Blue Coat Surprises With Better-Than-Expected Results

Blue Coat Systems (Nasdaq: BCSI  ) , the network monitoring software maker, came out with lower second-quarter revenue that nevertheless exceeded expectations. Let's take a closer, Foolish look to see what's up with Blue Coat.

Into the numbers
The company's total revenue was down 6% from the previous year's quarter to $114.1 million, mainly due to a decline in the company's product-related revenue.

Blue Coat's product revenue saw a 15% decline to $62 million, though sequentially, product revenue was up by 6%. Sequentially higher revenue in this division was driven by the company's security products, which include ProxySG, AV, and Blue Coat WebFilter products. Service revenue, on the other hand, ended up at $52 million, slightly higher sequentially and 8% higher than the year-ago quarter.

Blue Coat's net income collapsed by 62% to $4.6 million driven in part by lower revenues and higher operating expenses. This was on account of one-time items such as executive and employee severance expenses that amounted to $3 million.

Connecting to the cloud
Blue Coat Systems recently announced the introduction of Cloud-Connector, which is a new connectivity option meant for cloud usage by businesses that operate from different branches. The product minimizes the flow of Internet-bound traffic from branch offices that flows via the business's data center, in effect, saving on costs and boosting overall performance.

Cashing in on CacheFlow
In September, Blue Coat also announced the introduction of the all new CacheFlow 5000 application meant for service provider deployments that helps them cache and distribute popular Internet content such as YouTube video streaming. The caching helps take significant bandwidth burden off the network.

The CacheFlow 5000 also includes support for the new IPv6 protocol, which is a very important for Internet service providers. Blue Coat claims previous versions of the CacheFlow appliance that have already been deployed so far to about 50 service providers and has achieved average bandwidth savings of 40% to 50%.

The Foolish bottom line
Blue Coat seems to be recovering in terms of sequentially higher revenue and gross profits. However, the company also faces stiff competition from rivals such as Websense, which has been seeing better performance in terms of revenue, operating income, and net income over the past few quarters. It will be interesting to see how the company performs in these turbulent economic times over the next few months. What do you Fools think about Blue Coat? Let us know by posting below. To stay up to speed with the latest news and analysis for Blue Coat, feel free to add it to your very own watchlist.

Keki Fatakia does not hold shares in any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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