F5 Networks (NASDAQ:FFIV) has performed satisfactorily this year. Shares for the networking equipment maker have increased more than 12%, outperforming the analyst expectation and rival Cisco (CSCO). The company recently launched robust second-quarter results that exceeded expectations and resulted in several price target upgrades. Looking at the problems faced by Cisco, the performance of F5 could improve further as it is making some excellent moves that are worth noting.
A strong performance
F5 performed excellently in the second quarter. An increase in demand from its telecom customers increased the revenue by 20% year over year. Earnings per share for the company were recorded at $1.27 per share, exceeding analysts’ estimates of $1.25 per share. F5 is witnessing a number of positives in the business. The company’s business in America, Europe, Middle East and Africa, and Japan grew in the double digits in the last quarter.
F5 has planned a number of strategies to improve upon the operations. One such strategy is its pricing and tiering strategy, in which it classifies products as good, better, and best. This move is welcomed by customers, especially the best category. The sales of products that are included under this tiering strategy increased 83% quarter-on-quarter for the second quarter.
Going forward, the security segment should enable robust growth for F5. The company is making healthy progress in this area with two multi-million dollar sales deals in the second quarter. As per management, the solutions of F5 replaced existing competitors’ solutions. F5 has a very robust security solutions portfolio that addresses Application Security Manager, Access Policy Manager, and Advanced Firewall Manager.
The advanced firewalls business of F5 is gaining popularity as illustrated by a Tier 1 service provider purchasing its AFM firewalls to replace existing traditional data center firewalls. At present F5 has two world-class security operations in Seattle and Tel Aviv to assist its new online security service that it gained after acquiring Versafe. There are several contract wins of its Versafe services such as Internet anti-fraud, anti-phishing, and anti-malware solutions.
A key partnership
Going ahead, F5 has partnered with VMware (VMW) to strengthen its security portfolio. These two companies are focused on providing a secure experience to the mobile workforce, with the ability to securely access applications irrespective of location. In addition, F5 and VMware are working on lowering cost and to make deployment easy through their partnership. F5 has recently introduced virtual additions of BIG-IP Access Policy Manager. These are specially delivered for VMware's Horizon View environment.
F5 partnership with VMware is very crucial as the latter is a key player in cloud management, automation, and virtualization. During the fourth quarter, the bookings for VMware in cloud management and automation increased 40% as software-defined networks are gaining traction. So, going forward, even F5 might see an increase in bookings along with VMware as a result of this partnership.
F5 is targeting the virtualization market through aggressive moves. Recently, it released its new TMOS version 11.5, which is the most recent version of F5's virtual orchestration engine BIG-IQ. This new version has a new functionality for centralized management solutions. Going forward, this new product coupled with its competitive pricing can help F5 gain more customers.
Cisco ‘s declining condition can benefit F5. First, Cisco is dealing with a confidence crisis in the emerging markets after the spying scandal that showed up last year. Further, Cisco's impression was again hurt when it was revealed that the Heartbleed bug is affecting its products and services. Cisco reportedthat 11 products and 2 services were susceptible to Heartbleed in the previous month.
Going forward, F5 compared with Cisco and capitalized on its troubles by illustrating how its products are immune to the vulnerability. The management states that its customers have been protected from the Heartbleed bug since its introduction in OpenSSL.
F5 looks in a comfortable position. The company is capturing new contracts, its product innovation is excellent, and it is trying to gain the most from its competitor's declining condition. Going forward, F5 can continue to raise that makes it a good investment.