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Research Note

Aruba Networks, Inc. (ARUN)
Upgrading to OUTPERFORM On Catalysts and Improved Visibility
• We are upgrading Aruba to OUTPERFORM from NEUTRAL and raising our price target to $11 from $9. Our upgrade is based on the following (i) guidance appears overly conservative (ii) price aggression from Cisco appropriately discounted at current levels (iii) we expect share gains at the expense of rivals such as Cisco to continue (iv) and potential catalyst with earlier than expected N ratification. As a result, we believe improved visibility and strong bookings should allow the company to meet or exceed estimates over the next four quarters and we advise investors to build positions in the name. • Strong bookings and deferred revenue growth suggests guidance may be overly conservative. Aruba reported an $11 mil. q/q increase in deferred (~35%) from both product and service revenue due to what we believe is a solid pipeline of multi-quarter deals (e.g. USAF deal which is only 60% complete and NSW deal which is only in early stages), higher value deals and an overall increase in the number of projects as the company’s profile in the industry magnifies. The company is only guiding revenues up by approx. $1-3 mil., after a significant growth in deferred and after growing revenues $7.5 mil. q/q last quarter. In our view, management appears to be confident based on our recent conversations and estimates are likely to be easily achieved; potentially leading to further beat and raise quarters. • Competition from Cisco having minimal impact on wins rates and appropriately discounted at current levels, in our view. As Cisco continues to lose share to Aruba, they have become more aggressive, generally by bundling their wireless solutions with other products. When competing head to head, Cisco still cannot match the company on price and functionality according to our sources. Even with Cisco’s incremental desperation, we understand Aruba’s win rate remains in the 80% range. We believe that Aruba’s significant technology advantage and lower total cost of ownership should help the company deflect incremental price pressure from Cisco – which we believe is appropriately discounted. • N becomes new battlefield as share gains continue. Aruba’s share of the overall enterprise wireless market grew 300bps over the last two quarters to reach approximately 16%, while Cisco fell approx 59% to 53%. In the “N” segment, which we believe to be more relevant as fewer “abg” products will be sold, Aruba has approx 20% share, while Cisco owns 50% of the market. We think share gains will continue given the company’s technology lead. • N ratification later this month could be a small medium-term catalyst. The IEEE is expected to ratify the wireless N standard this month after a two year delay. This could prove to be a small catalyst, as general enterprise customers who were waiting for official approval of the standard could finally come off the sidelines. Furthermore, since Aruba’s products have been in the market for 3-5 years, the company is likely to leverage an upgrade opportunity consisting of several thousand customers. • Slightly lowering our FY10 EPS to reflect expected investments. We are making slight changes to our model to reflect higher near term investment in R&D partially offset by significantly lower G&A post the January 2010 trial date. Additionally, we are modeling ~$85 mil. in NOLs, 30% tax rate in 2013 and additional leverage in our long-term model. • Upgrading to OUTPERFORM from NEUTRAL and increasing our target to $11 from $9 based on our DCF analysis. Our target implies a PE of ~40x on our CY10 cash-adjusted EPS estimate of $0.24 plus $1.25 per share in cash, a discount to our 5 year CAGR of ~44%. We think the valuation is justified given share gains, revenue growth and execution.
FYE Jul REV. ($m) 2009A ACTUAL CURR. 2010E PREV. CONS. CURR. 2011E PREV. CONS.

September 9, 2009 Price (close of 09/08/09)

$9.08
Rating

OUTPERFORM
12- Month Price Target

$11 (from $9)
Rohit Chopra (212) 668-9871 rohit.chopra@wedbush.com Sanjit Singh (212) 938-9922 sanjit.singh@wedbush.com Company Information 52-Week Range Shares Outstand. Insider/Institutional Public Float Market Cap. ST / LT Debt Debt/Capital ROE Cash & Inv/Share Tangible BV/Share $1.85-9.96 98.4 million 15.3% / 70.7% 56.4 million $893.5 million $0 / $0 N/A 9.2% $1.25 $1.35

Company Description
Headquartered in Sunnyvale, CA, and founded in 2002, Aruba Networks is a leading provider of enterprise mobility and wireless networking solutions. The company’s core products include wireless access points and mobility controllers which run on its proprietary ArubaOS operating system.

Communications Equipment

Q1 Oct Q2 Jan Q3 Apr Q4 Jul Year Change
FYE Jul EPS

$52.4A 47.7A 45.8A 53.3A $199.3A 11.8%
2009A ACTUAL

$56.1E 60.0E 61.9E 66.1E $244.1E 22.5%
CURR.

$55.9E 59.9E 61.8E 66.0E $243.6E
2010E PREV.

$55.7E 56.9E 58.7E 62.5E $233.6E

$68.2E 71.7E 74.4E 79.7E $294.0E
2011E PREV.

$63.8E 65.1E 68.2E 71.5E $273.6E

CONS.

CURR.

CONS.

Q1 Oct Q2 Jan Q3 Apr Q4 Jul Year P/E Change

$0.02A 0.02A 0.01A 0.03A $0.08A NM NM

$0.03E 0.04E 0.05E 0.06E $0.19E 47.8x 120.7%

$0.05E 0.06E $0.07E $0.21E

$0.03E 0.04E 0.05E 0.06E $0.17E

$0.07E 0.08E 0.08E 0.08E $0.31E 29.3x 65.9%

$0.07E 0.07E 0.08E 0.09E $0.28E

Source: Thomson Consensus estimates are from Thomson First Call. EPS estimates reported on a Non-GAAP basis Numbers may not add up due to rounding.

Wedbush Morgan does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see page 8 of this report for analyst certification and important disclosure information.

RISKS • Risks to attainment of our share price target include slower than expected growth in the WLAN equipment market, ongoing disruptions in the credit markets, failure of new products to gain traction with customers, potential losses related to the Motorola lawsuit and a further weakening of the macro environment which could cause customers to delay or cancel orders.

