F5 Networks: Viprion high end modular switches continue to see robust demand

According to RBC Capital Markets, the high end modular switch - F5 Viprion continues to see robust demand.

RBC Capital Markets Managing Director - Mark Sue commented to yours truly:

"There's still a nagging issue with the ARX virtualization switches, but it doesn't seem to matter much since F5 is revamping its WAN Optimization product and the core business remains strong." "Furthermore, it's not a head to head approach with the improved software enhancements to the WAN Optimization line so F5 may be more successful this time around."

"Numerous new products are in the works in the core Big IP line to include: Gemini, Mercury, Apollo, which may all add to the strength of the current Viprion high end modular switch."

"Viprion continues to see robust demand, and in addition to dot.com, telco, and text and mobile customers, the product is making its way into more enterprise customers."

"The tone from F5's management team remains positive despite the macro environment and product cycle momentum remains strong."

"According to CEO John McAdams during a presentation at the RBC Technology Conference, F5 is not likely to see dramatic disruptions as it unwinds its older products and makes room for new BIG IP switches such as the 1600 and 3600."

"CFO Andy Reinland added that gross margins are not likely to be too different from the current product line so we're not expecting much deviation from last quarter's gross margins of 77.6%."

"New products may further help specific regions such as Japan which has been underperforming the past three quarters."

"F5 also expects to upsell higher end products in Japan over the coming quarters."

"In North America, F5 was hesitant to call the bottom in certain enterprise segments, although enterprise trends overall remain pretty solid."

"F5's operating margins were 25.4% last quarter and the company reiterated it focus on operating margin improvements although a long term target has not been established."

"We got the sense that it's not out of the realm of possibilities for FFIV to return to 30% operating margins longer term."

"Separately, F5 remains active with its share repurchase having repurchased $50M worth in the prior quarter."

"F5 has an expanding arsenal of new products and a rolling refresh of its products may enable the company to sustain its long standing trend of sequential revenue growth."

"F5 currently trades at 18x our CY09 EPS estimate and 2.9x our CY09 revenue estimate net cash."

"Our 12-month price target is $32 and represents 18x our CY09 EPS estimates, a slight premium to the group due to our view of sales re-acceleration."

"F5 maintains approximately $3.26 per share in cash."

"Impediments to reaching our price target include competitive pressures, a prolonged IT spending recovery period, and geo-political risks."

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