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Market Analysis: Enterprise Wireless LANs: Page 5 of 13

Although the single-channel architecture offers benefits, the problems associated with more conventional multichannel systems may be mitigated by several key developments. First, increasing numbers of enterprises are smartly supporting dual-band (2.4-GHz and 5-GHz) infrastructures, meaning contention issues are somewhat mitigated as clients are spread across a larger number of channels. Second, the emergence of ultra-high-speed 802.11n will make performance and capacity problems less of a long-term concern. And finally, if standards-based solutions to client-radio-management problems and secure, fast roaming make their way from the IEEE into products, the benefits of Extricom's and Meru's scheduled-access designs don't look quite so compelling.

There's a strong chance all this will happen during the next two years. Still, Extricom and Meru are making important technical contributions that could significantly enhance enterprise WLAN performance, and we wouldn't be surprised to see other vendors adopt some of these capabilities.

Growth Industry

Tracking enterprise WLAN market trends requires a fair amount of subjective interpretation. Fourth-quarter 2005 enterprise WLAN shipments worldwide were up 29 percent over the same period in 2004, according to Dell'Oro Group. For the year, sales were up 20 percent, making enterprise WLANs a billion-dollar market. Still, the enterprise market is about half the size of the more consumer-oriented small office/home office space, and other research firms put enterprise WLAN numbers slightly lower. Synergy Research pegs Q4 2005 enterprise WLAN growth at 5 percent year over year. Likewise, it reports overall 2005 enterprise WLAN sales of about $1.3 billion, up 5 percent from 2004.

To some degree, reductions in the per-unit cost of APs mask the true expansion. However, the positive cost impact of commodity-priced APs is offset by a steady enterprise migration from second-generation smart-AP system architectures to newer designs that leverage WLAN switches or controllers. These systems have considerably higher profit margins for vendors--and they significantly increase capital expenditures for enterprises. Synergy estimates almost 30 percent of enterprise WLAN purchases in Q4 were for controller-based architectures, and sales of controller-based systems grew 76 percent in the same quarter, year over year. Clearly, there's a trend toward newer architectures, especially for green-field installations, and even those who prefer more conventional smart APs recognize they'll eventually need to change their designs to leverage emerging features and services, like better roaming, enhanced security, location and mesh backhaul. The hope, from a budget perspective, is that enhanced operational efficiency of these new designs will offset higher acquisition and vendor maintenance costs. Whether this will pan out is a complex issue. In large installations, some centralized management capabilities are critical, but there are many variables that must be considered before spending extra money on hardware and software in hopes of reducing staff costs. These factors include the quality of management capabilities, the number and variety of users and the type of applications they're running, the available skill sets of technical staff, discounts provided by vendors, and internal budget policies that compare current and future costs.