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Wi-Fi Push by FCC Should Boost Vendors, Networkers
Funding for Wi-Fi in schools should benefit Aruba, Cisco, Extreme Networks, Aerohive and Ruckus Wireless, says Buckingham Research.
Dec. 12, 2014 11:06 a.m. ET
Buckingham Research Group
We believe the FCC passage of an increase in the annual E-rate budget to $3.9 billion from $2.4 billion is incrementally positive for Wi-Fi vendors and networking in general.
We highlight Aerohive Networks (ticker: HIVE ) (rated Buy with a price target of $7) and Neutral-rated Aruba Networks ( ARUN ) (with a price target of $21), Cisco Systems ( CSCO ) (with a price target of $27), Extreme Networks ( EXTR ) (with a price target of $4) and Ruckus Wireless ( RKUS ) (with a price target of $15) as a primary beneficiaries in our coverage universe as Wi-Fi is funded longer term.
In an open meeting of the FCC on Dec. 11, the commissioners voted in an expected three-to-two decision to increase the annual budget on the E-rate program by $1.5 billion, effective at the beginning of the E-rate fiscal year in July 2015. The increased budget is targeted at increasing school broadband connectivity, particularly in rural areas, and includes the previous order to fund Wi-Fi ($1 billion per year), eliminating the fear of a drop-off after the 2016 funding year and securing higher funding for the entirety of the five-year plan (fiscal 2015- fiscal 2019).
Improving fiber and connectivity offered as rationale for increased annual budget, Wi-Fi funded longer term with minimum $1 billion annually. Commentary by FCC commissioners during the open meeting suggests that the increased funding is geared towards increasing broadband connectivity. However, as indicated by dissenting commissioners, funding is not earmarked towards specific project spending.
In other words, funding for Wi-Fi in any year could exceed $1 billion should there be significant demand. In addition, and perhaps more importantly, our view is that Wi-Fi appears to be funded beyond 2015 and 2016 as an ongoing component of the five-year E-rate program which ends in fiscal 2019. We also think the program is likely to be extended beyond 2019. We continue to think the longer-term funding for Wi-Fi in schools is an incremental positive with a primary impact on Aruba Networks, Cisco Systems, Extreme Networks, Aerohive and Ruckus Wireless.
-- Rohit Chopra
-- Ryan Flanagan
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RKUS
