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					North America Equity Research
14 April 2009

▲ Neutral

Aruba Networks
Upgrading to Neutral as 802.11n Migration ReEnergizes WLAN Market
We are upgrading Aruba to Neutral from Underweight, as we believe the recent introduction of next-gen 802.11n products into the marketplace re-accelerates WLAN market growth to 20% CY10E and 30% in CY11E from an 8% decline in CY09E. By CY11, we also expect wired networks to begin migrating to WLAN given the efficiency of the architecture, adding another boost to market growth. Therefore, in anticipation of very real drivers to re-accelerate market growth, but not enough near-term earnings power to move all the way to Overweight, we are upgrading Aruba to Neutral. • We expect the migration to 802.11n to drive a multi-year reacceleration in WLAN market growth beginning in 2010, closing out the concerns of our downgrade one year ago, which was based on the sharp deceleration in the WLAN market to an 8% decline in ’09E from 26% growth in ’08. • We now forecast the WLAN market to grow 20% in CY10 and 30% in CY11, up from our prior estimates of just 12% and 14%, respectively, as 802.11n grows quickly from 37% of the WLAN revenue market in Q408 to 95% in '11. While the 802.11n standard likely isn’t ratified until 2010, prestandard products began hitting the market last summer. • Further, our ongoing concerns with the standard Ethernet switch market turn out to benefit WLAN, as we believe 802.11n WLAN is finally a viable, cheaper and more efficient substitute for a wired Ethernet LAN network. • Raising FY10 rev and EPS ests to $209M and $0.14 from $193M and $0.06, as our rev growth rate increases to 10% from 6%. Introducing FY11 rev and EPS ests of $276M and $0.26, assuming 32% rev growth and a 12% op margin. • While we believe Aruba is an attractive long-term story in the making, we are less convinced about near-term demand, which combined with valuation of 17.8x our new CY10 EPS estimate of $0.21, keeps us at Neutral. • We also believe Aruba remains an attractive acquisition candidate to any vendor with a legacy 802.11g or Ethernet switching portfolio, given the migration to 802.11n and inevitable migration of wiring closet switches to wireless. We think logical acquirers include Juniper, 3Com, and Alcatel-Lucent.
Aruba Networks, Inc. (ARUN;ARUN US) 2008A EPS (pro forma) ($) Q1 (Oct) Q2 (Jan) Q3 (Apr) Q4 (Jul) FY CY Revenues FY ($ mn) 0.04 0.01 (0.01) 0.00 (0.20) 0.03 178 2009E 0.02A 0.02A (0.01)A 0.00A 0.02A 0.04A 190A 2010E
(Old)

Previous: Underweight ARUN, ARUN US Price: $3.73

Communciations Equipment & Data Networking Ehud A. Gelblum, PhD
AC

(1-212) 622-6457 ehud.gelblum@jpmorgan.com

Kimberly A. Watkins, CFA
(1-415) 315-6724 kimberly.a.watkins@jpmorgan.com J.P. Morgan Securities Inc.
Price Performance
7 5 $ 3 1
Apr-08 Jul-08 Oct-08 Jan-09 Apr-09

YTD Abs 42.7%

1m 37.4%

3m 42.2%

12m -22.4%

2010E
(New)

2011E 0.06 0.06 0.06 0.07 0.26 276

0.03 0.02 (0.01) 0.02 0.06 0.07 193

0.03 0.02 0.02 0.06 0.14 0.21 209

Company Data Price ($) Date Of Price 52-week Range ($) Mkt Cap ($ mn) Fiscal Year End Shares O/S (mn)

3.73 13 Apr 09 7.27 - 1.85 331.22 Jul 89

Estimates in earnings box exclude stock compensation expense. Source: Company data, Reuters, J.P. Morgan estimates.

See page 7 for analyst certification and important disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, 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. Customers of J.P. Morgan in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.morganmarkets.com or can call 1-800-477-0406 toll free to request a copy of this research.

