With Forrester anticipating a smoother ride ahead for the US tech industry, it will be interesting to see how CIOs invest their IT budgets. According to the report, business and government spending on “Information & Communication Technology” products and services is expected to rise by 5.7% in 2013. Earlier in January, Forrester indicated a growth of 7.5%, which has now been slashed due to lower-than-expected government spending. The tech companies are not getting orders from the government, which typically highly contributes to the sales of these products, due to mandatory spending cuts in the federal budget.
In this article, I have analyzed three companies from the networking industry. Let’s see how they are trying to survive in the current scenario.
Company showing slow growth
Riverbed Technology, Inc. (NASDAQ:RVBD) acquired OPNET Technologies, Inc. (NASDAQ:OPNT), a supplier of software products for network management solutions, in December 2012 for $1 billion. Opnet contributed $52 million to the total revenue of $252 million reported by Riverbed for the first quarter of 2013. The company is expecting total revenue of $260 million for the second quarter of 2013, of which OPNET Technologies, Inc. (NASDAQ:OPNT) is expected to contribute $46 million. The anticipation of lower revenue from OPNET Technologies, Inc. (NASDAQ:OPNT) is due to the spending cut of the federal government. Reported federal spending was $31 million in the first quarter, down 3% year-over-year. Further revenue decline is expected on the basis of the slowdown in European economies such as the UK, France and Belgium, where the company operates.
Riverbed Technology, Inc. (NASDAQ:RVBD)’s Wide Area Network (WAN) optimization business segment — which contributes 85% of its total revenue — declined by 13% year over year to $171 million in the first quarter of 2013. The reason for the decline was Steelhead, a device used for the acceleration of data transfer on WANs, having only a 15% to 20% market penetration. The lower penetration is due to customers using a single WAN optimization device to join more than one server on the network, affecting network performance. The company is assuring growth in the future by emphasizing the use of Granite, a device used to join more than one server on a WAN without compromising performance. In contrast to Steelhead, Granite is designed so that it will be mandatory for customers to set up at every single WAN, which will help ensure the company’s forecast of 40% to 50% market penetration.
With the forecast of high penetration, Riverbed Technology, Inc. (NASDAQ:RVBD) is expecting $216 million revenue in the second quarter of 2013.
New technology making a difference
Palo Alto Networks Inc (NYSE:PANW) launched its Next Generation firewall, a multi-functional security device that is equipped with application control, in 2012. With the constant increase in the number of cyber threats, this firewall allows customers to access third-party applications without the risk of getting infected by malware, and does not compromise performance. Palo Alto Networks Inc (NYSE:PANW)’s technological breakthrough is new to the $5 billion firewall market; very few of its competitors in the market offer this type of firewall, and this is one of the reasons why the company has added 1,000 customers every quarter since the first quarter of 2012. Focusing on this product, the company is expecting total revenue of $104 million in the fourth quarter of 2013.
Palo Alto Networks Inc (NYSE:PANW)’s Wildfire, a malware protection software product launched in November 2011, is gaining traction in the market and currently has more than 1,300 customers. The software scans more than 500,000 files per month. Recently, the company launched its paid version of the Wildfire software for which customers have to pay an annual subscription fee of $15,000. It is expected that Palo Alto Networks Inc (NYSE:PANW) will gain $19.8 million every year from these 1,300 customers’ subscription fees. With the lower number of players in this segment, the company also expects to attain a majority of the market share.