Cisco To Remain A Formidable Player In The Enterprise WLAN Market

by Trefis Team
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The rapid proliferation of wireless devices in recent years has impacted the work environment as well as people’s work habits, making Wi-Fi an absolute necessity in the office as well as public space. This has resulted in wireless LAN (or WLAN) equipment a key market for telecom and networking hardware vendors. The WLAN market is primarily comprised of the consumer WLAN and enterprise market segments. Networking giant Cisco (NASDAQ:CSCO), along with large IT hardware manufacturers such as Hewlett-Packard Enterprise (NYSE:HPE) and Huawei, has a sizable presence in the enterprise WLAN market.

According to our estimates, the Network Security, Data Center and WLAN segments combined make up roughly 16% (or $25 billion) of our $162 billion valuation for Cisco. Out of this, the WLAN segment alone is worth approximately $8 billion, or over 5% of our $33 price estimate for Cisco. Below we explore the key drivers of the enterprise WLAN market and why Cisco could continue to dominate this market.

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Cisco’s Presence In WLAN Market

Cisco is a clear leader in the enterprise WLAN market and has enjoyed a 45-50% share in the enterprise wireless LAN equipment market. Its closest competitor, HPE-Aruba, currently has less than a 20% share of the market. Over the last three years, the wireless LAN market has grown at around 6% annually, which is significantly higher than the overall computer hardware and infrastructure market. As shown in the table below, Cisco’s revenues from enterprise WLAN products grew at a CAGR of around 1% to $2.4 billion in 2016. As a result, its share fell drastically from around 48% in 2014 to under 44% in 2016.

Although Cisco was the largest player in the market in 2016, smaller players such as Ubiquiti and Huawei captured a significant portion of the growth in the market. Out of the $400 million additional enterprise WLAN revenues in 2016, Huawei and Ubiquiti alone added over $200 million. As shown below, much of the growth for small players were at the expense of HPE-Aruba, which was going through integration related to the acquisition.

How Cisco Has Performed This Year

The market has continued to grow in mid single digits through the first half of 2017 thus far. Both large vendors (Cisco and HPE) have witnessed an uptick in product sales in 2016, while Ubiquiti and Huawei have continued to grow at impressive rates. Brocade Communications-owned Ruckus has faced a significant revenue decline this year, with many smaller WLAN vendors also losing share, as shown below.

A key contributing factor to the decline in revenues for small players may be the industry-wide transition to the upgraded 802.11ac standard access points, with 802.11n expected to be obsolete by the end of 2018. We forecast the total enterprise WLAN to continue to grow in the low t0 mid-single digits in the coming years.

Future Looks Solid For Cisco

We forecast Cisco’s WLAN revenues to grow at pace slightly lower than the industry-wide growth in this market. However, we forecast Cisco to broadly defend its share in this competitive market in the coming years, with the rise of smaller players mainly impacting other large players such as Ruckus or Aruba.

Furthermore, IDC expects cloud-based wireless acquisition Meraki to continue to drive Cisco’s enterprise WLAN segment revenues. Cisco’s expertise in the domain, with significant R&D expenditures directed towards software-defined networking and cloud-based networking solutions, should help the company remain a clear leader in this space. Consequently, we forecast Cisco’s enterprise WLAN market share to remain close to 50% in the coming years, with product sales to expected grow by around 3-4% over the next three years.

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