Deutsche Bank‘s Brian Modoff today reiterates a Hold rating on shares of wireless infrastructure provider Aruba Networks (ARUN) and a $17 price target, writing that the company “could be challenged in the near-term due to increased competition from Cisco [Systems (CSCO)] and an overall muted enterprise spending environment,” based on his conversations with industry sources.
The company is challenged to “tap new growth categories” outside its traditional wireless LAN market, he writes, and appears to have been responding to stepped-up competition withprice cuts, he thinks.
That competition, including wares from Ericsson (ERIC), threaten the company’s ability to capitalize on the emerging “small cell” or “WiFi-offload” market, where carriers are purchasing WiFi equipment to handle some of the burgeoning smartphone traffic running on cellular networks, he writes:
We are also cautious about the company�s ability to tap into the carrier-grade Wi-Fi offload business. We see this area rapidly increasing in carrier interest as smartphones weigh down networks. While the company has made moves in this market, we think they lack crucial abilities in the cellular domain. We think the company�s larger competitors, like Cisco and Ericsson, have moved more rapidly into the field, with Aruba now playing catch up. This will likely require a much greater R&D effort or an outside acquisition, both of which could impact estimates. Moreover, they have already backed out of this market once because of the negative margin impact.
Aruba shares today are down 2 cents at $12.93.
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