Based on the macro trend of data consolidation/centralization and the increasing distance between users and their data, a need for WAN optimization will persist. While SaaS (i.e. Certeon) and VDI could present some headwinds for data center/branch connections, the need for WAN optimization will continue for long distances and heavier workloads involving video and large documents. Addressing these issues, Riverbed has forged a partnership with Akamai’s acceleration technology creating a fitting complement to Riverbed’s optimization technologies. On the VDI front, implementations in a mixed environment with legacy application will still see growth based on latency issues and distance. Even though Riverbed has approximately a 50% market share, this should be something they can protect as this market is far from saturated with only about 15-20% of corporations using WAN optimization appliances. Other headwind issues include improved file transferring with SMB2 over SMB1 and a cheaper bandwidth pricing environment giving IT the choice to purchase more bandwidth over improving what is currently being used. Applications are also being optimized to be used over WAN, which could slow the growth of WAN optimization products.
With a renewed company focus and push with its Steelhead product line Riverbed should be able to meet their full-year guidance of 15% revenue growth. Reorganizing the saleforce based on specific products also makes sense and should help to meet sales numbers. The next six months will be a good test for Riverbed and with its stock down almost 30% YTD, there is a lot of room for growth.
With big changes happening in Adobe’s business model and the European crisis, I was not surprised to see lowered guidance to 7%. This is a transition year with a shift to Creative Cloud subscriptions, which should prove to keep revenues stickier along with better visibility.
I also liked the comments on the Cloud product mentioning good adoption with 30,000 pre-CS6 subscribers converted and 60,000 new users added in the second quarter. Also with 5,000 net new subscribers per week, it sounds like they are on track for their goal of 800,000 subscribers by 2015.
Short term dips could provide a good buying opportunity as Adobe’s subscription based services could provide a cheaper entry cost for subscribers who don’t have the cash to pay for its product up front.
After reading an article about Palo Alto Networks and its next generation firewall (NGFW) products and how they were poised to take market share from some of its competitors I decided to take a look at some of the numbers compared to its pureplay competitors. Although Cisco and Juniper do compete in this market, it is not a revenue driver for them and likely will not in the near future. A few interesting points that I have pulled out:
1. Palo Alto is growing at a staggering rate
2. Net profit margin is very low for Palo Alto but not its not as big an issue as people are making it out to be. PAN is spending a ton of money to get its product out and nwo it has something to show for it. Besides Check Point, who has a crazy high profit margin, the other pure plays are only around 10%.
3. With SonicWall being acquired by Dell recently, I could see a company like Sourcefire or a private player like Barracude being acquired to bolster security networking at an OEM.
Attached numbers (excel) - PAN
With Juniper’s Q1 better than expected and a Q2 forecast of lowered expectations, what can we look to for Cisco Systems (CSCO)? Cisco is going to report Q3 2012 earnings on May 10th and with John Chambers keeping expectations low, it could be a good buy into earnings. Over the last month we also saw Cisco’s stock drop over 10% versus the Nasdaq which only dropped 5%. Versus other large cap technology companies, this could provide upside potential if earnings beat expectations.
Cisco, a world leader selling Ethernet switches, routers and other equipment has continued to benefit from a restructuring effort announced mid 2011 to improve slow revenue growth and improve competition from rivals Juniper Networks (JNPR) , Hewlett-Packard (HPQ) and Chinese competitor Huawei. Some fear of macro-economic head winds and competition from rivals could potentially derail Cisco, but Chambers has been cautious around this.
Since a bad quarter a year ago, Cisco has had a couple of decent quarters and I think we will see another one this weekend. I’m not expecting anything huge, but guidance from Chambers has been low with benchmarks of 5-7% growth, I think Cisco can improve on that.
Beyond low GDP issues for Cisco and increased competition in the Ethernet Switching business (31% of revenue), recent CIO surveys have been favorable to Cisco. One of the big questions will be what will margins look like? The company has been aggressive with the competition and if pricing is going to stay competitive we could see a continued downward trend of gross profit margins. This could potentially be dangerous even if earnings beat.
Overall I see Cisco as being highly competitive and with over 30B in net cash I think they should be able to keep pricing competitive and improve on current products.
