Packeteer's WAFS Wobble

Despite the growing hype around wide area file services (WAFS), WAN optimization specialist Packeteer is still waiting to reap the benefits of its Tacit Networks acquisition. (See Packeteer Announces Q3 and Packeteer Picks Tacit.)

In the vendor's Q3 results released last night, Tacit's iShared WAFS technology contributed $2.4 million of revenue, significantly less than the $3 million to $4 million expected by Packeteer.

Speaking on a conference call last night, David Cote, the Packeteer CEO, admitted that he was disappointed with the performance, which he blamed on a revenue shortfall in America and the assimilation of Tacit. "The integration and training of our sales teams and channel partners took more of Q3 than we had expected," he said.

Nonetheless, Cote was keen to put an upbeat slant on Packeteer's WAFS story and predicted fourth quarter iShared revenues of somewhere between $4 million and $5 million. "WAFS continues to be hot," he said. "This is a new exciting emerging opportunity."

Earlier this year, Packeteer threw down $78 million in an all-cash transaction for Tacit. (See Sources: Packeteer Eyeing Tacit and Packeteer Buys Tacit.) The move came less than eight months after the two firms entered a reseller arrangement to combine WAN optimization and WAFS wares. It was also Packeteer's second acquisition in this space, following its $16.5 million grab of Mentat in December 2004. (See Packeteer Gives Tacit Approval.)Packeteer's overall Q3 revenues were $36 million, up from $24.8 million in the year-ago quarter, although this figure was below analyst estimates of $37.31 million.

On a GAAP basis, the vendor's EPS was 1 cent per share on net income of $301,000, down from 6 cents per share and $2.3 million in the year-ago quarter, and below analyst EPS estimates of 10 cents. The 2006 figure, however, included stock-based compensation and amortization of assets. Excluding these factors, Packeteer's EPS was 14 cents on net income of $5 million.

But at least one analyst warns that Packeteer will have its work cut out in the WAFS space, not least thanks to stiff competition. "Overall, we believe the company continues to suffer from a host of problems that will require considerable management attention," wrote W.R. Hambrecht analyst Ryan Hutchinson, in a note released this morning.

As well as the integration of Tacit, Hutchinson also highlighted potential problems recruiting new staff. "Many potential candidates are instead going to Riverbed technology or other competitive startups," he added.

Packeteer's headcount is currently 422, although execs on last night's conference call confirmed that the firm is planning some new hires around sales, engineering, and operations.Rival Riverbed is certainly attracting a great deal of attention at the moment. Although still not profitable, the WAFS specialist has been the darling of investors since it completed its IPO last month. (See Riverbed Details IPO , Riverbed Sets IPO Terms, and Riverbed Scales Up.) Riverbed's shares opened at $9.75 on its first day of trading -- higher than its forecasted range -- and have more than doubled since then. (See Riverbed's on a Roll and Riverbed Comes Out at $9.75.)

"We're certainly seeing [Riverbed] more in our deals," said Cote on last night's call, although the added that the vendor does not see Juniper "at all." (See Juniper Reports Q3, and Juniper Advances Solution.) Analysts also quizzed Packeteer execs on the vendor's ongoing partnership with Citrix.

Earlier this year, Citrix snapped up WAN optimization specialist Orbital Data and has since teamed up with Microsoft to build WAFS/WAN devices. (See Citrix Grabs Orbital Data, Citrix Acquires Orbital, Citrix Widens WAN Strategy, and Microsoft, Citrix Expand.) "So far, we haven't seen any real change from Citrix," said one Packeteer exec on the conference call.

Packeteer, however, is still keeping its cards close to its chest on future product plans, although one exec confirmed that a device combining quality of service (QOS) and WAFS is on the vendor's roadmap.

In trading today, shares of Packeteer dropped 40 cents (3.83 percent) to $10.00.James Rogers, Senior Editor, Byte and Switch