BYOD trend and share repurchase holds key to future
The increasing trend of employees using their own devices such as tablets and laptops at the workplace makes organizations more concerned about network security. The “bring your own device” or BYOD trend also introduces complexity in managing and defining the access level to the employees. Aruba Networks, Inc. (NASDAQ:ARUN)‘s “ClearPass” software reduces this complexity by identifying users on the wireless local area network.
ClearPass generates a password according to each user’s profile that helps IT professionals manage and define access levels based on identity. This is all done without installing or setting up individual devices, reducing helpdesk costs for BYOD workplaces. The company estimates that ClearPass software will generate gross margin of around 80% and contribute 15% of the total sales in 2014. Aruba estimates sales for 2013 at $596.1 million and $665.3 million for 2014.
In July 2013, Aruba Networks, Inc. (NASDAQ:ARUN) announced a $100 million increase to its existing share repurchase program. The company recently completed the initial $100 million share repurchase program authorized in June 2012. Aruba generates about $100 million in free cash flow annually and currently has $400 million in cash. The repurchasing of shares under this extended program will happen over time with available working capital funds. It is estimated that this additional buyback of shares will increase annual earnings per share by $0.03 to an estimated $0.63 in fiscal year 2013.
Segments driving the revenue
Finisar Corporation (NASDAQ:FNSR)‘s datacom segment generated $163.9 million in revenue last quarter representing 10.9% quarter-over-quarter growth. Ten Gigabit Ethernet, or 10GbE, modules accounted for around 40% of datacom segment revenue. Organizations are growing their networks; the increasing number of applications requires considerable bandwidth to support the transfer of large data, video, and audio files.
Using 10GbE optical links provides sufficient bandwidth to support these bandwidth-intensive applications at a lower cost. Gartner forecasted about a 10% compounded annual growth rate within the 10GbE switch market in the next five years, providing growth potential for Finisar thanks to its product portfolio.
Finisar Corporation (NASDAQ:FNSR)’s Wavelength Selective Switch, or WSS, technology provides a competitive technology to mobile network operators since it bases WSS on Flexgrid technology. This technology helps a network operator use its existing infrastructure to carry all future transmission formats at whatever bandwidth is required.
In the WSS component market, Finisar enjoys the number two position with a market share of 31% that generates about $25 million in revenue per quarter. Infonetics forecasted that the WSS component market will rise to $500 million in 2016 from $300 million in 2012. This competitive technology will help the company gain share in the increasing WSS component market. Analysts expect Finisar’s telecom segment revenue to be $81.9 million and $85.5 million in the first and the second quarters of fiscal 2014, which was $79.5 in the fourth quarter of fiscal year 2013.
Data demand and improved margin
Juniper Networks, Inc. (NYSE:JNPR) announced its second quarter results on July 23, 2013. It reported revenue of $1.15 billion with 9% quarter-over-quarter growth. This growth will continue due to the rising Internet data demand driven by mobile Internet and cloud computing.
This data demand will trigger network service providers to upgrade their networks, leading to increased sales of networking equipment like routers and switches. This will benefit Juniper because of its strong relationships with some of the dominant U.S. wireless carriers. These service providers contribute around 63% of the company’s total revenue.
Juniper Networks, Inc. (NYSE:JNPR) reported a 18.9% operating margin for the second quarter of 2013 as compared to 15.7% in the first quarter. This margin was well above the estimated margin of 17.5%, driven by the improved gross margin from its service division. Better efficiency in customer support and service delivery improved the company’s service division margins. Juniper is also undergoing a restructuring that will lay off about 5% of its workforce. This will result in about $150 million in cost savings in 2013 as compared to 2012.
Juniper Networks, Inc. (NYSE:JNPR)’s new product T4000 router will help the company’s margin improve further with an 80% margin as compared to industry standards of 65%. All of these factors will help the company to achieve its estimated 19.5% operating margin for the third quarter of 2013.
Conclusion
Networking and communication companies will witness growth from rising trends and increased demand for networking equipment. The BYOD trend will boost Aruba Networks, Inc. (NASDAQ:ARUN)’s revenue, and the share repurchase program will improve the value for its shareholders. Finisar’s datacom and telecom segments will drive the company’s revenue in upcoming quarters. Along with improved margins, Juniper Networks, Inc. (NYSE:JNPR) will also see growth in its revenue due to increased Internet data demand. As a result, I recommend buying all three stocks.
The article 3 Lucrative Tech Buys for This Month originally appeared on Fool.com and is written by Shweta Dubey.
Shweta Dubey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Shweta is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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