3 | Aruba Networks

Rohit Chopra (212) 668-9871 Sanjit Singh (212) 938-9922

Exhibit 1: Deferred Revenue Analysis

Deferred Revenue Trends
$60 $50 $40 $60 $50 $40 $30 $20 $10 $0 ‐$10
4Q 07 A 1Q 08 A 2Q 08 A 4Q 08 A 1Q 09 A 2Q 09 A 3Q 09 A 3Q 08 A 4Q 09 A

$30 $20 $10 $0

‐$10
3Q 07 A

TOTAL REVENUE

Q/Q Change in Deferred Revenue

Total Deferred Revenue

Source: Aruba reports and Wedbush Morgan Securities estimates

Exhibit 2: Peer Group Multiples
Company 3Com Acme Packet Alcatel Lucent Allot Aruba Networks Blue Coat Brocade Cisco Systems Citrix D‐Link Extreme F5 Networks GN Store Nord HP Juniper Logitech NetGear Netscout Opnet Plantronics Polycom Radvision Radware Riverbed Sandvine ShoreTel Solar Winds Tandberg Average S&P 500 Index Rating NR NR NR NR OUTPERFORM NEUTRAL OUTPERFORM NEUTRAL NR NR UNDERPERFORM NEUTRAL NR NR NR NR NEUTRAL OUTPERFORM NR NEUTRAL OUTPERFORM UNDERPERFORM NEUTRAL NEUTRAL NR NEUTRAL NR NR Price 09/07/09 $4.02 $8.47 $3.59 $3.80 $8.85 $18.54 $7.47 $21.84 $36.02 $26.40 $2.39 $37.30 $29.20 $45.10 $23.77 $18.88 $19.20 $11.48 $9.63 $25.41 $23.57 $9.06 $11.64 $19.30 $1.22 $6.51 $18.95 $20.82 EV/SALES 2009E 2010E 1.0 x 1.0 x 3.0 x 2.6 x 0.4 x 0.4 x 0.7 x 0.6 x 3.5 x 2.8 x 1.7 x 1.5 x 2.0 x 1.9 x 3.0 x 2.7 x 3.6 x 3.3 x 0.3 x 0.3 x 0.3 x 0.2 x 3.8 x 3.4 x 1.5 x 1.4 x 1.0 x 1.0 x 3.2 x 2.9 x 1.5 x 1.3 x 0.7 x 0.64 x 1.6 x 1.6 x 0.9 x 0.8 x 1.5 x 1.4 x 1.7 x 1.6 x 0.7 x 0.7 x 1.0 x 0.9 x 3.0 x 2.5 x 1.1 x 0.9 x 1.4 x 1.2 x 10.2 x 8.0 x 2.5 x 2.2 x 2.0 x 1.8 x EV/EBITDA 2009E 2010E NM 10.9 x 12.3 x 9.8 x 8.5 x 4.5 x NM NM 0.0 x 19.0 x 10.3 x 8.9 x 7.3 x 6.7 x 9.6 x 8.2 x 12.1 x 10.9 x NM 7.8 x 5.3 x 4.2 x 11.7 x 10.3 x NM 12.2 x 6.8 x 6.4 x 13.9 x 11.3 x NM 11.2 x 11.1 x 7.4 x 5.8 x 5.3 x 11.5 x NM 10.2 x 7.5 x 9.3 x 8.1 x 6.1 x 5.1 x 18.3 x 26.8 x 14.6 x 10.6 x NM NM NM 23.5 x 19.7 x 15.5 x 9.0 x 8.0 x 10.2 x 10.4 x CASH ADJ P/E 2009E 2010E 12.6 x 18.4 x 22.8 x 19.5 x 19.7 x 12.2 x NM 25.9 x NM 31.2 x 18.3 x 15.9 x 13.2 x 12.0 x 14.8 x 12.8 x 20.5 x 17.7 x NM 15.5 x 10.5 x 7.3 x 20.3 x 18.3 x NM 26.1 x 11.3 x 10.4 x 24.8 x 19.9 x NM 26.4 x NM 20.0 x 11.8 x 11.3 x NM 17.2 x 24.5 x 12.5 x 16.0 x 14.0 x 15.0 x 9.0 x NM NM 27.0 x 20.3 x NM NM NM NM 28.8 x 24.6 x 16.1 x 14.5 x 18.2 x 17.3 x CASH ADJ PEG 2009E 2010E NM NM 1.3 x 1.1 x 3.9 x 2.4 x NM 0.7 x NM 1.0 x 0.9 x 0.8 x 1.1 x 1.0 x 1.5 x 1.3 x 1.8 x 1.5 x NM 1.2 x 0.4 x 0.3 x 2.0 x 1.8 x NM NM 1.2 x 1.1 x 1.3 x 1.0 x NM 3.1 x NM NM 2.6 x 2.5 x NM NM 1.2 x 0.6 x 19.9 x 17.4 x NM NM NM NM 1.6 x 1.2 x NM NM NM NM 2.2 x 1.9 x 1.6 x 1.4 x 2.8 x 2.2 x P/E 2009E 12.4 x 29.2 x NM NM NM 19.6 x 14.6 x 17.8 x 21.9 x NM 21.8 x 23.2 x NM 11.6 x 29.8 x NM NM 14.1 x NM 23.7 x 19.4 x 24.3 x NM 32.2 x NM NM 33.6 x 17.9 x 21.6 x 18.8 x 2010E 15.2 x 24.7 x 22.5 x 31.7 x 34.9 x 16.7 x 11.9 x 15.3 x 19.3 x 17.7 x 16.3 x 20.8 x 24.9 x 10.4 x 23.8 x 25.3 x 29.2 x 13.5 x 27.5 x 15.9 x 17.0 x 21.1 x NM 24.3 x NM NM 26.9 x 15.1 x 20.9 x 14.9 x 2009E NM 1.6 x NM NM NM 1.0 x 1.2 x 1.8 x 1.9 x NM 0.9 x 2.3 x NM 1.2 x 1.6 x NM NM 3.1 x NM NM NM NM NM 1.9 x NM NM 2.6 x 1.8 x 1.8 x PEG 2010E NM 1.4 x 4.5 x 0.9 x 1.1 x 0.8 x 1.0 x 1.6 x 1.7 x 1.3 x 0.7 x 2.1 x NM 1.1 x 1.3 x 2.9 x NM 2.9 x NM 0.8 x NM NM NM 1.4 x NM NM 2.1 x 1.5 x 1.6 x