Our FCC Chairman, Julius Genachowski spoke this morning at CTIA and during his speech he laid out a three track mobile action plan focusing on efficiency and updating policy. While core opportunities are based on spectrum auctions, he laid out other options including reviewing old policy, spectrum sharing and small cells. Genachowski notes it has become difficult to find spectrum but there is still some out there. In order to sell this spectrum, barriers need to be removed from outdated regulations. LTE roll out in the 800MHz band need to be stepped up and the FCC will work to remove restrictions on frequency block sizes. This spectrum will be used for public safety networks as well as Sprint planning to activate LTE. FCC is also getting in on Wi-Fi, opening up 120 MHz more spectrum in the 5 GHz band for 802.11 standards. Focus will also be on efficient receivers in every spectrum band as legacy systems have hindered modernization, and receiver efficiency is an issue whose time has come. Mobility fund, another major initiative should help to close the connectivity gap pushing for the goal of 98% coverage by 2016 through building 3G and 4G networks. Spectrum sharing came up and something Genachowski is excited about. LTE sharing is getting its first big test with T-Mobile in the 1755-1780 blocks and could help free up spectrum that would otherwise be locked up by the government. Small cells will also become a bigger deal as spectrum will be opened in the 3.5GHz band, up to 100 MHz at first. More spectrum is also being opened, specifically 30MHz of WCS and 40MHz of AWS.
News went crazy yesterday with leaks of EMC mulling to purchase XtremeIO. While flash is the wave of the future for storage it will by no means be a revenue driver for companies like EMC or NetApp in in the short term. We had a great question and answer from EMC’s Q1 2012 conference calls that discusses more about flash breakdown in its products.
Aaron Rakers - Stifel Nicolaus – Analyst
Yes, thanks, and congratulations on a great quarter. Kind of sticking to the similar topic, on the drive discussion, you obviously outlined that the price differential between flash, and all the way down to near line SATA drives. Can you talk a little bit about the mix of those drive configurations, where we stand today, and where you expect to be a year from now? And also on top of that, how we should think about that, similar to the price discussion, the differential in the gross margin that EMC sees? Thank you.
David Goulden - EMC Corp – EVP and CFO
All right. In terms of — yes, right, you are right. Right now, when you look at what sit, what we ship in size arrays, the majority, the vast major part is between fiber and the SATA FAST type drives. Flash today, is a small single-digit percentage, but the outage goes in hybrid array, a little flash goes a long way. And what I mean by that is that, you could improve the performance of an array dramatically, by having maybe less than 5% of the capacity in flash, and using FAST software, moving those hot data sets into the high performing media types. So we see a small increase, and a steady increase going forward in the mix of flash. But we still think that the vast majority of capacity shipped for many, many years, is going to be fiber and SATA. Within there, a mix more towards SATA, and less towards fiber, but we think that’s pretty much how things play out. And then from a margin point of view, as Joe said, we’re fairly agnostic to the media type. In fact, different media types are in fact good for us, because we can offer more choices and more price points to our customers. And we are getting very broadly similar margins across those media types. So the mix shift in media is not going to have a material impact on our gross margins.
After dropping more than 10% over the past week, Triquint looks to be up almost 5% pre-market hot off its analyst day and iPad 3 launch today.
I wanted to quick follow up with my earlier post on EMC and Netapp and link everyone to an article on The Register based on IDCs Storage Tracker. While Netapp is growing, they are just not growing as fast as everyone else. On top of that, out of all of their competitors, EMC is rising above the rest. Hit the link to read for yourself.
Interesting move by AMD to buy SeaMicro, a company that builds energy efficient Intel servers. Hit the link below to read the article.
As the acquisition of Icera closed in June of 2011, it was only a matter of time before NVIDIA would reveal its first phone using its new Baseband processor. While this was a catch-up move against Qualcomm and Texas Instruments who already sell baseband and application processors, this could potentially drive profits if design wins go accordingly. Today ZTE announced its new phone, Mimosa X, powered by Tegra 2 and Icera 450. This is great that NVIDIA can now actively compete in this area and I think it will be a quick growing business for them as the Tegra line has been quick to market for some of the fastest mobile processors on the market.