Needham & Company Infrastructure Software, Security Software, Mobility: 2011 Review and Outlook for 2012

Needham & Company Infrastructure Software, Security Software, Mobility -- 2011 Review and Outlook for 2012

Analyst, Scott Zeller, said, "Our favorite companies as we approach 2012 are divided into two groups: growth companies and core/value companies. Among the growth companies we cover, we believe Riverbed Technology (Nasdaq: RVBD), VMware (NYSE: VMW), Citrix Systems (Nasdaq: CTXS), and Fortinet (Nasdaq: FTNT) are likely to have upward revisions in the next 12 months, as all are tied to the growing cloud computing phenomenon. Our favorite core/value companies include Nuance (Nasdaq: NUAN) and Progress Software (Nasdaq: PRGS)."

"We believe the middling performance of the software industry in 2011 is attributable to an overhang of fear owing to the state of the macro economy. We also had difficult comparables in software vs. 2010, a year in which many companies outperformed on a relative basis, based on easy comparisons for 2009 vs. 2010, making the “uphill climb” for year-over-year comparisons in 2011 challenging. In our coverage, the companies which have performed the best in 2011 include SolarWinds (SWI, Buy) +48% in 2011, Nuance Communications (NUAN, Buy) +40%, and SourceFire (Nasdaq: FIRE)(Buy) +25%."

"Macro Fears Appear Overblown in Our Coverage - While the June quarter had a few uncharacteristic disappointments—Riverbed (RVBD, Buy) and Fortinet (FTNT, Buy)—we believe the concerns regarding macro issues and spending constraints (austerity measures in EMEA, etc.) were overblown. In our field discussions, the tone of business for the U.S. as well as EMEA remained solid all through 2011. As such, the performance in the September quarter in our coverage was “better than feared,” with companies such as VMware (VMW, Buy), Checkpoint Software (CHKP, Buy), Riverbed, Fortinet, SolarWinds and others all outperforming and guiding with confidence; we expect this dynamic to continue through the December quarter results, despite the recent cautionary note set by Oracle (Nasdaq: ORCL), which we attribute to company-specific issues."

"Mobility Is Gaining Attention From Several Markets: Mobility has been on the minds of software executives in the enterprise as well as the retail consumer sector for years. We believe the mainstreaming of smartphones and tablets in 2011 reached a point of “commonality” where it no longer makes software companies focused on mobile appear limited in their market potential. Velti (VELT, Buy) is the largest pure-play mobile marketing campaign software company that we know of, and it is growing revenues at a remarkable 50%+ rate from CY10-11, and we expect the same growth rate in CY11-12, due to the huge inflows of advertising dollars into mobile campaigns. We also believe mobility has greatly benefited Nuance, which is seeing an increasing acceptance of voice technology in its Mobile and Consumer division, roughly 30% of the company. It is no secret that the iPhone (Nasdaq: AAPL) introduction of its 4S with “Siri” brought the digital assistant and voice recognition into the spotlight for mobile devices. It is our belief that competitors, not the iPhone itself, are driving the mobile revenue dollars at Nuance, as competitors in the smartphone world try to “keep up” with the iPhone and its 4S and Siri offering. As such, we believe the mobile and consumer division of Nuance is likely to power results through 2011."

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