Spoke to the one of the analyst over at Bear Stearns about the selloff in the stock. Didn't ask them
if it was split related, since it seemed like such a stupid question to ask of a fundamental analyst. I
have seen my share of tech stocks selling off after good earnings news, but never something of this
magnitude.
Anyway, their theory is that the sequential decline in gross margins (700 bps - 77% to 70%)
probably spooked some people. However, as I recall, Jeff Hussey attributed that to a change in the
sales mix (less OEM sales) and higher DRAM prices. For those of you who don't follow semis,
DRAMs are the memory modules inside your PCs and the prices on those things went up between
50% to 100% during 4Q99 from 3Q99 levels. Component price hikes like that'll put a dent in your
margins....just go look at Dell's last two quarters. I am not all that familiar with the technical specs
on F5's boxes, but I gathered from the conference call that they increased the amount of DRAM in
their boxes to 256MB from 128 or 192MB during the quarter, which hurt their profitability on a
margin basis. I doubt that this will be a problem in the March quarter since DRAM prices have
been coming down like a rock after Christmas and should stay down at least in the first half of this
year(take a look at Micron Technology's stock price). To make a long story short, F5's results
should improve the next time they report as long as they keep selling BigIP like they have and
component cost don't go jump unexpectedly.
In the interest of disclosure, I have been long F5 since the $70s and don't plan on selling my core
positions anytime soon.