Ehud A. Gelblum, PhD (1-212) 622-6457 ehud.gelblum@jpmorgan.com

North America Equity Research 14 April 2009

Investment Thesis & Conclusion
We are upgrading our rating on Aruba Networks to Neutral from Underweight, as we believe the recent introduction and increasing adoption of next-generation 802.11n technology – which is still in its early days and accounted for just 24% of the total market by units in Q408 per Dell'Oro but a much higher 40% of the total market by dollars (an 802.11n access point is currently 2.1x the price of an 802.11g access point) – should expand the WLAN market and re-accelerate growth to 20% in CY10 and 30% in CY11, bouncing back from an 8% decline in CY09E. Our previous CY10 market estimate was for just 12% growth. Our downgrade to Underweight, exactly one year ago, was based on the sharp deceleration and eventual decline in 2009 in the earlier generation 80.11a/b/g WLAN market – we expect the WLAN market to decline 8% in 2009 – as the economy slowed down and with it enterprise spending. While the 54 Mbps speed of the earlier generation 802.11a/b/g technology is adequate for the original mobile web surfing purpose for which it was developed, it is not fast enough, nor does it have the low latency properties necessary, to replace standard 100Mbps wired Ethernet switches since the 54 Mbps speed is shared across all users. However, with the advent of the new lower latency, higher-speed 802.11n WLAN standard (roughly 5-6x faster than 802.11g), which likely won’t be ratified until 2010 but for which several pre-standard, software upgradeable, products began to hit the market just 9-12 months ago, we believe it is finally viable for CIOs to completely replace their traditional wiring closet Ethernet switch networks with WLAN. The advantage is that in a traditional Ethernet network, each user has 100 Mbps of dedicated capacity to the desktop and is tying up that computing power and capacity whether he is actively working at his desk, on a lunch break, or out on vacation. And in the case of an IP-PBX phone system, each user is tying up two dedicated 100Mbps Ethernet ports leading to vast amounts of overprovisioning. While WLAN networks still need to be provisioned to handle peak usage loads, they can be tuned much more efficiently to mirror average loads. At Aruba’s analyst day last week, management reviewed a customer case study of California State University (CSU). The university saved a surprisingly high $30M annually by migrating to an 802.11n network and shrinking 90% of its wiring closets, after discovering that over 40% of its existing ports were not even being used. While CSU is likely an early migrator to WLAN and therefore an exception rather than the rule, we believe similar situations exist in many organizations, as rising unemployment levels and flexible working hours has created large pools of idle and stranded Ethernet switch port capacity, a key part of our negative long-term thesis on Cisco. We expect to see the effects of this wired to wireless transition beginning in 2011, providing a boost to the standard mobility-driven WLAN market and driving our market growth forecast in that year to 30%, thus creating a multi-year period of re-acceleration and market expansion. Note that the size of the wired Ethernet switch market is roughly $18B/year, while the size of the WLAN market is only $1.3B, indicating that not very much of the wired market needs to begin to transition to have a material affect on WLAN market growth. Therefore, in anticipation of very real drivers to re-accelerate market growth, but not enough near-term earnings power

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Ehud A. Gelblum, PhD (1-212) 622-6457 ehud.gelblum@jpmorgan.com

North America Equity Research 14 April 2009

to move all the way to Overweight – the stock still trades at 17.8x our new CY10 EPS estimate of $0.21 – we are upgrading Aruba to Neutral. We also believe Aruba remains an attractive acquisition candidate to any vendor with a legacy 802.11g or Ethernet switching portfolio, given the migration to 802.11n and inevitable migration of wiring closet switches to wireless. We believe logical acquirers include Juniper, 3Com, Brocade/Foundry, and Alcatel-Lucent.

