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Morningstar | F5 Networks Looks to the Clouds for Growth

F5 Networks, the leader in application delivery controllers (ADCs), sells to enterprises, service providers, and government entities. More than half of F5's revenue comes from selling support and maintenance services for its products. Mission-critical ADCs manage the uptime and delivery of applications and network traffic flow. ADCs were traditionally purchased as hardware that sits between firewalls and servers to mitigate traffic flow issues related to server failures. Growth in public cloud-based workloads caused a decline in the on-premises ADC hardware required and shifted ADC demand to software-based solutions. In our view, F5 was slow to embrace cloud-based workloads as it perilously defended its incumbent offerings, but a revamped management team properly pivoted F5's focus toward software and cloud-based products as growth catalysts to supplement its legacy hardware dominance, and we think the firm is set to thrive.With 90% of its development team dedicated to software, F5's roadmap is focused on virtual instances of ADCs, standalone application security products, and products and services for multi-cloud application control. IT teams may rely on the large public cloud vendors for traffic management within their respective clouds, but F5 helps control the traffic between on-premises, private, and public clouds. With about 40% share of the ADC market, F5 will likely remain the go-to provider of solutions for their customers' cloud ecosystems due to product familiarity, customization features, application and network level management, security-focus, and an active developer community.We opine that the expected data proliferation generated by Internet of Things and 5G devices will be a boon to F5. The complexity of managing application traffic will increase as disparate devices spread beyond the data center while requiring lower latency, larger data workloads, and protection from a growing quantity of security threat vectors, in our view. We posit that F5's consolidated approach for application and networking traffic flow across the entire network will remain in strong demand as businesses expand their creation and consumption of applications and data.