According to MarketLine, the world network equipment industry is expected to grow to $184 billion in 2015, a 34% increase as compared to 2010. The reason for this growth is increasing Internet data demand, new trends, upgraded technology, and new products. This has encouraged telecommunication carriers and Internet service providers to upgrade their networks, driving the growth of networking companies. The following three networking and communications companies are focused on increasing their revenue by taking advantage of growth opportunities present in the market.
BYOD trend and share repurchase holds key to future
The increasing trend of employees using their own devices such as tablets and laptops at the workplace makes organizations more concerned about network security. The “bring your own device” or BYOD trend also introduces complexity in managing and defining the access level to the employees. Aruba Networks, Inc. (NASDAQ:ARUN)‘s “ClearPass” software reduces this complexity by identifying users on the wireless local area network.
ClearPass generates a password according to each user’s profile that helps IT professionals manage and define access levels based on identity. This is all done without installing or setting up individual devices, reducing helpdesk costs for BYOD workplaces. The company estimates that ClearPass software will generate gross margin of around 80% and contribute 15% of the total sales in 2014. Aruba estimates sales for 2013 at $596.1 million and $665.3 million for 2014.
In July 2013, Aruba Networks, Inc. (NASDAQ:ARUN) announced a $100 million increase to its existing share repurchase program. The company recently completed the initial $100 million share repurchase program authorized in June 2012. Aruba generates about $100 million in free cash flow annually and currently has $400 million in cash. The repurchasing of shares under this extended program will happen over time with available working capital funds. It is estimated that this additional buyback of shares will increase annual earnings per share by $0.03 to an estimated $0.63 in fiscal year 2013.
Segments driving the revenue
Finisar Corporation (NASDAQ:FNSR)‘s datacom segment generated $163.9 million in revenue last quarter representing 10.9% quarter-over-quarter growth. Ten Gigabit Ethernet, or 10GbE, modules accounted for around 40% of datacom segment revenue. Organizations are growing their networks; the increasing number of applications requires considerable bandwidth to support the transfer of large data, video, and audio files.
Using 10GbE optical links provides sufficient bandwidth to support these bandwidth-intensive applications at a lower cost. Gartner forecasted about a 10% compounded annual growth rate within the 10GbE switch market in the next five years, providing growth potential for Finisar thanks to its product portfolio.
Finisar Corporation (NASDAQ:FNSR)’s Wavelength Selective Switch, or WSS, technology provides a competitive technology to mobile network operators since it bases WSS on Flexgrid technology. This technology helps a network operator use its existing infrastructure to carry all future transmission formats at whatever bandwidth is required.
In the WSS component market, Finisar enjoys the number two position with a market share of 31% that generates about $25 million in revenue per quarter. Infonetics forecasted that the WSS component market will rise to $500 million in 2016 from $300 million in 2012. This competitive technology will help the company gain share in the increasing WSS component market. Analysts expect Finisar’s telecom segment revenue to be $81.9 million and $85.5 million in the first and the second quarters of fiscal 2014, which was $79.5 in the fourth quarter of fiscal year 2013.