Startups led by Viptela are giving Cisco Systems (CSCO) and Juniper Networks (JNPR) a big challenge in the emerging market for software-defined wide area networking (WAN) equipment, says asset management firm Robert W. Baird.
Telecom companies such as AT&T (T) and Verizon Communications (VZ) are shifting to software-based, so-called "intelligent networking architectures" to serve enterprise customers. Cisco and Viptela are Verizon's initial technology partners for the telecom company's recently announced virtual network service, Baird said in a research report.
Large companies, meanwhile, view software-defined WANs as a way to lower costs, according to the Baird report.
According to market research firm IDC, the software-defined WAN market, which generated revenue of just roughly $225 million in 2015, is expected to top $6 billion by 2020.
"By replacing expensive and operationally complex MPLS routers with virtualized and lower-cost connectivity options like broadband, enterprise IT departments can substantially reduce spending to service providers and simplify WAN management," said Baird analyst Jayson Noland in the report.
IBD'S TAKE: Cisco stock hit a nine-year high Tuesday. The computer networking gear maker has been growing revenue from software and services. Learn more at IBD Stock Checkup.
Noland says startups such as Viptela, CloudGenix and VeloCloud are winning software-defined WAN business. He says they're potential acquisition targets of Cisco and Juniper.
"At this nascent stage of the market, we expect to see M&A and industry consolidation in the relatively near future," said Noland. "Riverbed entered the SD-WAN market by acquiring German startup Ocedo at the start of 2016. … Leading networking vendors like Cisco, which have not only cash available, but also appetites for acquisitions and ongoing partnerships with SD-WAN developers, may contribute to such a trend."
Cisco stock, which hit a nearly nine-year high of 31.25 on Tuesday, ended trading Wednesday down fractionally to 30.85 on the stock market today. Juniper stock also was down a fraction to 23.01.
