F5 Networks and Amazon Web Services team up in cloud partnership of Seattle tech giants

The F5 Tower in downtown Seattle. (GeekWire Photo / Kurt Schlosser)

F5 Networks and Amazon Web Services inked a multi-year cloud deal that will bring together the sales teams from the two Seattle tech giants and open the door for future technology integrations.

F5 focuses primarily on helping companies build, manage and secure their business applications, whether their data is stored in the cloud, on their own servers or some combination of the two. The new partnership with Amazon will make it easier for companies to build cloud-native applications using F5 on AWS or to move existing apps to the cloud.

News of the alliance came as F5 released its latest financial update, closing out its 2019 fiscal year. The company beat Wall Street expectations for the fourth quarter, sending its stock up 6 percent in after-hours trading, and finished the year with more than $2.2 billion in revenue, up 4 percent over the prior year.

The alliance opens the door for the two companies’ product teams to work together on future technology integrations. Sales and services teams from AWS and F5 will team up to offer new product packages to customers.

In an interview with GeekWire, F5 CEO François Locoh-Donou said customers moving to the cloud still wanted to continue using F5 services. F5 has a number of ex-AWS people on its staff, and the two companies have a history of working together, so it was a good fit, Locoh-Donou said.

“The win for AWS is they are going to get more workloads migrated to their infrastructure faster,” Locoh-Donou said. “And the win for us is we are going to have a number of solutions architects from AWS that are speaking to a lot more customers than we are that will design us into their solutions, so we don’t miss out on opportunities if a customer wants to use AWS.”

F5 Networks CEO Francois Locoh-Donou. (GeekWire Photo / Nat Levy)

F5 is in the midst of years-long transition from making hardware to serve customers running data centers to focusing on software for customers running on public cloud infrastructure from providers like Amazon, Microsoft and Google. Plus, F5 is embracing subscriptions as the main method to deliver its products. And that all comes while trying to integrate NGINX, the popular web server F5 acquired for $670 million earlier this year.

Shares in the company are down 14 percent so far this year, as the transition continues to unfold.

Amazon and F5 have worked together for years, executives said. However, this deal takes that partnership to a new level.

“The ability to deploy and run applications on AWS using F5 services is an important requirement for many customers that have standardized on F5 for application delivery and security,” Mike Clayville, vice president of worldwide commercial sales and business development at AWS, said in a statement. “This Strategic Collaboration Agreement elevates our historic relationship with F5 to a higher level. It will be a great asset for customers as they move an increasing number of mission critical workloads, such as SAP and Windows to AWS, and also build new cloud native applications for their customers.”

F5 reported earnings of $2.59 per share on revenue of $590.4 million for the fourth quarter, up 5 percent over the prior year. Analysts surveyed in advance expected earnings per share of $2.55 on $582.39 million in revenue.

F5 leaders previously said the company is spending big on the integration of NGINX, warning that profits would take a hit. In the fourth quarter, F5’s net profits were $156.7 million, down 11 percent over the prior year. For the fiscal year, F5 reported net income $626.3 million, up 2.4 percent over 2018.

The company had forecasted meager revenue growth as it completes its transition to focus on software and that area becomes a bigger part of its balance sheets. F5 touted software revenue growth of 91 percent for the second consecutive quarter. Revenue from F5’s traditional systems business declined 15 percent, year-over-year.

The transformation has a long way to go, as software revenue made up only 31 percent of the company’s product division in the fourth quarter, F5 CFO Frank Pelzer said on a call with analysts, compared to a 69 percent share for the traditional hardware business. But that ratio is changing, as software made up only 17 percent of product revenue a year ago.

F5 doesn’t break out software revenue, but using the ratios given by Pelzer, we estimated that software was responsible for about $95 million in revenue in the fourth quarter. As software continues to become a bigger part of the business, F5’s overall revenue growth could accelerate as well.

“When the software business becomes the majority of our business, I think we will see higher growth rates,” Locoh-Donou said. “We said two years ago we were going to go through that transition, and I am actually happy that we are ahead of plan on that transition, and it’s happening faster than I thought it would.”

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