F5 Networks (NASDAQ:FFIV), a leading provider of application delivery networking technology, has broadened its security offerings in recent months with the introduction of a new data center firewall solution. Large deals in data center firewall business pitches the company against the likes of Juniper Networks (NYSE: JNPR) and Check Point Software (Nasdaq:CHKP) in what could be a sizable addressable market. As competitors Cisco Systems (NASDAQ:CSCO) and Hewlett-Packard (NYSE:HPQ) continue to rebound from a disappointing 2011, there will be increasing pressure on F5 Networks to continue to perform. Hence by leveraging security offerings the company could see accelerated growth and will also act as buffer to absorb any potential revenue loss arising from the networking division. Also, 4G LTE networks will enable F5 to increase its subscriber base in telecommunications.
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In Q2, the company saw strong sales of ASM, APM, Edge Gateway and DNS security modules and a growing demand for its TMOS based firewall solutions. With TMOS v11 running on VIPRION 4400, the company boasts of delivering more than eight times the throughput than its competitors’ at a significantly lower price.
With its Big-IP 11.1 software passing the ISCA tests for network firewalls, F5 shook up the firewall market with its entry in February 2012. Apart from improving products, the company is also coming out with innovative programs to boost its security solutions sales. It recently launched a global security partner program named “Vault,” a global program designed to offer targeted incentives, rewards and technical training resources to support the joint sale of F5 security solutions that include network, applications, data and user access under its unified security strategy.
With the explosion of data and processing required online, this is one segment that is bound to see growth in the coming years. With increased focus on selling security applications, the company will benefit from the proliferation of data in the market.
The company expects to launch its TMOS upgrade code-named “Solar” which targets corporate customers and telecom service providers. F5 also claims to focus on protecting Web applications from Internet attacks, which will set it apart from network-focused security providers.
Increasing Subscriber Base with 4G LTE Networks
Telecommunication is one of the important customer bases for F5 Networks, contributing around 27% to the total sales. In February, the company expanded its Telco-related capabilities with the acquisition of Traffix Systems, a leading provider of Diameter signaling product for service providers. The Diameter protocol has gained industry-wide acceptance by the 3GPP and GSMA as the standard for network signaling in all 4G/LTE networks. This further increases F5’s exposure to the network market.
Application delivery network is an important division for F5, accounting for almost 30% of our price estimate. We believe that F5 Networks’ market share will increase by about 3% in the coming year and grow further to reach 38% by the end of our forecast period.
The year 2012 should be an exciting year for the company with the TMOS version 11 upgrade and increasing subscriber base due to 4G LTE networks. We believe that with new product cycles and focus on non-traditional areas such as security applications, the company will not only maintain its lead in core ADC market, but could also see good results in the incremental growth areas.
We have a Trefis price estimate of $128 for F5 Networks, which is slightly below the current market price.