Structured cabling company Belden has bought Wi-Fi start-up Trapeze for $133 million. What does this mean for the other wireless LAN companies in the industry - and what will happen to Trapeze?
As we said in our blog last week, it's ironic for a wireless company to be brought by a wiring outfit, especially one which, like Trapeze, has been a genuine pioneer in the field. But in some ways, this may be a very sensible move.
For some years, wireless LAN vendors, including Trapeze, have been talking about replacing the access layer of the LAN with wireless. Some structured cabling companies have been playing about with the idea of using WLANs, but with, 802.11n finally starting to deliver on the promise, it might be more urgent for them to move.
"Belden's strategic vision is to provide the best signal transmission solutions to our customers regardless of technology," said John Stroup, chief executive of Belden in a statement. "We believe the acquisition of Trapeze Networks uniquely positions Belden to offer our enterprise customers tailored connectivity solutions that benefit from blending the strengths of copper, fibre and wireless technologies… we believe we are at an inflection point in enterprise wireless LAN expansion, a market that is already growing nearly 25 percent per year, and that wireless connectivity is no longer considered a luxury but is a customer expectation."
"What's really going on here is more evidence of the importance of unified networking, not a WLAN industry consolidation," says Craig Mathias in his blog. "The latter will happen eventually; such is always inevitable in IT. But the former is way more important."
Putting it more urgently, Roger Hockaday of Aruba suggested: "If the market is set to take off and flip wired onto its back in a year or two then maybe Belden is a visionary."
Likewise, Jim Vogt, chief executive of Trapeze, was upbeat, predicting no immediate change to the company's business: "Our valued customers will continue to receive unparalleled service, support, and products from Trapeze and will not notice any immediate changes. You will see no interruption in service or support because of the acquisition. The resources and expertise Trapeze gains through its relationship with Belden will help drive innovation within our wireless offerings, ultimately resulting in better solutions for our customers."
Belden claims the two companies are very complementary, and suggests it can give Cisco a run for its money. "Not only do we call on the same customers we call on the same people," said a senior Belden executives on its conference call. (I'm guessing it was Stroup, but there were no names in the offline information, and the introducti9ons were rushed at the start). These people would rather deal with one person - especially as wired and wireless integration is likely to get tighter in future - and wireless technology choice may drive the overall network structure.
Cisco doesn't have the same reach into copper, he said, so Belden can now sell Trapeze in ways that Cisco can't, the Belden people claimed.
The downside is that cabling normally complements switches but - with Trapeze, Belden will start to include them. That may cause conflicts at some level.
Other companies' reactions?
Aruba is quickest off the mark, anxious to make an offer to any users who are unconvinced by Vogt's and Stroup's assurances. "It's a good time for Trapeze customers and partners to seriously look at multi-vendor management platforms to protect their investment going forward," said Roger Hockaday of Aruba, suggesting that Trapeze customers might be able to migrate while still using existing access points, thanks to abilities which Aruba has, following its acquisition of multi-vendor Wi-Fi company AirWave earlier in 2008. Airwave's AMP has been suggested before, as a means to incorporate Cisco APs.
Aruba's AMP division has made an offer of "preferential terms" to Cisco customers, or customers of its OEM partners 3Com, Enterasys and Nortel, who migrated to the AMP platform. "Experience tells us that when wireless hardware vendors are acquired, or when OEM relationships change, customers may have reason to be concerned about product discontinuations, restrictive support policies, and service interruptions," said Greg Murphy, AMP Solutions' general manager. "Whether they continue forward with their current hardware provider or consider an alternate solution, customers can rely on AMP Solutions' best-in-class management tool and the rock-solid backing of our support and development organisations."
Meru has been quiet so far. Like any company, it would presumably be available for sale at an appropriate price. Its revenue is around $40 million.
What about the price?
The price might cause some more discussion. The price is nearly 2.5 times Trapeze's $56 million in sales over the last year. Aruba, the only wireless LAN company to have floated on the stock exchange is currently worth around $460 million, with about $160 million a year in revenue - that works out at a valuation of around 2.9 times its revenue.
Both figures sound low, compared with the $500 Cisco paid for Airespace four years ago, when turnovers in enterprise WLAN were tiny.
The valuations reflect current depression of the stock market, and possibly, a tougher market for raising cash. Commentators from other companies exaggerated, describing $133 million for Trapeze as a "firesale", and suggesting that other companies, including Meru, Colubris and Extricom would have to follow a similar route.
There's also a perception that Trapeze has been struggling - at least in terms of reaching customers. "People have been picking other suppliers largely because Trapeze does not have the market access model that someone like Cisco would have," said the Belden executive.
And there's another financial issue. Trapeze has been struggling to quote good financial figures, because of reporting rules, said Belden. At present a lot of Trapeze revenue does not show up in its formal accounts until a long while after it has reached the bank, because the company can't quote all revenue from a bundled deal until the whole thing has been installed. This can take up to a year.
To quote revenue sooner, and make its publish cashflow match reality, Trapeze has to satisfy vendor specific objective evidence (VSOE) rules. To do this, it has to prove that the hardware and software elements of its range have independent value. This has required it to renegotiate with resellers to get contracts that "compartmentalise" the products, said Belden, and the process will probably not be complete till the end of 2009 at which point it effectively has a windfall of revenue in its books.
So will it work?
Belden is doing a good job of selling this deal. The company showed a good understanding of the wireless LAN market and Trapeze's place in it, during its conference call. It painted a picture of a technology leader which was struggling to sell hard enough - and promised to fix that.
The company marshalled the right reports and statistics to show that Trapeze's future is viable and made the right promises to support its growth, in its materials.
Other vendors will pour scorn over the deal. There's no doubt that Trapeze would prefer not to have been bought at this stage, at this price. But it could leave Trapeze in a decent position.
The test will be whether Belden can keep upgrading Trapeze products, whether it can achieve integration with other people's products - to compete with Cisco's Motion announcement, for instance.
We're ready to give it a chance.