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F5 Snaps Up Traffix Systems

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F5 Networks Inc. (FFIV) recently completed the acquisition of a provider of Diameter signaling products, Traffix Systems, for an undisclosed amount. The agreement to acquire Traffix was signed earlier this week. The acquisition will further strengthen F5’s exposure in the networking market.

A 7-year old Israeli company, Traffix serves the telecommunications industry with its Diameter signaling routers, which are used in next-generation mobile (4G/LTE) and IP Multimedia Subsystem (IMS) service provider networks. Traffix signaling delivery controllers facilitate carrier transitions from 3G networks to 4G/LTE and IMS networks and facilitates subscriber information exchange and connectivity among various network elements.

In telecommunications, 4G/LTE (Long term Evolution)/IMS is the next generation of cellular wireless standards, following the 3G and 2G families.

Mobile data traffic is increasing rapidly, inspiring many mobile operators to switch from a 3G network to advanced networks, to manage the high volume of traffic and provide a high quality customer experience. Diameter is a new concept in IP (internet protocol) signaling protocol, which expedites traffic management and fosters interoperability between service providers as well as IP systems.

As per the communications market research firm Infonetics Research, the Diameter signaling market could grow from $9.0 million in 2011 to $321.0 million by 2016.

F5 develops and sells products that optimize the delivery of network-based applications, and availability of servers, data storage devices, and other network resources. Leveraging Traffix System’s capabilities, the company will be able to deliver a flexible architecture to enable its customers to create a smart, converged carrier IP infrastructure. Moreover, the acquisition will help F5 to take a major share in the growing Diameter signaling market.

Though F5 does not expect any material earnings per share contribution from Traffix in its upcoming quarter, we believe Traffix’s association with Alcatel-Lucent (ALU), IBM Corp. (IBM), Oracle Corp. (ORCL) and Red Hat Inc. (RHT) will provide marketing support.

Currently, F5 Networks has a Zacks #2 Rank, implying a short-term Buy rating.

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