Increasing Our WLAN Forecasts
We are now forecasting the WLAN market to grow 20% in CY10 and 30% in CY11, bouncing back from an estimated 8% decline in ‘09 and up from our prior estimates of just 12% and 14%, respectively, as 802.11n grows quickly from 37% of the WLAN market by revenue in Q408 to 95% in '11E. See Table 1, below, for our forecasts for the dependent WLAN market.
Table 1: J.P. Morgan WLAN Forecasts
$ in millions (A) Total Dependent Market (=B+C) y/y Market Growth Aruba Brand Mkt Share % Alcatel Brand Mkt Share % Total Aruba Mkt Share % Aruba Brand Dependent Revenue Alcatel Brand Dependent Revenue Total Aruba Dependent Revenue (B) Dependent Controller Market y/y Market Growth Aruba Brand Mkt Share % Alcatel Brand Mkt Share % Total Aruba Mkt Share % Aruba Brand Dependent Controller Rev Alcatel Brand Dependent Controller Rev Total Aruba Dependent Controller Rev (C) Dependent AP Market y/y Market Growth 802.11n % Market y/y Growth 802.11 g % Market y/y Growth Aruba Brand Mkt Share % Alcatel Brand Mkt Share % Total Aruba Mkt Share % Aruba Brand Dependent AP Revenue Alcatel Brand Dependent AP Revenue Total Aruba Dependent AP Revenue CY06A 796.7 165.6% 7.0% 2.0% 9.0% 56.0 16.1 72.0 405.7 102.3% 9.1% 2.3% 11.4% 37.0 9.3 46.3 391.0 293.4% CY07A 1,087.1 36.4% 11.1% 2.1% 13.2% 120.4 22.8 143.2 558.5 37.7% 13.4% 2.3% 15.7% 74.9 12.9 87.8 528.5 35.2% 6.5 1.2% 0.0% 522.0 98.8% 33.5% 8.6% 1.9% 10.5% 45.5 10.0 55.5 CY08A 1,370.0 26.0% 10.6% 2.6% 13.2% 144.9 35.9 180.8 654.4 17.2% 11.7% 2.9% 14.6% 76.8 18.7 95.5 715.6 35.4% 183.4 25.6% NM 532.2 74.4% 1.9% 9.5% 2.4% 11.9% 68.1 17.2 85.3 CY09E 1,256.3 -8.3% 10.9% 1.2% 12.2% 137.5 15.5 153.0 607.1 -7.2% 12.0% 1.2% 13.3% 73.0 7.4 80.5 649.2 -9.3% 297.0 45.8% 61.9% 352.2 54.2% -33.8% 9.9% 1.2% 11.2% 64.5 8.1 72.6 CY10E 1,508.4 20.1% 11.7% 1.3% 13.0% 176.9 19.4 196.3 716.4 18.0% 13.0% 1.4% 14.5% 93.3 10.3 103.6 792.0 22.0% 591.1 74.6% 99.0% 200.9 25.4% -42.9% 10.6% 1.2% 11.7% 83.6 9.1 92.8 CY11E 1,956.8 29.7% 12.3% 1.3% 13.7% 241.2 26.2 267.4 895.5 25.0% 13.7% 1.5% 15.2% 122.3 13.4 135.7 1,061.3 34.0% 1,003.0 94.5% 69.7% 58.3 5.5% -71.0% 11.2% 1.2% 12.4% 118.9 12.7 131.7

391.0 100.0% 0.0% 4.9% 1.7% 6.6% 19.0 6.7 25.7

Source: Company reports, J.P. Morgan estimates, and Dell'Oro Group.

Estimate Revisions
We are raising FY10 revenue and EPS estimates to $209M and $0.14 from $193M and $0.06, as our revenue growth rate increases to 10% from 6%. We are also introducing FY11 revenue and EPS estimates of $276M and $0.26, assuming 32% revenue growth and a 12% operating margin. See Table 2 below.

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Ehud A. Gelblum, PhD (1-212) 622-6457 ehud.gelblum@jpmorgan.com

North America Equity Research 14 April 2009

Table 2: Aruba Estimate Revisions*
$ in millions Jan-10 Q2-10E 49.0 46.4 2.6 67.1% 67.1% 0.0% 2.9% 2.9% 0.0% $0.02 $0.02 $0.00 ($0.05) ($0.05) $0.00 Apr-10 Q3-10E 51.5 45.6 6.0 67.1% 67.1% 0.0% 4.0% -3.9% 7.9% $0.02 ($0.01) $0.04 ($0.05) ($0.09) $0.04 Jul-10 Q4-10E 57.2 49.7 7.5 67.1% 67.1% 0.0% 11.2% 3.3% 7.9% $0.06 $0.02 $0.04 ($0.00) ($0.05) $0.05 Oct-10 Q1-11E 67.8 58.8 9.1 67.1% 67.1% 0.0% 12.8% 9.9% 2.9% $0.06 $0.04 $0.02 ($0.00) ($0.02) $0.02 Jan-11 Q2-11E 62.3 51.3 11.0 67.1% 67.1% 0.0% 12.4% 4.8% 7.6% $0.06 $0.02 $0.04 ($0.01) ($0.05) $0.04 Fiscal 2009E 189.7 189.7 0.0 68.3% 68.3% 0.0% 0.5% 0.5% 0.0% $0.02 $0.02 $0.00 ($0.27) ($0.27) $0.00 Fiscal 2010E 208.9 192.8 16.1 67.1% 67.1% 0.0% 6.0% 2.0% 4.0% $0.14 $0.06 $0.08 ($0.12) ($0.21) $0.08 Cal 2010E 238.8 205.3 33.5 67.1% 67.1% 0.0% 10.4% 4.0% 6.4% $0.21 $0.07 $0.13 ($0.06) ($0.21) $0.15

