RBC Capital Markets Managing Director - Mark Sue provides his take on today's F5 analyst presentation, "F5 pointed to the expanding market for advanced application acceleration networking, the growing data center opportunities and its growing product roadmap. Feedback on F5's new hardware and software remains favorable and the Company maintains its high win rate. While the company is ramping headcount, management reiterated its efforts to maintain operating margins near 30%."
Sue continued, "F5's financial model remains healthy with gross margins improving to 80% from 79.5% last quarter, helped by new product mix and strong services contributions. Looking ahead, F5 said pricing is not a factor implying F5's gross margins will hold near term. Operating margins are also healthy at 31.7% and the steady improvement to the pre-Acopia acquisition level seems to be sustainable. F5 added 40 employees in 4Q09 and plans to add 60-80 employees near-term, primarily in R&D and sales with a specific focus on Telcos, EMEA and APAC. F5 has 1,645 employees."
Sue added, "File Virtualization may grow rapidly and F5 is pointing to the increased rate of adoption of file based vs. block based storage. F5 is expanding its BIG-IP reach which will soon incorporate a soft version of ADC that can be trialed by customers. Additionally, the upcoming release named 'Equinox' V10.1 will focus on WAN optimization and Access Policy Management primarily for identity management."
Sue concluded, "F5 is targeting the Data Center, strengthening partnerships with HP, IBM, DELL, Oracle and VMware. Revenue opportunities from these alliances and a legacy base refresh opportunity with only 16% of ~81,000 F5 platforms installed worldwide, should provide a tailwind in 2010. If F5's investment in ARX, with the Company implementing a 1.5X 'kicker' paid on ARX bookings, come through our 2011 estimate of $2.36 could prove conservative. Our CY2010 estimate is $782M (+16% YoY) and $2.05. With incremental top-line strength and margin leverage, our estimates may ultimately end up closer to an optimistic scenario of $2.20."
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F5 maintains its high win rate
Sue continued, "F5's financial model remains healthy with gross margins improving to 80% from 79.5% last quarter, helped by new product mix and strong services contributions. Looking ahead, F5 said pricing is not a factor implying F5's gross margins will hold near term. Operating margins are also healthy at 31.7% and the steady improvement to the pre-Acopia acquisition level seems to be sustainable. F5 added 40 employees in 4Q09 and plans to add 60-80 employees near-term, primarily in R&D and sales with a specific focus on Telcos, EMEA and APAC. F5 has 1,645 employees."
Sue added, "File Virtualization may grow rapidly and F5 is pointing to the increased rate of adoption of file based vs. block based storage. F5 is expanding its BIG-IP reach which will soon incorporate a soft version of ADC that can be trialed by customers. Additionally, the upcoming release named 'Equinox' V10.1 will focus on WAN optimization and Access Policy Management primarily for identity management."
Sue concluded, "F5 is targeting the Data Center, strengthening partnerships with HP, IBM, DELL, Oracle and VMware. Revenue opportunities from these alliances and a legacy base refresh opportunity with only 16% of ~81,000 F5 platforms installed worldwide, should provide a tailwind in 2010. If F5's investment in ARX, with the Company implementing a 1.5X 'kicker' paid on ARX bookings, come through our 2011 estimate of $2.36 could prove conservative. Our CY2010 estimate is $782M (+16% YoY) and $2.05. With incremental top-line strength and margin leverage, our estimates may ultimately end up closer to an optimistic scenario of $2.20."
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Sincerely,
Brad Reese on Cisco
Network World Cisco Subnet
BradReese.Com Cisco Refurbished
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