Two of the main companies targeting the low end of the firewall/VPN market will miss their revenue targets in the third quarter, leading to some speculation that moves to the low end by the bigger vendors have been successful.
SonicWall Inc and WatchGuard Technologies Inc both issued profit warnings on Friday, with SonicWall saying unexpectedly low sales of its entry-level appliances will make it miss revenue and will push the company out of profit.
SonicWall said it expects revenue to be between $30 million and $31million and net loss per share to be between $0.03 and $0.01 at the GAAP level, and between breakeven and a $0.01 net loss at the non-GAAP pro forma level.
Previously, the company forecast pro forma EPS of $0.03 to $0.04 and revenue of between $33.5 million and $35 million. The firm also revised its annual revenue estimate from between $136 million and $137 million down to $127 million to $130 million.
Although our end-user product registration and our deferred revenue continued to increase quarter over quarter in Q3, preliminary data indicate that our entry-level product sales fell below our expectations, SonicWall CEO Matt Medeiros said.
Three sets of analysts downgraded SonicWall stock after the news broke, which pushed SonicWall’s share price down almost 17% to $5.72 over the course of Friday trading. The company would not comment further on the news.
WatchGuard meanwhile, which targets the same small and medium size enterprise market as SonicWall, said that it was not profitable in the third quarter. Analysts had expected the firm to post a modest profit.
The firm expects a GAAP net loss of between $0.04 and $0.06 per share and pro forma loss of between $0.02 and $0.04. Analysts had expected a pro forma EPS of $0.01. The company expects to report revenue of $20 million to $21 million.
Although the full facts won’t be known until all the public firewall companies report their third quarter results later this month, speculation has already begun that the two companies shortfalls could have come about due to increased competition.
Most of the big security firms that originally targeted the high-end have over the last year started broadening their lines to smaller customers. Among those ramping up their SME products are Juniper Networks and Check Point Software.