4 | Aruba Networks

Rohit Chopra (212) 668-9871 Sanjit Singh (212) 938-9922

Deferred Revenue

Revenue

Source: Aruba reports and Wedbush Morgan Securities estimates

ARUBA NETWORKS – INCOME STATEMENT
Exhibit 3: Income Statement
Aruba Networks
Income Statement ($ in millions except EPS) REVENUE Product Revenue Professional Services & Support Revenue Ratable Product & related PSS Revenue TOTAL REVENUE OPERATING EXPENSES Cost of Product Revenue Cost of PSS Revenue Cost of RP & Rel PSS Revenue TOTAL COST OF REVENUE Gross Margin Sales and Marketing General and Administrative Research and Development TOTAL OPERATING EXPENSES OPERATING INCOME OTHER INCOME (EXPENSE) Interest (Net) Other Income TOTAL OTHER INCOME (EXPENSE) INCOME BEFORE TAXES INCOME TAXES - (Provision) Benefit Tax Rate NON-GAAP NET INCOME BEFORE ADJUSTMENTS Pre Tax Stock Based Comp Tax Adjustement Other GAAP NET INCOME Basic Shares Outstanding Diluted Shares Outstanding EPS - Basic (Non-GAAP) Y/Y Growth % EPS - Basic (GAAP) Y/Y Growth % EPS - Diluted (Non-GAAP) Y/Y Growth % EPS - Diluted (GAAP) Y/Y Growth % Cash Adjusted EPS - Diluted (Pro forma) Y/Y Growth % Margin Analysis Product Revenue Professional Services & Support Revenue Ratable Product & related PSS Revenue Gross Margin Sales and Marketing General and administrative R&D Stock Based Comp. & Other Operating Profit Net profit Y/Y Change Product Revenue Professional Services & Support Revenue Ratable Product & related PSS Revenue Total Revenue Gross Profit Sales and Marketing General and administrative R&D Operating Profit Net profit Sequential Change Product Revenue Professional Services & Support Revenue Ratable Product & related PSS Revenue Total Revenue Gross Profit Sales and Marketing General and administrative R&D Operating Profit Net profit 8.5% 14.0% -36.9% 8.6% 5.1% 1.5% 9.6% 0.6% 500.0% 500.0% -11.4% 4.1% -22.4% -9.1% -4.0% -13.3% 22.0% -1.7% 66.2% 50.6% -7.8% 14.1% -7.0% -3.9% -7.5% -6.2% -6.7% 0.1% -56.4% -50.5% 21.1% 0.1% -10.4% 16.4% 18.1% 18.0% -0.8% -1.9% 327.7% 214.1% 9.0% 37.0% -60.0% 11.8% 9.9% 2.3% 23.9% 4.9% 332.2% 87.8% 5.3% 5.9% 5.2% 4.4% 4.7% 13.6% 3.8% -7.9% -2.1% 7.1% 7.2% 6.9% 6.6% 2.2% 7.9% 6.1% 35.7% 33.0% 2.6% 6.3% 3.2% 3.2% 2.0% -11.4% 3.4% 27.5% 26.0% 7.0% 5.8% 6.8% 6.6% 10.6% -26.7% 5.9% 20.5% 19.7% 22.5% 25.8% 22.5% 21.9% 16.4% 6.7% 10.1% 171.7% 146.4% 3.0% 4.5% 3.2% 2.7% 0.6% 2.6% 3.3% 10.0% 9.7% 5.0% 5.3% 5.0% 4.7% 1.0% 4.6% 4.2% 18.3% 17.8% 3.6% 4.7% 3.8% 3.8% 2.6% 4.0% 1.8% 9.9% 9.8% 7.7% 4.7% 7.1% 6.9% 7.8% 6.0% 6.3% 5.4% 5.4% 20.1% 22.8% 20.4% 19.3% 14.4% -17.5% 17.5% 80.4% 77.0% 14.3% 43.7% 16.7% 16.1% 15.0% 38.8% 21.6% -60.8% -69.2% 9.5% 35.1% 12.7% 11.2% 1.5% 19.5% 1.0% 500.0% 360.7% 25.0% 24.5% 24.5% 23.6% 19.6% -18.7% 17.6% 138.7% 130.6% 14.1% 11.9% -55.9% 12.2% 8.8% 13.2% 20.5% 21.5% -62.2% -67.0% 13.8% 52.6% -63.1% 17.3% 18.2% 9.0% 38.0% 5.3% NM 139.5% 1.0% 53.7% -62.2% 7.5% 2.8% -9.2% 14.3% -1.4% NM NM 7.2% 35.6% -59.2% 10.5% 10.2% -2.6% 23.7% -2.9% NM NM 9.0% 37.0% -60.0% 11.8% 9.9% 2.3% 23.9% 4.9% 332.2% 87.8% 4.1% 25.9% 6.9% 9.4% 0.4% 28.2% 0.2% 185.5% 129.1% 25.8% 29.6% 25.8% 21.5% 18.4% 13.4% 8.2% NM NM 40.0% 20.7% 35.2% 35.6% 28.8% 7.7% 11.8% NM NM 23.7% 27.6% 24.0% 22.4% 20.8% -20.5% 20.7% NM NM 22.5% 25.8% 21.1% 25.9% 18.8% 23.6% 19.5% 18.3% 14.6% -30.3% 17.9% NM NM 20.0% 21.7% 20.1% 19.0% 15.2% -18.3% 16.1% NM NM 20.7% 20.6% 20.6% 19.3% 12.2% 18.3% 16.4% NM NM 20.1% 22.8% 20.4% 19.3% 14.4% -17.5% 17.5% 80.4% 77.0% 14.3% 43.7% 16.7% 16.1% 15.0% 38.8% 21.6% -60.8% -69.2% 9.5% 35.1% 12.7% 11.2% 1.5% 19.5% 1.0% 500.0% 360.7% 25.0% 24.5% 24.5% 23.6% 19.6% -18.7% 17.6% 138.7% 130.6% 64.1% 79.5% 65.1% 66.5% 41.0% 7.5% 15.9% 12.4% 2.1% 2.6% 67.8% 81.3% 64.9% 70.2% 39.1% 10.1% 17.2% 12.9% 3.9% 4.3% 63.3% 83.6% 65.4% 67.6% 38.1% 9.8% 17.9% 12.1% 1.8% 2.2% 65.3% 83.2% 65.6% 68.5% 38.7% 8.4% 15.1% 12.0% 6.5% 5.9% 65.1% 82.0% 65.2% 68.2% 39.2% 8.9% 16.4% 12.3% 3.6% 3.8% 64.7% 83.0% 68.0% 38.5% 9.0% 14.9% 11.6% 5.7% 5.5% 64.3% 83.3% 67.8% 36.8% 9.1% 14.8% 10.9% 7.2% 6.9% 64.2% 83.3% 67.8% 36.3% 7.8% 14.8% 10.7% 8.9% 8.4% 64.2% 82.9% 67.7% 37.7% 5.4% 14.7% 10.1% 10.0% 9.4% 64.3% 83.1% 67.8% 37.3% 7.8% 14.8% 10.8% 8.0% 7.6% 63.7% 83.0% 67.3% 36.7% 5.3% 14.7% 9.9% 10.7% 10.0% 63.8% 81.3% 67.1% 35.3% 5.3% 14.6% 9.5% 12.0% 11.2% 63.7% 81.8% 67.2% 34.8% 5.3% 14.3% 9.3% 12.7% 11.8% 63.7% 81.4% 67.0% 35.1% 5.3% 14.2% 8.7% 12.5% 11.6% 63.7% 81.9% 67.2% 35.4% 5.3% 14.4% 9.3% 12.0% 11.2% 67.1% 78.6% 68.9% 42.2% 8.5% 17.3% 11.8% 0.9% 1.3% 64.4% 83.3% 68.0% 38.0% 9.1% 15.5% 11.6% 5.4% 5.3% 64.0% 82.6% 67.5% 36.5% 5.9% 14.7% 10.0% 10.4% 9.8% Oct 1Q09A 43.868 8.137 0.441 52.446 Jan 2Q09A 38.871 8.468 0.342 47.681 Apr 3Q09A 35.822 9.666 0.318 45.806 Jul 4Q09A 43.366 9.675 0.285 53.326 FY 2009A 161.927 35.946 1.386 199.259 Oct 1Q10E 45.652 10.243 0.195 56.090 Jan 2Q10E 48.883 10.977 0.126 59.987 Apr 3Q10E 50.140 11.671 0.120 61.931 Jul 4Q10E 53.654 12.343 0.116 66.114 FY 2010E 198.330 45.235 0.557 244.122 Oct 1Q11E 55.270 12.894 0.086 68.249 Jan 2Q11E 58.053 13.571 0.047 71.670 Apr 3Q11E 60.153 14.209 0.045 74.407 Jul 4Q11E 64.774 14.884 0.047 79.705 FY 2011E 238.250 55.558 0.225 294.033 A 2008 158.661 30.028 2.323 191.012 Calendar Year E 2009 173.724 40.561 0.924 215.208 E 2010 217.117 50.480 0.369 267.965

