Beyond The #’s: F5 Networks Fiscal Q2 2011 Recap

The most relevant business, technology and market takeaways from F5’s earnings:
Business Angle
  • Growth Driver…Product revenue +34% y/y, App Delivery Controller (ADC) continues to be fundamental driver of overall growth
  • Cautious on Japan…Revevenue growth driven by strong americas and apac performance, EMEA was below internal plan, Japan down sequentially, remain cautious on Japan in near-term
  • Normal Discounting Levels…Nothing different this quarter, discounting in line w/historical levels, deal by deal it was business as usual, linearity very consistent with March quarter a year ago
  • Business Outlook…Encouraged by continued momentum in key driver, very confident about prospects for the second half of the year, but cautious in near term due to uncertainty about Japan
  • On Market Opportunity…“Don’t see saturation anywhere within customer base, think it is the opposite”
  • On hiring…Challenge right now is hiring, especially in development
Technology Angle
  • Application Modules…>30% of sales last qtr heavily influenced by application modules, nearly all of these modules derived from M&A over last few years
  • New Products…Mid-range Victoria platform to ship this coming quarter but on TMOS version 10, new TMOS v11 will ship next quarter
  • Riding VMware…Historically more than half of business has been influenced by virtualization/VMware, Microsoft also very strong, Oracle also had great pull through qtr as well
  • Still Trying To Make ARX Work…ARX revenue flat sequentially, ARX virtual addition intro’ed in Q2, also intro’ed ARX CloudExtender, two new platforms coming in the next 6 mos to improve price/performance story
Market Angle
  • Telco customer delays amidst LTE deployment…Telco revenue declined sequentially in US as providers build out LTE networks, expecting business benefit to accrue to them over time, feel strongly this is a big opportunity for F5
  • Strong Cloud Momentum…Sales growth to cloud infrastructure providers was up “triple digits year over year”, also Managed service provider penetration as a sell thru business was up significantly, acting as a very efficient channel
  • Federal Visibility…Very good quarter this quarter, have been investing in federal, very good visibility on projects and wins, some of the risk reduced from budget exposure b/c selling into programs run by large SI’s
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