Juniper Networks announced plans to acquire Mist Systems for approximately $405M in cash.  We think this deal makes sense for Juniper, who can now sell a key technology - WLAN - into its customer base of large and medium enterprises.  Valuation of the deal probably fell a bit short of the expectations of some, but the vendor landscape has already seen significant consolidation between Ethernet Switch and Enterprise-class WLAN vendors, with now just a few potential buyers and sellers.

The companies just had a call to discuss the announcement and share the following messages:

• Slightly dilutive to non gaap F19, accretive F20. 
• Verticals discussed on the call: h/c, retail, mfg and distribution segments
• Key wins discussed:  Large healthcare organization, Verizon Mgd SP, Walt Disney Orlando, Dartmouth College
• Business model will remain as current (60% hardware; 40% services at time of acquisition)
• No revenue numbers share
• $405M in cash; closes F2Q for JNPR
• Avoided saying who Mist competes with, other than to say Mist sees “the usual suspects”
• Mist should continue to grow because its channels will expand when Juniper acquires it
• Juniper will expand the “AI for IT” technology from Mist across the Juniper portfolio of campus switch, security and SD-WAN
• Will imminently begin 802.11ax pilots
• Last time new technology was developed for WLAN industry was over a decade ago; Mist is microservices / container based; all new
• Juniper has seen its campus switch business grow in recent times
• Will share more numbers in the future

Fast-growing Ethernet Switch vendor Arista Networks announced plans to acquire Mojo Networks, an Enterprise-class WLAN vendor today.  The deal is expected to close in C3Q18.  This deal douses hopes that Arista may buy other WLAN vendors, in our view.  Mojo Networks is unique in the WLAN industry: (a) it has a different business model from competitors, and (b) as of Aug 2018, it manages more Enterprise-class Access Points using Artificial Intelligence than other vendors.  Arista says that it plans to use Mojo AI in its Cognitive Cloud Networking for Campus initiative.  

Mojo Networks has taken revenue for cloud-managed services and has not taken revenue from the sale of Access Points.  The Access Points are sold by distributors who make a small margin and drop ship them to Mojo Networks customers.  The Mojo Networks revenue from cloud-managed services is significant when compared to other vendors in the Enterprise-class WLAN market.  Additionally, because Mojo's Access Point selling partners charge only a small premium for the hardware, Mojo customers benefit with a lower total cost for the Access Points, than, say, Cisco or HPE Aruba Access Points.

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Earlier this year, Aerohive issued a press release about its A3 software system.  A3 is what we categorize as an Enhanced Network Access Control (ENAC) system; we calculate market share statistics on this market in our Security report series.  The company is now getting ready to bring the product to market and is blitzing the media, so to speak.  We were briefed and learned more about the product. To summarize, it checks the boxes necessary for us to include it in our ENAC report and we like that it has a common user interface to allow customers to perform device profiling, authentication / registration, compliance / remediation, device management, billing integration and network access control.

Our outlook for ENAC is positive and, today, three main vendors consist of the majority of share: Cisco (with ICE), Aruba (with Clearpass) and ForeScout.  We learned that company has more aggressive pricing than these market leaders.  If you look at why a product like A3 is important to Aerohive, recall that back when Aruba introduced Clearpass back in 2012/2013, it used it as a selling tool to get into its competitors' accounts (it also got high margin sales from Clearpass, too).  Aerohive's A3 is positioned similarly - it operates with its competitors' equipment (including those from Cisco, Ruckus, Extreme and others).  So, Aerohive has developed another means of selling to customers, by offering A3 to customers using non-Aerohive equipment.  

Tomorrow, 650 Group's Alan Weckel will be a featured speaker on the NBASE-T hosted webinar, entitled "Growth of NBASE-T, Market Trends and Forecast."  In this webinar, we will review Ethernet trends that related not only to Campus Switch ports, but also WLAN, computing and other devices.  The NBASE-T ecosystem continues to expand, including most recently with broadband modem devices.  We are excited about this market and hope you will attend.  

There were 3,100 attendees at the Atmosphere show in Las Vegas, most of which appeared in attendance at the keynote.  Artificial Intelligence and Cloud were the main topics.  Specifically new for the show:  cloud-managed SD-WAN, NetInsight, ArubaEdge Partner program, Cape Networks acquisition.  Cloud-managed SD-WAN – June/July ’18 availability (dynamic path selection, VPC direct to AWS or Azure).  NetInsight is a data-collecting and cloud-analysis AI platform that finds anomalies and allows improvements to wireless LAN operation.  Cape Networks acquisition to allow user-experience simulation for cloud-services connection quality measurement. 

