Riverbed Tech Raises a Red Flag: Any Worry for Cisco or Juniper?

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Riverbed Technology (NASDAQ:RVBD) is a fairly popular technology name. This company provides application performance infrastructure solutions in the United States and internationally. It offers Steelhead products, a suite of wide area network (WAN) optimization products delivered on virtual appliances, software, and public cloud environments.

The company’s Steelhead products include Steelhead Mobile, which provides mobile workers with LAN-like access to corporate files and applications; the Virtual Steelhead appliance to extend the WAN optimization; and the Cloud Steelhead, a solution for public cloud computing environments. Further, it offers a Central Management Console that provides centralized configuration, monitoring, and control for deploying and managing Steelhead products across a WAN as well as the Interceptor appliance, which allows organizations to scale their WAN optimization solutions.

In addition, the company offers a performance management suite that provides network performance management solutions, which help organizations to manage, secure, and optimize the availability and performance of global applications. It serves manufacturing, finance, technology, government, architecture, engineering and construction, professional services, utilities, healthcare and pharmaceuticals, media, and retail industries.

The company faces tough competition from Cisco (NASDAQ:CSCO) and Juniper Networks (NYSE:JNPR). This sector is tough. Cisco is of course a natural leader here. Juniper Networks is also very competitive. Of the three, Riverbed is the smallest by market capitalization as well as employees.

While the price-to-earnings ratios can be exorbitant in this sector, both Cisco and Juniper Networks have reasonable ratios, whereas Riverbed is losing money. The motivation for this article is to discuss whether Cisco or Juniper Network’s quarter could be in danger after Riverbed announced preliminary second-quarter fiscal year 2014 financial results.

That’s right: Riverbed pre-announced. Usually, these happen when things are looking terrible, and this is no exception. I wonder what is happening in the sector, and if Cisco or Juniper Networks may be impacted, or if the weakness is isolated to Riverbed. So what does Riverbed expect? Well, Riverbed now sees non-GAAP revenue for the second quarter being lower, and as such, it revised guidance significantly lower, crushing shares.

In fact, revenue is now expected to be in the range of $264 million to $265 million, compared to the company’s previous guidance of $274 million to $280 million. Furthermore, second-quarter non-GAAP earnings are expected to be at the low end of the company’s previous guidance of 26 cents to 28 cents per diluted share.

So, as with any pre-announcement, we do not have too much to go one just yet. We will have to wait for the full earnings release to know more about the weak points. The question is, should investors in Juniper Networks or Cisco be concerned? I would be inclined to say no, not immediately. However, investors in these companies should pay special attention to that report and to the conference calls to see if there is any systemic cause for concern in the networking segment.

Disclosure: Christopher F. Davis holds no position in Riverbed or any other stocks mentioned and has no plan to initiate a position in the next 72 hours. He has a neutral rating on Riverbed and a $21 price target.

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