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Any reports of discord among Riverbed channel partners -- inevitable, given the company's dominance of its core market -- are quickly seized upon by smaller rivals looking for any excuse to pounce. A range of upstart competitors, from Silver Peak Systems to Circadence and Aryaka, has taken aim at Riverbed's WAN optimization base with aggressive channel recruitment campaigns.
But the other, more frequent charge against Riverbed is that it's gotten ambitious about market expansion to the point of distraction and even confusion. The company's first-quarter earnings, reported in mid-April, were enough to give industry watchers pause. Riverbed saw a decline in quarterly profit and also saw revenue that, while up from a year earlier, missed analyst consensus estimates by as much as $3 million. In addition, it offered a weak second-quarter forecast that was well below what Wall Street was expecting: earnings per share of 21 cents to 22 cents on revenue of $193 million to $197 million, compared to Street projections of 24 cents per share on $202 million.
Most financial and technology analysts see Riverbed's first-quarter setback as temporary, however, and related to what Jayson Noland, senior analyst with Robert W. Baird & Co., described as "disruption caused by a complicated product refresh."
"Per checks, we concur with the company that some purchase decisions were pushed out of Q1 as buyers deliberated between three unique Steelhead platforms," Noland wrote in an April 20 note to clients. "We also believe management is asking a lot of its sales force given a plethora of new adjacent products."
That Riverbed's product expansion is necessary doesn't make it any less of a challenge, other analysts said.
"Clearly, Riverbed is going through a painful transition in the field as it broadens its product suite beyond its core WAN optimization market opportunity in hopes of finding its next leg of growth," said Daniel Ives, senior analyst with FBR Capital Markets. "While this is a necessary step and a strategy we ultimately believe will bear fruit during [second-half 2012/2013], it will be a bumpy road during this transition and we fully expect many investors to hit the sell button … given the uncertainty surrounding the story."
Is so much product expansion necessary? Longtime Riverbed solution providers told CRN that yes, Riverbed has to branch out to maintain its market lead and grow its top and bottom lines. WAN optimization appliances aimed at enterprise branch-office locations will only sustain the company and its channel for so long.
"The branch office is less central now, at least compared to what CIOs think about when they want to deliver applications more efficiently to mobile users," said the top sales executive at a West Coast-based Riverbed partner, who asked that his name not be used. "What we're looking at now is a more holistic approach with the application and one not tied to a symmetrical solution where there are just boxes on either side of a circuit. The symmetrical solution doesn't totally address a lot of the newer shifts in the market."
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