New revenue Old revenue $ change New Gross Margin Old Gross Margin % Change New Operating Margin Old Operating Margin % Change New EPS (ex. stock comp) Old EPS (ex. stock comp) $ change New EPS (post stock comp) Old EPS (post stock comp) $ change

Source: Company reports and J.P. Morgan estimates. * Note: We have made no changes to the April '09, July '09 and October '09 quarters.

Valuation and Rating Analysis
We rate Aruba Neutral, since we believe the adoption of 802.11n technology – which is still in its early days and accounts for 24% of the market but 39% of Aruba’s access point shipments – re-accelerates WLAN market growth to 20% CY10 and 30% in CY11, versus an 8% decline in CY09E. By CY11, we also expect wired networks to begin migrating to WLAN given the efficiency of the architecture, adding another boost to market growth. However, we are less certain about near-term demand, which along with Aruba’s premium valuation and seemingly unachieveable 20% operating margin target, which requires quarterly revenue to double from existing levels, keep us from becoming more positive on the stock currently. Aruba trades at 0.8x EV/Revenue on our CY10 revenue estimate of $239M, slightly below its enterprise peer group average of 1.5x due to its sub-optimal margin structure, and at 17.8x our CY10 EPS estimate of $0.21, a slight discount to its peer group average of 19.2x.

Risks to Rating
Potential upside risks to our Neutral rating include that the adoption of 802.11n fuels the WLAN market to grow more quickly than we expect, Aruba gains more share than we are forecasting, or Aruba cuts costs more aggressively than we are forecasting, resulting in revenue and earnings upside. Downside risks include the macroeconomic malaise elongates sales cycles or accelerates competitive discounting, both potentially resulting in revenue and earnings misses versus our forecasts.

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Ehud A. Gelblum, PhD (1-212) 622-6457 ehud.gelblum@jpmorgan.com

