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Deutsche Bank – Numerous Companies Are Set To Benefit From Small Cell Initiatives

|Includes: CSCO, FFIV, Qualcomm Inc. (QCOM)

In its December 17th Wireless Equipment Periodical entitled "Signals to Noise," Deutsche Bank analysts discussed a number of small cell initiatives. In general, Deutsche Bank analysts remarked, "we are positive on large caps Qualcomm QCOM and Cisco CSCO, mid-cap FFIV, and small cap CIEN, XXIA and PSMI."

Highlighting the challenges likely to come from the impending data crunch, Deutsche Bank remarked that "[a]s we have stated regularly in our notes, we believe the next wave of improvements will not come from major advances in air interface efficiencies, instead they will come from finding new ways to get the maximum system throughput to devices (highest order modulation scheme as close to the cell edge as possible). " In this vein, the report notes, a major likely to impact wireless landscape is the "densification" caused by the "addition of 'Heterogeneous networks' or 'HetNets,' which will include smaller base stations - pico cells and femto cells. They will also increasingly use Wi-Fi or other radios to offload traffic from the macro network."

Hinting at the increasing significance of millimeter wave frequencies and technologies, the report surmised that it expects het nets to include "new and sometimes higher frequencies….[and by]adding smaller cells inside or at the edges of existing macro cells, carriers will be able to effectively boost not only coverage but data rates as well." This is particularly significant, the authors summarized, as it is "the only way operators will be able to meet the growing demand for mobile data consumption. " To meet this demand, the report cites an Infonetics report indicating that "forecasts the 5-year CAGR to be 58% through 2016."

With respect to specific company developments, the report noted, that "[o]ne of the biggest beneficiaries of this [small cell phenomenon] is Qualcomm. The company has been working on small cell technology for years, and the design of their network chipsets allows carriers to leverage self organizing features (SONs), a key attribute in next generation networks."

Another company discussed by the report is Ruckus. According to Deutsche Bank, Ruckus "currently offers the best WLAN solution for addressing demand in service provider networks and this contention is borne out in the accelerated growth of their sales in this vertical. Moreover, they should see substantial growth in the coming years, as the carrier WiFi equipment market is set to grow from $296M in CY11 to $2.8B in CY16 (57% 5-year CAGR), according to Infonetics."

Another related development discussed by the report is the increased forecasted growth of WiFi offload technologies. In this vein, the report notes that "[o]ur industry contacts at a North American Tier-1 carrier [tell us they are committed to WiFi offload as small cell technology and will continue to deploy it at a meaningful rate. However, despite WiFi's utility, subscriber use pricing will need to be addressed at some point in the near future in order for WiFi to carry its own weight.