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HP–Aruba Prepares to Go Up Against Cisco

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HP completes Aruba acquisition

On May 19, 2015, HP (HPQ) announced the completion of the Aruba Networks acquisition that was first announced on March 2, 2015. HP paid $3 billion for Aruba Networks. Aruba will now be a part of HP’s Networking business within its Enterprise Group segment.

HP’s acquisition of Aruba hints at the growing importance of wireless networking. The firm acquired Aruba to strengthen its position in the enterprise mobility space. According to IDC (International Data Corporation), after Cisco (CSCO), Aruba is the second-largest player in terms of market share in the enterprise wireless network market.

Cisco’s share of this market declined from 51.6% in 3Q13 to 48.3% in 3Q14, while Aruba’s share increased from 9.4% to 11.5%. Meanwhile, Ruckus Wireless’s (RKUS) market share also increased from 5.6% to 6.3%. The chart below shows HP as the fourth-ranked player in this market.

With the acquisitions of Colubris and 3Com in the past, HP developed an expertise in Wi-Fi infrastructure that it wants to take a notch higher with Aruba.

The above graph shows the market share of vendors in the enterprise WLAN space. Cisco is the leading player in this market, followed by Aruba, Ruckus (RKUS), HP, and Ubiquiti (UBNT).

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Competition is likely to heat up between Cisco and HP with HP–Aruba deal

The HP–Aruba deal is likely to initiate intense competition between HP and Cisco, given Aruba’s position next to Cisco’s in the wireless networking space. Also, there’s a likely possibility that Aruba’s partners, some of which work with companies competing against HP, won’t welcome the HP–Aruba integration.

On the bright side, Aruba’s channel partners will now have the opportunity to expand their businesses thanks to the acquisition.

In commenting on the Aruba acquisition, Rohit Mehra, vice president, network infrastructure at IDC said, “This will mean greater market and partnering opportunities for other Wi-Fi infrastructure players such as Ruckus, Aerohive, Meru and Xirrus.”

Meru is a WLAN provider that announced the layoff of 10% of its workforce in January 2015 after the company failed to register revenue growth and profits.

If you’re bullish about HP, you might consider investing in the Technology Select Sector SPDR Fund (XLK). This ETF invests about 1.25% of its holdings in HP.

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