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Today, we attended a presentation made by Huawei to discuss 5G. The company emphasized several interesting points:
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Yesterday, Aerohive announced an expansion to its Connect Strategy that results in price cuts across its entire product line by virtue of its extension of its Connect cloud-services offering to all products. Given that Connect is a free version of cloud-managed services, it would accurate to say Aerohive is now pursuing a price-aggressor strategy in the WLAN marketplace. Price aggression has been effective in this market, with Ruckus (now part of Brocade) having pursued a price aggressor strategy over 5 years ago (this resulted in share gains, culminating in Ruckus achieving the #3 Enterprise-class market status for a while), and with Ubiquiti and Huawei currently pursuing price aggressor strategies (both are gaining share). So, it looks like Aerohive decided to join in on the price-aggression.
On Aerohive's latest earnings call for the period ending March 2017, which covers a portion of its operating results where Connect was announced, the company said its margins were largely unaffected as a result of Connect. This essentially means that most customers are still paying for the paid-for version of cloud-managed called Select. It is certainly possible that new customers in coming quarters will chose the free Connect version and not opt to pay up for Select. We will be watching margins! Since 2014, the E-Rate program has slowed down spending in the once-largest vertical market for WLAN gear - the K-12 education market. Since the information about bidding and spending patterns for E-Rate is public, it is has been clear that the funding process - which adds almost a year more to the decision cycle for the typical municipality - has slowed down WLAN deployment instead of accelerating it, as the FCC had originally intended. Also, if you look at the total dollars disbursed to WLAN projects at schools and libraries, it has actually declined year on year, at least in part due to the failure of the of USAC to properly administer the program. In effect, the checks weren't be cut quick enough due to incomplete IT systems and other bureaucracies.
The new FCC Chairman, Ajit Pai, put pressure on the USAC CEO during 2017 (especially in April 2017) and the USAC CEO resigned on May 9 according to edscoop.com. In the April 2017 letter from Pai to USAC, Pai explained that "the E-Rate program is critical to the goals of universal service." This seems to address a concern as to whether Pai will support E-Rate going forward; it appears he will. Our preliminary conclusion is that E-Rate might be improved in the future. It certainly could get worse - but not by much, because by our estimate the reduction in overall enterprise-class WLAN equipment spending versus the rates it had seen before the E-Rate program was revamped in 2014 may have cut out as much as 5 or more percentage points from growth in the overall WLAN industry. Alcatel-Lucent Enterprise (ALE) presented its quarterly results to analysts today. We have been eagerly waiting to check in to see how the company's new in-house developed enterprise-class WLAN access points had performed in 1Q17. What we learned was interesting - the company's WLAN revenues grew almost 10% Y/Y, driven by the introduction of the OmniAccess 1101. In fact, according to our math, the new product contributed to over 100% of the quarter's Y/Y growth.
The 1101 is a 2x2 802.11ac AP that is focused on "medium density and small business" environments. This product differs from much of the other WLAN products in the ALE portfolio, which are produced by HPE Aruba. The HPE Aruba relationship with Alcatel goes many years back, over a decade, and ALE has long been the top customer of Aruba (and now HPE Aruba) WLAN products. We expect the company could expand its WLAN product further in the coming months, so we are monitoring the progress. |
CHRIS DePUY
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