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Cisco Systems, Inc. (CSCO), Aruba Networks, Inc. (ARUN): How to Invest for a 13-Fold Increase in Mobile Web Traffic

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The Federal Communications Commission, responsible for regulating the wireless airwaves, is hoping to reserve a large portion of wireless spectrum for an anticipated 13-fold increase in mobile web traffic by 2018.

Yes, you read correctly. Mobile data usage is expected to increase by 1,300% in the next 5 years, and regulators are hoping to avert what FCC Commissioner Jessica Rosenworcel labeled as an “end of world” scenario for cell phone usage.

Wireless spectrum can be thought of as virtual real estate with limited availability. The spectrum, which operates between 9 kHz and 300 GHz, is auctioned off by government agencies to U.S. carriers such as AT&T Inc. (NYSE:T) and broadcasters like DIRECTV (NASDAQ:DTV).

Mobile network provider Clearwire Corporation (NASDAQ:CLWR) is the target of an ongoing battle between Sprint Nextel Corporation (NYSE:S) and Verizon Communications Inc. (NYSE:VZ), a public display of evidence that the demand for wireless spectrum is heating up. The company operates a 4G (fourth generation) network across the United States, and both Sprint and Verizon hope to acquire its spectrum licenses.

Google Inc (NASDAQ:GOOG) is anticipating the rapid growth in mobile by implementing changes to its AdWords program, responsible for the majority of its revenue (and profits). The search engine giant will require advertisers to use Enhanced Campaigns beginning in mid-2013, entailing that companies spend equally on desktop and mobile platforms.

We Fools are long-term investors by nature, so what’s the best way to play this multi-year trend?

Readers should consider Cisco Systems, Inc. (NASDAQ:CSCO), a leader in the design, manufacture, and sale of Internet protocol (IP) equipment. Here are five reasons why I believe Cisco is a solid long-term buy:

  • Recent evidence indicates that Cisco Systems, Inc. (NASDAQ:CSCO) is taking market share gains from competitors. Aruba Networks, Inc. (NASDAQ:ARUN) reported preliminary third quarter results on May 7 and actual numbers on May 16. Both reports were extremely weak, causing shares to fall 40% in the last month alone. Aruba is a strong corollary to Cisco Systems, Inc. (NASDAQ:CSCO) as it provides technology for mobile enterprise networks.
  • On May 24, Cisco Systems announced the acquisition of Ubiquisys, a privately-held U.K. company which develops technologies that provide connectivity for service providers across heterogeneous mobile networks. The $310 million bolt-on acquisition will be integrated into Cisco Systems, Inc. (NASDAQ:CSCO)’s Mobility Business Group, directly tying into the thesis of this article.
  • The company is strengthening its position as the #1 information technology outfit. CEO John Chambers is committed on growing his business at a time when IBM has shown anemic revenue growth, Hewlett-Packard is involved with a massive restructuring, and Dell is beleaguered by an ongoing buyout war.
  • Wall Street is bullish on Cisco. Analysts at Citigroup believe the networking giant’s leverage to an improving economy and corporate spending environment is underappreciated, and that consensus estimates for full-year 2013 may prove to be conservative. Citi has a $26 price target but believes shares could reach $30 on a positive surprise.
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