Aruba Networks (ARUN) Gets Clobbered by Cisco (CSCO)
Shares of network equipment maker Aruba Networks (ARUN) plummeted last week, after the company reported disappointing third quarter earnings followed by weak fourth quarter guidance. For the third quarter, Aruba reported a net loss of $0.18 per share, or $20.2 million, compared to the profit of $0.05 per share, or $6.0 million, it reported in the prior year quarter. Adjusting for one-time charges, Aruba earned $0.11 per share, which still missed the consensus estimate of $0.12 per share.
Revenue rose 12% to $147.1 million, which slightly topped the analyst forecast of $145.4 million. Daily Chart
Aruba blamed its lackluster earnings on increased competition from market heavyweight Cisco Systems (CSCO
), which recently reported better-than-expected earnings. More specifically, Cisco has been bundling wireless products with routers and data centers at a discount, with the intended goal of shutting out smaller competitors such as Aruba. That pricing pressure means that Cisco is willing to sacrifice margins to grow its already dominant market share in networking equipment. Mizuho Securities USA analyst Joanna Makris sees the problem as a longer-term issue that could sink Aruba's core business. Aruba CEO Dominic Orr also acknowledged an "uncertain" macro environment, as the private sector, especially the telecom industry, remains conservative with its networking purchases, while the public sector scales back on purchases due to spending cuts. Orr also acknowledged Cisco's pressure, stating, "We expect to see a heightened level of competition and bundling strategy from our largest competitor." Indeed, Cisco's strong earnings indicate that time may be running out for the smaller players. During its third quarter, Cisco reported that a 14.5% year-on-year increase in profit and a 5.4% increase in revenue. Both its top and bottom lines topped analyst estimates. To top off all that bad news, Aruba also offered a bleak forecast for the current quarter. The company now expects to earn an adjusted $0.10 to $0.12 for the fourth quarter, which ends in July. Revenue is expected to come in at $150 million. Analysts had expected Aruba to earn $0.16 per share on revenue of $152.8 million. In response, shares of Aruba plunged 30% on May 17, logging its biggest intraday decline since February 2008. Trading volume was also exceedingly high, at 55.5 million shares compared to a daily average of 3.1 million. Over a dozen brokerages downgraded the stock. The stock eventually recovered slightly by the end of the day, thanks to a market-wide rally, but it is still sitting at a multi-year low. The stock now trades at 14.9 times forward earnings with a 5-year PEG ratio of 1.4, and does not pay a dividend. Other News About ARUN Why Aruba Networks Shares Plunged
Aruba's devastating earnings report revisited. Aruba Networks' Stock in Nose Dive After Awful Earnings Report
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Published on May 24, 2013
By Leo Sun