Tag Archives: aapl

Arista Networks’ stock plummeted Monday after Jefferies lowered its price target, questioning the outlook for future sales to its No. 1 customer, Microsoft. Analyst George Notter, writing in a research report, reiterated Jefferies’ underperform rating on Arista ( ANET ) and sharply lowered his price target to 40.25 from 52.50. He said Microsoft’s SONiC “announcements are troubling for Arista,” referring to that company’s software for open networking in the cloud. Arista stock was down more than 10%, near 56.50, in early afternoon trading in the stock market today , 35% off of a 16-month high hit in June. Arista shares — which went public in June 2014 at 43 — touched an all-time low of 52.59 on Feb. 9 of this year. Switching rival Juniper Networks ( JNPR ) was down 1.5% Monday afternoon, and and bigger competitor  Cisco Systems ( CSCO ) was off a fraction, as Notter said they have less exposure than Arista to an anticipated decline in switching revenue with Internet content provider customers, though they too are exposed. In his research note Monday, Notter said last Wednesday’s Linux-based Open Compute Project (OCP) Summit in San Jose, Calif., made Jefferies “much more concerned about Arista’s business at major customers such as Microsoft ( MSFT ), Facebook ( FB ) and Apple ( AAPL ).” That’s because Microsoft had just demonstrated SONiC, free software-defined networking (SDN) that makes high-speed switches unneeded. Cisco, Juniper and Arista all make such switches, but “in Arista’s case, the Web scale operators account for roughly 25% (or about $200 million) of the company’s revenue stream — all in switching,” said Notter. He cited Cisco as saying “several quarters ago” that about 5% of its overall switching business, or “roughly” $700 million annually, comes from Internet content providers. For Juniper, it’s about 20% (or $970 million) of total sales, Notter noted. “For us, the big ‘wow’ moment at the (OCP) show was our trip through Microsoft’s SONiC-themed booth,” Notter wrote. “We saw the operator demonstrating SONiC running on switch hardware from Arista, Juniper, Centec, Mellanox ( MLNX ) and Dell — with different ASICs  (application-specific integrated circuits )  including Broadcom ( AVGO ), Barefoot Networks and Mellanox. The development of SONiC/ACS (Azure Cloud Switch) and SAI (switch abstraction interface) software now allows buyers to mix and match these components. “More pointedly, Arista is allowing Microsoft to use a hardware-only solution (i.e. without EOS, Arista’s extensible operating system). Based on all the activity at Microsoft, it’s our view that — over time — all (or nearly all) of their switch deployments will migrate to white box hardware + SONiC.” He said Microsoft accounted for 12% of Arista’s 2015 sales of $838 million. Wait, it gets worse: “Microsoft noted that they are now running SONiC in their production environment (although we presume the extent of the deployment is still small). We understand that Microsoft plans to expand the software platform quite rapidly across all of their data centers,” Jefferies’ Notter said. What’s bad for Arista may be good for Mellanox, however. “Separately, a number of industry contacts are saying that Microsoft is very interested in using Mellanox’s Spectrum switching ASIC,” Notter said. Mellanox stock was up a fraction Monday afternoon. Jefferies maintains hold ratings on Juniper and Mellanox and an underperform on Microsoft, but it rates Facebook stock a buy. Image provided by Shutterstock .