GS751 (28.78)

RDWR

December 19, 2007 – Comments (0) | RELATED TICKERS: RDWR

These guys are a player in one of the hottest niches in the networking industry, application switching.  The stock has taken a hit due to their constant reorganization of sales.  My valuation leaves a healthy margin of safety for this.  In tech we are seeing companies go from mission-critical applications to web based platforms, applications or content switches have emerged to allow enterprises and service providers to securely manage network traffic.  As opposed to tradition network hardware which simply routes traffic based on addresses, these traffic management devices examine each data packet to optimize traffic movement across the network.  they are basically traffic cops, which prioritize the various forms of traffic. thus maximizing efficiency.  Radware is at the high end of this.  They mainly focus on high-bandwith solutions.  This gave them a following in the ISP community (ISP's represent 35% of sales).  Most of their growth has come from Europe and Asia.  They do not do a good job of developing their sales channels and it has trouble articulating the benefits of its confusing product lineup to customers.  I like what they did in 2006 with hiring the new exec to spearhead these problems and get them fixed.  They way they are fixing this is well firstly they sell a wide variety of traffic-mangement solutions and in the past they just provided customers with different boxes for different applications rather than selling complete solutions.  They just released the next generation APSolute operating system and this OS Is a standard on all of its products.  This gives them an end-to end solution that I think will be easier to articulate to customers and channel partners.  The demand environment for these products is pretty solid.  I see sales increasing 7% over the next couple of years at least depending how they manage these sales channels.  Gross margins are high right now but will be hurt in the next couple of years due to more competition.  I like all the tax advantages.