F5 Networks sees a turbulent near-term environment but remains confident in the long-term demand for its software and services that secure, deliver and optimize applications. The company is transitioning to a software-a-service (SaaS) model while positioning to capitalize on emerging trends like artificial intelligence (AI).

F5 reported its fourth quarter and full year fiscal 2023 financial results on Oct. 24. For the fourth quarter, revenue was reported at $707 million, up 1% year over year. Looking at the full year, F5 reported revenue of $2.8 billion, up by 4% over fiscal 2022. Over the course of 2023, F5 has been steadily expanding its portfolio, including new multicloud networking connectivity and application visibility functionality.

“We delivered a solid Q4, in an environment that showed some additional signs of stabilization,” Francois Locoh-Donou, CEO of F5 said during his company's earnings call. “We saw strength from our enterprise vertical, including technology and financial services customers, offset by softness from service providers.”

While Locoh-Donou sees strength in F5's performance, he's also cautious about the future outlook for next year.

“As we contemplate our outlook for FY '24, we consider a number of factors; at the macro level, we expect continued application and API growth, fueled by automation efforts and new use cases, including generative AI,” he said. “We also expect customer spending caution to persist into FY ’24, but it’s stable.”

A cornerstone of the F5 portfolio for over a decade has been the BIG-IP family of application delivery controller (ADC) hardware and software services. It's a business that has continued to be strong for the company in 2023.

“Our F5 BIG-IP family serves traditional applications, either on-premises, co-located or in cloud environments,” Locoh-Donou said. “BIG-IP’s data plane performance, automation capabilities and seamless integration into public cloud environments continues to differentiate the platform, and we continue to win against competitors.”

In terms of hardware, F5 is seeing real potential with its next-generation BIG-IP technologies including the rSeries hardware and the VELOS platform. Locoh-Donou said the new platforms accounted for over 80% of Q4 systems bookings.

Another core element for F5 is its NGINX application server business. F5 acquired NGINX for $670 million in 2019 and has continued to develop and expand the technology in the years since. Locoh-Donou said NGINX delivered a “very strong” Q4 performance.

“NGINX serves modern container-native and microservices-based applications and APIs,” he said. “We continue to see large enterprises adopt NGINX for their cloud and Kubernetes workloads. And as those applications scale, we are seeing our NGINX opportunity scale as well.”

The path toward SaaS is one that F5 has been on for a number of years.

Locoh-Donou highlighted F5's progress in shifting to a subscription model but said the transition is still playing out. He noted legacy managed services will be a headwind as customers migrate to the newer Distributed Cloud SaaS platform.

Locoh-Donou commented that the F5 Distributed Cloud Services portfolio of SaaS and managed services has been an area of investment that he expects will yield solid growth in the years ahead.

“We are really excited about the future of Distributed Cloud,” he said. “We are intercepting two exciting emerging growth categories: web app and API protection (WAAP), and secure multicloud networking (secure MCN), which will drive future growth for Distributed Cloud Services.”

Future growth for F5 will also come from AI workloads.

“We believe customers’ use of AI will accelerate the growth of applications and APIs and the corresponding need to deploy, manage and secure them, which is what we do best,” Locoh-Donou said.

He added that in F5's view, AI inference, which is the process of actually making predictions on data, will become increasingly distributed with organizations needing to support it across multiple locations.

“We believe every application and API will soon require inference just as they require security and traffic management,” he said.