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Hewlett Packard's Silver Peak Buy Stirs Up SD-WAN Competition

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Hewlett Packard Enterprise (HPE - Free Report) recently announced the buyout of SD-WAN provider, Silver Peak, for $925 million in a bid to enhance its edge-to-cloud strategy. The acquired assets of Silver Peak will be integrated into Hewlett Packard’s Aruba business segment.

The transaction is expected to close in the fourth quarter of fiscal 2020. Notably, the acquisition is expected to be neutral to non-GAAP earnings per share through fiscal 2022.

Here’s How Hewlett Packard Stands to Benefit

Management expects the acquisition to drive significant revenue opportunities and boost its Intelligent Edge segment revenues and gross margin in the long term.

Moreover, the acquisition will help Hewlett Packard reach Silver Peak’s database of more than 1,500 production SD-WAN customers around the world, thus expanding its total addressable market.

Notably, Silver Peak and VMWare (VMW - Free Report) were the only two companies recognized as leaders in Gartner’s Magic Quadrant for WAN Edge Infrastructure, 2019. This further testifies the positive impacts of the acquisition on Hewlett Packard’s position in wired and wireless networking.

Also, with applications rapidly moving to the cloud and the rise of the remote working trend, numerous IoT devices are added to the network, positioning the SD-WAN market for tremendous growth. Per 650 Group, the market for SD-WAN is likely to grow from $2.3 billion in 2020 to $4.9 billion in 2024, witnessing a CAGR of about 20.5%.

This spurt of transformation is quickly diminishing the relevance of traditional WAN architectures, prompting enterprises to invest in SD-WAN technology to secure and scale connections from their network edge to on-premises and cloud-based endpoints at a lower cost.

Aruba will leverage Silver Peak’s advanced SD-WAN portfolio of products and services by combining them with its SD-Branch solutions. The amalgamation of both companies’ offerings will allow Hewlett Packard to better address current customer requirements, improve the productivity of remote staff and enable cloud-connected distributed enterprises.

Intelligent Edge Strategy to Boost Growth

Markedly, back in 2018, Hewlett Packard had set its strategy to invest $4 billion in its Intelligent Edge technology related to edge computing, over a span of four years. Notably, the growth of edge computing is also assisting the rise in the use of IoT devices, pertaining to the computation of data closer to the source. This eases the deployment process and enhances security.

Per a recent report by MarketsandMarkets, the global edge computing market is expected to reach $9 billion in 2024, registering a CAGR of 26.5% from 2019 to 2024.

The intelligent edge business brings in roughly 10% of Hewlett Packard’s annual revenues. The acquisition of Silver Peak is part of its strategy to boost this segment and Hewlett Packard can make the most of the growth opportunity if the cards are rightly placed.

The increased use of edge computing, which leads to faster processing of data, is expected to gain widespread adoption with an exponential increase in data generation. Moreover, the coronavirus pandemic has increased the need for stronger security, connectivity and performance solutions at the edge.

Zacks Rank & Key Picks

Hewlett Packard currently has a Zacks Rank #4 (Sell).

A couple of better-ranked stocks are Fortinet (FTNT - Free Report) and Baozun (BZUN - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Fortinet and Baozun is currently pegged at 14% and 29%, respectively.

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