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Radware Ltd. (RDWR) Message Board

  • henry_jerry777 henry_jerry777 Mar 21, 2001 4:53 AM Flag

    Globes Article in English Part 1

    "RADWare about to publish profit warning"

    Zvika Paz
    20.03.2001 19:51

    Is it only a matter of time before RADWare (Nasdaq: RDWR) publishes a profit warning? The share�s behavior on Nasdaq shows that such a warning will probably be published, a perception that was reinforced by a Kardan Capital Investments survey published today, Kardan said that, despite the company�s accelerated recent growth, RADWare will probably be forced to scale back its profit forecast for 2001, an dthat this will already find expression in the Q1 financial results.

    RADWare is considered to be a pioneer in Internet Traffic Management (ITM) technology, enabling proper information flow of IP-based applications and website content. RADWare posted steady growth in eight consecutive quarters, posting an operating profit in 2000 for the first time. The company has cash reserves totaling $131 million from its two public issues carried out in the past 18 months.

    Fortunately, RADWare�s products are mostly sold to major organizations. These account for 85% of revenue, according to the company. But it also sells to the crisis-laden market. Approximately half the company�s revenue is from the US market, which is now suffering a slowdown and business uncertainty, forcing many companies to substantially reduce their procurement budgets for the coming year, and this could hurt RADWare�s business.

    RADWare has not amassed long-term orders or contracts, and the company�s OEM agreements do not oblige the other parties to buy fixed quantities of products each quarter. The fact forces RADWare to open each quarter afresh and conclude many small deals to meet its targets.

    Kardan thinks the absence of direct marketing channels and substantial OEM agreements will make it harder for RADWare to increase sales in the long run. However, RADWare�s management is working hard to arrange new OEMs, which if signed will probably improve the company�s stability and justify its marketing strategy.

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    • Kardan says it is hard now to develop and implement a distribution network, especially given the company�s small volume sales that reduce the commissions earned by sales and marketing staff, consequently eroding their commitments to market RADWare�s products.

      RADWare could also be affected by IT company executives preferring comprehensive solutions from single suppliers and their marketing arms, instead of buying niche products from different specialist companies.

      RADWare�s troubles are not just in its sales and marketing networks. In Kardan's opinion, the departure by the CEO of its US subsidiary, who was one of the company�s founders, has created a gap in the company�s management that has remained unfilled for far too long. Kardan emphasizes that unless RADWare succeeds in building an experienced management team soon, it will have trouble coping with adverse market conditions.

      RADWare CEO Roy Zisapel is currently in the US to deal with the company�s management problems and find a worthy and experienced local CEO to help penetrate the US market and win new OEM agreements. Kardan thinks the company will soon announce the appointment of a new CEO.

      Kardan also points out that the Zisapel brothers, who own 27% of the company, have released 100,000 shares on the market each quarter, beginning two days after the publication of the financial results and until the end of the same month. On days when large numbers of shares are thrown onto the market, the share has consistently headed down.

      Last year, the ITM market saw several business deals likely to have long-term effects. Cisco and Nortel acquired companies specializing in switches, thereby acquiring for ITM capabilities themselves � RADWare�s own field.

      Kardan assesses that the entry of domineering giants into the field signals the importance of ITM solutions. Consequently, an industry leader like RADWare could be in an optimal position for acquisition by competitors of Cisco and Nortel. RADWare could thus be an attractive acquisition proposition for companies such as Akamai, and Mercury Interactive Corporation (Nasdaq: MERQ) which are moving into related fields.

      Kardan expects the high-tech crisis to affect RADWare�s ability to meet its $12.5-13 million sales target for the quarter, as well its target for 2001 as a whole, in which the company expects to post 60% revenue growth. Most of the companies in RADWare�s field have already published profit warnings and drastically cut their 2001 forecasts, and RADWare will probably soon follow suit. Kardan Capital Investments has therefore lowered its short-term �Buy� recommendation for RADWare to long-term �Hold�.

      Published by Israel's Business Arena on 20 March 2001

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