North America Equity Research 14 April 2009

Table 3: Aruba Networks Income Statement
$ in millions, except per share data Oct-07 Q1-08A 38.458 7.273 0.999 46.730 14.886 26.701 4.506 0.637 31.844 69.4% 62.0% 63.8% 68.1% 6.850 19.005 3.281 29.136 2.708 5.8% 0.903 3.611 7.7% 1.356 0.000 0.011 4.075 0.224 5.5% 3.851 (5.205) (1.354) $0.05 $0.04 ($0.02) 94.167 Jan-08 Q2-08A 34.170 5.548 0.927 40.645 12.547 23.244 4.257 0.597 28.098 68.0% 76.7% 64.4% 69.1% 7.768 17.148 3.495 28.411 (0.313) -0.8% 0.975 0.662 1.6% 1.264 0.000 (0.144) 0.807 0.228 28.3% 0.579 (4.093) (3.514) $0.01 $0.01 ($0.05) 91.254 Apr-08 Q3-08A 35.478 6.287 0.841 42.606 12.495 24.790 4.774 0.547 30.111 69.9% 75.9% 65.0% 70.7% 8.304 19.233 3.936 31.473 (1.362) -3.2% 1.558 0.196 0.5% 0.854 0.000 (0.324) (0.832) 0.260 -31.3% (1.092) (4.252) (5.344) ($0.01) ($0.01) ($0.07) 87.000 Jul-08 Q4-08A 40.444 7.136 0.699 48.279 15.102 27.258 5.462 0.457 33.177 67.4% 76.5% 65.4% 68.7% 8.271 21.171 3.606 33.048 0.129 0.3% 2.204 2.333 4.8% 0.608 0.000 (0.305) 0.432 0.255 59.0% 0.177 (5.727) (5.550) $0.00 $0.00 ($0.07) 88.880 Oct-08 Q1-09A 43.868 8.137 0.441 52.446 17.570 28.120 6.470 0.286 34.876 64.1% 79.5% 64.9% 66.5% 8.320 21.493 3.951 33.764 1.112 2.1% 2.268 3.380 6.4% 0.648 0.000 (0.316) 1.444 0.093 6.4% 1.351 (6.493) (5.142) $0.02 $0.02 ($0.06) 88.836 Jan-09 Q2-09A 38.871 8.468 0.342 47.681 14.206 26.359 6.894 0.222 33.475 67.8% 81.4% 64.9% 70.2% 8.178 18.629 4.822 31.629 1.846 3.9% 2.448 4.294 9.0% 0.556 0.000 (0.168) 2.234 0.201 9.0% 2.033 (6.130) (4.097) $0.02 $0.02 ($0.05) 84.841 Apr-09 Q3-09E 33.722 8.637 0.200 42.559 13.016 22.593 6.824 0.126 29.543 67.0% 79.0% 63.0% 69.4% 8.000 19.250 4.000 31.250 (1.707) -4.0% 2.387 0.680 1.6% 0.556 0.000 (0.200) (1.351) (0.162) 12.0% (1.189) (6.130) (7.319) ($0.01) ($0.01) ($0.09) 89.041 Jul-09 Q4-09E 37.975 8.896 0.100 46.971 15.416 25.443 6.050 0.063 31.556 67.0% 68.0% 63.0% 67.2% 8.000 19.750 4.200 31.950 (0.394) -0.8% 1.971 1.577 3.4% 0.582 0.000 (0.200) (0.013) (0.002) 12.0% (0.011) (6.130) (6.141) ($0.00) ($0.00) ($0.07) 90.541 Oct-09 Q1-10E 41.950 9.252 0.000 51.202 16.850 28.106 6.245 0.000 34.352 67.0% 67.5% 63.0% 67.1% 8.192 19.713 3.749 31.654 2.698 5.3% 1.721 4.419 8.6% 0.587 0.000 (0.100) 3.185 0.382 12.0% 2.803 (6.130) (3.327) $0.03 $0.03 ($0.04) 91.673 Jan-10 Q2-10E 39.400 9.622 0.000 49.022 16.129 26.398 6.495 0.000 32.893 67.0% 67.5% 63.0% 67.1% 7.844 20.099 3.538 31.481 1.412 2.9% 1.582 2.994 6.1% 0.589 0.000 (0.100) 1.901 0.228 12.0% 1.673 (6.130) (4.457) $0.02 $0.02 ($0.05) 92.819 Apr-10 Q3-10E 41.507 10.007 0.000 51.514 16.950 27.809 6.755 0.000 34.564 67.0% 67.5% 63.0% 67.1% 7.384 21.867 3.231 32.481 2.083 4.0% 1.470 3.553 6.9% 0.600 0.000 (0.100) 2.583 0.310 12.0% 2.273 (6.130) (3.857) $0.03 $0.02 ($0.05) 93.979 Jul-10 Q4-10E 46.804 10.408 0.000 57.211 18.828 31.359 7.025 0.000 38.384 67.0% 67.5% 63.0% 67.1% 7.084 21.360 3.516 31.960 6.424 11.2% 1.413 7.837 13.7% 0.612 0.000 (0.100) 6.936 0.832 12.0% 6.104 (6.130) (0.026) $0.07 $0.06 ($0.00) 95.154 2007A 107.939 12.847 6.713 127.499 43.041 72.036 8.179 4.243 84.458 66.7% 63.7% 33.0% 66.2% 22.728 55.754 9.496 87.979 (3.521) -2.8% 2.008 (1.513) -1.2% 2.219 (0.088) (0.252) (1.641) 0.374 -22.8% (2.015) (12.717) (14.732) ($0.06) ($0.06) ($0.42) 77.358 2008A 148.550 26.244 3.466 178.260 55.030 101.993 18.999 2.238 123.230 68.7% 72.4% 8.5% 69.1% 31.193 76.557 14.318 122.068 1.162 0.7% 5.640 6.802 3.8% 4.082 0.000 (0.762) 4.482 0.967 21.6% 3.515 (19.277) (15.762) $0.04 $0.04 ($0.20) 90.325 2009E 154.435 34.139 1.083 189.657 60.207 102.515 26.237 0.697 129.450 66.4% 76.9% 2.0% 68.3% 32.498 79.122 16.973 128.593 0.857 0.5% 9.074 9.930 5.2% 2.342 0.000 (0.884) 2.314 0.130 5.6% 2.184 (24.883) (22.699) $0.03 $0.02 ($0.27) 88.315 2010E 169.660 39.290 0.000 208.950 68.757 113.672 26.521 0.000 140.193 67.0% 67.5% 0.0% 67.1% 30.504 83.038 14.034 127.576 12.617 6.0% 6.186 18.803 9.0% 2.388 0.000 (0.400) 14.605 1.753 12.0% 12.852 (24.520) (11.668) $0.15 $0.14 ($0.12) 93.406 2011E 230.472 45.963 0.000 276.435 90.994 154.416 31.025 0.000 185.441 67.0% 67.5% 0.0% 67.1% 31.724 104.292 15.832 151.848 33.593 12.2% 2.924 36.517 13.2% 1.268 0.000 2.600 37.461 13.111 35.0% 24.350 (24.520) (0.170) $0.29 $0.26 ($0.00) 94.574

