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F5 is getting ready to move into the F5 Tower (left) in downtown Seattle over the next few months. (Wikimedia Commons Photo/ Joe Mabel/ cc4.0)

As 2019 began at F5 Networks, the company was working on two separate projects that would change the course of its product strategy: negotiations around its eventual acquisition of NGINX in March, and development of a product called Heylu that would have competed against one of NGINX’s newer products.

A few weeks before the $670 million NGINX deal was unveiled, F5 was scheduling briefings on the parameters of Heylu, a “cloud-native” traffic management, monitoring, and security product that was expected to become generally available this summer. Work on that product continues, F5 Senior Vice President and General Manager of Application Services Kara Sprague confirmed to GeekWire in a recent interview, but it will likely undergo some renovation after F5 decided the opportunity to acquire NGINX and its well-known brand in web serving was too good to pass up, she said.

“You have to strike in a (merger and acquisition) when the iron is hot,” Sprague said, echoing CEO Francois Locoh-Donou’s comments in March that the Seattle company was involved in a competitive bidding situation for NGINX. “We saw an opportunity to realize a vision that was bigger than what we could have done organically through Heylu.”

As it gets set to report earnings Wednesday afternoon, F5 is now pursuing a much broader next-generation product strategy that (after the deal officially closes) will consist of NGINX’s popular web and application server technology as well as a version of Heylu that the company believes will round out its portfolio of application-management services. Analysts will be looking to hear more about its strategy to increase revenue growth, which has stalled in single digits for several years as F5 makes the transition from a company serving customers running data centers to a company serving customers running on public cloud infrastructure.

Kara Sprague, senior vice president and general manager of application services, F5 Networks. (F5 Photo)

Everyone else working on or with information technology is also making this shift, and software development teams working on brand-new applications want to take advantage of the flexibility and reliability of cloud computing, putting their applications in portable containers and maybe playing around with Kubernetes. In private beta since last September (and with trademark secured), Heylu was envisioned as a lightweight collection of application-management features designed specifically for those cloud-native applications, Sprague said.

However, NGINX launched its own version of such a product in 2018 called NGINX Controller, and while Sprague was unable to lay out specifics because the deal is still officially pending, she acknowledged that the two products will have to come together in some fashion later this year. The Heylu name will likely never see the light of day, according to a company representative.

The deal is expected to close by the end of the second quarter, and F5 will provide more information about its product road map afterwards, Sprague said. NGINX CEO Gus Robertson acknowledged the potential overlap in a blog post announcing the deal back in March.

“Even in the case of application delivery controllers (ADC) where there is some overlap, NGINX has created a lightweight, software‑only version that complements the F5 cloud, virtual, and physical appliance options,” he wrote. Otherwise, he positioned the deal as a great marriage of F5’s strengths in networking and operations with NGINX’s strength among developers and those practicing DevOps, the modern blend of development and operations skills.

A vision of the combined F5-NGINX product line shared by NGINX in March. Heylu was supposed to be right in the middle. (NGINX) Photo)

Talks between NGINX and F5 began late last year, Sprague said, but the deal came together very quickly over the middle and end of February, right around the time Heylu was scheduled to be unveiled. That speed suggests that NGINX will influence a great deal of F5’s ongoing efforts to modernize its product portfolio for application-development teams that are rapidly embracing cloud computing.

Analysts hinted at the product motivations behind the deal back in March: “… the hefty multiple paid (26 times calendar 2018 revenue of $26 million) and projected earnings dilution speak to the apparent urgency at F5 to drive revenue growth and better address next-generation applications and the influential DevOps community,” wrote Jason Adler, an analyst with William Blair, in a research note picked up by StreetInsider.com. Piper Jaffray went so far to suggest that the acquisition was a “defensive move,” as reported by Light Reading, which also quoted Sprague denying that assertion.

Investors expect F5 to report $547.15 million in revenue for its just-ended second fiscal quarter, which would be a 2.5 percent increase compared to revenue of $533.3 million in the same quarter last year. Earnings per share are expected to be $2.54, up almost 10 percent from earnings per share of $2.31 last year.

[Editor’s note: This post was updated to correct the spelling of NGINX in, like, every single mention.]

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