Palo Alto Networks targets legacy displacements and subscription services to sustain growth

By Krista Macomber, Senior Analyst, and Stephanie Long, Research Analyst

Increasing scale and spend on portfolio and go-to-market development drove a downtick to Palo Alto Networks’ revenue growth and profitability in C1Q16

Palo Alto Networks faces the expensive challenge of displacing legacy security vendors as customers increase their annual security budgets yet show reluctance to increase the number of security vendors they use. During C1Q16 (fiscal 3Q16) specifically, Palo Alto Networks added approximately 1,000 new customers, bringing its customer base to 31,000, and TBR believes Palo Alto Networks attracted many of these customers by displacing legacy firewalls from Check Point, Cisco and Juniper Networks. However, this success comes with financial pressures. The company’s year-to-year revenue growth rate dipped below 50% for the first quarter since 2Q14, to 47.7% in 1Q16. Additionally, Palo Alto Networks expects its revenue growth to continue to decelerate, slipping below 40% in 2Q16. Meanwhile, its operating margin dipped to -16.9% compared to -15.7% in the year-ago quarter, and the company has not yet achieved profitability since it went public in 2012. Continue reading

Posted in 1Q16, CBQ, commentary, cybersecurity, earnings release, TBR | Tagged , , , , , , ,

ServiceNow: Driving platform-enabled management across the enterprise

By Sanjay Medvitz, Research Analyst

TBR perspective

“ServiceNow is a platform company,” emphasized CEO Frank Slootman during the opening keynote for ServiceNow’s annual Knowledge16 conference, which attracted over 11,000 attendees. The point reinforced the vendor’s long-term growth strategy that involves expanding outside its flagship IT service management (ITSM) offering into the adjacent IT operations management (ITOM) and line-of-business service management offerings for human resources (HR), customer service and security, all built on top of its underlying platform. During the conference, ServiceNow continued to promote its goal to reach $4 billion in revenue by 2020 with a shifting business mix. In 2015 ITSM accounted for roughly 70% of revenue; however, the vendor projects that portion to approach 50% by 2020 with ITOM and platform revenue becoming much larger parts of the business. Continue reading

Posted in 2Q16, event perspective, Uncategorized | Tagged , , , , ,

Ciena contends in MANO but requires more professional services to win

By Chris Antlitz (, Senior Analyst

TBR perspective

Ciena is a tale of two companies. On the one hand, Ciena is a nimble, fast-growing orchestration powerhouse via its Blue Planet division, while on the other hand the company is still very much tied to the network hardware market, a market forecast to shrink and rapidly become commoditized due to the impact of NFV and SDN over the next few years. Though Ciena is aware of the challenges it faces, TBR believes the traditional business is going to shrink faster than Ciena can scale its Blue Planet portfolio, and Ciena should embrace the professional services opportunities that arise from network transformation to participate in a much bigger way in the industry’s shift to software-mediated technologies. If Ciena can more fully capitalize on these services opportunities, the company should be able to offset the aforementioned shrinkage in its traditional business as well as grow corporate margins, and set the stage to become one of the marquee providers of management and orchestration (MANO) platforms to the telecom industry. Continue reading

Posted in 2Q16, event perspective, NBQ, networking, special report, TBR, telecom | Tagged , , , , , ,

Lenovo’s PC & Smart Device Group restructuring aims to strengthen its PC business by navigating underlying PC market challenges

By Dan Callahan, Analyst

Lenovo, like other vendors, faces a singular yet pervasive challenge within the PC market: “good enough” technology and heavy competition conspires to create an ongoing drive to the bottom in PC prices. Lenovo, which has been relying on its PC business to fuel expansion into adjacent markets, is particularly exposed to this trend. Seeing the future, the company reorganized its PC group into the PC and Smart Device Group in an effort to buck the market trend by promoting a suite of more useful product offerings and drive additional profits through increased efficiencies. The company, which has successfully reorganized in the past, is embarking on a new set of changes to make possible its ongoing transformation from PC provider to top-to-bottom hardware purveyor for businesses and consumers. Continue reading

Posted in 1Q16, CBQ, commentary, devices, earnings release, initial response, TBR | Tagged , , , , , , ,

Lenovo prepares to correct execution on transformative data center opportunities

By Krista Macomber, Senior Analyst

Lenovo’s Enterprise Business Group struggled in the face of data center industry disruption during C1Q16

Lenovo recognizes and is investing to capitalize on opportunity created by ongoing, heavy disruption in the data center industry. However, accelerating market evolution is outpacing Lenovo’s ability to refine its strategy and execution outside its domestic market, China. Customers are migrating quickly to next-generation architectures, such as hyperconverged platforms and hybrid cloud services. Meanwhile, incumbent vendors including Dell, EMC and Hewlett Packard Enterprise (HPE) are responding with equally radical business model transformations and targeted competitive displacement initiatives. As a result, Lenovo’s Enterprise Business Group (EBG) revenue declined 7.6% year-to-year in C1Q16 — the group’s first quarterly year-to-year revenue decline since its inception, according to TBR estimates. Additionally, the segment’s reported pretax income remained at a loss and reversed three quarters of sequential improvements, decreasing from a -1.1% margin in 4Q15 to a -1.6% margin in 1Q16. Continue reading

Posted in 1Q16, CBQ, earnings release, hyperconverged, initial response, TBR, Uncategorized | Tagged , , , , ,

CSRA closed its first year of operations with solid financial performance, however, work remains to further streamline operations and drive growth

By Sebastian Lagana, Senior Analyst

CSRA closed its first year of operations with solid financial performance, however, work remains to further streamline operations and drive growth

CSRA ended its first full fiscal year with promising results, achieving revenue expansion while concurrently generating top-of-market operating profitability for a federally focused services-led firm. Revenue was up 28.9% year-to-year during 1Q16, although this was tempered to -4.4% once accounting for SRA International revenue in the year-ago quarter, while reported operating profitability of -5.9% adjusted upward to 9.8% after removing a noncash charge related to pension adjustments during the quarter. Continue reading

Posted in 1Q16, earnings release, initial response, TBR, telecommunications | Tagged , , , , ,

NetApp approaches a tipping point to stronger traction in next-generation IT

By Krista Macomber, Senior Analyst

NetApp’s long-term viability will be determined by disciplined execution on transformation-focused and competitive displacement opportunities in 2016

NetApp continues along a challenging road, balancing the need to invest significant R&D and SG&A dollars in portfolio and go-to-market monetization with ongoing revenue challenges resulting from declining demand for legacy storage technologies. Additionally, NetApp is working through ongoing recovery from missteps in strategic markets, including a delay to offering all-flash storage arrays. Specifically, during 1Q16, NetApp’s revenue declined 10.4% year-to-year to $1.4 billion, as gross and operating margins shrank 590 basis points and 140 basis points year-to-year, respectively, hindered by a 40% year-to-year decline to revenue from mature solutions, including NetApp’s legacy Data ONTAP 7 mode operating system. Continue reading

Posted in 1Q16, CBQ, data center, initial response, Uncategorized | Tagged , , , ,