F5 Networks (FFIV, Financial) recently revised its Q3 earnings and revenue guidance downward, following a previously optimistic Q2 forecast. This adjustment was announced by CEO Francois Locoh-Donou, who attributed the cautious outlook to a restrained spending environment.
The tempered expectations align with broader industry trends, as evidenced by similar announcements from competitors. Cisco (CSCO, Financial) had already set a precedent with its own subdued Q3 and FY24 revenue guidance on February 14, citing increased deal scrutiny and inventory absorption issues. Additionally, Juniper Networks (JNPR, Financial) reported disappointing Q1 earnings, further casting doubt on the stability of IT demand.
On a more granular level, F5 Networks has seen a significant decline in hardware sales, with product revenue dropping 12% year-over-year. This decrease reflects fewer system shipments linked to backlogs compared to the previous year. Despite a hopeful stance in the last quarter about a recovering systems demand, Q2 saw a drastic 32% fall in systems revenue to $142 million.
Conversely, the software segment of F5 Networks painted a rosier picture. Subscription software revenue surged by 28%, pushing total software revenue up by 20% to $159 million. Recurring revenue now represents 75% of total revenue, up from 65% year-over-year. The company anticipates this momentum in software subscription renewals to bolster the latter half of 2024, despite a stagnation in new subscription growth.
While the lowered guidance from F5 Networks reflects a broader industry slowdown as confirmed by competitors like Cisco and Juniper Networks, it underscores the ongoing challenges in the IT sector as of early 2024.
