F5’s mission for the coming year will be to boost product revenue, and while that’s off to a promising start, investors seem disappointed with the company’s overall forecast.
In reporting earnings for F5’s first quarter, which ended December 31, CEO John McAdam noted a “return to product revenue growth.” Product revenue was $239 million, up 2 percent from the same quarter a year earlier. During F5’s fiscal 2016, which ended in October, product revenue had fallen nearly 5 percent to $944 million.
The company’s service revenues, which had driven growth during the past four quarters, are expected to stumble in the short term. For the March quarter, F5 expects $518 million to $528 million in total sales, and one analyst on today’s earnings call noted that many predictions were “a couple million dollars” higher than the midpoint of that range.
F5 shares were down roughly 5 percent at $138.50 in after-hours trading.
Shuttle and Herculon
Software, as it’s been said, is eating the world. Software sales are increasingly important to all IT vendors, F5 being no exception. The company expects to end 2017 on a “$400 million annual trajectory” for software sales, McAdam said.
F5 is still producing new hardware-based products, though. Last quarter saw the first sales of the company’s Shuttle product, more formally called the BIG-IP iSeries. These are application delivery controllers (ADCs) outfitted with FPGAs that can let the appliances take on different personalities.
Today, F5 announced the Herculon series, two new hardware appliances that will begin shipping later this quarter. They include the SSL Orchestrator, which decrypts SSL traffic so that other security devices can read traffic, and the DDoS Hybrid Defender, which shields an enterprise’s application infrastructure from denial-of-service attacks.
Both are based on purpose-built hardware. Even as more IT infrastructure becomes virtual, functions such as encryption and decryption can still be performed more quickly in hardware.
Hardware boxes also remain in vogue with some customers that run infrastructure on-premises. “They want it in hardware form so they can put it right in front of their application servers,” F5 CTO Ryan Kearny said in a recent interview with SDxCentral. (The products also served as a way to introduce Kearny to the press. His appointment was announced in October.)
This doesn’t mean F5 is ignoring software and the cloud. “Everything we do is software-first,” Kearny said.
For example, F5 is preparing the rollout of Project Velcro, consisting of a couple of container-related products announced in November. The Application Services Proxy is a container-based load balancer and traffic visibility tool. And the Container Connector initiates changes to the configuration of a BIG-IP appliance in order to support container workloads as they appear.
For its first quarter overall, F5 reported revenues of $516 million and net income of $94.2 million, or $1.44 per share. For the same quarter a year earlier, F5 reported revenues of $489 million and net income of $89.7 million, or $1.28 per share.
Non-GAAP net income of $1.98 per share beat the analyst consensus of $1.94, according to Thomson Financial.