We host this second article about M&A in the Cloud Wi-Fi space, as we find it very relevant. The article is the exact copy of Tom’s article (The Networking Nerd), who kindly allowed us to publish it a few minutes ago.
One rumor I keep hearing about in the industry involves a certain buzzing wireless vendor and the world’s largest startup. Acquisitions happen all the time. Rumors of them are even more frequent. But the more I thought about it, the more I realized this may be good for everyone.
Dell wants to own the stack from top to bottom. In the past, they have had to partner with printer companies (Lexmark) and networking companies (Brocade and Juniper) to deliver parts of the infrastructure they couldn’t provide themselves. In the case of printers, Dell found a way to build them on their own. That reduced their reliance on Lexmark. In the networking world, Dell shocked everyone by going outside their OEM relationship and buying Force10. I’ve talked before about why the Force10 pickup was a better deal in the long run than Brocade.
Dell needs specific pieces of the puzzle. They don’t want to be encumbered with ancillary products that will need to be jettisoned later. Buying Brocade would have required unwinding a huge fibre channel business. In much the same way, I don’t think Dell will end up buying their current wireless OEM, Aruba Networks. Aruba has decided to branch out past the doing simple wireless and moved into wired network switches and security and identity management programs like ClearPass. Dell doesn’t want any of that. They already have an issue integrating the Force10 networking expertise into the PowerConnect line. I’ve been told in the past the FTOS will eventually come to PowerConnect, but that has yet to happen. Integrating purchased companies isn’t easier. That becomes exponentially harder the more product lines you have to integrate.
Aruba is too expensive for Dell to buy outright. Michael Dell spent a huge chunk of his cash to get his company back from the shareholders. He’s going to put it on a dietpretty soon. I would expect to see a few product lines slimmed down or outright dropped. That makes it tough to justify buying so much from another company. Dell needs a scalpel, not a sledgehammer.
Aerohive is the best target for Dell. They are clearly fighting for third place in the wireless market behind Cisco and Aruba. Aerohive has never been shy about punching above their weight. They have the mentality of a scrappy terrier that won’t go down without a fight. But, they are getting pressure to expand quickly across their product lines. They took their time releasing an 802.11ac access point. Their switching offering hasn’t caught on in the same way that of Aruba or Meraki (now a division of Cisco).
Aerohive is on the verge of going public. I’m sure the infusion of cash would allow them to pay off some early investors as well as fund more development for 802.11ac Phase 2 gear and maybe a firewall offering. The risk comes when you look at what happened toRuckus Wireless shortly after their IPO. While they did recover, it didn’t look very good for a company that supposedly did have a unique claim, their antenna design. Aerohive is a cloud management platform like many others in the market. You have to wonder how investors would view them. Scrappy doesn’t sell stock.
Aerohive is now fighting in the new Gartner “Wired and Wireless Access” magic quadrant, which is an absolute disaster for everyone. An analyst firm thinks that wireless is just like wired, so naturally it makes sense for AP vendors to start making switches, right? Except the people who are really brilliant when it comes to wireless, like Matthew Gast and Victor Shtrom couldn’t care less about bits on copper. They’ve spent the better part of their careers solving the RF problems in the world. And now someone tells them that interference problems aren’t that much different than spanning tree? I would have long since planted my head permanently onto my desk if I’d been told that in their position.
Aerohive gains a huge backer in the fight if Dell acquires them. They get the name to go up against Cisco/Meraki. The gain R&D from Dell with expertise around cloud management. They can start developing integration with HiveManager and Dell’s SMB extensive product line. Switch supply becomes a thing of the past. Their entire software offering fits well with what Dell is trying to accomplish from a device independence perspective with regards to customers.
I don’t put much stock in random rumors. But I’ve heard this one come up enough to make me ask some tough questions. There are people in both camps that think it will happen sometime in 2014. Dell has to get the books sorted out and figure out who’s in charge of buying things. Aerohive has to see if there’s enough juice left in the market to IPO and not look foolish. Maybe Dell needs to run the numbers and find out what it would take to cash out Aerohive’s investors and add the company to the growing Empire of Round Rock. A little buzz for the World’s Largest Startup couldn’t hurt.