F5 Networks May Be Acquired Since Rivals Bought, Analysts Say
8/26/00 9:47:00 AM
Source: Bloomberg News
Seattle, Aug. 26 (Bloomberg) -- F5 Networks Inc., whose software helps direct Web
traffic, probably
will be bought soon, after rivals ArrowPoint Communications Inc. and Alteon
WebSystems Inc. were
snapped up, analysts said.
Other upstart makers of data-networking equipment, such as Extreme Networks Inc.
and Foundry
Networks Inc., will survive longer, though either or both eventually could be forced to
find an acquirer
to gain access to more customers, analysts said.
Possible buyers of F5 include Lucent Technologies Inc., which needs
to make a move because it's faced with the likely loss of an
agreement to resell Alteon's switches under its own name, analysts
said. Last month, Alteon agreed to be bought by Lucent archrival
Nortel Networks Corp. for about $8.15 billion in stock. F5's software
helps balance loads of Web traffic among computer servers.
''You definitely have to consider F5 as a potential buyout candidate,''
said Brent Bracelin, an analyst at Pacific Crest Securities, who rates
F5 stock a ''buy.''
Seattle-based F5 has a market value of about $1.06 billion. Other F5
rivals that could be bought by larger networking- equipment makers
include Resonate Inc., which has a market value of $1.09 billion after
going public earlier this month, and closely held Top Layer Networks
Inc., said Michael Speyer, an analyst at researcher Yankee Group.
Growing Market
Top Layer is funded by 3Com Corp., which agreed in March to
incorporate F5's software into its data-traffic switches.
F5 shares on Friday rose 1/8 to 49 1/8 on the Nasdaq Stock Market.
The shares have fallen 69 percent since setting a record high of 160
1/2 on Nov. 1.
F5 spokeswoman Alane Moran declined to comment beyond saying in an e-mail that
''F5's goal is to
build a company with a long- term game plan and strategy.'' Lucent spokesman Bill Price
declined to
comment.
Cisco Systems Inc., the No. 1 maker of Internet equipment, bought ArrowPoint in June
for $4.7
billion.
The market for load-balancing appliances made by F5 and others, which totaled $136.3
million last
year, is forecast to rise 86 percent to $253 million this year and surge to $767 million by
2004,
according to market researcher Dell'Oro Group. F5 sells equipment that combines its
own software
with Intel Corp. microprocessors.
Cisco
F5 is losing ground to Cisco, according to Dell'Oro figures. In the second quarter, F5 sold
$23.6
million of load-balancing appliances for a 28 percent market share, compared with $41.3
million and
49 percent for Cisco. In the first quarter, F5 had a 34 percent share to Cisco's 37
percent, Dell'Oro
said.
Other rivals in the market include Intel, Nortel and Radware Ltd. F5 also has licensed its
software to
3Com and Extreme for use in their products, and it's agreed to let Dell Computer Corp.
resell F5
products under its own label.
F5's biggest customer is Exodus Communications Inc., which manages Web sites for
more than
2,000 businesses and also resells F5 gear. Exodus accounted for about 13 percent of F5's
$29.2
million in sales last quarter.
''Clearly, load balancing is an absolutely strategic technology, and a networking vendor is
going to be
at a considerable disadvantage if they don't have load balancing technology,'' said Erik
Suppiger, an
analyst at Chase H&Q who rates F5 a ''buy.'' The investment bank managed F5's initial
public offering
in June 1999.
Other Buyers
Other possible buyers of F5 include European telecommunications-equipment makers
such as
Marconi Plc, Alcatel SA and Siemens AG, analysts said.
''Alcatel, Siemens and Marconi are all reasonable, attractive players in the marketplace
that would
like to build the scale of their business,'' Salomon Smith Barney Inc. analyst Alex
Henderson said.
Representatives at Marconi, Siemens's Unisphere Solutions Inc. networking-equipment
unit and
Resonate declined to comment. Top Layer spokesman Tom Burke said the company
hasn't ''put
ourselves in play.''
Alcatel spokeswoman Sarah Compton said ''there are no plans to acquire a data
networking
business,'' including F5, though ''we certainly are always interested if something fits into
the overall
strategy of the company.'' Alcatel's last large purchase of a data- networking equipment
maker was
its $6.9 billion takeover of Newbridge Networks Corp. in May.
Radware officials couldn't be reached for comment.
Extreme, Foundry
Extreme shares got a boost last month amid speculation, so far unfounded, that it might
be acquired
by a company such as Juniper Networks Inc. Both Extreme and Foundry concentrate on
switches
that speed data traffic along networks used by large offices and Internet service
providers. They lack
the bigger sales forces of Cisco and Nortel.
Foundry ''could be a takeover target, although I don't know who would take them over,''
said Christin
Armacost, an analyst at SG Cowen Securities Corp., who doesn't have a rating on
Foundry, Extreme
or Juniper.
Other analysts suggested the European equipment makers as possible buyers. Still,
they've had little
success in denting Cisco's dominance with a string of acquisitions in the last couple of
years,
according to Dell'Oro figures.
Buying Foundry or Extreme would be much more expensive than F5. Foundry has a
market value of
$9.94 billion, while Extreme's stands at $9.34 billion.
More Consolidation
Still, more consolidation will come in the non-optical networking-equipment industry, and
Extreme or
Foundry eventually could be bought, analysts said.
''As your revenues grow, in order to generate larger and larger growth, it just takes
larger distribution
channels and larger resources,'' said Chase H&Q's Suppiger, speaking generally. ''That's
easier to do
for a company that has large-scale distribution channels.''
Extreme's and Foundry's chief financial officers both said the companies are in for the
long haul.
Foundry CFO Timothy Heffner said the company would have a fiduciary obligation to
shareholders to
consider an acquisition offer, though he declined to say if Foundry has received such an
offer.
''We want to build a very successful company,'' Heffner said.
Extreme CFO Vito Palermo said his company has been focused on building a standalone
company
around its switches. He said he sees load-balancing and Web-switching companies, such
as Alteon
and F5, as having difficulty building larger companies around such technology.
ArrowPoint and Alteon ''are classic examples of companies that were destined to be
acquired,''
Palermo said. He declined to comment when asked if Extreme is interested in buying F5. |
