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Small-Cap Recap: F5 Networks and Citrix Fight it Out

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FFIV, CTXS and perhaps, in the future, CSCO, will periodically leapfrog each other and have their respective "quarter" of fame...

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Thursday afternoon I held my nose, closed my eyes and jumped in front of the F5 Networks (FFIV) after-market train wreck. While my entry point was based on the 200 DMA, the reason I'd even consider FFIV is its business. Without getting too technical, FFIV is to data management within the inner workings of the internet, what Akamai (AKAM) is to data management on the edges (i.e. closer to the end user) of the 'net.

FFIV's problem is that a resurrected Citrix Systems (CTXS) is starting to bite at its heels and then some. I usually don't like to get involved in competitive dog fights because often everyone loses. But this situation is sucking me in.

CTXS and FFIV are fighting it out over some pretty complicated software, so intricate in fact that even the all-mighty Cisco (CSCO) has not yet been able to fully wrap its arms around it, much as it would like. The competition here is not going to be like the price-war slugfests within commoditized markets, but rather one of sophisticated products and features. The amount and complexity of data traveling the web is growing exponentially, and so will the requirements on the hardware and software that regulate this traffic. IMHO, FFIV, CTXS and perhaps – in the future – CSCO, will periodically leapfrog each other and have their respective "quarter" of fame. Those times should see nice spurts in the stocks of the winners and merciless pounding of the losers.

Thursday was FFIV's turn in the dog pound, and the disappointment on the conference call was palpable. While it might be easier right now to ride the CTXS wave of enthusiasm, these stocks are risky animals, and, if I'm going to play with them, the potential reward needs to be outsized also. For me that means buying them when they are getting killed and trusting that the fundamental story still works.
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Positions in AKAM, FFIV
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