Product Revenue Service Revenue Ratable Revenue Total Revenue Total COGS Product Gross Profit Service Gross Profit Ratable Gross Profit Total Gross Profit Product Gross Margin Service Gross Margin Ratable Gross Margin Total Gross Margin R & D Expense Selling & Marketing General and Administrative Total Operating Expenses Operating Income Operating Margin Depreciation & Amortization EBITDA EBITDA Margin Interest Income Interest (Expense) Other Income / (Expense) Earnings Before Taxes Income Tax Provision / (Benefit) Effective Tax Rate Net Income to Common Stock Option Comp Expense Net Income Post Stock Comp EPS - Basic EPS - Diluted EPS - Diluted, Post Stock Comp Share Outstanding - Diluted (M)

Source: Company reports and J.P. Morgan estimates. 5

Ehud A. Gelblum, PhD (1-212) 622-6457 ehud.gelblum@jpmorgan.com

North America Equity Research 14 April 2009

Aruba Networks: Summary of Financials
Income Statement - Annual Revenue Growth (y/y) Gross Profit Gross margin SG&A R&D Other Total operating expenses Operating income Operating margin Net Interest expense Other income / (expense) Pretax income Income taxes Tax rate Other Net income (pro forma) EPS (pro forma) Options expense per share FAS 123 EPS Diluted shares outstanding Balance Sheet Assets Cash and short-term investments Inventories Accounts receivable Other current assets Total current assets Net property, plant and equipment Long-term investments Other assets Total assets Liabilities Current debt Accounts payable Deferred revenue Accrued expenses and other Total current liabilities Long-term debt Other non-current liabilities Total liabilities Shareholders' equity Total liabilities & shareholders' equity DSOs Inventory turns Net cash (debt) per share Book value per share Tangible book value per share FY08A FY09E FY10E 178 39.8% 123 69.1% 91 31 0 122 1 0.7% 4 (1) 4 1 21.6% 4 (0.20) (0.24) 0.04 90 190 6.4% 129 68.3% 96 32 0 129 1 0.5% 2 (1) 2 0 5.6% 2 0.02 0.30 (0.27) 88 209 10.2% 140 67.1% 97 31 0 128 13 6.0% 2 (0) 15 2 12.0% 13 0.14 0.26 (0.12) 93 Income Statement - Quarterly Revenue Growth (y/y) Gross Profit Gross margin SG&A R&D Other Total operating expenses Operating income Operating margin Net Interest expense Other income / (expense) Pretax income Income taxes Tax rate Other Net income (pro forma) EPS (pro forma) Options expense per share FAS 123 EPS Diluted shares outstanding Ratio Analysis & Cash Flow Sales growth EBITDA growth EPS growth Gross margin EBIT margin EBITDA margin Tax rate Net margin Debt/Equity Net Debt/Total Capital Return on assets (ROA) Return on equity (ROE) Free cash flow yield P/E (pro forma) EV / Revenue Free cash flow calculation EBITDA Cash tax Net interest inc / (exp) Increase in working capital Other Operating free cash flow Capex Free cash flow 1Q09A 52 12.2% 35 66.5% 25 8 34 1 2.1% 1 (0) 1 0 6.4% 1 0.02 0.08 (0.06) 89 FY08A 2Q09A 48 17.3% 33 70.2% 23 8 32 2 3.9% 1 (0) 2 0 9.0% 2 0.02 0.07 (0.05) 85 FY09E 3Q09E 4Q09E 43 (0.1%) 30 69.4% 23 8 31 (2) (4.0%) 1 (0) (1) (0) 12.0% (1) (0.01) 0.07 (0.09) 89 FY10E 47 (2.7%) 32 67.2% 24 8 32 (0) (0.8%) 1 (0) (0) (0) 12.0% (0) (0.00) 0.07 (0.07) 91

