Many competitors in the network technology market are taking advantage of concerns that Cisco’s dominance has made them complacent, and several of these companies are showing success with financial gains and market share gains. But it’s hard to find a company more committed to Cisco than Extreme Networks, which has made it a focus of its strategy under CEO Ed Meyercord.
“Our strategy with Cisco is they’re dislocated, they’ve got Meraki and DNA [Cisco’s management system], and they don’t work together — it’s not flexible,” Meyercord said in a recent interview with Futuriom. “If we take one point of market share from Cisco, that’s 20% growth for Extreme.”
Meyercord originally had no plans to become Extreme’s CEO. But after joining the board in 2011 and becoming chairman, the board singled him out as the person to lead the company on a new mission: to integrate the company’s many acquisitions and make it foolproof for customers, network environments — including that of Cisco – to replace or expand.
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Focus on integrating acquisitions
Meyercord joined the Extreme board of directors in 2009 and was appointed chairman in 2011. The board then pushed him to take on the CEO job as everyone was ready for change. Meyercord said when he became CEO in 2015, it was at a difficult time that required bringing the warring engineering factions on the same page following the Enterays acquisition. The company also acquired Zebra Technologies’ wireless LAN business and Brocade’s networking business (2017) and cloud-based wireless networking provider Aerohive Networks (2019) in 2016. The plan was to integrate all of these products into a cloud-based management system.
Under Meyercord’s rule, this strategy has been successful and has resulted in a simple mission – provide a flexible software management architecture that can manage Extreme devices as well as network devices from any other vendor. And this has proven key to Extreme’s success as it has returned to revenue growth and increased profitability over the years.
“Everything [Extreme] is fully integrated,” Meyercord said in an interview. “Many players in this industry are acquiring assets and not integrating them. We have the most flexible hardware. Our hardware can run multiple personalities. We may manage third party devices in our cloud. There you will see a Juniper, HPE and Cisco box. We win business from customers because Meraki cannot manage Cisco gear.”
Right now, the “Integrate away from Cisco” strategy is good timing. Cisco was recently attacked over several issues – customers complained about the complex licensing model, ongoing sales pressure, and the lack of integration across product lines, particularly Meraki’s wireless and campus network products running on different operating systems – as per this Reddit thread demonstrated. The final benefit for Cisco’s competitors was Cisco’s supply chain issues in 2021 and 2022, which caused customers to increasingly look to alternative suppliers.
Extreme sales, stocks go up
Luckily for Meyercord, the numbers support the strategy. As of this week’s earnings release, revenue for the quarter rose 16% year over year, while Cisco’s growth recently came in below 6%. Extreme’s share price has doubled from $8 to $16 over the past year and is hovering near a 20-year high of $20.
For the quarter ended March 31, Extreme reported earnings of 29 cents per share before special charges, compared to 21 cents in the same quarter last year and 27 cents in the prior quarter. Revenue increased 16% year over year to $332.5 million. Analysts had forecast earnings of 26 cents a share on sales of $320.08 million.
“Our opportunity funnel is up double digits and we expect higher sequential booking growth as we move closer to the fourth quarter,” Meyercord said on the conference call.
Some Wall Street analysts backed Extreme’s story. Mike Genovese, an analyst at Rosenblatt Securities, who has rightly called the rally extreme in recent years, points out that he’s properly exploiting “Cisco fatigue.”
“We believe that Cisco’s products are tired in the market, and Extreme’s solutions are strong enough to compare against Juniper’s (JNPR, rated Neutral),” Genovese wrote Wednesday after Extreme’s strong earnings results . “The number of multi-million dollar deals continues to grow and Extreme has officially announced its very large deal with Kroger.”
The package goes to Cisco
Extreme is just one of the many companies looking to feast on Cisco’s struggles. Cisco has been the dominant brand in enterprise networking for decades, but has lost market share in crucial areas like data center networks and enterprise campuses in recent years. Companies lining up alongside Extreme to acquire business from Cisco include Arista Networks, HPE and Juniper Networks, among others.
The supply chain issues have prompted customers to look for alternatives. Cisco executives on earnings calls confirmed that delays in product shipments caused problems throughout the past year. In 2022, Cisco’s delays were particularly bad, with some customers saying the delays were up to six months. In a research note last year, Wall Street firms, including Citi, attributed Cisco’s market share losses to problems in the supply chain.
Competitors like Extreme have used supply chain issues to their advantage — by advising customers that it’s in their best interest to diversify away from Cisco. According to Citi analyst Suva, the market share decline is expected to continue.
While Arista Networks was the largest player to acquire shares from Cisco on the data center side, Extreme — along with other players such as Juniper and HPE’s Aruba division — focused on Cisco’s wireless and campus networking markets. The simple game is taken from Meyercord’s Playbook: Integration. Cisco never fully integrated its Meraki portfolio with Cisco’s campus products, and they still use different management systems (Meraki was acquired by Cisco in 2012).
Extreme’s playbook focused on cloud-based control of network devices and extends that to the entire portfolio, including devices from other vendors. Extreme has evolved into the neutral Switzerland of cloud-based network management – something that Cisco, with its myriad acquisitions and operating systems, has struggled to match. The company also sticks to a simple licensing model, another feature that appeals to Cisco customers. Many Cisco customers are frustrated with the company’s practice of having many different licensing schemes for different products.
“We designed our licensing model to be really simple,” says Meyercord. “People keep bitching about how complicated licensing is and they need a team to manage licensing. One prize, transferable.”
Extreme’s largest customers include ArcelorMittal, Baylor University, the City of Milwaukee and New Jersey Transit. It has a particularly strong presence in the sports industry and stadiums, with the Fenway Group, Kraft Group, Major League Baseball, Manchester United, NASCAR and the NHL among its customers. Meyercord points to two specific examples where large customers have switched from Cisco equipment to mostly Extreme Networks – the San Francisco Giants and the Turning Stone Casino in upstate New York. Extreme also announced on this week’s earnings call that it had landed grocery giant Kroger on promises of better management and easier licensing.
Meyercord says more big deals are on the horizon as the company’s pipeline is “bigger than ever.”
If Extreme can continue executing its strategy, the future looks bright for continuing the trend. In calls this week, the company raised its guidance for 2023 and reiterated its goal of revenue growth of 15% to 17% over the next two years.
Genovese describes Extreme as a “top pick” and expects further market share gains for the company. “We anticipate multiple expansions as Extreme outgrows its competitors and transitions to more recurring SaaS revenue,” he wrote in a research note.
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