Aruba Gains But Cisco Still Leads Wireless LAN Race

Since going public in march, wireless LAN supplier Aruba Networks has almost doubled its market share, putting it in a better position to compete directly against the 800-pound gorilla in enterprise networking, Cisco Systems. Cisco, however, also is gaining market share, indicating that enterprise wireless networking could become a two-horse race.

Aruba last week disclosed its latest customer win: Prudential Fox & Roach, the nation's largest single-market real estate agency and the third largest overall, will deploy the No. 2 vendor's wireless LANs in some 80 offices "We baselined against Cisco and Aruba, " says Bill Friemann, Prudential Fox & Roach's VP of technology operations, "and Aruba won."

Aruba has been hearing that verdict more often during the past year, landing big accounts such as the U.S. Air Force, which is replacing Cisco WLAN gear with Aruba systems at 104 bases; Ohio State University, which will install Aruba systems in more than 400 buildings; and Microsoft, which will replace its 6-year-old Cisco network with Aruba gear in 250 buildings on its main campus in Redmond, Wash., plus offices in more than 60 countries.

Much of that success has been enabled by the IPO, says Aruba co-founder Keerti Melkote. "The first question that we used to face as a private company was around our balance sheet and our financials--essentially our viability, " Melkote says.

In May, Aruba reported that its third-quarter revenue had climbed to $34.7 million, up 30% from the previous quarter and 65% from the year-earlier quarter. It was the company's first break-even quarter since its founding in 2002. Before the broad stock market tumble last week, Aruba's share price had been up 48% since its March 27 IPO.

None of that, however, has added up to a real run at Cisco, which has built its dominance in the WLAN market through a series of acquisitions, particularly its January 2005 purchase of Airespace for $450 million. Cisco's enterprise WLAN market share in the first quarter was 64%, four points higher than a year before, according to Dell'Oro Group. (Over the same period, Aruba nearly doubled its market share to 9%, including its OEM relationship with Alcatel-Lucent.) Cisco's enterprise WLAN revenue for its most recent quarter was around $235 million, almost seven times that of Aruba.

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Dell'Oro predicts that the total wireless LAN market will top $8 billion in the next five years, 40% of that in enterprises, the rest in home offices, small businesses, client devices, and service providers. Competition in the enterprise market seems to be narrowing to Cisco and Aruba, as former No. 2 Symbol Technologies, now a unit of Motorola, saw its share drop by 40% over the last year. Startup Trapeze Networks lost 25% of its business when its OEM relationship with Nortel ended recently; another startup, Meru Networks, is rumored to be seeking a buyer.

Aruba's best chance to put a dent in Cisco's WLAN dominance will come with the adoption of the final standard for 802.11n, which builds on earlier Wi-Fi technologies by adding multiple-input multiple-output systems. MIMO, as it's called, uses spatial multiplexing over multiple antennas to increase data throughput and range. The 802.11n transition is "an opportunity to offer a real alternative to the status quo, " Melkote says. "Our controller is completely ready for 11n access points because it was built for high performance from the very beginning."

Ben Gibson, Cisco's director of mobility solutions, remains unfazed. "Because of the performance increase, it's impossible to look at an 11n deployment without looking at it as a wired and a wireless decision, " Gibson asserts. "Given our position in Ethernet switching and in wireless LANs, we're very well-positioned to continue to be in the driver's seat."