Shares of F5 Network (FFIV -1.51%) were plummeting today, down 13% as of 12:35 p.m. ET. The company, which makes both hardware and software that houses, governs, protects and deploys business software applications, issued light guidance for the rest of the year, even as last quarter's revenue met and earnings per share beat expectations.
Once again, investors can blame ongoing semiconductor shortages for F5's woes.
In the fiscal second quarter of 2022, which ended March 31, F5's total revenue was down 2%, but there was a big difference between its segments. While the smaller software segment grew 40%, hardware was down 27%, which management blamed entirely on semiconductor shortages. Given the ongoing supply chain woes due to China shutting down major cities to combat the omicron variant of the coronavirus, management also lowered its full-year guidance from between 4.5% and 8% growth to between just 1.5% and 4% growth. Software growth of 35% to 40% is unchanged, but obviously the hardware component of revenue, which remains a majority of F5's business, remains a wild card.
Investors never like to see lowered guidance, not just for the next quarter, but for the full year. That seems to indicate that F5's component shortage challenges may linger past the summer. In its earnings presentation, management said it was expecting some key suppliers to ramp up their capacity in the company's fiscal fourth quarter, which ends in September, which would translate into supply catching up with demand one year from now. That's too long for this impatient market.
There are actually a couple of silver linings for F5 shareholders, though. First, CEO François Locoh-Donou reiterated, "We have clear visibility to continuing strong demand drivers across our software and systems portfolio." So even though headline earnings and guidance are going down, there doesn't appear to be any lagging demand in the business. This is a trend we've seen across just about every company that deals with semiconductors and hardware in this earnings season, and it's a much better scenario than if demand were truly declining.
Second, F5 is a cash-rich company with no debt, and it's buying back shares at these discounted prices. Management has generally done a good job of holding back on repurchases when the stock is climbing, then more aggressively repurchasing stock when the price falls. F5 has already repurchased $250 million since Sept. 30, 2021, the end of its last fiscal year, and plans to do another $250 million by the end of this fiscal year. That $500 million would be almost 5% of F5's market cap today.
F5 isn't the most exciting tech stock, but it generates lots of cash and has no debt. While there is no dividend, the stock looks like a relatively conservative play on the growth and complexity of enterprise applications worldwide. In this risky environment for expensive, no-profit stocks, F5 may find more interest at these lower prices.