There was a time in the market of computer networks was a lively, with many players, many of which dwarfed the challenger, Cisco Systems, which went public at the dawn of the Internet for consumers, in the month of February 1990 . Cisco (ticker: CSCO) is today a giant $ 150 billion, with most of the market itself, and, as CEO, John Chambers, is keen to point out, its competitors have long since either leave your market or bent by completely.
Cisco is a survivor, but the big companies want to always alternatives. A challenger emerged in the public capital markets last June, Arista Networks (ANET) .Run by former executives from Cisco, including the CEO Jayshree Ullal legendary Silicon Valley genius Andy Bechtolsheim, its shares have risen by almost 60% from his debut as cleverly exceed the expectations of each of its three quarters reported publicly.
The results of Cisco and Arista Arista suggest the past two weeks is really a mastery of Cisco equipment market increasingly credible threat network vital cog that connects computers and computer networks, switching together. Arista is not cheap. After marginally increase the Friday following better than expected, the action, $ 68.50, trading at 39 times earnings per share for the year of $ 1.77 expected. That compares with just 14 times for Cisco. As a multiple of sales, Arista gets nearly six times the expected revenue this year, double the Cisco. But it might be worth. With Arista turning on revenue growth of 50%, and $ 1 billion in revenue next year, it is becoming an enterprise substantial enough to challenge the dominance of Cisco.
ARISTA has gained a high profile because of a fascinating list of customers. Microsoft (MSFT) has been its largest customer, accounting for 15% of sales last year. Facebook (FB), is also a major customer. And Arista has been known to sell in the shops of high frequency trading, which can use their options to make trades automatically analyzing incoming information.Asked stock analysts last week, when Arista is becoming a viable second vendor Cisco the eyes of customers, Ullal said: Yes, I think, absolutely.
Worth a look what happened the last time a challenger has become a valid number 2 to Cisco. Juniper Networks (JNPR) came public in June 1999, Cisco has promised to give serious competition in the market for another piece of networking, routers.Two years after that bright start, Juniper's revenue was in decline, which was adopted in almost a billion dollars in debt, and had loaded in multiple purchases hundred million dollars, which led to large amounts of good will, which lead to more than a billion dollars of write-downs in the following years.
There are echoes instead of Juniper Ridge that give pause, given how things have got rid of Juniper. Juniper was attended by industry executives network experts, some with Cisco pedigree. Its turnover in 2000, a year after his arrival public, was similar to the Street expected $ 786 million this year Arista. Via Ullal said last week the market is very similar with the service providers, [so] Juniper became the alternative source, [and now] Arista is clearly to be seen as the innovator in alternative data center.
Arista might commit similar mistakes, leverage and operating a series of acquisitions rash, in an attempt to maintain growth in the course? "It 'a strategic issue," said Alex Henderson, who continues Arista and Cisco, Needham, and the first and second Purchase Rate UN United Nations waiting. "But the difference is, Juniper sold in a market of telecommunications business was smaller than the market," says Henderson. Cisco was able to subsidize its sales in the telecommunications market with its sales in the company, and put pressure on Juniper.
Arista, however, "is where the market is going," With the sale of Internet Data Center of Facebook and Microsoft, which is also what all the customers of the company's bread and butter Cisco wants to build. Everyone wants to be a company of Cloud Computing, and is conducting Arista Way. And if this is where the market is going switching, there is no way for this time subsidize Cisco, nuts Henderson.It seems almost unnecessary to point out things were different when the Nasdaq in 2000 stood at levels that now approaching. Juniper was caught in the excesses of the dot-com; I have also been involved in the frenzy of easy money M & A.
Ullal, whose Growing companies switching was acquired by Cisco when it was the size Arista it is today, is aware of not losing concentration. "I do not exclude M & A, but the warning is where their main market is as big as [our] is, you have to focus on what you do best software in our case and you have to stay true to the DNA of your business."
RESULTS YOUR CISCO a week ago seemed to show that the company is doing very well, but there are signs that remains concerned about Arista. Report Q2 Cisco prosecutor showed an increase of 11% in sales of switching equipment. Holders of Wall Street the next day said "Cisco is back!" After a year or more of the concerns that Arista was eating his lunch.
But Cisco has also taken its case to the International Trade Commission, demanding justice for Arista allegedly infringed 12 of its patents networks. Filed a lawsuit in California on Arista has violated the copyright in the syntax of programming "command line" very kind of IT staff to set the functions of the switches.
At the end of 2013, Chambers said Barron to "see what happens", as the company unveiled its next switch, the effort to start-nourished launched by the company, called Together, that would be a "murderess" Arista. The report's findings suggest two weeks ago, Cisco is doing very well with the new equipment. But the decision to launch the trials in December also has a whiff of desperation after the insistence of Chambers that competition to win dry day.
Henderson, who thinks Arista is causing Cisco actually worth, is not impressed with the idea of the owner came back. "They announced a 11% increase in sales of switches, but that is compared to the same quarter last year, which saw a decline of 12%!" Says. It is not what I would call a comeback.If things are different this time, though Arista can be a healthy No. 2, his action is worth a look even at its current price level.
