F5 Networks CEO John McAdam has plenty to be happy about.
Heading into F5's annual Agility partner conference, where McAdam will be among F5 executives addressing some 800 partner attendees this week in New York, F5 is a billion-dollar company, is making inroads into security and other infrastructure markets helping it push beyond its application delivery networking core, and is delivering admirable financial results and hiring at an impressive clip.
For sure, F5, which by most estimates controls about half of the Layer 4-7 switching market, has slowed a bit. For its third fiscal quarter, F5 posted revenue of $352.6 million, up nearly 4 percent from $339.6 million sequentially, and over 21 percent from $290.7 million. Results were strong, even if several analysts needled F5 for merely landing in-line with analyst estimates and projecting a weaker-than-expected Q4: $360 million - $370 million compared with a Wall Street consensus of $377.8 million.
But with a forthcoming major refresh of its best-known lines -- including the next version of TMOS, F5's software architecture, and key products like its VIPRION chassis-based application delivery controllers -- and a strong and loyal channel to support them, it's hard to imagine F5 losing too much momentum.
CRN Senior Chad Berndtson spoke to F5 CEO McAdam about the road ahead. Edited xcerpts of the conversation follow:
So Q3 looked solid, even if your revenue growth slowed, and a lot of the analysts thought it a little weaker by F5 standards and weak in guidance. Were you happy with the results?
I've got to say yes. We're used to beating guidance, and feeling like we've done extremely well. We did see some slowness in the economy. But a lot of companies would give their right arm to have those kinds of results, our profits, our cash and 20-plus percent growth.
But you did mention a cautious spending environment. "Cautious" means different things, so what are you seeing specifically?
I do mean "cautious." We don't see the same situation that we did at the beginning of 2009 where things were really rough. For us at this time, it might be something like, and I'm making this up, it's a $3 million deal and it's a scenario where $1 million comes in and they've postponed the second piece of it. It's that type of environment right now. But there's a danger in reading too much into that, and I don't think it's anything like the 2009 scenario. We just hired 100 net-new people last quarter, and this quarter, we'll be hiring about 125 net-new people. In that 2009 scenario, we hired nobody. That's a big difference, in our view.
What's the feedback you're hearing from CIOs and technology buyers?
It's the same stuff you see when you watch CNN, or MSNBC, or Fox or whatever it is. I'm using the word cautious a lot, but we are very aggressive.
NEXT: F5's Virtualization Approach
One thing that's come up a lot is how F5 is emphasizing virtualized application delivery networking products. A lot of the startup players entering the ADN space push an all-software approach. Is this a big area of focus for F5?
Yes it is, but it's very small right now -- we're talking about a very small percentage. But all the capabilities we're building for cloud apps or optimizing cloud apps in the data center or adding security, we're doing that for both the virtual side of the things and the systems side. That includes management. You can manage BIG IPs and some can be software only -- some can be VIPRIONs with multiple choices. But virtual versions versus [physical] system versions, I don't think that happens anytime soon. I think that's three to five years or a longer type of scenario. You do want to be able to spin up software at will depending on workloads and user requirements, but you're also seeing these massive traffic requirements in mobile and other scenarios that need very specialized hardware: high speed bus capability, for example.
So is the customer preference trending toward hybrid environments?
It is. Some big growth is in our VIPRION chassis, which were up 82 percent over this time last year. We're seeing a gravitation toward being able to pull multiple solutions into a one-system world. The VIPRION chassis gives you application optimizing, some encryption, you're certainly doing security at the application level, so you're wanting to have that unified platform.
The efficiency of it is what's attractive then?
Efficiency, the ability to add easily, the ability to cope with the traffic and increasing traffic needs, all those types of the things. And if you have VIPRION, we can have virtualization within the VIPRION chassis, that's becoming very popular. VCMP [Virtual Clustered Multiprocessing, which combines virtualization and multi-tenancy capabilities for managing application delivery services] was the feature we introduced last year that is probably most of interest.
Let's talk about F5's security traction. You've given some metrics on how quickly F5 is growing as a security vendor and it seems like that push, at least from a marketing perspective, has been well received by your reseller and integrator partners with security practices. What are you looking at that shows that traction?
Oh, we're beating what we set out as [metrics] internally. You have products like the Access Policy Manager (APM) and the Application Security Manager (ASM) growing significantly, and the biggest software drivers sitting on top of BIG-IP. What I said on the call was that the attach rate on BIG-IP platforms hit a record high last quarter, and that was mostly driven by the security modules.
The other area we're seeing major sales of is data center firewalls. That's growing very aggressively. We haven't given a specific number and I won't now, but one thing we are going to do, is that come December, when we have an investor/analyst day, we're probably going to talk much more in detail about our security wins. You buy a BIG-IP from us and on that BIG-IP, you're doing encryption, Sharepoint optimization maybe but also running an application firewall. Is that an application sale or a security sale? We want to make that more obvious to the investors and analysts. But it's easy to measure, we have monetary targets internally and we are way ahead of where we thought we'd be.
