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F5 Networks Inc. (FFIV) took over certain intellectual property assets of Crescendo Networks, yesterday. Financial details of the deal were not divulged.

A relatively new name in the Application Delivery Controller (ADC) market, Israel-based Crescendo has specialized in the development of hardware solutions for application delivery and load balancing. Currently, the company is going through a liquidation process.

Post completion, F5 will add certain IP assets into its Traffic Management Operating System (TMOS), the platform F5 uses for its BIG-IP application delivery products. The enriched portfolio will enable F5 to better address the exponential growth in Internet traffic and the rising number of sophisticated security threats to applications. F5 will also bring Crescendo’s engineering staff under its umbrella.

F5 expects the purchase to have no material impact on its fourth quarter results scheduled to be announced in October.

F5 has remained a key player in the ADC market for years. Other noteworthy players are Citrix Inc. (CTXS), Radware Ltd. (RDWR), Cisco Systems Inc. (CSCO), Riverbed Technology Inc. (RVBD) and some other small players. The ADC market has been consolidating for several years. In 2009, Radware completed the acquisition of Nortel's Layer 4-7 Application Delivery Business for $18.0 million. Another recent acquisition specific to ADC technologies was Riverbed's takeover of Zeus Technology last month.

F5 has continued to boost its channel presence and grow revenue with the help of its strong product portfolio. We expect this recent acquisition to further bolster its market presence and be accretive to its earnings in the near term.

F5 Networks delivered impressive third quarter results, beating the Zacks Consensus Estimate on the bottom line. Better execution and focus on enterprise and service providers has placed F5 Networks well in the ADC market and helped it grab share from Cisco. F5 Networks is also keen on expanding its cloud exposure. Analysts see demand acceleration for F5’s ADCs in telcos during fiscal 2011 and beyond as soon as Victoria and TMOS 11 come into production.

But management’s commentary regarding adverse effects of the ongoing financial uncertainty in Europe keeps us cautious. On the other hand, F5 appears positive about its North American business and seasonal strength of the U.S. federal business.

Currently, F5 Networks has a Zacks #3 Rank, implying a short-term Hold recommendation.

 
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