F5 Growth Supports $120 Value Despite Slowing IT Market
Though F5 Networks‘ (NASDAQ:FFIV) sales growth is slowing, it is still outpacing the growth of the IT hardware market. F5 networks manufactures network controllers which are widely used in data centers for bandwidth optimization and speeding up of data. Meanwhile, its biggest competitors which include the networking behemoth Cisco (NASDAQ:CSCO) and Juniper (NASDAQ: JNPR) and other niche players like Brocade Communications and Riverbed technology are trying to force their way into the niche that F5 has created in the market.
We currently have a $120 price estimate for F5 Networks.
See our complete analysis of F5 Networks here
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F5’s biggest customers have typically been Fortune 500 companies with financial services and telecommunication service providers leading the pack. The government sector has also traditionally been a large source of revenue for F5. However, with the current economic slowdown especially in Europe, government spending is slowing which will weigh on F5 as well. Moreover, the financial services sector is still ailing from a difficult 2012 and could also cut IT spending.
However, reduced IT spending can very well prove to be a strong selling point for F5 as it does not sell expensive data centers; rather it sells solutions which can effectively optimize the customers’ existing data centers.
Many companies are upgrading data centers as they shift to cloud computing, and demand is strong for networking gear that makes computer servers more productive, such as the application delivery controllers that are F5’s strong suit. Research firm Gartner forecasts that ADC sales will double to $2.94 billion in 2015 from $1.45 billion this in 2011. F5 currently holds roughly half the market, having long overtaken Cisco as the number one ADC supplier.
F5 has also entered the Internet firewall market, which is aimed at protecting data centers. By pushing into firewall market, F5 is taking on another networking major Juniper Networks.
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