Cisco’s WLAN Dominance continues…

06.05.2015

Hewlett-Packard is set to acquire wireless LAN provider Aruba Networks for $2.7 billion. This acquisition will help HP boost its share in the global WLAN market and position it as the second largest Wi-Fi player after networking giant Cisco.

In addition to boosting HP’s market share, the acquisition makes sense for the WLAN industry as a whole, considering that Cisco is a very dominant player and the HP-Aruba combination could take advantage of cost and revenue synergies and challenge Cisco’s position. The global WLAN market is currently dominated by Cisco with about a 52% share followed by Aruba (~13%) and HP (4-5%).

In this article, we talk about the impact of HP’s acquisition on the WLAN industry as a whole and Cisco in particular. We have a $26 price estimate for Cisco, implying a discount of about 10% to the current market price.

Uncertainties Over Deal Advantages

The proposed Aruba acquisition is HP’s first major deal since its disastrous $11 billion acquisition of enterprise software company Autonomy Corporation in 2011. In fact, HP’s past experience with acquisitions in general hasn’t been very rewarding. In the wireless LAN space, it bought Colubris in 2008 and 3Com in 2010 but wasn’t able to capitalize on their wireless technology portfolios, stalling the company’s rise in the global WLAN market. Therefore, there is little evidence to support the fact that the HP-Aruba combination is going to be any more threatening to Cisco than they were on their own before the deal.

An important inference to draw here is that HP is acquiring Aruba to become a significant player in the fast growing WLAN market, which it hasn’t been able to achieve on its own. This raises questions about the level of synergies both companies are likely to enjoy after the deal is complete. Another issue is that several HP competitors such as Dell, Juniper and Brocade are Aruba clients and it is uncertain whether status quo will be maintained after Aruba becomes a subsidiary of HP.

Original Article: Here