FY08A FY09E FY10E

38 12 33 8 89 7 28 125

41 15 26 5 88 5 25 118

52 19 32 6 108 5 30 143

39.8% 6.4% 10.2% (549.7%) 46.0% 89.3% (167.2%) (36.5%) 456.5% 69.1% 0.7% 3.8% 21.6% 2.0% 2.0% 2.8% 3.9% NM 0.4 68.3% 0.5% 5.2% 5.6% 1.2% 1.1% 1.7% 9.1% 150.8 0.4 67.1% 6.0% 9.0% 12.0% 6.2% 6.2% 9.1% 5.2% 27.1 0.4

6 27 17 50 7 58 131 189 61 5.2 1.14 2.12 2.12

7 28 21 55 7 63 132 194 50 4.1 1.30 2.15 2.15

8 28 25 61 7 68 151 219 50 4.1 1.34 2.30 2.30

7 (1) 4 3 13 (5) 8

10 (0) 2 10 22 (5) 17

19 (2) 2 (4) 16 (5) 11

Source: Company reports and J.P. Morgan estimates. Note: $ in millions (except per-share data). Fiscal year ends Jul

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Ehud A. Gelblum, PhD (1-212) 622-6457 ehud.gelblum@jpmorgan.com

North America Equity Research 14 April 2009

Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures
• • Market Maker: JPMSI makes a market in the stock of Aruba Networks. Client of the Firm: Aruba Networks is or was in the past 12 months a client of JPMSI.

Aruba Networks (ARUN) Price Chart
Date
40

Rating Share Price ($) 19.29 5.26 1.95 UW

Price Target ($) --

13-Aug-07 N 07-Apr-08
30 N Price($) 20 UW UW

21-Nov-08 UW

10

0 Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09

Source: Reuters and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Aug 13, 2007. This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] The analyst or analyst’s team’s coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.

Coverage Universe: Ehud A. Gelblum, PhD: ADTRAN, Inc (ADTN), ARRIS Group (ARRS), Acme Packet (APKT), Aruba Networks (ARUN), CIENA Corp (CIEN), Cisco Systems (CSCO), Corning (GLW), F5 Networks (FFIV), Infinera Corporation (INFN), JDSU (JDSU), Juniper Networks (JNPR), Motorola (MOT), Nortel Networks (NRTLQ), Opnext (OPXT), QUALCOMM (QCOM), Research in Motion (RIMM), ShoreTel (SHOR), Starent Networks (STAR), Tellabs (TLAB)

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Ehud A. Gelblum, PhD (1-212) 622-6457 ehud.gelblum@jpmorgan.com

North America Equity Research 14 April 2009

J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2009 Overweight (buy) 35% 54% 35% 75% Neutral (hold) 46% 54% 51% 73% Underweight (sell) 19% 42% 14% 57%

JPM Global Equity Research Coverage IB clients* JPMSI Equity Research Coverage IB clients*

*Percentage of investment banking clients in each rating category. For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.

Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on the front of this note or your J.P. Morgan representative. Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.

Other Disclosures
J.P. Morgan is the global brand name for J.P. Morgan Securities Inc. (JPMSI) and its non-US affiliates worldwide. Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation’s Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit the OCC’s website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf. Legal Entities Disclosures U.S.: JPMSI is a member of NYSE, FINRA and SIPC. J.P. Morgan Futures Inc. is a member of the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorised and regulated by the Financial Services Authority. Registered in England & Wales No. 2711006. Registered Office 125 London Wall, London EC2Y 5AJ. South Africa: J.P. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066) is a Market Participant with the ASX and regulated by ASIC. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited is a member of the National Stock Exchange of India Limited and Bombay Stock Exchange Limited and is regulated by the Securities and Exchange Board of India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM. Philippines: J.P. Morgan Securities Philippines Inc. is a member of the Philippine Stock Exchange and is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P) 132/01/2009 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorised by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Country and Region Specific Disclosures U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL's policies for managing conflicts of interest arising as a result of publication and distribution of investment research. Many European regulators require that a firm to establish, implement and maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial
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Ehud A. Gelblum, PhD (1-212) 622-6457 ehud.gelblum@jpmorgan.com

North America Equity Research 14 April 2009

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Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMSI and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. 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