Aruba Networks, Inc. (ARUN), Palo Alto Networks Inc (PANW), Ciena Corporation (CIEN): Two Losers and One Winner in the Networking Industry

Page 1 of 3

The networking equipment industry has been a tough one to navigate this past year. Investors who have been following this market should have noticed several major trends by now – a heavy dependence on government, telecom and enterprise spending, a brutal pricing war, and a revelation that in tough times, leaner businesses fare better. It’s often difficult for these companies, which offer a wide variety of products, such as switches, routers, wireless LAN equipment, application delivery controllers and network security equipment, to outmaneuver each other, since relative size and pricing power can easily allow larger companies such as Cisco Systems, Inc. (NASDAQ:CSCO) to crush the competition.

In this article, I’ll examine three names in the networking field – Aruba Networks, Inc. (NASDAQ:ARUN)Palo Alto Networks Inc (NYSE:PANW) and Ciena Corporation (NASDAQ:CIEN) – which respectively represent weak, mixed and strong players in this cutthroat industry.

Aruba Networks, Inc. (NASDAQ:ARUN)

Aruba Networks, Inc. (NASDAQ:ARUN)

Aruba Networks, Inc. (NASDAQ:ARUN) Networks’ primary business is wireless LAN (WLAN) equipment focused on the enterprise market. It specializes in wireless access points, mobility controllers and network management software. The Sunnyvale, Calif.-based company is currently the second largest WLAN equipment manufacturer in the world, with a 10.6% market share in 2012, which only trails Cisco Systems, Inc. (NASDAQ:CSCO)’s 50.7%. Over the past five years, Aruba Networks, Inc. (NASDAQ:ARUN)’s top and bottom lines have risen 58.6% and 75.7%, respectively, fueled by strong demand for increased wireless connections in the workplace.

That growth, however, came to a grinding halt after the company reported disappointing third quarter earnings on May 16. Aruba Networks, Inc. (NASDAQ:ARUN) posted a net loss of $0.18 per share, or $20.2 million, an alarming decline from the profit of $0.05 per share, or $6.0 million, it reported in the prior year quarter. Adjusting for one-time charges, the company earned $0.11 per share, which still missed the consensus estimate by a penny. Revenue climbed 12% to $147.1 million, topping analyst forecasts.

The primary reason for this disconnect between Aruba’s top and bottom-line growth was its loss of pricing power. During the quarter, Cisco started bundling WLAN products together with its routers and data centers at steep discounts, sacrificing margins with the goal of capturing more market share from Aruba, Hewlett-Packard Company (NYSE:HPQ) and Ruckus Wireless Inc (NYSE:RKUS). As a result, the government, telecom and enterprise sectors which Aruba heavily relies on flocked to Cisco instead, since Cisco could bundle WLAN equipment with other networking products that Aruba was unable to offer.

Last quarter, Cisco reported 5.4% and 14.5% increase in its top and bottom lines, respectively, indicating that not only is the company’s pricing strategy working, but it also hasn’t hurt its profitability. For now, it seems like Aruba has given up on fighting Cisco, and provided weak guidance for the fourth quarter that missed analyst estimates by a wide margin.

Palo Alto Networks Inc (NYSE:PANW)

Another recent loser in the networking industry is Palo Alto Networks Inc (NYSE:PANW), which specializes in high-level network security systems. Although the Santa Barbara, Calif.-based company only went public last July, it has been around since 2005, and grown on robust enterprise demand for strong protection from increasingly dangerous hacking attacks. The business model appeared to have high growth potential, since its core business of firewalls was a much higher-margin business than traditional network equipment, such as routers, switches or WLAN equipment. For a while, investors agreed, bidding shares up 69% from its IPO price of $42 to $71 by last September.

Page 1 of 3
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!