirmed its guidance yesterday, but Foundry has of course already warned. And concerns should extend beyond the Layer 4-7 switching market and into the enterprise networking market more generally, which is served by CSCO, NT, EXTR, and Cabletron's (CS) Riverstone division. These companies were seen as the Internet plumbers and were thought to be immune to dotcom problems. But the broader economic slowdown appears to be pushing these problems beyond dotcoms and into the enterprise. - Greg Jones, Briefing.com |
