William Blair & Company Issues Research Report on Data Networking Industry, Initiates Coverage of Five Companies

William Blair & Company issued an Industry Report on data networking and initiated research coverage of five companies in the space. Analyst Jason Ader initiated coverage of F5 Networks, Inc. (Nasdaq:FFIV) ($22.36) and Juniper Networks, Inc. (Nasdaq:JNPR) ($14.72) with Outperform ratings and Aggressive Growth company profiles; Cisco Systems, Inc. (Nasdaq:CSCO) ($16.21) with a Market Perform rating and Core Growth company profile; and Polycom, Inc. (Nasdaq:PLCM) ($18.06) and Riverbed Technology, Inc. (Nasdaq:RVBD) ($9.10) with Market Perform ratings and Aggressive Growth company profiles.

"We believe the combination of increasingly distributed enterprises, proliferating computing devices, and robust network traffic growth will continue to drive overall demand for enterprise networking equipment,” Ader said. "We forecast long-term growth of 5%-10% for the sector, with higher growth for several high-priority segments such as application acceleration. The movement of enterprise network hardware ‘up the stack’ represents the next stage of industry development, in our view, and should enhance the network’s strategic value among customers while preserving healthy industry gross margins of 60%-80%. While we believe the core drivers for enterprise networking are secular in nature, we recognize the near-term risks to growth from the deteriorating global IT spending environment.”

With respect to specific companies, Ader said, "We believe F5 Network’s medium- to long-term growth prospects are strong; in our view, F5’s products are changing from ‘nice to have’ to ‘need to have’—a vital element in any major Web-based application deployment—which underpins our positive growth outlook. We expect Juniper Networks to deliver double-digit earnings growth over the next several years, driven by introduction of its new EX Ethernet switch, along with the infusion of new management talent with enterprise experience, which positions Juniper to emerge as the de facto No. 2 infrastructure provider in the $42 billion enterprise networking market.”

Ader continued, "While Cisco looks prepared to weather the macroeconomic storm better than most as a result of its exceptional balance across the business and its strong financial profile, we believe a cautious near-term stance is warranted given the tight correlation between Cisco’s business and global economic and IT spending conditions, which could continue to be weak for some time to come. We are cautious on Polycom’s growth outlook despite the multiple tailwinds driving adoption of video conferencing, due to the combination of a weak global economy, an increasingly competitive video landscape, and company-specific execution challenges. While we believe Riverbed Technology has a robust financial profile and solid long-term growth prospects, our main concern here is that the combination of a weak global economy, the formative stage of its markets, and the dependence on a single product area makes it difficult to have conviction in consistent financial performance for the business, at least in the near term.”

William Blair & Company, L.L.C. intends to seek or expects to receive compensation for investment banking services from Cisco Systems, Inc., F5 Networks, Inc., Juniper Networks, Inc., Polycom, Inc., and Riverbed Technology, Inc. in the next 3 months.

William Blair & Company, L.L.C. is a market maker in the securities of Cisco Systems, Inc., F5 Networks, Inc., Juniper Networks, Inc., Polycom, Inc., and Riverbed Technology, Inc. and may have a long or short position.

William Blair & Company, L.L.C. is a global investment firm offering investment banking, asset management, equity research, institutional and private brokerage, and private capital to individual, institutional, and issuing clients. Since 1935, we have been committed to helping clients achieve their financial objectives. As an independent, employee-owned firm, our philosophy is to serve our clients' interests first and foremost. We place a high value on the enduring nature of our client relationships, the quality of our products and services, and the continuity and integrity of our people. William Blair & Company is based in Chicago, with office locations including Boston, London, New York, San Francisco, Shanghai, Tokyo, and Zurich. For more information, please visit www.williamblair.com.

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