Riverbed CEO: Cisco Can't Touch This

Networking newbie Riverbed says that it's making inroads against tech giant Cisco.
Publish date:

A little over two years since its IPO, newcomer



is more than holding its own against

networking rival


(CSCO) - Get Report

, according to Jerry Kennelly, the company's CEO.

"They haven't crushed us -- they are not supermen," he said, explaining that Riverbed exited 2008 with 2,000 new customers, bringing its total to 5,500.

The San Francisco, Calif.-based firm has already been identified as a

good tech stock

for the downturn, thanks to its network acceleration technology.

The company touts its Steelhead appliances as a way to speed up Wide Area Network (WAN) traffic, removing the need for companies to spend money on expensive network upgrades. In the current economy, this is striking a chord with users, according to Kennelly.

"What we're seeing now is that IT managers are being beaten with whips to cut costs," he said. "In the good times people would give it lip service, but now they have to do it."

The recessionary climate is also offering opportunities to challenge established networking companies such as Cisco and

Juniper Networks

(JNPR) - Get Report


"One of the benefits is that people are willing to break brand affiliation to save money -- they are willing to look at alternatives," said Kennelly. "What we need is more 'at bats,' we need more opportunities to compete."

Despite the spending slowdown, which has


most tech companies, Riverbed grew its revenue by 41% in 2008. The firm's fourth-quarter sales also came in above analysts' estimate at $92 million.

"That's not to say that we're not affected by the economy," said Kennelly. "Our growth would have been higher still in a more robust economy."

Despite a modest rally in the last few months, Riverbed's share price has nonetheless taken a pounding with the rest of the tech sector. The company's shares have fallen 40% in the last 12 months to $9.93 at Friday's close.

The CEO acknowledges that Riverbed's sales will slow in 2009 but still predicts positive net growth. Riverbed estimates first-quarter revenue between $83 million and $86 million, an increase of 14% to 18% on the prior year.

Kennelly also wants to improve on Riverbed's 19% operating margin.

"Our long-term goal once this economic situation is passed is to get up into the mid-twenties," he said.

As for its big-name rival, Kennelly admits that Cisco is a "fierce" competitor with great brand recognition but says that he is not afraid of the networking behemoth.

"We don't compete with them in their strength, which is layer two to three

switching and routing," he said, explaining that Riverbed is focused on layer four to seven applications such as email and file transfers.

Partnerships will also play a big part in the company's long-term strategy, according to Kennelly.

Riverbed, which recently signed a deal with


(HPQ) - Get Report


deploy its software

on the tech giant's networking blades, is also allied with the likes of


(T) - Get Report







Most notably, the firm recently clinched a deal to offer


(MSFT) - Get Report

Windows Server pre-packaged on its hardware. "Microsoft and Riverbed are now BFFS," said the CEO.

In the seven years of its existence, Riverbed has only opened up its wallet once, spending $25 million on its recent acquisition of

Mazu Networks


With $270 million in cash, Kennelly is open to more M&A. "In the current climate there are acquisition opportunities," he said, but did not reveal what these are.