15.748 1.668 0.154 17.570 34.876 21.493 3.952 8.320 33.765 1.111

12.505 1.581 0.120 14.206 33.475 18.629 4.822 8.178 31.629 1.846

13.147 1.588 0.110 14.845 30.961 17.470 4.499 8.187 30.156 0.805

15.056 1.621 0.098 16.775 36.551 20.615 4.462 8.031 33.108 3.443

56.456 6.458 0.482 63.396 135.863 78.207 17.735 32.716 128.658 7.205

16.126 1.737 0.066 17.929 38.161 21.584 5.068 8.337 34.989 3.172

17.437 1.830 0.044 19.311 40.676 22.057 5.467 8.849 36.373 4.303

17.951 1.952 0.042 19.945 41.987 22.505 4.844 9.149 36.499 5.488

19.218 2.105 0.040 21.363 44.751 24.898 3.549 9.692 38.139 6.612

70.732 7.624 0.192 78.548 165.574 91.044 18.927 36.028 145.999 19.575

20.076 2.186 0.029 22.291 45.958 25.035 3.641 10.008 38.684 7.274

20.998 2.534 0.016 23.548 48.122 25.278 3.808 10.429 39.515 8.607

21.836 2.590 0.016 24.442 49.966 25.923 3.960 10.620 40.503 9.463

23.525 2.762 0.016 26.303 53.402 27.943 4.198 11.286 43.428 9.974

86.435 10.071 0.078 96.584 197.449 104.179 15.608 42.344 162.131 35.318

52.127 6.436 0.810 59.373 131.639 80.525 16.316 33.073 129.914 1.725

61.766 6.775 0.319 68.860 146.348 81.726 19.496 33.404 134.626 11.723

78.243 8.777 0.127 87.147 180.818 97.716 15.842 39.279 152.837 27.981

0.648 (0.316) 0.332 1.443 (0.093) 6.4% 1.350 (6.493) (1.234) (6.377) 83.1 88.8 0.02 -69.3% (0.08) NM 0.02 -65.0% (0.07) NM 0.01 -60.5%

0.556 (0.168) 0.388 2.234 (0.201) 9.0% 2.033 (6.129) (2.681) (6.777) 83.9 83.9 0.02 NM (0.08) NM 0.02 NM (0.08) NM 0.02 NM

0.369 0.046 0.415 1.220 (0.214) 17.5% 1.006 (5.533) (1.234) (5.761) 85.2 88.6 0.01 NM (0.07) NM 0.01 NM (0.07) NM 0.01 -164.6%

0.265 (0.267) (0.002) 3.441 (0.281) 8.2% 3.160 (6.425) (1.234) (4.499) 86.3 98.4 0.04 NM (0.05) NM 0.03 NM (0.05) NM 0.03 NM