Keerti Melkote, President of Aruba, discussed financials: FY17 was up 15% Y/Y, reaching $2.5B, split 49% to wired and 51% to wireless.  (650 note: for C17, we measure WLAN + non Data Center Switch + Enhanced NAC product revenues at $2,260M).

A key message of the presentation was that as enterprises embrace cloud-services applications like dropbox, Salesforce and Office 365, this means enterprises become more focused on edge access than ever.  Citing statistics like that 80% of advanced attacks  use valid credentials, 8 weeks average gestation period of typical attacks, and 84% of those who’ve deployed IoT have been breached, the company said that securing the edge is more important than ever and discussed the Aruba 360 Secure Fabric. 

​Aruba had customers on stage to endorse various products, including Accenture, Ohio State University, and CBRE.  Other customers mentioned on slides included Lufthansa Technik, Purdue University, Rajasthan, Disney, Time Warner, University of Minnesota, University of New Hampshire, University at Buffalo, Northwestern University, University of Washington, Bucks, Virginia Tech, University of Iowa, Illinois, and Lenovo.  

Back on 5/9/17, we discussed how Alcatel-Lucent Enterprise (ALE) had announced its in-house developed enterprise-class WLAN products.  A couple days ago (on 9/20/17), ALE announced further developments to its WLAN product line and now has a broadening product line of Stellar WLAN products.  Initially, ALE announced a lower end Stellar product.  Now, with this 9/20/17 announcement, in Stellar products have moved up-market and include the AP1220, AP1230 and AP1251.  ALE continues to offer the HPE Aruba products to customers, but it is clear, in looking at the amount of space on the WLAN products page at ALE's website, that it is increasingly promoting its in-house Stellar brand - and why not?

It is encouraging to see a new set of products enter the enterprise-class WLAN market with ALE's announcement.  We will be tracking ALE's progress in the coming quarters, but initial results of the Stellar product line have shown it is growing strongly as a proportion of total WLAN revenues.

Last week we attended Huawei Connect conference in Shanghai which is turning into a massive event for Huawei with significant customer attendance.  It was tons of fun to talk to customers, catch up with friends, and the different parts of Huawei while on the show floor.  While there are ton of highlights from the show, here are a few highlights that peaked our interest.

• Huawei became the first vendor to offer an 802.11ax Access Point (AP).  Sampling now and shipping in early 2018.  We ran into quite a few engineers on the show floor that were very proud of being the first vendor to announce a product in this space and learned quite a bit beyond the spec sheet.
• Huawei customers are broad based and growing significantly.  We ran into many large customers, especially from western Europe, that are looking to partner with Huawei beyond just point product purchases.  In some cases, this was campus switching and WLAN, in others it was DC switching and campus.  Huawei is doing a very good job of providing solutions and not just point products and customers are embracing it.
• 1% of customer spend.  Huawei consistently highlighted that it was only targeting 1% of customer spend, leaving the other 99% to its partners.  We found this interesting that as Huawei grows they are trying to assure their partner community that they will not go after the entire software and solution stack and instead focus on the pipes and compute.  In areas of IoT they would integrate deeply with those partners, but the goal was to provide a complete selection directly to the customer.

There were a ton of other highlights, we are happy to discuss, if anything sparks your interest, let us know.

We attended the Nokia analyst meeting for its Fixed Access business, where the company explained its priorities for the upcoming year.  these include: (a) an expansion to its In-Home WiFi focus, (b) an aggressive push to move all but physical layer functions into the Cloud, and (c) the launch of fixed broadband wireless.  Last year's priorities included a push into the Cable broadband market (through the acquisition of Gainspeed) and Internet of Things (IoT).  The business leaders seem to be focused on what we'd consider to be the current trends in broadband, and Nokia is taking advantage of the competitive environment as the broadband market is consolidating around a shrinking number of players.

