Financial

posted on 28 July 2008 14:23

F5 reported a flattish 4 percent gain in third quarter revenues and a 12 percent decline in net income compared to its year-ago quarter. It reported a large decline in Acopia revenues sequentially.

For its Q3 fy 08 F5 reported revenues of $165.6, four percent up on Q3 fy 07's $159.1 million. However net income declined 12 percent from $21.8 ($0,26/share) in the year-ago quarter to $19.1 million ($0.23/share) in Q3 fy 08. Specific Acopia (ARX product) revenues declined 38 percent compared to Q2 fy 07.

In the earnings call (transcript here) Andrew Reinland, F5's CFO, said: "Revenue from our ARX storage virtualization products was $5.1 million, down from $8.1 million in Q2, and accounted for 3% of total revenue." This, compared to the high hopes when Acopia was acquired, is a poor performance.

F5 bought Acopia for and its file virtualizing ARX switch technology for $210 million in August, 2007, to bolster its application delivery business. If this is bolstering then the term needs redefining.

Ex-Acopia CEO Chris Lynch is F5's SVP of Data Solutions. F5 issued the last F5 Acopia press releases in May, suggesting some steam has left its Acopia marketing pot.

F5 CEO John McAdam said: "Business from our ARX range of storage specialization products was down sequentially from last quarter, and below our internal target. The main reason for this was a precipitous drop in business on the financial vertical, where budgets for new projects are extremely tight. Regardless of the ROI benefits that would be obtained, the ARX business from the financial vertical was under $500,000 in Q3, down from over $5 million in Q1.... On the positive side, sales of ARX outside the financial vertical continued to be strong in Q3 and we are very focused on continuing expansion of our ARX business by penetrating other verticals in Q4 and in fiscal 2009."

It may be coincidence but Brocade is not making excited noises about its file virtualization, file area networks (FAN) product line and nor is EMC making much of Rainfinity, its file virtualization line. Perhaps it's taking a bath.

A perception generally is that file virtualization on its own is a bust. Not enough people want it. They do want a scalable way of storing lots of files and, as part of an extremely scalable file storage product they expect to have a global namespace and virtualized file location but that is incidental. What they need as an underpinning are very powerful file storage nodes and a scalable clustering approach. Set against this notion and with BlueArc, DataDirect, Dell (something coming), EMC (Hulk aka Infiniflex 10000 + Maui SW), IBM (XIV), HP (ExDS9100), Isilon, and others providing the super-charged NAS hardware for this market sector, F5's offering looks not to be in the same league.

McAdam said, in answer to a question: "Where it’s a new project of any kind, whether it’s technology or otherwise, they’re being very, very cautious in their spending. So our pipeline in ARX still remains quite good, but we definitely are seeing significant caution when it comes to a new project and, of course, ARX is a very niche market."

The vendors above are not entering or in the highly scalable, virtualized file storage market because it's a niche! They see a thumping great horizontal opportunity. This suggests a mismatch between the view of F5's marketing people and those at these other vendors.

McAdam added: "As we look at the ARX business for the moment, we now believe it’s going to be on the original forecast that we gave after the acquisition, in between $25 million and $30 million. We had been saying previously, in the last couple quarters, we thought it was going to go above $30 million, but given last quarter’s slowdown in financial, between $25 million and $30 million."

For the current fourth fy 08 quarter, F5's outlook is $172 million to $174 million revenue with a GAAP earnings target of $0.19 - $0.20 per diluted share.

^{[Chris Mellor.]}