F5 Networks, Inc. (FFIV): Why Did This Tech Company Crash?

So if it isn’t macro, new customers, or market saturation, then what is it?

What Went Wrong?

My best guess is that it’s a combination of factors. To fully appreciate them it’s useful to go back to a breakdown of its key verticals:

1). The sequester looks like it had an effect on US Federal spending.

2). The telco sector snapped back in Q1 from declining previously and has now fallen back again. This could be a case of the sales force bringing deals forward into Q1 and then management assuming a similar rate of deals would close in Q2.

3). F5 mentioned that the pipeline deals that didn’t close were with F5 customers, and it’s possible that this is because Citrix and others are pushing for their solutions to be benchmarked against F5’s new products

4). In a tough environment, customers may feel inclined to try to hold off spending when there are various options in front of them

In addition, investors need to recall that product refresh cycles can have an effect. Riverbed Technology, Inc. (NASDAQ:RVBD) had significant problems when it upgraded its product range only to see sales come back nicely. Sometimes product upgrades and refreshes give companies a reason to pause and assess options, and Riverbed Technology, Inc. (NASDAQ:RVBD) certainly saw that last year with its WAN optimization solutions. Would it be a surprise if a similar body of customers took the same approach with F5’s product refresh amid competitors upping their competition? What is more disappointing is that F5 made some pretty positive noises about the new products in its last conference call.

In conclusion, I think this may well be a combination of the product refresh causing telco customers to pause, the sequester, and a high market share, which is attracting competition. We will get a clearer reading when F5 formally reports its earnings and when Citrix Systems discusses its ADC performance in the quarter. For now I think cautious investors may want to stay clear.

The article Why Did This Tech Company Crash? originally appeared on Fool.com and is written by Lee Samaha.