Aruba Networks WLAN Solutions Seeing Higher Demand


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Back during the 20th century, there was this quaint notion that you shouldn't take your work home with you.

These days, people not only carry their work home with them, they take it pretty much everywhere they go.

This is particularly true of professionals who tote around Wi-Fi-enabled devices that let them log into company networks and conduct business wherever and whenever they want.

The explosion of these devices -- laptops, smartphones, tablets and the like -- has created a dramatic shift in the use of Wi-Fi in business networks. This in turn has pressured businesses to expand and upgrade their networks to support more users and devices.

One company that helps businesses meet this need isAruba Networks ( ARUN ).

Aruba provides network access solutions that enable secure access to data, voice and video applications for enterprises, mobile business professionals, remote workers, guests and service providers across wireless and wired networks.

Wireless Networks

The company has focused much of its recent attention on growing its business in wireless local area network (WLAN) and Bring Your Own Device (BYOD) solutions.

As the name suggests, BYOD lets employees bring their own Wi-Fi-enabled devices to the workplace and enjoy the same levels of access as they would with a wired unit.

Aruba's focus in this area is a direct response to a growing trend on the part of businesses and other enterprises to give employees greater flexibility in accessing networks.

"WLAN has moved higher in priority for CIOs. Our checks show that the BYOD trend is gaining momentum, and a reliable WLAN is becoming a staple of IT infrastructures," Stifel Nicolaus analyst Sanjiv Wadhwani said in a January note.

JPMorgan analyst Rod Hall, who started coverage on Aruba in December, says there's been a "dramatic shift" in Wi-Fi use in enterprise networks amid a surge in the number of wireless devices and Wi-Fi users connecting to enterprise networks.

Unlike in prior years, Hall says, "employees are demanding the flexibility of bringing their own Wi-Fi-enabled devices to the workplace and expecting the same levels of access, security and connectivity."

Aruba looks to meet those needs with a variety of products that are designed for ease of use.

Its Mobility Controllers provide context-aware networking across both wireless and wired LANs. Contextual data such as user identity, device type, applications and location are used to enforce security and quality-of-service policies.

The company's Aruba Instant is a controllerless WLAN solution that delivers enterprise-grade security, resiliency and scale to distributed networks. There are no physical or virtual controllers with Aruba Instant and no ongoing service fees, license fees or management appliances.

Aruba's ClearPass Access Management System automates differentiated user and device access, policy management and provisioning of devices for secure network access and posture assessment. Each user has access privileges based on who he is and what device he uses.

Such products have helped move Aruba into new areas of growth, watchers say.

"Aruba is solidly positioned in the growing WLAN market as both BYOD and wireless trends accelerate in the enterprise," Hall noted in a December report. "New products such as ClearPass and Aruba Instant open up new revenue opportunities to penetrate deeper within existing customers and effectively expand Aruba's total addressable market and customer base."

The enterprise WLAN market already includes a number of large and small companies. It continues to draw even more players as the technology evolves.

Aruba's main rivals includeCisco ( CSCO ),Hewlett-Packard ( HPQ ) and Motorola Solutions. The company also competes against smaller, privately held firms, such as Aerohive Networks, Enterasys and Xirrus.

Cisco is the dominant player in the enterprise WLAN market with a 55% share at the end of the 2012 third quarter, Hall says. Aruba's share has ranged from 12% to 14% the past few quarters.

Hall reckons Aruba can make share gains if it continues to roll out innovative products.

International Expansion

In addition, he says, "international channel expansion should help Aruba continue growing overall share, given the company derived 62.6% of its fiscal year 2012 revenue from the U.S."

The U.S. accounted for 64% of Aruba's revenue during its fiscal first quarter, which ended Oct. 31. Asia-Pacific/Japan pitched in 17%, while Europe/Middle East/Africa accounted for 15%. The rest was split between other regions.

Overall revenue came in at $144.5 million during the quarter. That was up 21% from the prior year and above Wall Street estimates. It was the lowest revenue gain since the 2010 first quarter, when the top line rose 10%. Revenue growth has decelerated five straight quarters.

On a more positive note, Aruba's Q1 earnings rose 29% to 18 cents a share, topping views by a penny. That marked the highest EPS gain in five quarters.

"The proliferation of mobile devices, BYOD and new applications continue to drive demand for our solutions and make mobility a clear priority for CIOs around the world," Aruba Chief Executive Dominic Orr said in a statement. "We are well positioned to capitalize on these trends and expand our market share."

Analysts polled by Thomson Reuters expect Aruba's full-year earnings to rise 25% in fiscal 2013 and 24% in fiscal 2014. The company's stock trades near 22.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Investing Ideas
Referenced Stocks: ARUN , CSCO , HPQ

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