1.838 (0.705) 1.133 8.338 (0.789) 9.5% 7.549 (24.580) (6.383) (23.414) 84.6 89.9 0.09 NM (0.28) NM 0.08 NM (0.26) NM 0.07 NM

0.265 0.265 3.437 (0.344) 10.0% 3.093 (6.489) (1.200) (4.596) 86.7 98.9 0.04 119.4% (0.05) NM 0.03 105.8% (0.05) NM 0.03 NM

0.269 0.269 4.572 (0.457) 10.0% 4.115 (6.554) (1.200) (3.639) 87.6 99.9 0.05 NM (0.04) NM 0.04 NM (0.04) NM 0.04 93.5%

0.274 0.274 5.763 (0.576) 10.0% 5.186 (6.620) (1.200) (2.633) 88.5 100.9 0.06 NM (0.03) NM 0.05 NM (0.03) NM 0.05 553.3%

0.285 0.285 6.897 (0.690) 10.0% 6.208 (6.686) (1.200) (1.678) 89.4 101.9 0.07 NM (0.02) NM 0.06 NM (0.02) NM 0.06 81.8%

1.094 1.094

0.295 0.295

0.308 0.308 8.915 (0.891) 10.0% 8.023 (6.820) (1.200) 0.003 93.0 106.0 0.09 NM 0.00 NM 0.08 NM 0.00 NM 0.07 88.5%

0.322 0.322

0.339 0.339

1.262 1.262 36.580 (3.658) 10.0% 32.922 (27.419) (4.800) 0.703 93.9 107.1 0.35 NM 0.01 NM 0.31 NM 0.01 NM 0.30 69.1%

2.666 (1.113) 1.553 3.278 (0.809) 24.7% 2.469 (22.601) (6.029) (26.161) 82.4 85.6 0.03 -75.7% (0.32) -10.0% 0.03 -68.0% (0.31) 58.1% 0.02 -54.3%

1.168 (0.221) 0.947 12.670 (1.296) 10.2% 11.374 (25.001) (4.868) (18.495) 86.1 95.3 0.13 350.0% (0.21) -32.5% 0.12 315.5% (0.19) -36.7% 0.11 417.3%

1.162 1.162 29.143 (2.914) 10.0% 26.229 (26.879) (4.800) (5.450) 70.9 80.4 0.29 120.6% (0.06) -71.5% 0.25 118.7% (0.05) -72.4% 0.24 127.0%

20.669 7.569 (2.067) (0.757) 10.0% 10.0% 18.602 6.812 (26.349) (6.753) (4.800) (1.200) (12.547) (1.141) 88.1 91.2 100.4 104.0 0.21 0.07 NM 109.6% (0.14) (0.01) NM NM 0.19 0.07 NM 109.6% (0.12) (0.01) NM NM 0.18 141.9% 0.06 NM

9.784 10.313 (0.978) (1.031) 10.0% 10.0% 8.806 9.281 (6.888) (6.957) (1.200) 0.717 94.8 108.2 0.09 NM 0.01 NM 0.08 NM 0.01 NM 0.08 60.9% (1.200) 1.124 96.7 110.3 0.10 NM 0.01 NM 0.08 NM 0.01 NM 0.08 39.4%

22.5% 21.7% 21.9% 20.4% 16.4% 16.0% 6.7% -28.1% 10.1% 20.0% 171.7% 129.3% 146.4% 120.2%

Source: Aruba reports and Wedbush Morgan Securities estimates

5 | Aruba Networks

Rohit Chopra (212) 668-9871 Sanjit Singh (212) 938-9922

ARUBA NETWORKS – BALANCE SHEET & CASH FLOW STATEMENT
Exhibit 4: Balance Sheet & Cash Flow Statement
Aruba Networks
Balance Sheet
($ in millions) ASSETS Cash & Equivalents Accounts Receivable Inventory Other TOTAL CURRENT ASSETS Gross Plant Depeciation Net PP&E Other TOTAL ASSETS LIABILITIES & SHAREHOLDERS' EQUITY Accounts Payable Deferred Rev Other Current Liabilities TOTAL CURRENT LIABILITIES Deferred Rev Other Non-current Long Term Debt TOTAL LONG TERM LIABILITIES TOTAL LIABILITIES SHAREHOLDERS' EQUITY Preferred Retained Earnings Common Additional Paid In Capital Less Treasury Stock Other Equity TOTAL EQUITY TOTAL LIABILITIES & SHAREHOLDERS' EQUITY Oct 1Q09A 108.202 32.280 14.085 6.643 161.210 17.296 9.506 7.790 26.677 195.677 Jan 2Q09A 115.169 23.564 13.965 5.434 158.132 18.460 10.865 7.595 25.327 191.054 Apr 3Q09A 111.783 30.733 12.318 4.882 159.716 20.107 12.334 7.773 24.179 191.668 Jul 4Q09A 123.137 33.466 8.450 7.502 172.555 21.029 13.603 7.426 23.073 203.054 FY 2009A 123.137 33.466 8.450 7.502 172.555 21.029 13.603 7.426 23.073 203.054 Oct 1Q10E 125.216 35.200 8.888 7.502 176.807 22.451 14.935 7.516 21.873 206.195 Jan 2Q10E 127.531 37.646 9.505 7.502 182.184 23.873 16.352 7.521 20.673 210.378 Apr 3Q10E 132.502 38.867 9.814 7.502 188.684 25.295 17.853 7.442 19.473 215.599 Jul 4Q10E 136.858 41.491 10.476 7.502 196.328 26.717 19.439 7.278 18.273 221.879 FY 2010E 136.858 41.491 10.476 7.502 196.328 26.717 19.439 7.278 18.273 221.879 FY 2011E 163.803 50.021 12.630 7.502 233.956 34.405 26.795 7.610 13.473 255.038

7.464 28.889 18.447 54.800 7.655 0.095 0.000 7.750 62.550 0.000 (124.596) 0.008 257.878 0.000 (0.163) 133.127 195.677 Oct 1Q09A (6.377) 2.268 0.358 (3.552) 12.874 5.571

