Extreme earnings report: Wireless and cloud gains temper record backlogs

Despite problems getting parts and a gigantic backlog of orders to fill, Extreme Networks landed a record-setting first-quarter FY23 of nearly $300 million, up 11% year-over-year, and 7% quarter-over-quarter.

The  backlog CEO Ed Meyercord referred to during the company’s quarterly earnings call this week sits at $550 million, also a record. To put it in perspective, that’s nearly three full quarters of product revenue in backlog, mostly due to supply-chain issues. Concerns about the economy are also in the mix, but Meyercord said that when it comes to investing in networks, things look bright.

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

“We’re not seeing networking initiatives being deprioritized,” he said. “If enterprise customers are having to cut back spend, we’re not we’re not seeing them deprioritize networking.”

Wireless is strong

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

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

That includes cellular wireless technology, including 5G for environments where Wi-Fi isn’t the best choice. “[A]s you look at things like smart cities, longer range, lower latency, private cellular networks, supporting driverless cars—these kinds of things—are not your traditional Wi Fi solution,” Meyercord said. “So I think you’ll see the emergence of some of these other technologies…”

Gartner this month said 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 be using five or more wireless technologies simultaneously.

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

Machine learning

Meyercord said Extreme is looking to continually expand and grow its automation, artificial-intelligence and machnine-learning features with cloud-based wireless and wired network-management offerings under the umbrealla of ExtremeCloud IQ, including ExtremeCloud IQ CoPilot. The idea is that with its AI/ML technology the company can identify network issues that customers might not have seen before or were unaware of and fix them automatically, Meyercord said. 

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

Extreme is not alone with supply-chain woes

The supply constraints Meyercord cited are widespread. Extreme competitor Juniper Networks this week said its backlog of orders is $2.3 billion, a drop of $100 million from previous quarter. Others such as Cisco and Arista are likely to report the same sort of backlog stories in the next few weeks as lead times for some routers, switches, and other gear is already delayed well beyond six months.

Supply chain problems have triggered most major networking players to redesign or re-engineer some products in an attempt to overcome component shortages and deliver products to customers.