F5 says weak federal, telecom spending hurts 2nd quarter

Thu Apr 4, 2013 6:56pm EDT

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(Reuters) - Network gear maker F5 Networks Inc (FFIV.O) estimated second-quarter results way below analysts' expectations, hurt by U.S. federal budget cuts and a delay in orders in North America.

F5 shares were down 16 percent in extended trading after closing at $90.42 on the Nasdaq on Thursday. More than 1 million shares changed hands after the bell.

The company said government sales were down from last year, partly due to sequestration -- a series of automatic spending cuts that came into effect in March after Congress failed to find an alternative budget plan.

A wide array of companies ranging from U.S.-based Delta Air Lines Inc (DAL.N) and US Airways Group LCC.N to Britain's Smiths Group Plc (SMIN.L) have warned of lower revenue due to government spending cuts in the United States.

U.S. federal sales account for about 5 percent of F5 Networks' revenue, FBN Securities analyst Shebly Seyrafi said.

"I think there is an element of both sequestration and delay in telecom spending involved. Government spending has been down since the U.S. federal budget flush in September," analyst Rajesh Ghai of Craig Hallum said.

Rival Juniper Networks Inc's (JNPR.N) shares were down 5 percent after market. Juniper derives about two-thirds of its revenue from telecom services providers, so F5's forecast would be incrementally negative for Juniper, FBN's Seyrafi said.

Shares of Cisco Systems Inc (CSCO.O), the world's largest manufacturer of networking equipment, were also down about 3 percent.

F5 said there was a fairly sizable drop in year-over-year orders greater than $1 million in size -- a trend that has been going on since the third quarter of last year.

"The largest area of weakness was in the telco space, where sales were down significantly on both a year-over-year and sequential basis as funding for several projects were delayed," Chief Executive John McAdam said on a conference call with analysts.

Telecom accounted for about 23 percent of total sales of $365.5 million in the first quarter for F5.

The customers committed to F5 were reluctant to sign orders towards the end of the second quarter, mostly due to budget constraints and delays in decision making, CEO McAdam said.

FBN's Seyrafi said F5 is also losing out on competition to Citrix Systems Inc (CTXS.O).

F5, which supplies data traffic management equipment to major U.S. service providers such as AT&T (T.N) and Verizon (VZ.N), estimated adjusted earnings of $1.06 to $1.07 per share on revenue of $350.2 million.

Analysts were expecting adjusted earnings of $1.23 per share on revenue of $375.8 million for the quarter ended March 31, according to Thomson Reuters I/B/E/S.

(Additional reporting by Aditya Kondalamahanty in Bangalore; Editing by Maju Samuel)

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