2Q16 Vendor Financial Index: Five Vendors in Low-Risk Category
Solid revenue outlook, high operating margins and other factors put Adtran, Arista, Brocade, Cisco and Juniper into low-risk category
ACG Research has released its 2Q 2016 Vendor Financial Index report, which delivers independent information about the sustainability of a vendor or company to help providers assess the risk of selecting the right vendor to meet their business requirements and to ascertain a risk level on the stability of the vendor regardless of technology innovations.
Low-risk vendors for the quarter are Adtran, Arista, Brocade, Cisco and Juniper. Characteristics of low-risk vendors include strong revenue outlook, high operating margins because of sales, solid gross margin and expense discipline, low debt dependency, and high receivable efficiency ratio. Medium risk were Adva, Ericsson, Fujitsu and Infinera.
Adtran’s revenue for 3Q16 is estimated at $162.5 M. Cost reduction efforts are expected in 2H16 as well. Growth in Tier 1 U.S. business and progress in Tier 3 awards and nontraditional carriers will contribute to US business growth. A positive momentum is expected with CAF and bandwidth expansion builds.
Arista’s expected revenue for 3Q16 is $283 M. Arista will pursue cloud-class, cloud titans and cloud converged network to address its Cloud Everywhere opportunity. Technology partnerships with Checkpoint and Palo Alto Networks will offer joint solutions for inserting security services into data center traffic flows using Arista’s Macro Segmentation Services.
Brocade’s total revenue is expected to be $591 M in 3Q16. Acquisition of StackStorm in 2Q16 has strengthened Brocade’s addressable market. A new Brocade Analytics Monitoring Platform will strengthen Brocade’s position.
Cisco’s revenue for next quarter is estimated at $12.34 B. Key growth areas are software, security, cloud and data center. Strong growth in cloud computing, managed services and security and multi-year service wins and renewals will boost revenue. Competition from smaller players may be a concern in the second half of 2016.
Juniper’s revenue for 3Q16 is estimated at $1.25 B. Networking domain position will be strengthened because of expansion in SDN. Juniper is capitalizing on the growing demand for data center virtualization, cloud computing and mobile traffic packet/optical convergence to build strong momentum for 2H16. SDN and NFV open platforms, mainly Contrail SDN controller, are expected to gain momentum with managed service providers.
Ciena, Nokia and ZTE remain in the high-risk category. Ciena’s higher spending on optical upgrades and increased international orders will positively impact revenue. For 3Q16, revenue expectation is $671 M. Visibility of Ciena’s Waveserver platform, strong sales of standard 6500 platforms, customer base diversification and expansion of addressable market will add to revenue. Growing demand for cloud-based on demand networking, packet-optical transport and switching products, integrated network and service management software will also contribute to growth. Nokia’s revenue for 3Q16 is estimated at $6.5 B. Alcatel-Lucent deal is expected to realize annual operating cost synergies of more than $1018 M in 2018. The company expects net sales in its primary networks division to fall in 2016 because of a declining wireless infrastructure market. ZTE’s estimate for 3Q16 revenue is $4.3 B. Strong performance of 4G system products, optical access products, optical transmission products and high-end routers will lead to future growth. In 2H16, the firm will focus on three key markets: carriers, government and corporate sectors and consumers.
“Network vendors are taking operational efficiency and sustainability more seriously and the numbers show that they are running more efficient companies,” says Ray Mota, CEO, ACG Research. “Although the industry continues to transform their business to a more agile service provider. It is vital to make sure that you understand the sustainability and operational risk level of the vendors you are deploying in your networks. Innovation is critical but not at the risk of compromising sustainability. The vendors in the low-risk category are doing a much better job at balancing out the two.”