Extreme’s acquisitions have prepped it to better battle Cisco, Arista, HPE, others

Extreme Networks has in recent months restyled the company with data-center networking technology acquisitions and upgrades, but now comes the hard part – executing with enterprise customers and effectively competing with the likes of Cisco, VMware, Arista, Juniper, HPE and others.

The company’s latest and perhaps most significant long-term move was closing the acquisition of wireless-networking vendor Aerohive for about $210 million.  The deal brings Extreme Aerohive’s wireless-networking technology – including its WiFi 6 gear, SD-WAN software and cloud-management services.

With the Aerohive technology, Extreme says customers and partners will be able to mix and match a broader array of software, hardware, and services to create networks that support their unique needs, and that can be managed and automated from the enterprise edge to the cloud.

The Aerohive buy is just the latest in a string of acquisitions that have reshaped the company. In the past few years the company has acquired networking and data-center technology from Avaya and Brocade, and it bought wireless player Zebra Technologies wireless LAN business in 2016 for $55 million.

While it has been a battle to integrate and get solid sales footing for those acquisitions – particularly Brocade and Avaya, the company says those challenges are behind it and that the Aerohive integration will be much smoother.

“After scaling Extreme’s business to $1B in revenue [for FY 2019, which ended in June] and expanding our portfolio to include end-to-end enterprise networking solutions, we are now taking the next step to transform our business to add sustainable, subscription-oriented cloud-based solutions that will enable us to drive recurring revenue and improved cash-flow generation,” said Extreme CEO Ed Meyercord at the firm’s FY 19 financial analysts call.

The strategy to move more toward a software-oriented, cloud-based revenue generation and technology development is brand new for Extreme. The company says it expects to generate as much as 30 percent of revenues from recurring charges in the near future. The tactic was enabled in large part by the Aerohive buy, which nearly doubled Extreme’s customer based to 50,000 and its sales partners to 11,000 and whose revenues are recurring and cloud-based.  The acquisition also created the number-three enterprise Wireless LAN company behind Cisco and HPE/Aruba.   

“We are going to take this Aerohive system and expand across our entire portfolio and use it to deliver common, simplified software  with feature packages for on-premises or in-cloud based on customers’ use case,” added Norman Rice, Extreme’s Chief Marketing, Development and Product Operations Officer. “We have never really been in any cloud conversations before so for us this will be a major add.”

Indeed, the Aerohive move is key for the company’s future, analysts say.

 “Extreme has been doing a good job of pulling together and integrating a variety of acquired technologies, and those acquisitions have made Extreme a legitimate, pure-play networking vendor again,” said  Zeus Kerravala, founder and principal analyst with ZK Research.

While there is important differentiation in the wireless arena for Extreme, there is more than one challenge, analysts note.

According to Tam Dell’Oro, founder and CEO of the Dell’Oro Group, there is a bifurcation unfolding in the wireless LAN market: users willing to pay a premium for network/application performance vs. users so price-sensitive they’ll buy old technology.  “The second category is growing much faster than the first,” Dell Oro said.  

“Both Extreme and Aerohive serve the first category which is also in the view-finders of new entrants such as Arista/Mojo, Juniper/Mist, Cambium, Huawei,” Dell’Oro said.  “Extreme is very dialed into its users and the applications specific to each type of business. I attended one of their end-user conferences in San Jose last year, and the senior executives know many of the customers by name. My impression was that Extreme spends significant effort on customer care, the customers know they are being taken care of. The question is can Extreme figure a way to get users to pay a bit more for this?”

Convincing new customers to buy into Extreme’s data-center strategy is another challenge.

In November 2018 Extreme introduced its bundled hardware and software platform known as the Agile Data Center.  The platform includes networking – Extreme’s SLX switches and routers — automation, analytics and management features.  For example, the platform features Extreme Workflow Composer, which offers automation to help customers integrate compute, storage, security and network resources. It also includes Extreme Embedded Fabric Automation that lets customers quickly build data-center fabrics to add servers and other components. All of these pieces, whether linked wired or wirelessly, can be managed through Extreme’s Management Center.

“Data-center migration and how customers decide to keep applications on-prem or in the cloud is certainly an ongoing issue,” Rice said. “The amount of devices and apps on-site hitting the access layer are going up as well as the cloud. We think our portfolio is well positioned to take advantage and offer customers valuable, competitive options.”

Another challenge, or opportunity as Rice put it, is in the SD-WAN/SD-branch arena.  The Aerohive buy brought with it the company’s SD-WAN/SD-Branch offering that can be managed through Aerohive’s overarching cloud-based HiveManager network-management platform. HiveManager manages Wi-Fi, switching, SD-WAN, and NAC.

“SD-Branch is [Aerohive’s] expertise, and we will grow that technology,” Rice said. SD-branch is a broadening of SD-WAN technology and is only beginning to be deployed.  In a recent Network World story Doyle Research forecasted that worldwide expenditures on SD-Branch offerings will reach $3 billion by 2022.

Lee Doyle, principal analyst at Doyle Research said that SD-Branch is defined as having SD-WAN, routing, network security, and LAN/Wi-Fi functions all in one platform with integrated, centralized management.

“There’s a branch router and capability that Aerohive brings to the equation here, which is something where we feel we have pent-up demand. There is a lot of opportunities where we have not been in a strong competitive position and now we will be,” Extreme’s  Meyercord said. 

“Getting SD-WAN technology filled a big deficiency for Extreme,” Kerravala added. “It will open a lot more doors for the company.”