Shares of Aruba Networks (ARUN) are up $1.26, or almost 6%, at $23.93 after Craig-Hallum’s Rajesh Ghai raised his rating on the shares to Buy from Hold, and raised his price target to $29 from $21, writing that the company’s sales slowdown may not be as bad as previously thought thanks to its “Instant Enterprise” product.
Aruba competes with other vendors for 802.11, or WiFi, equipment sales to enterprises and carriers, including against�Cisco Systems (CSCO).
Ghai is modeling a slowdown in sales growth this fiscal year ending in July to 20.5%, or $622.6 million, from last year’s 30.3% and 2011′s 48.8%. The company has been facing a “pause” in sales before the new, faster WiFi, standard comes onto the market, 802.11ac. That standard could boost sales later this year for the company:
Considering the new standard improves the speed and performance of Wireless networks to match those delivered by Wired networks, we see a real possibility of a beginning of a trend that leads to a significant replacement of wired LANs in 2H13. The ac standard will enable 1Gb WLAN speeds and also feature support for Multi-user MIMO over time which should significantly improve performance of WLAN networks in denser device environments by increasing the number of parallel data streams from a single access point. Considering most wired LAN connections in the Enterprise are currently at 1Gb speeds, we believe the argument for rightsizing LANs with wireless LANs is likely to become more compelling � wireless wherever you can, wired where you must � with the advent of the 11ac standard. We expect the WLAN market to see significant benefit due to this development. We remind investors that the 11n standard launched in 2009 did provide a significant boost to the WLAN market.
But Ghai now thinks that the company’s product for small business could offset that pause while waiting for 802.11ac to arrive:
Although we also believe the advent of this new standard could cause a pause ahead of the launch considering the new standard would necessitate a hardware upgrade � new access points, new controllers and new cables � we now believe that Aruba�s incremental penetration into the SME market could offset the pause [�] Our checks suggest VARs aggressively positioning Aruba Instant in the SME/mid-market after the recent software upgrade that appears to have addressed several issues related to ease of deployment and User Interface of the Air Wave Management system and appears to be helping Aruba increase its win rate against Cisco in the SME market. Although most of our channel contacts suggest traction for Aruba Instant in small (less than 50-70) AP deployments such as small businesses and distributed environments such as branch offices, we have also heard of Aruba Instant deployments closing in on 1,000 access points. Our contacts tell us that lower price points of the controller-less solution appears to have considerable appeal for the SME market. They also cite the quick and easy deployment of the solution which has considerably lowered the deployment cycle time and hence sales cycle for channel partners. We are told that each access point acts as a controller (thus obviating the need for a separate controller) and connects via wireless with other access points as they are deployed creating a flat, virtual network, speeding up the deployment considerably.
Ghai raised his fiscal 2013 revenue estimate to $622.6 million from $620.1 million, and raised his EPS estimate by a penny to 81 cents. For 2014, his estimate goes to $757 million and $1.05 from a prior $736.5 million, and $1.
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