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These Stocks May Win in a Pending Massive Wi-Fi Upgrade Cycle

July 14, 2016, 2:16 PM UTC
Courtesy of Securifi

Most consumers probably haven’t considered that their boring Wi-Fi routers stashed in the basement or the laundry room has become horribly out of date. But as they start streaming more video and connecting more “smart” devices, they’re going to start noticing slowdowns.

That could kick off a major wave of upgrades that could benefit some of the major router manufacturers, particularly Cisco Systems and Netgear, according to Keith Snyder, an analyst at S&P Capital IQ.

Most people are still using gear based on a 2009 Wi-Fi standard known as 802.11n. But the new 802.11ac standard offers about three times the raw speed and uses a variety of other techniques to offer greater range and bandwidth. Even last year, routers using the slower standard outsold equipment with the newer technology, according to SNL Kagan, a market research firm.

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But consumers are going to start finding that their smart TV sets and connected boxes—like the Apple (AAPL) TV, Google (GOOGL) Chromecast, or Amazon (AMZN) Fire Stick—aren’t able to watch all the Internet video they want without delays and skipping, especially as more shows become available in high definition and ultra-high definition.

At the same time, growing sales of gear such as connected lights, monitoring cameras, and other “smart” appliances will put even further strains on home networks.

A handful of startups like Eero and Securifi have recently entered the Wi-Fi market promising better looking boxes that are easier to set up, but they are likely to remain niche products compared to the offerings from the larger, established gearmakers.

Netgear’s (NTGR) Nighthawk line is the best-selling consumer router with 802.11ac, Snyder noted. Cisco (CSCO) sold its consumer router brand, Linksys, to Belkin three years ago. But the company should still be a beneficiary of the Wi-Fi upgrade cycle on the corporate side, Snyder added.

Not all wireless gear makers will prosper in the upgrade cycle, however. Arris International (ARRS), which generally sells its routers to big telecommunications and cable companies who then give it to their customers, could lose out, Snyder said.

For more on the history of Wi-Fi, watch:

“ARRIS focuses on the lower-end Wi-Fi devices, which typically carry lower margins than high-end devices due to the fact that they are usually sold to service providers who have pricing power,” he wrote in a report this week. “We see the trend to high-end devices as a negative given ARRIS’s small footprint in the market.”