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Extreme Networks announced plans to acquire Aerohive, which has most of its revenues in Enterprise WLAN. The deal was a surprise, as evidenced by the 40% price premium paid on on HIVE. After this deal closes, Extreme's WLAN business will be the combination of three WLAN businesses - the traditional WLAN business from Enterasys (Ottawa based team), the Motorola Wireless WLAN business (acquired by Zebra, then sold to Extreme) and Aerohive. Each of these three businesses had strengths, for instance, the Ottawa team had designed a product line that had high performance in crowded venues - Extreme has enjoyed a long relationship with the NFV; the Motorola team had designed systems that were effective in retail and logistics (as a consequence of Motorola's ownership of Symbol Tech, a bar code scanner company); and Aerohive, which was as of 1Q19 the #2 revenue player in cloud-managed WLAN services and with a strong presence in the US K-12 vertical. While there is certainly some risk that Extreme does not integrate the Aerohive business effectively, there are some interesting aspects to this deal.
#1: Aerohive's cloud-managed WLAN services is a significant player in the market. We expect many small and medium businesses will adopt cloud-managed WLAN, and Extreme had a less mature offering here. We see this as the primary benefit of the Aerohive acquisition. #2: Aerohive's vertical market exposure in US K-12 (education) market and the managed care part of the health care industry are a nice addition to Extreme. These markets are additive. #3: Aerohive had a SD-WAN product that while not a big revenue generator will be important for Extreme in selling to small and medium sized businesses. We expect the SMEs and branch offices will be upgrading using a SD-Branch approach, where upgrades to WLAN, switching and SD-WAN will be done at once. Extreme had a hole here and Aerohive fills it. #4: Aerohive had a new product, A3, which we categorized as Enhanced Network Access Control. The front end of this product is very modern. Extreme also had its own NAC product. Our hunch is the company will merge the two, taking the best of both. We see larger enterprises as demanding this type of support. HPE Aruba sells its Clearpass product in a wireless+wired+ENAC bundle to larger sized business, just as Cisco sells its ISE and wireless+wired bundle. #5: Aerohive has 802.11ax products. We expect that increasingly, as customers adopt 802.11ax, with its expected throughput under high loads exceeding 1 Gb/sec, this will drive an upgrade cycle to switches with MultiGigabit support. Extreme cited "cross selling" in its announcement of this deal, and we agree that customers in the 802.11ax world will be increasingly buying new switches when they adopt new wireless. This deal was a surprise because Extreme already has WLAN in its portfolio, but if Extreme executes on this business transaction effectively, it can solidify its position in the mid-market by offering cloud services and SD-WAN (through a SD-Branch bundle) and potentially move both up market (with ENAC) and if it choses, downmarket by maintaining a business practice that Aerohive rolled out well over a year ago that can be described as a "freemium" model for its cloud-managed WLAN services.
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MACSec Helps Pave the Way to End-to-End Data Security
As consumers and businesses put more data in the Cloud, the importance of securing that data increases. In just the last year, we have seen advanced threats and attacks by various entities to hack into that data and hyperscalers push back with both public and private mechanisms. Securing that data goes beyond just basic encryption or securing a server, and the role of the network is critical to better protection of data. Many cloud customers are looking at providing end-to-end security to ensure, as best they can, that data can not be compromised. MACSec plays an important role in the future on how networks talk to each other and how the secure transmission of data between different locations. Security is especially important with 400 Gbps, as Cloud providers adopt 400 Gbps, it is not only being used for transmission within the data center but also Data Center Interconnect (DCI). Cloud workloads will increasingly require secure connectivity between data centers. Looking at the Ethernet Switch and Router markets, we project the percent of ports shipping with MACSec will increase significantly over our forecast horizon. We expect vendors will continue to offer versions with and without MACSec, but as we move forward in time and have more purpose-built offerings for the hyperscalers that some products will only ship with MACSec. The additional features and functionality included in Ethernet switches and Routers are positive for the industry. It not only increases features which help grow ASPs and revenues, but it also increases the amount of Ethernet ports shipped by expanding the number of use cases. 400 Gbps DCI is a great example of feature and addressable market expansion. By Alan Weckel, Founding Analyst, 650 Group. |
CHRIS DePUY
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