401 Elliott Avenue West
Seattle, Washington 98119
Telephone: (206) 272-5555
Toll Free: (888) 882-7535
Fax: (206) 272-5556
Incorporated: 1996 as F5 Labs, Inc.
Sales: $2.09 billion (2017)
Stock Exchanges: Nasdaq
Ticker Symbol: FFIV
NAICS: 541511 Custom Computer Programming Services; 517311 Wired Telecommunications Carriers
F5 Networks, Inc., develops software-based technology that helps companies deliver applications via the internet in the fastest, most optimal way. The company accomplishes this through its scalable Traffic Management Operating System platform. With subsidiaries or offices in nearly 45 countries, F5 serves Fortune 1000 companies throughout North America, Europe, and the Asia-Pacific region.
F5 was started by Jeffrey S. Hussey, an investment banker who earned his undergraduate and graduate degrees at Seattle Pacific University and the University of Washington, respectively. Hussey established his company in Seattle, which was a hotbed of information technology activity during the mid-1990s, creating F5 to feed off the business generated by the internet.
Hussey wanted to help companies better manage traffic on the internet. The business idea's viability hinged on the growth of the internet and the expected, yet theoretical, emergence of what would become known as the “new economy.” In short, without a traffic problem, there would be no need for a traffic solution, making Hussey's small, start-up venture a gamble from the beginning.
F5 was incorporated in February 1996 as F5 Labs, commencing operations two months later in April. Hussey served as the company's principal executive, holding the titles of chair, CEO, and president as he shepherded his venture through its formative months. For more than a year, Hussey worked toward giving F5 a product to sell. Employees were recruited, a corporate infrastructure was created, and capital was raised, all to support the development and expected launch of the company's first product. This preparatory stage in F5's history (the prelude to the story of its development) ended in July 1997, when the company was ready to market its BIG/ip Controller.
Hussey was in business once he had the BIG/ip ready to introduce into the internet traffic and content management market. His business was small at first, generating a paltry $200,000 by the end of 1997. This total paled in comparison with the financial might of F5's competitors, notably Cisco Systems, Inc., a $5 billion-in-sales maker of networking equipment with products that competed against BIG/ip. Cisco, and another major competitor, the Nortel Networks Corporation, benefited from distribution and marketing organizations that were vastly superior to F5's modest abilities.
Nevertheless, Hussey prevailed during his first months in business, giving his company a foothold that gave it a fighting chance against its towering competitors. BIG/ip proved to be a worthy product, excelling as a load balancer for local area networks. In September 1998 BIG/ip was joined by its counterpart for wide area networks, the 3DNS Controller, which served as a load balancer for companies that had multiple locations. The introduction of 3DNS coincided with the end of F5's fiscal year, when BIG/ip, as the company's sole product, generated $4.7 million in revenue.
With two products to offer, Hussey was ready to shop his company to Wall Street. In April 1999 the company changed its name from F5 Labs to F5 Networks and filed for an initial public offering (IPO) of stock, hoping to raise up to $40 million to pay off debt and fund expansion. F5 completed its IPO in June 1999, selling 2.9 million shares at $10 per share, netting it $25.5 million. By the time Hussey completed F5's IPO, the pundits who had claimed that the internet would become a revolutionary economic force had been proven correct. The gamble Hussey made in 1996, betting that the growth of the internet would require products such as BIG/ip and 3DNS, had paid off.
The dot-com industry was in full flower, attracting eager investors and myriad start-up ventures, both seeking to make their riches off anything related to the internet. F5's performance on Wall Street reflected the frenzied optimism of the day, increasing in value at a phenomenal rate. By the end of 1999, F5's stock was trading at $144 per share, representing a 1,040 percent return to F5 stockholders who had invested six months earlier.
The company's sales reached $27 million in 1999 as its stock soared in value, reaching an all-time high of $160 per share by January 2000. The new year promised to bring even greater financial gains. However, for those who hailed the dawn of the new economy and dismissed the old economy, the beginning of the 21st century delivered a stinging rebuttal.
