Riverbed shares plunge on OPNET integration woes

Combining two sales forces taking longer than hoped, WAN optimisation ace admits

Riverbed's share price plunged 15 per cent last night as it admitted the integration of recent $1bn (£657m) acquisition OPNET was not progressing as quickly as hoped.

The big daddy of the WAN optimisation market hit its profit targets for its fiscal second quarter but missed on sales, which rose 28 per cent year on year to $255m.

Although its core application acceleration business – which generates more than three quarters of sales – was bang on target, revenue for the acquired OPNET product, at $40m, was $2m below the low end of its estimates.

Its sales guidance for Q3 also disappointed, sparking a 14.8 per cent drop in its share price in after-hours trading.

Q2 was the second full quarter Riverbed has owned OPNET, an application performance management (APM) vendor it bought for about $1bn in October.

At the time, Riverbed claimed the combination of OPNET with its own network performance management (NPM) platform, Cascade, would "create a new force in the converged market for NPM and APM", with annualised revenue of $250m.

Riverbed chief executive Jerry Kennelly said the vendor had made steady progress completing back-office integration of the firm but admitted the process of combining the two sales forces had not progressed "as fast as we had hoped" and would drag on for at least another quarter.

"By acknowledging the challenges I discussed above, our sales teams and our partners with larger consulting integration practices have expressed enthusiasm about the addition of these products to the Riverbed portfolio," he said in a Q2 earnings call, a transcript of which can be found here.

Riverbed's core Steelhead and Granite lines generated the bulk of revenue, growing three per cent to $184m.

Its Stingray application delivery controller business boomed 82 per cent to $12m, excluding the revenue contribution of Juniper, which inked a reseller pact for the technology last summer.

Performance management contributed $58m to the total.

Some 83 per cent of revenue came through the channel – with its largest distributor Arrow contributing 17 per cent to the total – and 17 per cent was direct.

EMEA remains a relatively small part of Riverbed's business, contributing just 24 per cent to the Q2 sales total. Some 63 per cent of sales were drawn from the Americas region.

Kennelly said: "As I said last quarter, we are on the path to becoming a larger and more strategic supplier to customers across the globe. We still have work to do to integrate the OPNET acquisition, but we are making steady progress. I am confident that we are taking the right steps to position ourselves for the future."