1.647 28.012 20.821 50.480 7.416 0.073 0.000 7.489 57.969 0.000 (131.373) 0.008 264.355 0.000 0.095 133.085 191.054 Jan 2Q09A (6.777) 2.448 8.688 (0.579) 3.832 7.612

4.364 24.610 20.589 49.563 7.342 0.051 0.000 7.393 56.956 0.000 (137.134) 0.009 271.750 0.000 0.087 134.712 191.668 Apr 3Q09A (5.761) 2.452 (7.222) (0.286) 6.768 (4.049)

0.930 34.654 21.332 56.916 8.524 0.029 0.000 8.553 65.469 0.000 (141.632) 0.009 279.026 0.000 0.182 137.585 203.054 Jul 4Q09A (4.498) 2.518 (2.748) 3.651 12.528 11.451

0.930 34.654 21.332 56.916 8.524 0.029 0.000 8.553 65.469 0.000 (141.632) 0.009 279.026 0.000 0.182 137.585 203.054 FY 2009A (23.414) 9.459 (0.787) 3.194 (1.055) (12.603)

0.978 34.654 21.332 56.964 8.524 0.029 0.000 8.553 65.517 0.000 (138.539) 0.009 279.026 0.000 0.182 140.678 206.195 Oct 1Q10E 3.093 2.532 (1.734) (0.438) 0.048 3.501

1.046 34.654 21.332 57.032 8.524 0.029 0.000 8.553 65.585 0.000 (134.424) 0.009 279.026 0.000 0.182 144.793 210.378 Jan 2Q10E 4.115 2.617 (2.446) (0.618) 0.068 3.737

1.080 34.654 21.332 57.066 8.524 0.029 0.000 8.553 65.619 0.000 (129.238) 0.009 279.026 0.000 0.182 149.979 215.599 Apr 3Q10E 5.186 2.701 (1.221) (0.308) 0.034 6.393

1.153 34.654 21.332 57.139 8.524 0.029 0.000 8.553 65.692 0.000 (123.030) 0.009 279.026 0.000 0.182 156.187 221.879 Jul 4Q10E 6.208 2.786 (2.625) (0.663) 0.073 5.778

1.153 34.654 21.332 57.139 8.524 0.029 0.000 8.553 65.692 0.000 (123.030) 0.009 279.026 0.000 0.182 156.187 221.879 FY 2010E (12.547) 10.636 (8.025) (2.026) 0.223 (11.740)

1.390 34.654 21.332 57.376 8.524 0.029 0.000 8.553 65.929 0.000 (90.108) 0.009 279.026 0.000 0.182 189.109 255.038 FY 2011E 0.703 12.157 (8.530) (2.154) 0.237 2.414

Cash Flow
($ in millions) OPERATIONS Net Income Depreciation & Amortization Receivables Inventory Other OPERATING CASH FLOW INVESTING Purchases of Plant & Equipment (CapEx) Acquisition of Businesses Net Investments Other CASH FROM INVESTMENTS FINANCING Net Debt Net Common Shares Issued Dividends Other CASH FLOW FROM FINANCING OTHER ADJUSTMENTS NET INCREASE/(DECREASE) IN CASH

(1.071) 0.000 0.795 0.000 (0.276)

(1.164) 0.000 (12.696) (13.860)

(1.245) 0.000 (0.754) (1.999)

(0.922) 0.000 (4.687) (5.609)

(4.402) 0.000 (17.342) 0.000 (21.744)

(1.422)

(1.422)

(1.422)

(1.422)

(5.688) 0.000 0.000 0.000 (5.688)

(7.688) 0.000 0.000 0.000 (7.688)

(1.422)

(1.422)

(1.422)

(1.422)

0.000 2.148 0.000 0.000 2.148 0.000 7.443

0.000 0.220 0.000 0.000 0.220 (0.031) (6.059)

0.000 1.809 0.000 0.000 1.809 0.030 (4.209)

0.000 0.681 0.000 0.000 0.681 0.001 6.524

0.000 4.858 0.000 0.000 4.858 0.000 (29.489)

0.000 2.079

0.000 2.315

0.000 4.971

0.000 4.356

0.000 0.000 0.000 0.000 0.000 (17.428)

0.000 0.000 0.000 0.000 0.000 (5.274)

Source: Aruba reports and Wedbush Morgan Securities estimates

6 | Aruba Networks

Rohit Chopra (212) 668-9871 Sanjit Singh (212) 938-9922

ARUBA NETWORKS – DISCOUNTED CASH FLOW MODEL
Exhibit 5: Discounted Cash Flow Model
Aruba Networks
Discounted Cash Flow Analysis ($ in millions except EPS)
Revenue OPERATING EXPENSES Cost of Service Gross Margin Gross Margin % Selling, General and Administrative Research & Development TOTAL OPERATING EXPENSES OPERATING INCOME Operating Margin % EBITDA OTHER INCOME (EXPENSE) Interest (Net) Other Total Other INCOME BEFORE TAXES Income Taxes Tax Rate Net Income Before Discontinued Operations Income from Discontinued Operations Taxes & other adjustments NET INCOME ADJUSTMENTS Add: Depreciation and Amortization After Tax Interest Less: Capital Expenditures Working Capital Increase UNLEVERED FREE CASH FLOW FREE CASH FLOW YIELD Discount Rate (WACC) Terminal Multiple Terminal EBITDA Growth Rate E 2010 244.122 E 2011 294.033 E 2012 348.170 E 2013 409.158 E 2014 476.795 E 2015 550.911 E 2016 631.115 E 2017 716.770 E 2018 806.979 E 2019 900.579 E 2020 996.148

