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F5 Networks Inc. (FFIV - Snapshot Report) recently announced the acquisition of a privately-held networking services provider, LineRate Systems, for an undisclosed amount. The acquisition will further strengthen F5’s exposure to the networking market. The networking giant does not expect the acquisition to have a material impact on its operating results.

Colorado-based LineRate Systems specializes in providing software solutions that help scale network services for better web-traffic management. The company is a key player in the Software-defined Networking (SDN) market and is expected to pave the way for F5’s penetration within the segment.

Software-defined networking is an approach to networking in which control moves from hardware to a software application called a controller. A network administrator uses these controllers to direct and regulate network traffic from a centralized hub. This minimizes the use of different and expensive switches for controlling web-trafficking and helps in uninterrupted traffic flow. Another important factor for choosing SDN technology is that it is applicable for both private and public cloud infrastructures.

The SDN approach to networking is gaining popularity among key networking players such as Cisco Systems Inc. (CSCO - Analyst Report), Juniper Networks Inc. (JNPR - Analyst Report), Brocade (BRCD - Snapshot Report) and many more.

F5 already leads the Application Delivery Controller (ADC) space. LineRate greatly increases F5’s chances of overshadowing its peers in the SDN space.

Apart from SDN, F5 is also looking into other areas of networking. In Feb 2012, F5 Networks acquired Traffix Systems, a provider of diameter signaling products. With Traffix Systems, the company is delivering a flexible architecture to enable its customers to create a smart, converged carrier IP infrastructure. This has allowed it to grow share in the Diameter signaling market.

We believe that F5 is well positioned to maintain its leadership in the ADC market (especially due to Cisco’s exit from the market). But we prefer to remain on the sidelines as there are some strong contenders in the SDN space.

Currently, F5 Networks has a Zacks Rank #3 (Hold).

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