Cloud-driven networking delivers a significant advantage



KEY POINTS
  • Extreme Networks is widely viewed as being well positioned for the growth of Government and Education, and to exploit its cloud-based systems.
  • We see cloud-based management solutions continuing to take market share in both hardware and networking markets. The centralized data allows for better predictions and operations, and the cloud makes it cost effective.
  • Global internet penetration has grown from 25% in 2010 to 62% in 2020 (by Internet World Stats) and is projected to grow to 90% by 2030 (by Cybersecurity Ventures). However, consensus projections are for a 1% growth in industry revenues the next three years, down from a +5% CAGR the last decade.
  • Networking market share changes tend to take time as multi-vendor customers are rare. Taking share from Cisco, Arista, and Juniper will be difficult, thus Extreme’s strategy to focus on cloud-driven differentiation in markets where it has a significant presence is the best approach in management’s opinion.
  • The company has nearly completed its hardware refresh (36 of 40 target refreshes are done, out of a total of 57 products). The next step is a universal product platform approach. The progress of the universal platform and the growth in subscription customers are milestones to expanding gross margin above 60% in 2HFY21 by company estimates.
  • Consensus expectations for Extreme are for both sales and EPS growth over the next year. The company has said it is “guarded” with its view of the rebound, which it expects will move slowly. F1Q21 earnings are expected to be released on 28-Oct-2020, after a positive pre-announcement.

employees, Extreme Networks provides software-driven networking services for enterprise customers. Its products include wired and wireless network infrastructure equipment and software for network management, policy, analytics, and access controls. It offers high-density Wi-Fi, centralized management, cloud-based network management, and application analytics capabilities. The company serves a number of end-markets including Government & Education (>35% of sales), Healthcare (>10%), Manufacturing (~10%), Retail Logistics / Transportation (~10%), Telco / Service Provider (<10%), and Sports / Entertainment & Hospitality (<5%). Roughly half of the firm's revenue is generated in the Americas, with the rest coming from Europe, the Middle East, Africa, and Asia-Pacific.

Extreme Networks is widely viewed as being well positioned for the growth of Government and Education, and to exploit its cloud-based systems.

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