78.548 165.574 67.8% 91.044 36.028 145.999 19.575 8.0% 30.211

96.584 197.449 67.2% 104.179 42.344 162.131 35.318 12.0% 47.474

116.026 232.144 66.7% 112.916 49.792 180.841 51.303 14.7% 63.088

138.301 270.856 66.2% 124.512 56.877 202.698 68.158 16.7% 79.925

163.434 313.360 65.7% 135.558 64.372 224.763 88.598 18.6% 101.183

191.459 359.452 65.2% 147.265 71.624 247.581 111.871 20.3% 125.563

222.328 408.787 64.8% 159.238 78.896 271.003 137.784 21.8% 153.022

255.899 460.871 64.3% 170.098 86.020 293.448 167.422 23.4% 184.096

291.923 515.056 63.8% 179.401 92.811 313.434 201.622 25.0% 219.570

330.036 570.543 63.4% 191.204 99.074 335.379 235.164 26.1% 254.176

369.756 626.392 62.9% 201.533 104.606 355.031 271.361 27.2% 291.179

1.094 1.094 20.669 (2.067) 10.0% 18.602 (4.800) 18.602

1.262 1.262 36.580 (3.658) 10.0% 32.922 (4.800) 32.922

1.099 1.099 52.402 (5.240) 10.0% 47.162 (2.900) 47.162

1.357 1.357 69.515 (20.854) 30.0% 48.660 (1.300) 48.660

1.605 1.605 90.203 (27.061) 30.0% 63.142 (0.500) 63.142

1.937 1.937 113.807 (34.142) 30.0% 79.665 79.665

2.367 2.367 140.151 (42.045) 30.0% 98.106 98.106

2.914 2.914 170.336 (51.101) 30.0% 119.235 119.235

3.593 3.593 205.215 (61.565) 30.0% 143.651 143.651

4.429 4.429 239.593 (71.878) 30.0% 167.715 167.715

6.419 6.419 277.780 (83.334) 30.0% 194.446 194.446

10.636 (5.688) 9.829 13.721 2.9%

12.157 (7.688) 10.446 26.945 5.4%

11.785 (9.188) 11.279 38.480 7.3%

11.767 (10.688) 12.707 37.032 6.7%

12.586 (12.188) 14.092 49.448 8.5%

13.693 (13.688) 15.442 64.228 10.5%

15.238 (15.188) 16.710 81.446 12.7%

16.673 (16.688) 17.846 101.374 15.0%

17.948 (18.188) 18.795 124.616 17.6%

19.012 (19.688) 19.501 147.538 19.8%

19.817 (21.188) 19.912 173.164 22.2%

4.700 10% 4 5%

Sensitivity Analysis
Terminal Multiple 2 8% 9.39 12.26 10% 8.35 10.73 12% 7.47 9.46
10.8 10.7 7.5

Discount Rate

4 15.13 13.12 11.45

6

Sum of Discounted Cash Flows Terminal EBITDA Terminal Value (terminal multiple x terminal EBITDA) PV of Terminal Value Enterprise Value Less: Debt Preferred Add: Cash Theretical Equity Value Fully Dilluted Shares Outstanding Theoretical EOY Price per Share Implied Current PE Implied Forward PE Implied Current EV/Sales Implied Forward EV/Sales Implied Current EV/EBITDA Implied Forward EV/EBITDA

462 306 1,223 479 941 0 0 137 1,078 100 10.73

Average Median Range

15.1

Weighted Average Cost of Capital
% of Total Capital 0% 100% 100% Cost of Capital 0.00% 9.8% Tax Adjustment 30% After-tax Cost 0.0% 9.8% Wgtd Avg 0.0% 9.8% 9.8%

Debt Equity Total

Cost of Equity Risk-free Rate (10 yr. T-Bond) Risk Premium (Average) Beta (Bloomberg) Cost of Equity 3.0 5.5 1.2 9.8

Source: Aruba reports and Wedbush Morgan Securities estimates

7 | Aruba Networks

Rohit Chopra (212) 668-9871 Sanjit Singh (212) 938-9922

Covered public companies mentioned in this report (close 09/08/09)
COMPANY Cisco TICKER CSCO RATING NEUTRAL PRICE $21.92 PRICE TARGET $22

AN AL Y S T C E R T I F I C AT I O N I, Rohit Chopra, certify that the views expressed in this report accurately reflect my personal opinion and that I have not and will not, directly or indirectly, receive compensation or other payments in connection with my specific recommendations or views contained in this report. I M P O R T AN T D I S C L O S U R E S

INVESTMENT RATINGS OUTPERFORM – Expect the total return of the stock to outperform relative to the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. NEUTRAL – Expect the total return of the stock to perform in-line with the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. UNDERPERFORM – Expect the total return of the stock to underperform relative to the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. The Investment Ratings are based on the expected performance of a stock (based on anticipated return to price target) relative to the other stocks in the analyst’s coverage universe.* DISTRIBUTION OF RATINGS (as of June 30, 2009) BUY – 46% (4% of this rating category were investment banking clients within the last 12 months). HOLD – 52% (3% of this rating category were investment banking clients within the last 12 months). SELL – 2% (0% of this rating category were investment banking clients within the last 12 months). The Distribution of Ratings is required by FINRA rules; however, WMS’ stock ratings of Outperform, Neutral, and Underperform most closely conform to Buy, Hold, and Sell, respectively. Please note, however, the definitions are not the same as WMS’ stock ratings are on a relative basis. The analysts responsible for preparing research reports do not receive compensation based on specific investment banking activity. The analysts receive compensation that is based upon various factors including WMS’ total revenues, a portion of which are generated by WMS’ investment banking activities. WMS makes a market in the securities mentioned herein. * WMS changed its rating system from (Strong Buy/Buy/Hold/Sell) to (Outperform/ Neutral/Underperform) on July 14, 2009. Please access the attached hyperlink for WMS’ Coverage Universe: http://www.wedbush.com/inside/CapitalMarkets/CoverageList.asp Additional information is available upon request by contacting Ellen Kang in the Research Department at (213) 688-4529, or by email to ellen.kang@wedbush.com, or the Business Conduct Department at (213) 688-8090.

