F5 Networks software revenue jumps 50% as big acquisitions help to transform its business

F5 Networks CEO François Locoh-Donou (F5 Photo)

F5 Networks is “ahead of plan” in its efforts to expand beyond hardware and into software and services, its CEO said in an interview with GeekWire after the Seattle-based networking and security technology company reported a 50 percent increase in software and services revenue in the December quarter.

“I still feel we are in the early innings of it, but it’s now gathering some strong momentum,” said F5 CEO François Locoh-Donou, noting that many other enterprise hardware companies have struggled to make a similar shift.

“If you look at the speed with which we’re managing to transition our business to software, I don’t think it’s ever been done,” he added.

Two major acquisitions promise to further expand F5’s business beyond the enterprise hardware appliances that traditionally formed the core of its business. The company’s $1 billion acquisition of Shape Security was completed last week, following its $670 million acquisition of web server company NGNIX last year. F5 on Monday announced the release of NGINX Controller 3.0, the latest version of its application delivery technology and the first major product from NGINX since the acquisition was completed.

F5 is getting to the point where it offers “pretty much every application service that you can imagine between the code of an application and the user of that application,” Locoh-Donou said. He said that strategic position is giving the company unique data and insights that it can use to enhance its products.

For the December quarter, F5’s overall revenue was up 5 percent, to $569.3 million, exceeding analysts’ revenue expectations by about $3 million. The company’s profits were $155.4 million or $2.55 per share, excluding one-time charges, which topped analysts’ expectations of $2.43 per share.

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

However, its profit outlook for the March quarter, a range of $2.14 to $2.17 per share, was below analysts’ expectations of more than $2.40 per share, and its stock fell more than 2 percent in after-hours trading.

The company attributed the increase in software and services revenue to more of its customers deploying its technology across multiple cloud platforms, in addition to their own servers and data centers. F5 solidified its standing in the cloud in October through a partnership with Amazon Web Services.

F5, which moved into a new downtown Seattle skyscraper last year, employs about 5,700 people globally following the Shape Security acquisition, Locoh-Donou said.

For the December quarter, F5 reported about $7.8 million in restructuring costs, as it cut an unspecified number of jobs in its North American sales organization. Locoh-Donou said the company is making changes in the sales team to focus on key sectors such as financial services.

The company says it’s now working on the integration of Shape Security, applying lessons learned from the NGINX acquisition. Asked if more acquisitions are in F5’s future, Locoh-Donou said the company has its hands full with those integrations for now. But long term, he acknowledged “the potential for more acquisitions to complete the vision.”

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