F5 Networks, Inc. - Company Profile, Information, Business Description, History, Background Information on F5 Networks, Inc.

401 Elliott Avenue West
Seattle, Washington 98119

Company Perspectives:

F5 enables organizations to successfully deliver business-critical applications and gives them the greatest level of agility to stay ahead of growing business demands. As the pioneer and global leader in Application Traffic Management, F5 continues to lead the industry by driving more intelligence into the network to deliver advanced application agility. F5 products ensure the secure and optimized delivery of applications to any user--anywhere. Through its flexible and cohesive architecture, F5 delivers unmatched value by dramatically improving the way organizations serve their employees, customers and constituents, while lowering operational costs.

History of F5 Networks, Inc.

F5 Networks, Inc., develops software-based technology that helps companies manage their Internet traffic. F5's products monitor, analyze, and route network traffic, determining which servers are best suited for handling a client's request. F5 operates in North America, Europe, and the Asia-Pacific, serving Fortune 1000 companies.


When F5 began its business life, the company had nothing to sell and all its hopes for success tied to industry still in its infancy. The company was started by Jeffrey S. Hussey, an investment banker who earned his undergraduate and graduate degrees in Seattle, at Seattle Pacific University and the University of Washington, respectively. Hussey established his company in Seattle, a hotbed of information technology activity during the mid-1990s, creating F5 to feed off the business generated by the Internet. Specifically, he wanted to help companies better manage the traffic on the Internet, a business idea whose viability hinged on the growth of the Internet and the expected, yet theoretical, emergence of what would become known as the "new economy." In short, without a traffic problem, there would be no need for a traffic solution, making Hussey's small, start-up venture a gamble from the beginning.

F5 was incorporated in February 1996 as F5 Labs, commencing operations two months later in April. Hussey served as the company's principal executive, holding the titles of chairman, chief executive officer, and president as he shepherded his venture through its formative months. For more than a year, Hussey worked toward giving F5 a product to sell. Employees were recruited, a corporate infrastructure was created, and capital was raised, all to support the development and expected launch of the company's first product. This preparatory stage in F5's history--the prelude to the story of its development--ended in July 1997, when the company was ready to market its BIG/ip Controller.

The BIG/ip functioned much like an air traffic controller. As the use of the Internet increased, particularly for e-commerce purposes, the network infrastructures maintained by companies became strained. To keep up with increasing traffic to their web sites, companies added servers to their network infrastructure, deploying them in a group, or array, to better contend with the increasing demands of increasing visits to a web site. BIG/ip, situated between a network's routers and server array, automatically and intelligently managed the flow of this traffic through proprietary software and industry-standard hardware. Instead of merely diverting traffic from one server to another, BIG/ip determined which server had the most free space, enabling an Internet site to achieve greater efficiency with its existing servers without adding additional and costly servers.

Hussey was in business once he had the BIG/ip ready to introduce into the Internet traffic and content management market. His business was small at first, generating a paltry $200,000 by the end of 1997. The total paled in comparison with the financial might of F5's competitors, notably Cisco Systems, Inc., a $5 billion-in-sales maker of networking equipment with products that competed against BIG/ip. Cisco, and another major competitor, Nortel Networks Corporation, benefited from distribution and marketing organizations vastly superior to F5's modest abilities, but Hussey prevailed during his first months in business, giving his company a foothold that gave it a fighting chance against its towering competitors. BIG/ip proved to be a worthy product, excelling as load balancer for local area networks. In September 1998, BIG/ip was joined by its counterpart for wide area networks, the 3DNS Controller, which served as a load balancer for companies that had multiple locations. The introduction of 3DNS coincided with the end of F5's fiscal year, when BIG/ip, as the company's sole product, generated $4.7 million in revenue.

With two products to offer, Hussey was ready to shop his company to Wall Street. In April 1999, the company changed its name from F5 Labs to F5 Networks and filed for an initial public offering (IPO) of stock, hoping to raise up to $40 million to pay off debt and to fund expansion. F5 completed its IPO in June 1999, selling 2.86 million shares at $10 per share, netting it $25.5 million. By the time Hussey completed F5's IPO, the pundits who had claimed that the Internet would become a revolutionary economic force had been proven correct. The gamble Hussey made in 1996, betting that the growth of the Internet would require products like BIG/ip and 3DNS, had paid off. The dot.com industry was in full flower, attracting eager investors and myriad start-up ventures, both seeking to make their riches off anything related to the Internet. F5's performance on Wall Street reflected the frenzied optimism of the day, increasing in value at a phenomenal rate. By the end of 1999, F5's stock was trading at $144 per share, representing a 1,040 percent return to F5 stockholders who had invested six months earlier. The company's sales reached $27 million in 1999 as its stock soared in value, reaching an all-time high of $160 per share by January 2000. The new year promised to bring even greater financial gains, but for those who hailed the dawn of the new economy and dismissed the old economy, the beginning of the 21st century delivered a stinging rebuttal.

The Collapse of an Industry at the Dawn of the 21st Century

F5's main problem as it entered the new decade was keeping up with the escalating demand for its products. The company had more than 1,600 customers, serving the companies who were propelling the fantastic growth of the dot.com industry. As 2000 progressed, however, signs of weakness began to show, their cause tied to the beginning of the spectacular collapse of the dot.com industry. At first, the severity of what was to come was masked by encouraging results. In June 2000, F5 celebrated its 11th consecutive quarter of revenue growth, but its stock was trading for $36 per share, down sharply from the $160 per share at the beginning of the year. The dramatic decline in F5's stock value soon was joined by lackluster revenue performance, as the technology sector, battered as a whole on Wall Street, began to stagger toward collapse. At the beginning of 2000, F5 was struggling to serve its customers, who turned to F5 for help with their own problems of growth. As the months passed, a more profound problem surfaced, one that threatened to destroy Hussey's burgeoning business. F5 was reliant on the types of companies who were suffering the most, deriving 80 percent of its revenue from dot.com start-ups. BIG/ip and 3DNS were quality products, but they were being sold to a dying breed of companies.

