Sales at Aruba Networks jumped 40% in 2008

Aruba sales in 2008 jumped $50.8 million, a 40% increase over 2007 according to the 4th Quarter and Year-End 2008 results of the wireless LAN vendor.

In examining Aruba's results - RBC Capital Markets Managing Director Mark Sue reports that Alcatel-Lucent was once again a 10% partner. U.S. represented 65% of sales with Asia and Europe comprising the remaining 35% where bookings were particularly strong.

According to Sue: "Strength during the quarter came from the education vertical and Aruba also saw encouraging trends from the industrial, healthcare and federal segments. "General enterprise sales showed firming trends as well. Our rating remains Sector Perform, price target $8."

Aruba Networks Stock Chart:

Sue adds: "Gross margins declined sequentially, the first time in three quarters, from 70.7% to 68.7%, mostly due to distribution and product mix. Aruba reiterated its gross margin range of 65%-68% and we're modeling margins near 68% for the near term. Operating margins are not yet showing meaningful leverage and much of this is related to the higher legal expense related to the patent lawsuit against Motorola. DSOs inched higher to 61 days above the range of 50-55 days but is expected to decline sequentially. Inventory turns improved from 2.7x to 4.5x.

"Aruba's results displayed further signs of stabilization as the company posted a 13% sequential increase in revenues to $48.3M, coming in ahead of our estimate of $46.5M. Expense control enabled non-GAAP break-even results vs. the consensus estimate of a loss of ($0.01). For the upcoming quarter, Aruba is endorsing revenues of $50M-$52M vs. the consensus of $49M. Full-year revenue guidance (ending in July) is $220-$230M vs. the consensus of $220M.

"In our view, the issue remains the full-year EPS guidance range of $0.12 to $0.15, which compares to the consensus of $0.17. Approximately $0.04 of this, however, is related to the ongoing expenses for legal argument against Motorola. And with a higher component of revenues coming from the channels, the better revenues may not all translate to improved earnings growth."

He concludes: "Step by step is how we would characterize the firming trends at the various verticals. And with a product cycle in wireless N combined with continued growth in deferred revenues (from $22M to $27M), visibility overall seems to be steadily improving. Earnings momentum nonetheless may trail top-line growth as Aruba works to balance expense control and also factors in higher legal expenses."

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