[Briefing.com] Worrisome slowdown in infrastructure spending

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From: Linda (joelinda1@home.com)
Date: Fri Dec 29 2000 - 11:36:22 PST


Internet Infrastructure : The Foundry Networks (FDRY) earnings warning
was the first hint that something was amiss in this sector, and
yesterday's f5 (FFIV) warning provided further reason for concern. As
we wrote yesterday on this page, negative comments from Bear
Stearns about CacheFlow (CFLO) and Inktomi (INKT) added to the worries.
This morning, Bear Stearns officially downgraded both stocks. We
listened to the f5 conference call to try to get some more color on
just what is going wrong in this sector. The company said that
almost all of its fairly dramatic revenue shortfall was due to a "rapid"
slowdown in North American business. It was also noted that this was
generally not a competitive issue, but was an issue of weakening demand
for all players in the industry. f5 said that the dotcom market was
clearly the greatest single point of weakness. But -- and this should
be a concern for investors in other networking companies
-- f5 officials clearly stated that they are seeing a slowdown in the
core enterprise networking market. In the enterprise market, the company
noted that it was generally an issue of project delays, but they
have significant concerns about the duration of these delays which is
prompting both a restructuring and layoffs. The only company-specific
issue that was mentioned was weaker than expected sales of f5's caching
product, which was due to the lack of streaming functionality.
Overall, this was not a comforting call for investors in Internet
infrastructure companies. The fact that sales weakness was seen at
both dotcoms and enterprises is worrisome. The direct competition in
this space includes Nortel's (NT) Alteon acquisition, Cisco's (CSCO)
Arrowpoint acquisition, Radware (RDWR), Foundry, and to a lesser extent
Extreme (EXTR). Radware reaffirmed its guidance yesterday, but
Foundry has of course already warned. And concerns should extend beyond
the Layer 4-7 switching market and into the enterprise networking
market more generally, which is served by CSCO, NT, EXTR, and
Cabletron's (CS) Riverstone division. These companies were seen as the
Internet plumbers and were thought to be immune to dotcom problems. But
the broader economic slowdown appears to be pushing these problems
beyond dotcoms and into the enterprise.
- Greg Jones, Briefing.com

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