Before F5's problems became readily apparent, Hussey turned to a new executive to help his company keep pace with the increasing demand of its products. In July 2000, John McAdam was hired as president and chief executive officer, an appointment profoundly important to F5's future. A former general manager of the Web server sales business at IBM, McAdam immediately realized his biggest challenge was not to expand F5 to meet growing demand but to contend with the crucible presented by the collapse of the dot.com industry. "When I came on board," McAdam reflected in a December 14, 2001 interview with Puget Sound Business Journal, "our business model was broken." McAdam witnessed F5's stock value plummet during his first months in office. By the end of 2000, F5's share price had fallen from $36 to $9.43, a fraction of the $160 at the beginning of the year and below the IPO price of $10. Exacerbating the company's situation, its biggest competitors increased their commitment to dominating F5's market niche. In May 2000, Cisco bought a traffic management competitor, ArrowPoint Communications, in a $5 billion deal. Not to be outdone, Nortel fired a salvo of its own at the end of the year, acquiring Altheon WebSystems in a $7 billion deal that portended disaster for F5. In a January 5, 2001 interview with Puget Sound Business Journal, an industry analyst offered his assessment of F5's situation at the end of 2000. "Being a niche player," the analyst noted, "they've been fortunate enough to be profitable. They can survive as a supplier of content management solutions for the lower to mid-end market, but if they really want to continue their growth, they will have to partner with someone. They need to seriously consider their options."

Turnaround Beginning in 2001

In the wake of the tumultuous events of 2000, McAdam took action, becoming F5's savior. Faced with announcing a 40 percent decline in revenues and a loss instead of a profit for the first quarter of 2001, he sought to repair F5's reputation on Wall Street. He reduced F5's staff by 15 percent in January 2001, subleased office space in the company's newly built headquarters, and, most important, streamlined F5's product line to make it more appealing to large companies. McAdam knew that he needed to divorce the company's attachment to the Internet start-ups that were in their death throes and instead court large, bricks-and-mortar companies. He brokered distribution partnerships with Nokia Corp. and Dell Computer Corp. that gave F5 access to a broader range of corporate customers, dramatically altering the profile of the company's customer base. As McAdam orchestrated F5's turnaround, the company's share price continued to slide, dipping below $5 by April, but by the end of the year the sweeping changes realized their intent. By December 2001, F5's stock was trading for $27.73, a 52-week high. The same analyst who painted a bleak picture of F5's prospects at the end of 2000, offered a different assessment at the end of 2001. In a December 14, 2001 interview with Puget Sound Business Journal, the analyst said, "It's a definite turnaround for this company. You have to give credit to McAdam and his team. F5 went from being 80 percent reliant on dot.com customers to 90 percent reliant on large enterprises." Revamped and financially on the mend, F5 was ready to take on Cisco and Nortel, forgetting its size as it sought to improve its ranking in the traffic management market.

By the beginning of 2002, the devastation caused by the collapse of the dot.com industry had winnowed the ranks of the technology sector. F5 had survived and it found itself involved in a three-horse race for control of a $385 million market. Cisco, aided by a strong distribution channel and relationships with many clients, held sway, controlling a commanding 47 percent share of the traffic management market. Nortel ranked second, but not by much, holding a 17 percent share compared with the 16 percent share held by the rejuvenated F5. McAdam set his sights on overtaking Nortel, scoring encouraging success as F5 completed its first decade of business.

McAdam's restorative work culminated in a profitable 2003 for F5, the first annual profit recorded by the company after two years of losses. The months of scaling back operations were over, ushering in a period of expansion that saw F5 develop a more comprehensive collection of services for its customers, particularly in the security software niche of the market. In July 2003, McAdam spent $25 million to buy uRoam, a developer of software that enabled users to securely access their company's private network from any computer. In May 2004, McAdam struck again, paying $30 million to acquire MagniFire Websystems, Inc., an acquisition that provided F5 with entry into the application firewall market. MagniFire sold TrafficShield, a security device that enabled customers to protect their applications and data from hackers and other malicious attacks.

As F5 entered the mid-2000s, the company faced a promising future. Financially, the company was performing remarkably well, increasing its revenues from $115 million in 2003 to $171 million in 2004. More impressive was the profit gain recorded in 2004, a 705 percent increase to $33 million. The company was gaining market share as well, slipping into the market's number two position with 20 percent of the traffic management market compared with the 15 percent share held by Nortel. In the years ahead, F5 figured to play a prominent role in helping companies manage their Internet traffic, as the company displayed its skill in making networks work.

Principal Subsidiaries: F5 Networks Australia Pty. Limited; F5 Networks SARL (France); F5 Networks GmbH (Germany); F5 Networks Hong Kong Limited; F5 Networks Japan K.K.; F5 Networks Korea Ltd.; F5 Networks Singapore Pte. Ltd.; F5 Networks Limited (United Kingdom); F5 RO, Inc.; MagniFire Websystems, Inc.

Principal Competitors: Cisco Systems, Inc.; Nortel Networks Corporation; Foundry Networks, Inc.


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