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F5 Networks has nearly 20-point market share lead over Cisco
Tue, 6/15/10 - 3:30am    Add your comment

This week Infonetics Research released its 1Q10 Data Center Network Equipment market share and forecast report.

According to the report, in a little more than a year during the tough economic situation, F5 Networks gained an almost 20-point application delivery controller (ADC) market share lead over Cisco. Personally, I find F5's market share lead remarkable when considering that as recently as 4Q08, F5 and Cisco were running neck and neck in the ADC market share race.

View F5 Networks' 2010 Application Delivery Controller Performance Report

Meanwhile, RBC Capital Markets Managing Director - Mark Sue, provides some additional color on F5 Networks, "FFIV began to see a meaningful rebound in its business starting in 2Q09 and the company's tone remains positive. Much of the strength is driven by positive trends in data center consolidation, which F5 believes is sustainable. And, if anything, F5 has more new products in the pipeline: an application switch tailored for wireless service providers as well as a new high-end product above the current Viprion and a mid-range 'Victoria.'

"As it relates to Europe (~24% of sales), FFIV has not seen any signs of weakness and the Company conducts most of its European business in the UK, France and Germany. In fact, FFIV is seeing big deals that are trending upward in this market."

F5 Networks (FFIV) vs. Cisco Systems (CSCO) Stock Chart

Source: Yahoo! Finance

Sue continued, "Management remains keenly focused on adding headcount behind revenues. Last quarter, F5 added 81 people and management is closely monitoring business trends before filling its guidance range of 80-100 heads this quarter. While some investors are concerned about a saturation in market share, management pointed to the fact that it controls ~39% of a growing market. FFIV is in 55% of Fortune 500 companies and maybe 20% are reasonably penetrated, where it can do $1M + per year."

Sue added, "Segment-wise, F5's execution with the federal government has been strong and it sees more opportunity for Telcos (specifically mobile). The Financial vertical is also a good opportunity for F5 due to network and business consolidation trends occurring at the same time."

Finally, Sue concluded, "Looking ahead, management thinks they can organically grow their business to cross the $1B mark in revenues as part of their 5-year outlook. Next year, F5 plans to roll out new software for its product portfolio and bring the Viprion chassis into the mid-range (internal code name 'Victoria'). This should expand F5's market opportunity due to the lower price point. Overall, we are constructive on F5's outlook and encouraged by the Company's financial model."

Fantastic related story by Brad Casemore:

Learning from F5's success against Cisco

What's your take on why F5 has an almost 20-point market share lead over Cisco?

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