Networking Challenger Making Significant ESG Push



KEY POINTS
  • Extreme Networks is widely viewed as being well positioned for the growth of government, education, and 5G drivers to fuel incremental demand for its cloud-based systems.
  • Cloud-based management solutions are expected to continue taking 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 (Internet World Stats) and is projected to grow to 90% by 2030 (Cybersecurity Ventures). However, consensus projections are for 1% growth in industry revenues over the next three years, down from a +5% CAGR over the last decade.
  • Networking market share changes tend to take time as multi-vendor customers are rare. Extreme’s management team believes that taking share from Cisco, Arista, and Juniper will be difficult and that their strategy to focus on cloud-driven differentiation in markets where it has a significant presence is the best approach.
  • The company is moving to a universal hardware platform for its products. The first will be its 5520 high-performance switches, which are due to ship to customers in mid-November. Over the next 14 months, the company expects to have roughly 70% of its ex-enterprise SKUs on the new universal platform. The company expects the universal platform to help keep its gross margin above 60% since product gross margin for the universal platform is expected to be higher than what it replaces.
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OUR INSIGHTS

The Opportunities

Cloud-driven management is more impactful due to COVID-19.

Remote and socially distanced employees are pushing more wireless LAN usage and causing companies to spend less on core and more on distributed access. Extreme’s acquisition of Aerohive allows for full network administration and security from remote network employees – the management from the cloud being a key differentiator.

New universal product platform lowers manufacturing costs.

Extreme is finishing up a complete product line refresh. With 57 products total, Extreme is 90% through updating the 40 products that are due to be updated. The company has new equipment in the marketplace. The opportunities will be moving the products to a universal platform. This platform will serve from core to edge.

The Obstacle

A complete product refresh could boost sales growth; however, new products can have teething issues. The next few quarters should provide some evidence on whether or not the new products are working. The new universal product platform also introduces risk – will it work? Will it cause customers to slow purchases while they wait? Will it be delayed significantly?

Extreme Networks is widely viewed as being well positioned for the growth of government, education, and 5G drivers to fuel incremental demand for its cloud-based systems.

EXECUTIVE DISCUSSION

John Roy: Good afternoon, everyone. Welcome to Water Tower Research’s ESG Fireside Chat with Extreme Networks. I’m John Roy, Managing Director at Water Tower, and I’m very pleased to have our ESG guru at Water Tower and President, Mr. Shawn Severson, on the webcast today.

We also have the President and CEO of Extreme Networks, Mr. Ed Meyercord. Hi, Ed. Good to see you again. And this time, we have a special guest, the Chief Administrative Officer and Sustainability Officer, Katy Motiey. Good to see you again, Ed, and welcome, Katy.

Ed, can you to give a little intro?

Ed Meyercord: Sure, John, thanks for having us. Maybe just a little bit of background on Extreme. We’re a $1 billion growing company in the networking infrastructure space, which means we provide the networks that connect your phone to the applications that are running in a cloud.

We are global. We have $1 billion in revenue. We have over 50,000 custom...

ABOUT THE EXECUTIVES
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Ed Meyercord

President and CEO, Extreme Networks

Extreme Networks

Mr. Meyercord serves as President and Chief Executive Officer of Extreme. He joined our Board of Directors as an independent director in October 2009 and has served as Chairman since March 2011. Prior to assuming an operating role at Extreme, Mr. Meyercord was Chief Executive Officer and Director at Critical Alert Systems, LLC, a technology company that he co-founded in July of 2010. Previously, Mr. Meyercord served as CEO, President and Director of both Cavalier Telephone & TV; and Talk America, Inc. He was also a Vice President in the investment banking division of Salomon Brothers (now Citigroup). He previously served on the board of Tollgrade Communications, Inc.

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Katy Motiey

Chief Administrative and Sustainability Officer, Extreme Networks

Extreme Networks

Katy Motiey serves as the Chief Administrative and Sustainability Officer at Extreme. She has over 25 years of global legal and employment law experience encompassing corporate governance, mergers & acquisitions, divestitures, debt restructuring, commercial contract negotiation and licensing, patent and trademark portfolio management, IP litigation, IPO process management, corporate sustainability, as well as real estate, facilities and employment matters. Motiey holds a Bachelor of Arts and Juris Doctor from Georgetown University.

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