Looking to 2015, two major positive themes are expected to dominate the market for enterprise/public sector wireless infrastructure solutions: the ongoing upgrade cycle being driven by the transition to the newest 802.11ac WiFi standard and the coming expansion of the government’s E-rate Internet connectivity program covering the modernization of wireless networks across schools and libraries nationwide.

Aruba Networks (ARUN), a key player in wireless infrastructure hardware and software, is well positioned to benefit from both of these significant tailwinds. For fiscal 2015 (July), the consensus revenue estimate of $864.3 million indicates growth of 18.6%.

Over the past 20 months, the highly competitive wireless infrastructure market has evolved in Aruba’s favor. The company in the early part of 2013 was feeling the heat from intense pricing pressure being applied by Cisco Systems (CSCO), its largest competitor. There were deal delays and a general stumble, but Aruba management pressed on, keeping an intense focus on the newest WiFi technology.

Aruba in May 2013 positioned itself for a bounce-back by getting ahead of the competition on the product front, introducing its first solution for the 802.11ac-based standard, the replacement for the .11n standard. Demand was solid right out of the gate, as the technology advancement (.11ac is 3x faster and much more scalable) trumped price. Customers wanted the latest technology and were willing to pay more for it.

Suddenly, Cisco was knocked back on its heels. Over the next few quarters, Cisco began to shift its focus away from the wireless infrastructure space (the networking giant has bigger battles to fight), removing some of the pricing pressure against Aruba. This enabled Aruba to pick up market share, while at the same time giving the company breathing room to expand its line of emerging products, including ClearPass for authentication in bring-your-own-device (BYOD) environments.

Aruba never lost focus, filling out its next-generation access product line to stay ahead of the competition. The company is now shipping in volume on the AP-205, a solution for cost-sensitive, medium-density environments. This offering is a gross-margin booster, providing a solid lift for the company as the .11ac cycle progresses.

Aruba’s AP-215, for medium-density, high-performance environments, is now the mainstay of the company’s .11ac product line. At the upper end, the AP-225 fills any high-density needs, while the AP-275 handles outdoor coverage. Combined with recent sales force productivity gains and global channel expansion, the portfolio build-out means Aruba entered FY’15 from a position of strength.

The improvement at Aruba started slowly. The company in the fall of 2013 reported fiscal Q1 (Oct.) revenue growth of 11% and operating margin of 16.2%. At the time, Aruba said it was committed to returning to 20% revenue growth in the back half of fiscal 2014 (July). In the January quarter of FY’14, revenue advanced 14%, driven by 21% growth in the U.S. market. Meanwhile, Cisco’s wireless business started to lag.

Things started to really pick up in the April quarter: Aruba’s revenue rose 28%, powered by 31% growth in the U.S. and 34% growth in the EMEA region. As the .11ac adoption curve moved into the mainstream earlier than expected, Aruba was a major beneficiary because it had the products available to meet the demand.

The good news kept coming in fiscal Q4 (July), with top-line growth accelerating to 33%. Revenue in the July quarter of $202.9 million easily beat even the high end of the guidance range. All three main geographies in the quarter contributed to the success, including Asia Pacific boasting growth of 49%.

In the latest quarter, fiscal Q1 (Oct.), Aruba’s revenue expanded 29% to $207.8 million, coming in above the consensus estimate of $204.4 million. Product revenue advanced 29% to $168.5 million. With the upgrade cycle in full swing, 802.11ac sales in the quarter represented 56% of all WiFi access points shipped, up from 37% in the previous quarter and just 18% as recently as September 2013.

So far, the 802.11ac upgrade cycle has been a boon for Aruba in terms of bringing in new business. But fully 90% of Aruba’s current customer base still has access points tied to the older 802.11n standard, meaning the company has ample runway when it comes to upgrading its installed accounts.Wave 2 of the 802.11ac cycle is set to hit in the middle of 2015. Involving a bigger pipe and the addition of multiple input, multiple output (MIMO) technology, Wave 2 is built for more robust WiFi use cases. With MIMO, access points are able to simultaneously send multiple frames to multiple users over the same frequency spectrum, basically turning each access point into a wireless switch. Aruba plans to have Wave 2 products on the market in time to meet early demand.

Expansion of the E-rate program is the other significant positive wireless infrastructure trend for the year ahead. The FCC will maintain the current E-rate budget at $2.4 billion and add $2 billion over the next two years to support WiFi upgrades for schools and libraries, phasing out support for non-broadband services.

Via additional funding over the next five years, the E-rate upgrade effort potentially provides a 75% increase in WiFi funding for rural schools and a 60% increase for urban schools, delivering WiFi to an additional 10 million students in 2015 alone, according to the FCC. Since the education market is one of Aruba’s top six verticals, the company will be a significant beneficiary of this budget expansion, with the top-line boost expected to start in the second half of calendar 2015.

Aruba Networks met and easily exceeded its 2H FY’14 goal of 20%+ revenue growth. Just as impressive, operating margin over the past four quarters expanded by a whopping 560 basis points, reaching 21.8% in fiscal Q1. The company recently raised its FY’15 operating margin target range to 21%-22% from 19%-21% previously.

On the gross margin front, Aruba continues to forecast a medium-term range of 71% to 73%. There had been a gross-margin dip in fiscal Q3 (mainly due to temporary product delays), but the latest quarter brought a rebound to 72.3%.

Recently trading at $19.52 (off 18% from the September high of $23.90), Aruba shares have a forward P/E of 17.6 on the fiscal 2015 (July) consensus EPS estimate of $1.11. I am keeping an eye on Aruba as a possible addition to the Next Wave Portfolio; the stock would be more attractive on a further pullback to support levels in the mid teens.