F5 Networks Hits Milestone: $1B In Revenue

Seattle-based F5 has built one of the channel's most enthusiastic partner communities behind its ADC and data center infrastructure technologies. During the F5 Agility 2011 conference in Chicago this summer, CEO John McAdam touted F5's role in virtualization, cloud infrastructure and the overall move toward what F5 is calling the "application era" -- a focus by IT managers on optimizing specific applications vs. the networks they run on.

For its fiscal fourth quarter, F5 reported revenue of $314.6 million, up 8 percent sequentially and up 24 percent from $254.3 million in the year-ago quarter. For its fiscal 2011, F5 reported revenue of $1.15 billion, up 31 percent from the $882 million it had in 2010. F5's GAAP quarterly profit climbed from $62.5 million in the year-ago quarter to $67.6 million in the 2011 fourth quarter, and its GAAP annual profit increased from $151.2 million to $241.4 million.

Much of F5's success was healthy interest in its newer products, including what McAdam described as higher-than-expected demand for Viprion 2400, F5's midrange chassis, and Viprion 4400, its high-end chassis.

Availability of TMOS v. 11, the latest version of F5's software architecture, also boosted customer interest in F5 products. McAdam said in F5's earnings statement that during 2012 F5 plans to release "several new Big-IP platforms designed to support vCMP," the feature in TMOS v. 11 that allows them to run multiple instances of F5's Big-IP application delivery technology on the same platform.

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F5 unveiled the latest version of Big-IP earlier this year, and one of its key features was the ability to enable application security, network access control, application acceleration and other application delivery functions via a single management pane, and provision and manage those resources faster and more granularly.

For its solution provider community, F5 has sought to steer partners toward bigger business conversations and pitch F5 technologies as "the Swiss Army Knife of the data center." Over the next two years, F5 will roll out a certification program that will in effect brand partners as high-touch consultants who can help customers better embrace virtualization and cloud using F5's tools.

F5 remains the dominant player in ADC technology, controlling about half of the Layer 4-7 switching market, according to most analyst estimates. That blows away the market share of F5's closest ADC competitor, Cisco, which is more than 40 times F5's size by revenue.

Analysts continue to see F5's strength in how it aligns to industry trends around cloud, virtualization and data center optimization. In a research note following F5's fourth-quarter earnings announcement, Jayson Noland, senior analyst with Robert W. Baird and Co., said F5's product is becoming "increasingly important" as customers boost their investments in server virtualization.

"[F5] is a prime beneficiary of data center upgrades related to virtualization, SaaS and cloud computing, which could drive above-average revenue growth rates as the IT spending recovery continues," Noland wrote.

Noland cautioned, however, that F5's growth may slow in the coming years, especially as smaller ADC specialists take aim at its dominance and data center optimization technologies become ubiquitous.

"We don't expect F5 will be able to take market share or expand operating leverage at the same pace as the last few years," he wrote. "We believe competitive products from Citrix and A10 Networks are also showing traction as some newer applications, e.g. VDI, don't require all the features and functionality offered by F5."

Alex Kurtz and Amelia Harris, analysts with Sterne Agee, highlighted how F5 grew quarter over quarter in all of its vertical markets, particularly teelcom, government and financial services. F5's growing sales force will be one factor to focus on in the new year, Kurtz and Harris wrote in a research note.

"Ultimately F5 Networks' sales force expansions strategy will be the key to the company outperforming over the next year as hires made last [September/December fiscal year 2010] should begin to hit their one-year productivity mark," the analysts wrote.

F5 was incorporated in 1996, and its first Big-IP release was in 1997. It had its first $1 million sales month in 1998 and first exceeded $100 million in revenue per quarter in 2006.