F5's main problem as it entered the new decade was keeping up with the escalating demand for its products. The company had more than 1,600 customers, serving the companies that were propelling the fantastic growth of the dot-com industry. However, as 2000 progressed, signs of weakness began to show, their cause tied to the beginning of the spectacular collapse of the dot-com industry. At first, the severity of what was to come was masked by encouraging results. In June 2000 F5 celebrated its 11th consecutive quarter of revenue growth, but its stock was trading for $36 per share, down sharply from the $160 per share at the beginning of the year.
Before F5's problems became readily apparent, Hussey turned to a new executive to help his company keep pace with the increasing demand of its products. In July 2000 John McAdam was hired as president and CEO, an appointment that was profoundly important to F5's future. A former general manager of the web server sales business at the International Business Machines Corporation, McAdam immediately realized his biggest challenge was not to expand F5 to meet growing demand but to contend with the crucible presented by the collapse of the dot-com industry. “When I came on board,” McAdam reflected in an interview with Jeff Meisner in the Puget Sound Business Journal in December 2001, “our business model was broken.”
McAdam witnessed F5's stock value plummet during his first months in office. By the end of 2000, F5's share price had fallen from $36 to $9.43, a fraction of the $160 at the beginning of the year and below the IPO price of $10. Exacerbating the company's situation, its biggest competitors increased their commitment to dominating F5's market niche. In May 2000 Cisco bought a traffic management competitor, ArrowPoint Communications, in a deal worth $5 billion. Not to be outdone, Nortel fired a salvo of its own at the end of the year, acquiring Altheon WebSystems in a $7 billion deal that portended disaster for F5.
In January 2001 an industry analyst offered to M. Sharon Baker in the Puget Sound Business Journal his assessment of F5's situation at the end of 2000. “Being a niche player,” the analyst noted, “they've been fortunate enough to be profitable. They can survive as a supplier of content management solutions for the lower to mid-end market, but if they really want to continue their growth, they will have to partner with someone. They need to seriously consider their options.”
In the wake of the tumultuous events of 2000, McAdam took action, becoming F5's savior. Faced with announcing a 40 percent decline in revenues and a loss (instead of a profit) for the first quarter of 2001, he sought to repair F5's reputation on Wall Street. He reduced F5's staff by 15 percent in January 2001, subleased office space in the company's newly built headquarters, and, most importantly, streamlined F5's product line to make it more appealing to large companies. McAdam knew that he needed to divorce the company's attachment to the internet start-ups that were in their death throes and instead court large, brick-and-mortar companies.
He brokered distribution partnerships with the Nokia Corp. and the Dell Computer Corp. that gave F5 access to a broader range of corporate customers, dramatically altering the profile of the company's customer base. As McAdam orchestrated F5's turnaround, the company's share price continued to slide, dipping below $5 by April, but by the end of the year the sweeping changes were beginning to take effect. By December 2001 F5's stock was trading for $27.73, a 52-week high.
The same analyst who painted a bleak picture of F5's prospects at the end of 2000 offered a different assessment at the end of 2001. In a December 2001 interview with the Puget Sound Business Journal's Jeff Meisner, the analyst said, “It's a definite turnaround for this company. You have to give credit to McAdam and his team. F5 went from being 80 percent reliant on dotcom customers to 90 percent reliant on large enterprises.” Revamped and financially on the mend, F5 was ready to take on Cisco and Nortel, forgetting its size as it sought to improve its ranking in the traffic management market.
By the beginning of 2002 the devastation caused by the collapse of the dot-com industry had winnowed the ranks of the technology sector. F5 had survived and it found itself involved in a three-horse race for control of a $385 million market. Cisco, aided by a strong distribution channel and relationships with many clients, held sway, controlling a commanding 47 percent share of the traffic management market. Nortel ranked second, but not by much, holding a 17 percent share compared with the 16 percent share held by the rejuvenated F5. McAdam set his sights on overtaking Nortel, scoring encouraging success as F5 completed its first decade of business.
McAdam's restorative work culminated in a profitable 2003 for F5, the first annual profit recorded by the company after two years of losses. The months of scaling back operations were over, ushering in a period of expansion that saw F5 develop a more comprehensive collection of services for its customers, particularly in the security software niche of the market. In July 2003 McAdam spent $25 million to buy uRoam, a developer of software that enabled users to securely access their company's private network from any computer. In May 2004 McAdam struck again, paying $30 million to acquire MagniFire Websystems, Inc., an acquisition that provided F5 with entry into the application firewall market. MagniFire sold TrafficShield, a security device that enabled customers to protect their applications and data from hackers and other malicious attacks.
