These Networking Companies Are Modernizing U.S. Hospitals

As I stated in a previous article, the foundation for modernizing U.S. hospitals and helping new "smart" medical devices flourish is a healthy Wi-Fi network. A recent study from Ponemon Institute found that outdated technology such as pagers, poorly run email systems, BYOD (bring your own device) bans, and the lack of stable Wi-Fi connections cost U.S. hospitals $8.3 billion annually.

These shortcomings are impeding the adoption of useful mobile medical reference apps such as athenahealth's Epocrates and popular mobile EHR products such as Allscripts' Wand and drchrono. They also make medical tech based on wearable smart devices more of a dream than a viable future.

Therefore, let's focus on the primary players in enterprise Wi-Fi -- Cisco (CSCO 0.06%), Juniper (JNPR -1.45%), and Hewlett-Packard (HPQ 1.55%) -- and see how each company intends to improve the connectivity of U.S. hospitals.

Meet the 800-pound gorilla
Cisco, the largest networking company in the world, is the dominant company in enterprise Wi-Fi with a market share of 52.9% according to the latest numbers from IDC. Cisco has a strong presence across multiple industries, and it has used a strategy of bundling network products together at a discount to gain market share from smaller rivals.

Even after those discounts, however, Cisco has impressively retained higher margins than its primary competitors.

Source: Yahoo Finance, 9/2/2013.

Smaller competitors such as Aruba Networks (NASDAQ: ARUN) have been crushed by Cisco's strategy. While Cisco can bundle together WLAN and other data center products, such as video security solutions, smaller companies (in terms of market share) like Aruba can only provide standard WLAN products at higher prices.

In healthcare, it's the same story. Aruba Networks has a suite of mobility options for healthcare practices to increase Wi-Fi connections for clinicians and patients, including robust support for EHR (electronic health record) software.

Cisco has gone several steps further, however, by partnering with tech giant IBM to create an all-in-one digital hospital solution that includes RFID tags for patients, biometrics-activated work terminals, and improved security measures which optimize clinician workflow via integration with EHR software.

As a result of its bundling and strategic collaborations, Cisco's enterprise Wi-Fi revenue surged 23.4% year-on-year in the first quarter of 2013 while Aruba's only grew by 8.5%, according to IDC. Hewlett-Packard's Wi-Fi enterprise revenue grew 12.4% during that period, giving the company a 5.4% share of the market.

Are Juniper and HP doomed to follow Aruba?
Juniper, on the other hand, has attempted to boost its presence in healthcare IT by emphasizing the more robust security measures in its WLAN products. According to the Ponemon survey, weak security measures caused 63% of hospitals to suffer data breaches in the past two years; this caused BYOD bans to continue.

Juniper is attempting to simplify networking in hospitals by assigning a single policy per user which works across the entire network. While tougher security and simpler procedures sound catchy on paper, they don't substantially alter its original business of selling routers and switches.

HP, on the other hand, has recognized the need for expansion into other areas of healthcare IT. It recently announced a major deal with healthcare IT giant Cerner Corporation to upgrade the data analytics that form the backbone of its EHR business. In addition to selling routers and switches that only generated 2% of its 2012 revenue, HP could expand its much larger HP Services segment that accounts for nearly a third of its top line to also cover the healthcare sector.

Companies like Aruba and Juniper, which primarily produce routers, switches, and WLAN access points, will be at a disadvantage against Cisco and HP which have more flexible business models.

Broadcom focuses on wearable tech instead
As these four companies battle each other to modernize hospitals, one final name to watch is Broadcom (NASDAQ: BRCM) as it has taken a different approach to mobile healthcare. Broadcom recently introduced a new Wi-Fi framework -- WICED (Wireless Internet Connectivity for Embedded Devices) Direct -- specifically designed for small devices dependent on cloud-based connections such as Google Glass, the Pebble Smartwatch, fitness bracelets and blood pressure and sugar monitors.

While companies like Cisco have focused on building large enterprise Wi-Fi networks, Broadcom's WICED Direct allows OEMs to create wearable smart devices which can seamlessly connect and share data across the cloud. WICED Direct emphasizes higher performance coupled with more efficient power usage, making it an essential component in next-generation wearable health monitoring products.

Broadcom noted that a study from Juniper showed that the smart wearable tech market could be worth $1.4 billion by 2014.

The Foolish bottom line
Just as telecom companies laid down the groundwork for the growth of the Internet, networking companies are building the infrastructure to help EHR companies flourish to optimize patient care.

More diverse companies like Cisco and HP might have an easier time growing their market share, while companies like Aruba and Juniper that are less diversified might struggle to maintain their profit margins. Other companies focusing on wearable tech, like Broadcom, are also worth following in anticipation of a new wave of wearable smart devices.