Riverbed expected to maintain its WAN optimization market share

Riverbed's gross margins were guided to decline to 76% from 78.1%.

On Tuesday, Feb. 2, WAN optimization vendor - Riverbed Technology will release its 4th quarter and fiscal year 2009 financial results. In his research note today, my favorite Wall Street tea-leaf reader - RBC Capital Markets Managing Director - Mark Sue, gave his take on what investors should expect from Riverbed's upcoming financial results: "The WAN optimization market may rebound in 2010 and we expect Riverbed to maintain its market share. We're looking for additional specifics as they relate to Riverbed's ability to address the public & private cloud networking opportunity. Gross margins were guided to decline to 76% from 78.1%, but we don't believe the slide may be that dramatic as product and channel mix recovers. We expect Riverbed to calibrate its OM guidance for CY10 in the low to mid 20s (22% recently), yet we note that, similar to most companies, Riverbed has started to hire again. Another thing to look for is the sequential growth in inventories, which grew 32% QoQ in the prior quarter to $12.1M.

"Regionally, the story for the sector has been North America, and for Riverbed, we're modeling this region (57%) to lead in terms of revenue and bookings growth. Europe (25%) due to several large deals may also show a meaningful bounce. Overall revenue guidance for the March quarter may be $108M to $112M (vs. our printed $108M) with a positive book-to-bill greater than 1.0. Riverbed may also see positive trends in Asia (18%) driven primarily by near term strength in China and Australia. Enterprise-wise, financials may be recovering for Riverbed along with technology and manufacturing." Sue concluded, "Similar to most networking companies, Riverbed may post upside to the December quarter while providing an incrementally positive outlook for 1Q10. We don't have an exact read this time around, yet we believe some incremental year-end flush may enable Riverbed to post sequential revenue growth in the high single digits closer to $110M vs. the guidance of $104M to $107M. We do expect some better distribution of customers this time around vs. last quarter, which saw government swell to an uncomfortable 29%. On EPS, we expect Riverbed to post at least a penny of upside to the consensus of $0.18."

What's your take, do you agree with Mark Sue that Riverbed can be expected to maintain its WAN optimization market share?

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