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Wall Street Unplugs From F5 Networks

The spending environment doesn't look good for infrastructure tech


It has been a lousy year for F5 Networks (NASDAQ:FFIV), and it just got lousier.

The developer of technologies to improve the performance of computer networks is seeing its shares hammered this morning on the release of its preliminary results.

F5 says fiscal second-quarter sales will come to $350.2 million, up only 3% over the prior year and well short of Wall Street forecasts for $380 million. Meanwhile, FFIV projects earnings in a range of $1.06 to $1.07 per share, vs. the consensus call for $1.23.

Shares were off a grueling 20% as of time of writing, helping to extend a near-halving of FFIV in the past 52 weeks.

During a conference call, F5 Networks CEO John McAdam indicated that the weakness was not about the company’s technology; the company continues to produce standout systems, and the win-rates did not deteriorate in the quarter.

Instead, it looks like F5 suffered from a general decline in the spending environment, especially in the U.S. There were purchase delays from telco customers, as well as the government, which was probably sparked by sequestration. The hardest-hit part of the business was for orders of $1 million-plus.

True, expenditures on infrastructure technology often are lumpy, but F5’s results might be more than just a temporary blip. The macroeconomic picture, while not dire, is improving sluggishly at best, and the government no doubt will continue to focus on ways to pare down the budget rather than expand it. Thus, the growth ramps for infrastructure tech operators could moderate for a while.

Wall Street appears to be anticipating this. Juniper Networks (NYSE:JNPR) is off 13% this year, including a 5% haircut today, and Ciena (NASDAQ:CIEN) has dropped 4% YTD, thanks mostly to today’s selloff — both performances in stark contrast to an 8%-plus return for the S&P 500. Even broad-based tech companies like Oracle (NASDAQ:ORCL, -4% YTD) have felt the bluster of macro headwinds in 2013.

Granted, F5’s valuation metrics look a lot more appealing after today’s selloff, including a reasonable price-to-earnings ratio of 12. However, the stock could continue to tread water for a couple quarters amid what’s likely to be a volatile road ahead. Thus, longer-term investors would be best off avoiding F5 Networks right now.

Or any tech company that gets a massive chunk of its revenues from telco customers or the federal government, for that matter.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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