Morgan Stanley rates the rivals scrabbling for campus networking share
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Morgan Stanley said growth trajectories among equipment makers in the expanding market for campus networking are set to come into conflict in the next 18 to 24 months, suggesting the prospect of winners and losers among the challengers to one dominant provider.
The total addressable market for campus networking--interconnected local networks in a limited geographical area, such as at an enterprise, university or government--is at least $16 billion, according to Morgan analyst Meta Marshall.
Cisco Systems (NASDAQ:CSCO) has the dominant share, Marshall noted, with more than 60% of the market in both North America and Europe, the Middle East and Africa [EMEA]. But the space has drawn increasing attention from rivals that don't already have significant campus installed bases such as Arista Networks (NYSE:ANET), Juniper Networks (NYSE:JNPR) and Fortinet (NASDAQ:FTNT). Among other well-known companies in the networking sector, Hewlett Packard Enterprise (HPE) and Extreme Networks (EXTR) already have existing installed campus bases.
Those rivals have some heady growth expectations in campus networking, amounting to some $300 million a year. The catch there, Marshall notes, is that Cisco (CSCO) doesn't tend to lose more than 100 basis points of share per year in markets such as Wi-Fi.
So, while the rivals look to grow share by $300 million, Cisco's (CSCO) share that's up for grabs in any given year is only about $200 million, Marshall said.
The campus businesses at Arista (ANET), Juniper (JNPR) and Fortinet (FTNT) cumulatively only amount to about $700 million in size today, with expectations to add about $1 billion in incremental revenue by 2024 -- greater than the share that's up for grabs by $250 million to $500 million. And while that could be evenly distributed among those contenders, Marshall said the "keys to a successful campus business will be strong Wi-Fi and security integration, in concert with a built out channel presence."
That would tend to favor Juniper (JNPR), which is strong in the Wi-Fi channel, followed by Fortinet (FTNT) and its security channel presence, and then Arista (ANET), which is known for its ease of use and strong enterprise presence.
Meanwhile, Juniper (JNPR) and Fortinet (FTNT) are focused on smaller customers, Marshall notes, while Cisco's (CSCO) installed base is less firm against Arista (ANET) in targeting large enterprises.
While Juniper (JNPR) is well positioned to execute on share gains in campus networking, Marshall is more cautious overall on the company and has an underweight rating on its stock. However, Juniper (JNPR) is trading at a premium to equal weight-rated Cisco (CSCO) even though it's smaller and has less cash flow flexibility. In the broader view, Marshall favors Arista's (ANET) greater exposure to cloud hyperscale customers.
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