And you'll be making big security product updates?
The big news is in TMOS and something we're calling "Topaz" internally. It's a fully-loaded data center Layer 3-7 firewall, and by that we mean a traditional firewall that also has the application side integrated with it as well, and the best performance as well. I wish we had the product tomorrow. It's on our next TMOS release and it's on the roadmap for the end of this year.
NEXT: Will F5 Acquire In Security?
A lot of this seems like it's happening organically. Will you acquire in security too?
We're always looking. You're never going to get me to say we will or we won't acquire. If it makes sense to acquire rather than build, well, we're looking at technology, looking at other companies, looking at whether it's such a good fit we can use that channel and have synergy.
But you have the pieces you need?
No, not quite. If you look at another area we're interested in, device management and what's happening around BYOD, we're looking at that. We're doing some stuff internally.
Speaking of your acquisition strategy, you are branching out again. In February you bought Traffix and I understand the interest in Diameter-based signaling products for 3G, 4G/LTE and IMS traffic, but that's a space where it's fair to say a minority of your channel partners focus.
That's correct, that's really focused on the service provider space. Partners like an Ericsson, that type of partner. But having said that, our belief internally is that with the classification capability that comes along with the whole service provider space, [channel partners] do want to look at some of the service provider solutions. Maybe not Diameter, and I don't want to be too specific, but a lot of technology companies are interested n that whole ability to see what service providers are doing. That's how it's more in the general channel.
You've talked up what sounds like an across-the-board product refresh. What's coming?
The first piece we will be a classic product refresh, yes, where we add five times the performance and a significant price performance advantage. The whole appliance line will be refreshed, so almost by definition that becomes a growth driver. We're building an eight-slot VIPRION chassis, which we currently have in four slots.
And there are updates for TMOS?
Absolutely. Here's the way we think about the business at the moment. We think of the core application optimization business, we think of security and that being the next area of business for us, we think of service provider, which is specific in itself and the traffic management business, and the fourth area we think of is the whole area of the cloud and management. I know they're all intertwined, but we view them as fairly differentiated. What we're doing in the next release is in management versions across all the hypervisors -- more and more management over time to effectively orchestrate applications easily and build policies.
NEXT: F5's Competition Mounts Up
We've talked about the competitive mix before and in application delivery networking, F5's base, that mix hasn't changed all that much. But as you grow into other areas like security it seems like you will be competing more with the likes of Cisco, Juniper, Palo Alto Networks, Riverbed, taking on new competitors as you grow out from that base in concentric circles. So how does that mix change?
It's an interesting question, and you're right, a lot of what we do isn't just load balancing sales, and we will come up against definitely Cisco and Juniper, to some degree Check Point though not so much, and probably Palo Alto over time, who knows. In the core businesses it is the usual: it's Radware, it's Citrix, it's A10. Not a big change.
You don't see Riverbed as a competitor?
Not much, no. We look at the number of our engagements and the win rate, and they're pretty much almost not on the charts.
I understand the differences between your data center approach and what they picked up with Zeus in application delivery controller technology, but you don't see your focuses coming more in line with the other?
I doubt it. If you look at the performance, it's maybe a 2-Gbps, maybe a 3-Gbps or let's say 4-Gbps for the sake of argument. Our mid-range VIPRION 2400 starts at 14-Gbps and goes up to 160-Gbps. That's just simple performance, and in an encrypted environment, forget it. There are so many constraints on what they can actually do, it's pretty limited. If you look at what we've got -- and all our modules come in virtual editions as well -- they're so far behind in that area.I'm not knocking on them so much as giving my opinion on the difference being so big between having a solution system and not having it.
You've talked in the past about how important your hiring philosophy --deliberate, careful hires especially among your top people -- is to preserving F5's culture. You haven't lost a lot of executives, at least compared to other companies. Were you surprised by [former F5 global head of sales] Mark Anderson's departure?
I was very surprised, and not happy. I don't mean personally unhappy -- he remains a personal friend -- but I didn't hide my reaction. I imagine things happening this week [Palo Alto's planned IPO] had some impact on his decision. But Dave [Feringa, former F5 America sales chief, who replaced Anderson] has been with the company for seven years and was in charge of 60 percent of our sales. It was just like when [Anderson predecessor] Tom Hull moved on, I promoted Mark. Now Mark's moved on, and good luck to him, and Dave's in. But the overall turnover with us is very, very low. It really is. Much as you don't like to see anyone leave, it does happen.
Any plans to add other executive-level positions at F5, like you did with Manny Rivelo?
We are filling Dave's position, and we had multiple candidates for that, so that shows you the bench strength. But I have been thinking. Manny's capability in security in terms of being cross-functional has been awesome. I have been pondering maybe a similar move like that.
PUBLISHED JULY 23, 2012