Breakthrough Earnings Report: Wireless and Cloud Networks Cut Backlogs

Despite problems getting parts and a huge backlog of fulfillment orders, Extreme Networks achieved a record first quarter of FY23 of nearly $300 million, up 11% year-over-year and 7% quarter-on-quarter.

The backlog CEO Ed Meyercord mentioned during the company’s quarterly earnings call this week was $550 million, also a record. To put it into perspective, it’s almost three full quarters on product income in backlog, mostly due to supply chain issues. Concerns about the economy are also in the mix, but Meyerkord said that when it comes to investing in networks, things are looking good.

“The combination of our continued revenue growth and record backlog gives us even greater confidence in our long-term growth prospects,” he said. His optimism stems from what he said is a belief among enterprises that networking is a strategic asset and that Extreme is committed to making it easier to deploy and manage those networks.

“We don’t see networking initiatives being disrupted,” he said. “If enterprise customers need to cut costs, we’re not, we don’t see them deprioritizing networking.”

The wireless connection is strong

One area with big revenue growth but also “significant” lag is wireless, where Extreme is pushing WiFi 6E technology hard.

“If you just think you know how we live and how we work and how we shop and you think about the environment and how much of the environment is wireless versus wired, you know it’s growing and I really think there’s a life cycle for wireless that is also shorter than your traditional wired switches. So as a result, there are more upgrades and I think there’s more volume and turnover in the wireless space,” Meyercord said.

This includes cellular wireless technology, including 5G for environments where Wi-Fi is not the best choice. “[A]If you look at things like smart cities, greater range, lower latency, private cellular networks, supporting driverless cars — these things — they’re not your traditional Wi-Fi solution,” Meyerkord said. “So I think you’re going to see some of these other technologies emerge . . .”

Gartner said this month that no single wireless technology will dominate, but enterprises will use a variety to support a range of environments, from Wi-Fi in the office, services for mobile devices, low-power protocols and even radio connectivity. So much so that Gartner predicts that by 2025, 60% of enterprises will use five or more wireless technologies simultaneously.

“We will see a spectrum of solutions in the enterprise that includes 4G, 5G, LTE, WiFi 5, 6, 7, all of which will create new data that enterprises can use in analytics, and low-power systems will harvest energy directly from the network. This means the web will become a source of direct business value,” Gartner said.

Machine learning

Meyercord said Extreme is looking to continuously expand and develop its automation, artificial intelligence and machine learning capabilities with wireless and wired cloud network management offerings under the ExtremeCloud IQ umbrella, including ExtremeCloud IQ CoPilot. The idea is that with its AI/ML technology, the company can identify network problems that customers may not have seen before or known about and fix them automatically, Meyercord said.

More recently, Extreme upgraded CoPilot to include support for digital twins, virtual replicas of physical devices that organizations can run tests on before making changes to the real thing. For example, testing the virtual twins can validate new network switches, access points and their configuration before going live with the real thing, the company said.

Extreme is not alone in its supply chain woes

The supply constraints cited by Meyercord are widespread. Extreme competitor Juniper Networks this week said its order backlog was $2.3 billion, down $100 million from the previous quarter. Others, such as Cisco and Arista, are likely to report the same kind of backlog stories in the next few weeks, as lead times for some routers, switches and other equipment have already been pushed back well over six months.

Supply chain issues have led most major networking players to redesign or reengineer some products in an effort to overcome component shortages and deliver products to customers.