Much of the streaming video you've been downloading from the Olympics is possible because of the technology Blue Coat Systems (Nasdaq: BCSI) and Cisco (Nasdaq: CSCO) installed at China's CCTV and NBC. Minus the charges for its acquisition of Packeteer, revenues have been streaming into Blue Coat as well.
On Thursday, the network security and application delivery company reported a GAAP loss of $0.15 per share, but absent the merger costs had profits of $0.16 per share. Revenue rose 64% from last year and 16% from the prior quarter.
The limp U.S. enterprise market has been part of analyst concerns about Blue Coat's buyout of Packeteer, a WAN traffic prioritization technology company. The prospects for growth seemed dim, and with a number of competitors vying for the shrinking dollars being spent, the potential for contraction was large. Blue Coat also needs to ease clients' concerns about relationships being maintained after its merger with Packeteer is complete. Blue Coat's shares had fallen by nearly 40% since the start of the year.
Yet the merger also suggested that industry consolidation would become more prevalent. Riverbed (Nasdaq: RVBD) has been seen as a takeover candidate, and F5 Networks (Nasdaq: FFIV) rounds out a number of smaller players competing in a space dominated by Cisco and Juniper Networks (Nasdaq: JNPR).
WAN optimization, however, is slowly giving way to WAN application delivery: The market researchers at IDC say Blue Coat is an industry leader in that, along with Riverbed. The market is expected to grow to $1.1 billion over the next few years, with companies looking to boost security and speed while at the same time reducing their costs. Blue Coat hopes to capture a large part of the business through Packeteer, which will help system administrators see what is occurring over their networks. Application visibility -- and Packeteer's platform today is capable of recognizing 650 applications -- will be the key to the plan.
While Blue Coat's results weren't very impressive, they underscored management's contention that Packeteer would add to earnings fairly quickly. Costs still weigh on the company, but it's a marathon, not a sprint, and Blue Coat ought to win in the end.
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