As F5 neared the first half of the first decade of the 21st century, the company faced a promising future. Financially, it was performing remarkably well, increasing revenues from $115 million in 2003 to $171 million in 2004. More impressive was the profit gain recorded in 2004, a 705 percent increase to $33 million. The company was gaining market share as well, slipping into the market's number-two position with 20 percent of the traffic management market, compared with the 15 percent share held by Nortel.
In 2005 F5 was included in IT Week's Top 50 Technology Innovators ranking, for its technology's potential to transform global business. Additionally, Business 2.0 Magazine named F5 to its Top 100 Fastest Growing Tech Companies list in 2006. The company continued to expand the capability of its product lineup, including the rollout of the Big-IP 8800, an appliance for delivering applications, in early 2007. That same year the technology firm Gartner recognized F5 as the global leader in the application delivery networking market.
In 2007 F5 expanded into the data storage category by acquiring the file virtualization firm Acopia Networks, Inc., for $210 million. By that point the company's growth had resulted in a large influx of new employees. F5's employee base included 1,355 employees throughout the world, including 641 in Washington, where its workforce had increased 31 percent in just one year. This prompted a significant expansion of F5's corporate campus in Washington. Besides tripling office space in Spokane to 43,000 square feet, 15,000 square feet of additional research and development space was added in Bellevue, along with a new building in Seattle that spanned 137,000 square feet.
F5 received international attention in 2008, when it helped ensure seamless access to online services during the Summer Olympic Games in Beijing, which were attended by 2.5 million people over 17 days. Application security, optimization, and delivery via the event's website were supported by the company's F5 BIG-IP Local Traffic Manager technology. When Nortel filed for bankruptcy in 2009, F5 capitalized on the situation by offering trade-in credits to companies that owned Nortel's Alteon application switches and providing consulting services to help them migrate from the Alteon platform to BIG-IP.
Growth continued during the new decade when F5 acquired in 2012 the 4G (fourth-generation wireless) diameter signaling products provider Traffix Systems, expanding offerings to service providers in the telecommunications industry. A short-lived leadership change occurred in mid-2015, when Manny Rivelo, the executive vice president of strategic solutions, was named president and CEO to succeed the retiring McAdam. McAdam remained with the organization as chair following the change. However, due to personal conduct issues not related to the company, Rivelo resigned at the end of the year and McAdam once again stepped in to lead the organization as president and CEO. Alan Higginson subsequently became F5's nonexecutive board chair.
By that point F5's products and services were evolving to meet the ever-changing needs of service providers, including the ability to provide security and efficiency for 4G and 5G mobile networks and the constellation of connected devices that made up the so-called Internet of Things. In 2016 the company's board of directors approved plans to buy back $1 billion of F5's common stock. Midway through the following year, F5 announced it would relocate its corporate headquarters to an office in downtown Seattle in early 2019. The company agreed to lease an entire 516,000-square-foot, 44-story building at 801 Fifth Avenue. In mid-2018 F5 Networks appeared to be well positioned for continued growth and success as it prepared to begin a new chapter from its downtown Seattle headquarters.
Jeffrey L. Covell
Updated, Paul R. Greenland
Cisco Systems, Inc.; Citrix Systems, Inc.; Juniper Networks, Inc.
Baker, M. Sharon. “Cutbacks Due at F5 in Wake of Tech Slowdown.” Puget Sound Business Journal, January 5, 2001, 8.
“F5 Networks Completes Acquisition of Traffix Systems.” RTT News, February 22, 2012.
“F5 Networks Issues Q3 Guidance; Board Authorizes Additional $1 Bln for Buyback.” RTT News, April 20, 2016.
“F5 Networks Moving to New Office Tower on Fifth Avenue.” Professional Services Close-Up, May 9, 2017.
“F5 Networks Names John McAdam as President and CEO.” Professional Services Close-Up, December 17, 2015.
“F5 to Acquire Acopia Networks in $210 Million Storage Play.” InformationWeek, August 6, 2007.
Meisner, Jeff. “Staying Alive at F5.” Puget Sound Business Journal, December 14, 2001, 3.