In-Home WiFi.  While some of the the company's Passive Optical Network (PON) Optical Network Terminals (ONTs) are currently shipping with Wi-Fi capabilities, it represents a growing trend among operators to offer a full function gateway.  The company plans to enhance its In-Home WiFi capabilities to entice its Service Provider customers to purchase these slightly more expensive devices.  The company ships something on the order of 3 million ONTs each quarter, generally on par with the number of in-home WiFi devices sold by one of the leaders of in-home WiFi, Netgear.  There has been a long-running trend whereby cable modems and DSL modems have incorporated WiFi, which has reduced the market opportunity for stand-alone WiFi routers, mainly in North America and European markets (where cable and DSL are popular).  However, where PON is popular, like in Asian countries (China included), PON modems have generally not incorporated WiFi until recently and WiFi capable ONTs represent a small fraction of all ONTs that ship.  Nokia plans to introduce a solution that extends and enhances WiFi beyond the gateway at some point - we've seen WiFi Extenders and now WiFi mesh experience significant growth in recent years.  What Nokia may be able to bring to the table, though, is WiFi extending products with deeper integration to the Service Provider operations.  This is a capability that will likely be embraced by operators in order to reduce the number of customer service calls to the operators themselves.  We have seen vendors like Arris make similar pronouncements of enhancing their WiFi strategies to include devices such as Extenders (but mainly for cable and DSL), so Nokia is not alone in being a broadband modem vendor recognizing the 'whole home' trend.  From a consumer WiFi perspective, Nokia's move to enhance its WiFi capabilities will put most pressure on standalone WiFi vendors that sell to Asian countries - these include D-Link, TP-Link, Buffalo, and Zyxel.

Broadband to the Cloud.  The Network Functions Virtualization (NFV) trend has now hit full steam, with nearly all mobile operator RFPs requiring vendors to offer software-based functions such as EPC, routing, IMS and other functions that can be run in so-called "Telco Clouds."  The broadband group at Nokia is expected over time to deliver on a portfolio that, where possible, will be running on these server-based environments.  We, similar to Nokia's expectation, expect that most fixed broadband "NFV" systems will be run in separate "clouds" from the mobile "clouds" for the next few years.  

Fixed Wireless.  We've all heard a lot about fixed wireless broadband trials at telcos in recent months.  Yesterday, for instance, AT&T announced an expansion of its trials.  Nokia will deliver on Fixed Wireless through its Fixed Broadband business group, an organizational acknowledgment that this is quite different from mobile wireless and will more likely be used to augment wired broadband strategies in difficult-to-reach locations.  Generally, Nokia's view is that fixed wireless is relatively more expensive than many wired broadband systems - we share this view.  It is hard not to be somewhat skeptical about fixed broadband wireless given the failed attempts to bring it to market going back as far as the early 1990's (AT&T's Project Angel), and then MMDS and LMDS efforts in the early 2000's, and of course WiMAX (more recently).  Nonetheless, Nokia is smartly positioning its plans to support fixed wireless as a way to augment wired broadband.  And, we know that fixed wireless works - Ubiquiti Networks has shipped tens of millions of fixed broadband wireless links to its customer base of Wireless Internet Service Providers (WISPs).

Aerohive, a leading enterprise-class WLAN vendor, announced changes to its product and services pricing that is intended to get its foot in the door of more customers.  Here is what it has done:

• Announced a new WLAN Access Point, the AP122, an 802.11ac device, for $229.  This includes a cloud-management service for no cost.  The version of cloud management, called "Connect" that comes with this product has fewer features than its current cloud-manged service, which will be called "Select."  The AP122 will still have BLE Beacon and USB support, making it suitable for both retail and hospitality vertical markets.
• Announced it is changing pricing across its total product portfolio, with the approximate net effect being a lower customer price for hardware plus its services of about 1/4 off the prices just a week ago.
• Changed pricing of its exiting AP130 to $299, which, like the AP122, includes "Connect" cloud-managed service.  the previous price of the AP130 was $599.

Taken as a whole, it appears that Aerohive has seen that there has been stronger growth with more aggressively priced products from competitors, such as Ubiquiti Networks, and the company wants a piece of this faster growth.  

In our interview with management about the new product (AP122) and new service (Connect) announcement, we learned that the company expects many of its prospective customers will opt to chose the "Select" service level over time because there are more features than those available from Connect.  Additionally, we learned that the company will be charging somewhat more for its services and software and somewhat less for its hardware, taken as a measure across its entire product line.  We see this change as being consistent with its price-aggressiveness it just announced for its low end" of its product line, namely the AP122 and AP 130.  

We expect that Aerohive's pricing moves will have an impact on the industry. Certainly, other well-featured products with aggressive price points have done well in the marketplace in recent years.