Networking Sector: F5, Juniper, Akamai

I have written extensively on Cisco and other networking companies as part of the Online Video Beneficiaries Series in which I suggested that smaller networking players will consolidate to take it on. The core businesses of Cisco’s biggest rival, Juniper, are going strong. F5 is also taking small steps in fighting Cisco in its niche of application delivery networking.

Let us take a closer look at their recent performance. I will also be looking at another online video beneficiary, Akamai, which figured in my recent list of Seven Stocks for Long-Term Hold.

On July 23, F5 Networks, Inc. (NASDAQ: FFIV) reported Q3 results that beat analyst estimates. Revenue was up 25% y-o-y and 4% q-o-q to $165.6 million, versus Street estimates of $161.4 million. GAAP net income was down 12.4% y-o-y $19.1 million ($0.23 per share), compared with $21.8 million ($0.26 per share) last year. Non-GAAP net income was $30.2 million or $0.37 per diluted share versus analyst estimates of $0.22. Earlier coverage is available here and here.

GAAP gross margin was 76.9%. Deferred revenue was up 13% to $139 million. F5 bought back shares worth $50 million and ended the quarter with $447 million in cash and investments.

Revenue from the core application delivery networking business, accounting for 92% of revenue, grew 6% q-o-q to $153 million. ARX storage virtualization products revenue was $5.1 million, down 4% q-o-q, and was about 3% of total revenue. Revenue from FirePass was $7.5 million, flat with Q2.

F5 recently announced new products, the BIG-IP 1600 and the BIG-IP 3600. It plans to revamp its entire BIG-IP product portfolio to strengthen its competitive position with ARX, BIG-IP and VIPRION products.

By region, Japan continued to be weak and brought in just 7% of revenue. The Americas accounted for 58% of revenue, EMEA 21% and APAC 13%.

For Q4, F5 expects revenue in the range of $172 million to $174 million. GAAP gross margin is expected to be between 76% and 77%, and the GAAP EPS target is $0.19 to $0.20 per diluted share. Non-GAAP EPS is estimated to be between $0.38 and $0.39 per diluted share. Analysts estimate EPS of $0.24 per share on revenue of $169.1 million. F5 is currently trading around $29, picking up from the 52-week low of $17.70 on April 8. Market cap is about $2 billion.

On July 24, Juniper Networks Inc. (Nasdaq:JNPR) reported results for a strong Q2 that beat analyst estimates. It also announced that Kevin Johnson from Microsoft will be the new CEO from September.

Net revenue grew 32% y-o-y to $879.0 million. GAAP net income was $120.4 million, or $0.22 per share, up from $86.2 million, or $0.15 cents per share, last year. Non-GAAP net income was $156.6 million, or $0.28 share. Analysts estimated earnings of $0.27 on revenue of $852 million. Earlier coverage is available here and here.

Juniper’s operating margin increased to 18.3% from 13.0% last year. Net cash from operations increased to $200.5 million. According to Synergy Research, in Q1 Juniper was the No.2 service provider routing and core routing. It gained share in the edge, the BRAS and multi-service edge categories and maintained share in the Ethernet edge category.

Infrastructure revenue grew 40% y-o-y and 8% q-o-q to $672.5 million driven by strong MX and T series sales. Service Layer Technologies (SLT) revenue was $206.5 million, up 12% y-o-y and 2.7% q-o-q driven by growth in the SSG, J series and IDP products that was partially offset by declines in WX products.

Regionally, both EMEA and APAC had strong quarters. EMEA revenue grew 44% and APAC revenue 35%. In the Americas, Latin America and Canada had strong growth in the service provider and enterprise customers. In the US, the service provider business declined sequentially due to delayed purchases but grew on a y-o-y basis.

For Q3, Juniper expects revenue between $925 million and $935 million and non-GAAP EPS between $0.29 and $0.30. Gross margin is expected to be in the range of 66% to 68% and operating margins are expected to be roughly flat sequentially.

For the full year, Juniper raised its revenue outlook to $3.59 to $3.62 billion, from $3.4 to $3.55 billion. Non-GAAP EPS is now expected between $1.14 and $1.17. The stock is currently trading around $26 after hitting a 52-week low of $21.23 on July 11. Market cap is about $13.75 billion.

Yesterday, Akamai Technologies, Inc. (NASDAQ: AKAM) reported Q2 results that missed analyst revenue estimates but met the lower end of its forecast for last quarter. Last year, when we first covered Akamai, it had phenomenal growth rates of above 50%. Revenue was $194.0 million, up 27% y-o-y and 4% q-o-q but below the Street estimate of $197 million. Net income was $34.3 million, or $0.19 per diluted share. Adjusted net income was $76.5 million, or $0.41 per share, in line with analyst estimates.

The number of customers under long-term services contracts at the end of the second quarter increased by 53 to a record 2,725. Average revenue per customer was up 19% y-o-y to $23,700.

Revenue in North America was affected by the economic slowdown and grew only 2% q-o-q and 22% y-o-y. International sales grew 4% y-o-y and 8% q-o-q.

For Q3, Akamai expects revenue in the range of $193 to $198 million and EPS between $0.39 and $0.40.

For the full year, Akamai has decreased its revenue guidance to between $785 and $800 million or 23% to 26% growth. EPS is expected between $1.63 and $1.69. The stock is currently trading around $31 with a market cap of around $5.25 billion.

I like all 3 companies discussed here, by the way.

This segment is a part in the series : Networking Sector