OTHER DISCLOSURES
RESEARCH DEPT. * (213) 688-4505 * www.wedbush.com INSTITUTIONAL TRADING Los Angeles (213) 688-4470 / (800) 421-0178 * INSTITUTIONAL SALES Los Angeles (800) 444-8076 8 | Aruba Networks Rohit Chopra (212) 668-9871 Sanjit Singh (212) 938-9922

CORPORATE HEADQUARTERS (213) 688-8000 The information herein is based on sources that we consider reliable, but its accuracy is not guaranteed. The information contained herein is not a representation by this corporation, nor is any recommendation made herein based on any privileged information. This information is not intended to be nor should it be relied upon as a complete record or analysis; neither is it an offer nor a solicitation of an offer to sell or buy any security mentioned herein. This firm, Wedbush Morgan Securities, its officers, employees, and members of their families, or any one or more of them, and its discretionary and advisory accounts, may have a position in any security discussed herein or in related securities and may make, from time to time, purchases or sales thereof in the open market or otherwise. The information and expressions of opinion contained herein are subject to change without further notice. The herein mentioned securities may be sold to or bought from customers on a principal basis by this firm. Additional information with respect to the information contained herein may be obtained upon request.

9 | Aruba Networks

Rohit Chopra (212) 668-9871 Sanjit Singh (212) 938-9922

EQUITY RESEARCH DEPARTMENT
(213) 688-4529 DIRECTOR OF RESEARCH Mark D. Benson (213) 688-4435
CONSUMER PRODUCTS AND SERVICES Consumer Products Rommel T. Dionisio ………………..……… (213) 688-4418 Kurt M. Frederick, CPA …………………… (213) 688-4459 Education Ariel Sokol …………………..…………...... (212) 668-9874 Entertainment Retail Michael Pachter …………………..……..... (213) 688-4474 Edward Woo, CFA …………………….….. (213) 688-4382 Chris White…………..….…………………. (213) 688-4423 Gaming, Lodging & Leisure Rachael Rothman, CFA..….…………….… (212) 938-9940 Amanda Bryant, CFA…………………….… (212) 938-9942 Yinan Zhao………………………………..… (212) 938-9941 Restaurants Rachael Rothman, CFA…...…………….… (212) 938-9940 Michael Sang, CPA…..……………………. (212) 938-9943 Specialty Retail: Hardlines Joan L. Storms, CFA ……………………… (213) 688-4537 John Garrett…………………………...…… (213) 688-4523 Camilo Lyon …………...…………………… (212) 938-9924 Specialty Retail: Softlines Betty Chen …………………..…………...... (415) 273-7328 Connie Wong…….…………..…………..... (415) 273-7315 Specialty Retail: Sporting Goods Camilo Lyon …..………………….…..….… (212) 938-9924 ENTERTAINMENT AND MEDIA Advertising & Broadcasting James Dix, CFA………………….…..….… (213) 688-4315 Entertainment: Software Michael Pachter …………………...…….… (213) 688-4474 Edward Woo, CFA ………….…………….. (213) 688-4382 Chris White…………..….…………………. (213) 688-4423 Entertainment: Toys Chris White…………..………….…………. (213) 688-4423 Edward Woo, CFA …………………….….. (213) 688-4382 Movies & Entertainment Chris White…………..…...………..…….... (213) 688-4423 Michael Pachter….….………….…………. (213) 688-4474 Internet Advertising/Media Edward Woo, CFA…….…………….…..… (213) 688-4382 INDUSTRIAL GROWTH AND CLEAN TECHNOLOGY Industrial Growth Al Kaschalk....……..….……………………. (213) 688-4539 Solar Technology Christine Hersey....……..…...………………(213) 688-4311
EQUITY SALES Los Angeles San Francisco New York Boston (213) 688-4470 / (800) 444-8076 (415) 274-6800 (212) 668-9868 (617) 832-3700 EQUITY TRADING Los Angeles San Francisco New York Boston (213) 688-4470 / (800) 421-0178 (415) 274-6811 (212) 344-2382 / (800) 421-0178 (617) 832-3700 / (800) 421-0178

TECHNOLOGY Communications Equipment Rohit Chopra …………………...…………. (212) 668-9871 Sanjit Singh …………………...…………... (212) 938-9922 Communications Technology Matthew Robison………..……...…………. (415) 263-6659 Leo Choi ………………………………….… (415) 263-6669 Datacenter Technologies Kaushik Roy…...………………...…………. (415) 274-6873 Software: Enterprise / Application Michael B. Nemeroff.……………..………. (212) 668-9876 David Giesecke…...…..…………………... (212) 938-9925 Software: Infrastructure J. Derrick Wood, CFA…………..…………. (415) 274-6822 David Kaczorowski….……………………….(415) 274-6883 Internet: Infrastructure Kerry Rice, CPA …………………………… (213) 688-4538 Semiconductors Patrick Wang…………………………...…. (212) 938-9938 Michael Lucarelli..………………...…….…. (212) 938-9927 Betsy Van Hees………………………….... (415) 274-6869 Telecommunications Software Scott P. Sutherland, CFA ……………..…. (213) 688-4522 Suhail Chandy …………………...……..…. (213) 688-4380 Transaction Processors Gil B. Luria....….…..………....……………. (213) 688-4501 Nick Setyan……....……..…………………. (213) 688-4519 Wireless Equipment Scott P. Sutherland, CFA ………….…….. (213) 688-4522 Suhail Chandy ……………...……….…….. (213) 688-4380 LIFE SCIENCES Biotechnology / Biopharmaceuticals Gregory R. Wade, Ph.D.………...……….. (415) 274-6863 Jeremiah Shepard, Ph.D.………...……….. (415) 274-6862 Kimberly Lee, D.O….……………..………. (415) 274-6842 Cardiovascular, Devices & Regenerative Duane Nash, MD JD MBA…...…..………. (415) 263-6650 Emerging Pharmaceuticals Liana Moussatos, Ph.D.….........…………. (415) 263-6626 Richard Lau ..…………….………..………. (415) 274-6851 Life Sciences Tools & Diagnostics Un K. Kwon-Casado, M.SC...…....………. (415) 263-6634 Specialty Pharmaceuticals Patricia Bank …………………...…………. (415) 263-6646

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