Queue up F5's CEO of John McAdam as he prepares to address Wall Street for the company's quarterly call to discuss the state of the business. Out he comes and is asked to walk everyone through the past quarter. He goes off on a rant and shouts, "We're the best ADC in the game! When you try us with a sorry ADC like Netscaler, that’s the result you’re going to get. Don't you ever talk about F5 or I'll shut you up!"
That, of course, didn’t happen, but the tech industry would be a whole lot more interesting if tech CEOs acted more like the Seahawks' Richard Sherman and beat their chests a little more. This was a quarter where F5 could have gotten away with it.
Over the past year, the former darling of the tech industry had fallen on hard times. The business had slowed down and the stock had dipped below $70/share, a number it hadn’t been at since 2010. This prompted many to wonder if F5’s best days were behind them, partially due to the fact that Citrix had stepped up the competitive pressure through its Cisco partnership.
Well, if this past quarter was any indication, it appears the rumors of F5’s demise were premature as the company had a nice rebound and appears back on the growth track that we’ve all come to expect from the market leader in ADCs. I think there are a few reasons for this, including the following:
- Product cycle refresh. This was the second full quarter for F5 following what some (myself included) think was the most significant product upgrade in the organization’s history. Typically, F5 upgrades a hardware platform or software release every year or so and the company sees the increased business a couple of quarters after, so there appears to be nothing out of the ordinary here. However, this past upgrade cycle, F5 upgraded its entire ADC product line, something the company had never done. This was an important step for F5 to rationalize the product line down, making it clearer for customers as to which product to buy and bringing feature parity to all products. Now that we’re entering the third quarter of availability, the company should start seeing product sales ramp up.
- Growth in security business. Security has always been important to businesses, but it seems in this current consumerized, cloud-driven IT era, security importance has reached an all-time high. When F5 first launched its security products, I was skeptical as to the success the company would have, as security is a highly competitive market with lots of best-of-breed vendors in it. F5 has done a great job executing on its security strategy and now has the ability to deliver security features across its low, mid and high-end products. On the call, F5 management discussed how the majority of security sales were from new products supporting the thesis and the current environment, combined with the product refresh have enabled F5 to continue to grow its security business.
- Rebound of the telecom business. F5 has had a bit of a bumpy ride with its telecom strategy, but this past quarter cited a nice, healthy rebound in that market. Industry chatter suggests that the level of F5 business coming out of Verizon and AT&T was very strong this quarter. Additionally, management discussed the strength of product sales related to LTE, as well as strong growth with its Traffix Diameter Signaling platform.
I fully expect F5 to continue to be the class of the ADC market into the foreseeable future. The new products combined with some favorable market trends, such as more virtualization, SDNs and mobility, should enable F5 to catch another wave of growth.