Ruckus Wireless Reaches New Heights With Wi-Fi Tech

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Wi-Fi is a great thing as long as you have immediate and easy access to the signal and don't find yourself chasing it around the room just to stay connected.

The problem is many Wi-Fi signals are weak. They can get blocked or redirected, or they lack the capacity to support multiple devices.

Ruckus Wireless ( RKUS ) is working to change that.

The company makes advanced wireless systems for the mobile Internet infrastructure market. It provides indoor and outdoor "smart Wi-Fi" products designed to get more speed, capacity and reliability out of 802.11 standards.

Ruckus' technology addresses Wi-Fi capacity and coverage problems caused by the ever-increasing amount of traffic and noise or interference on wireless networks, mainly due to a rise in the use of smartphones and tablets.

The company boasts more than 40,000 end customers worldwide, ranging from mobile carriers and broadband service providers to hotels, schools, hospitals, sports arenas and warehouses.

Smartphone Connection

Its gear is in high demand amid a corresponding boom in demand for more and better Wi-Fi technology.

"Because of the smartphone phenomenon, data capacity keeps expanding, and Wi-Fi has become the de facto way users want to connect," said David Callisch, Ruckus' vice president of corporate marketing. "Our innovations transform Wi-Fi into more of a wirelike experience in terms of reliability."

It does so by providing a stronger, more direct signal for users, Callisch told IBD. That's important because so many different factors can disrupt a signal.

"If you are in a warehouse, for example, every time something changes or moves, the Wi-Fi environment changes," Callisch said. "If you have 50 different access points, you can't go changing all the antennas at once."

Ruckus' technology creates a "dynamic" antenna that moves the Wi-Fi signal around the same way a lighthouse moves its beam, he says. "Because it is focused, the signal is inherently stronger, so users get higher data rates."

Many of Ruckus' customers are small and midsize enterprises that want to deliver better Wi-Fi services to staff and customers.

"Their antenna technology is far superior because it works in high-density environments like hotels and factories. Factories have a lot of cement, and hotels have a lot of walls, and you need a strong signal for Wi-Fi to work effectively," said Catharine Trebnick, analyst at Dougherty, an investment bank and brokerage firm.

Ruckus' customers also include service providers, such as telecoms and cable companies, that want to gain more business by providing better Wi-Fi services to customers.

"Cable operators are using our Wi-Fi technology to enable them to reduce churn with subscribers," Seamus Hennessy, Ruckus' chief financial officer, told IBD. "Ruckus is benefiting because our core technology lets the network operate almost like a utility."

A Top Provider

Ruckus' main competition in the service provider market comes fromCisco Systems ( CSCO ). The two have traded positions at the top of the market over the past few years, Hennessy says.

On the enterprise side, Ruckus ranks No. 3 behind Cisco andAruba Networks ( ARUN ).

Enterprise customers that Ruckus has scored recent wins with include the city of San Francisco, the Compton, Calif., school district and the Mandarin Oriental hotel chain.

On the service provider side, Ruckus has inked deals with large carriers such as Telefonica in the U.K.,Time Warner Cable ( TWC ) in the U.S., Vodafone New Zealand and Singtel in Singapore.

Apple Watch, Google Fiber

Ruckus is expected to land more business as new products such as smartwatches grow in popularity.

"Apple ( AAPL ) and Samsung have launched mobile watches, and that's going to require even more Wi-Fi," analyst Trebnick told IBD. "Wi-Fi is becoming ubiquitous, so that's the driver that's not going to ever go away."

She says Ruckus also stands to benefit fromGoogle 's (GOOGL) fiber-optics network, which got started around Kansas City, Kan., and has expanded into Provo, Utah, and Austin, Texas. Google is expected to roll out the Google Fiber fast-broadband service into more than 30 U.S. cities as well as other countries.

Among the customers that Google wants to target with the network are small to midsize businesses, Trebnick says.

"It hasn't been confirmed, but everybody believes Ruckus will be one of the primary suppliers of Wi-Fi when Google does this," she said.

Ruckus executives wouldn't comment on the Google Fiber rumors.

For now, the company has plenty of business to keep it occupied. Ruckus was founded in 2004 and had its initial public offering in November 2012. It has been profitable since 2009 and expects to keep growing those profits in coming quarters and years.

"We've made significant investments in R&D over last few years, and we're now at a position where revenue is growing faster than R&D spending," Hennessy said. "We have also achieved operating efficiencies that led to higher gross margins."

Ruckus logged second-quarter gross margin of 70%, up from 67.4% the prior year and above Trebnick's estimate of 68.5%. Earnings climbed 83% to 11 cents a share, topping the consensus view of analysts. Revenue gained 26.8% to $81 million, also above consensus.

Analysts polled by Thomson Reuters expect full-year profit of 40 cents a share, more than double the previous year's earnings. EPS for 2015 is seen rising 45% to 58 cents.

"We are in a significant growth cycle for Wi-Fi over the next couple of years because of the proliferation of devices," Hennessy said. "We feel we are in a good position to take advantage of that because of our technology."

Ruckus stock has risen more than 60% since mid-May and currently trades near 15.

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 Symbols: CSCO , AAPL

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