F5 falls as slow economy, spending cuts hit outlook

Reuters News
Posted: Jul 19, 2012 8:13 AM
F5 falls as slow economy, spending cuts hit outlook

(Reuters) - Shares of F5 Networks Inc <FFIV.O> fell 2 percent in premarket trading on Thursday, after the network gear maker warned on fourth-quarter sales, heightening concerns that telecom carriers are likely to remain cautious on spending.

Telecom service providers are delaying or canceling orders on a faltering U.S. recovery and weakness in Europe, hurting telecom equipment vendors just as they were recovering from the 2008 recession and intense price wars.

Acme Packet, which makes products that enable calls over the Internet, recently forecast second-quarter results that fell far short of expectations, sending its shares down to their lowest in two years.

At least nine brokerages cut their price targets on F5's stock mainly on slowing product sales that they said would not be offset by healthy service revenue for long.

"While the verticals tend to be lumpy, we are more concerned by slowing product growth," BMO Capital Markets analyst Tim Long said in a note to clients.

"Service revenue was strong and helped pick up the slack but product sales must reaccelerate or service revenue will soon follow suit."

Long cut his price target on F5's stock to $125 from $135.

He maintained his "outperform" rating, saying the company could grow more than 15 percent on drivers like cloud and data and its own strong competitive position.

Long is a four star-rated analyst for the accuracy of his earnings estimates on F5, according to Thomson Reuters StarMine data.

Several analysts, however, said rising wireless and data traffic would keep the growth story alive at companies such as F5 and its rival Riverbed Technology Inc <RVBD.O>, despite a cut in spending.

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"While results were not perfect, we believe F5 is well positioned for sustainable growth with ramping product cycles and a slate of new products on the roadmap," Piper Jaffray & Co analyst Troy Jensen said in a client note.

Shares of the company, which closed at $98.59 on the Nasdaq on Wednesday, fell to $96.51 in trading before the bell on Thursday. The stock has fallen 29 percent since touching a year high of $139.46 on April 3.

(Reporting by Sayantani Ghosh in Bangalore; Editing by Saumyadeb Chakrabarty)