F5 Networks Leads In Key Cloud Market
By J. BONASIA, INVESTOR'S BUSINESS DAILY
Posted 08/02/2010 06:16 PM ET
F5 Networks (FFIV) has become one of cloud computing's biggest beneficiaries, revving up earnings and widening its lead over bigger rivals by helping make network-delivered software faster and more reliable.
The Seattle-based company dominates an obscure but crucial $1-billion market for application delivery controllers, and that lead has driven up its stock price by 64% this year to an all-time high around 87 per share.
Application delivery controllers, or ADCs, are hardware appliances that connect to corporate networks. Resembling pizza boxes, the devices come with built-in software that analyzes network traffic to help applications delivered over networks run better and more securely.
ADCs have become more vital due to the rise of cloud computing, a trend that offers software and other computing resources via remote data centers rather than from expensive on-site systems. Mobile devices are boosting data traffic as well, says F5 CEO John McAdam.
"There is much more complexity in the network and in the movement of network traffic, so we're gluing the whole thing together within the data center," McAdam said. "You could say we're the glue that holds the data center together."
F5's products help customers balance workloads among servers in data centers while screening network traffic and encrypting data.
In the January-to-March period, F5's sales from ADCs grew 12.5% over the prior quarter to $126.4 million, according to Gartner. In that same period, second-ranked Cisco Systems' (CSCO) sales from ADCs shrank 8.6% to $64 million. The market's third-largest vendor, Citrix Systems (CTXS), saw ADC sales fall 15% to $30.4 million.
F5 is gaining ground because it has the market's only products that can analyze network traffic without bogging it down, according to Brian Marshall of Gleacher & Co.
"That's key, because slowing the data throughput decreases the overall efficiency of the network," Marshall said.
Still more impressive, F5 has "perhaps the best financial model in all of tech," according to Marshall. He says the company's revenue is expected to grow 37.8% this year, "which is pretty phenomenal." Over the five years from 2006 through 2010, F5 is on pace to average 25% annual growth.
'Remarkable Growth'
"For a company that's doing roughly $1 billion in revenue per year, that's remarkable growth, and it is growth that is not coming at the expense of low operating margins," Marshall said.
F5's operating profit margins are around 34%, and its gross margins of 81% are "the envy of the industry," Marshall says. He rates the stock a buy.
investors.com |
