Tag Archives: csco

Arista Networks’ Q4 Connects With Investors; Sellers Unplug Alliance

Starting what almost surely will be its first year with revenue of $1 billion, Arista Networks ( ANET ) connected with buyers, who drove the stock up by double-digit percentages Friday, while sellers unplugged Alliance Fiber Optics ( AFOP ), its stock falling by double digits, after both companies reported Q4 earnings late Thursday. Guess which did better. Both companies compete with bigger computer networking product makers  Juniper Networks ( JNPR ) and much bigger Cisco Systems ( CSCO ). Cisco stock was flat in early afternoon trading Friday, while Juniper was up 1%. Arista stock rose as much as 16% Friday and was up 11%, near 65, in early afternoon trading in the  stock market toda y, still 27% off an eight-month high of 88.56 set June 24. Meanwhile, Alliance’s Q4 results were hurt by cutbacks from its top customer,  Alphabet ‘s ( GOOGL ) Google. Alliance stock fell as much as 17% Friday, touching a nearly 16-month low, and was down 15% in early afternoon trading, near 12. It’s 45% off a nearly two-year high set July 24 at 22.35. Helped by Microsoft ‘s ( MSFT ) Azure public cloud, Arista said Q4 earnings jumped 51% to 80 cents per share minus items, as revenue rose 41.5% to $245.4 million. Wall Street analysts polled by Thomson Reuters expected 61 cents and $241 million. Arista provides a network operating system, data center storage and other products. Arista’s non-GAAP gross profit margin settled at 64%, near the high end of the 62%-65% range it had forecast, but that was down from the 67.4% in Q4 2014 and 69% in Q1 2014, said FBN Securities analyst Shebly Seyrafi in a research note. “Therefore, there is some downside risk on the (gross margin) line going forward,” he wrote. Still, he and other analysts said Arista had solid momentum. Arista guided the Q1 non-GAAP gross margin to 62% to 65%, and revenue at $232 million to $240 million. Analysts expect Q1 EPS to rise 14% to 57 cents, on sales up 30% to $233.48 million. Reiterating Needham’s buy rating with a 105 price target, analyst Alex Henderson said in a Friday research note that “the news should only get better over 2016. “We think the shift to (faster-bandwidth) 25G architectures will accelerate Arista’s share gains,” he wrote. “We think Arista could pick up 3-5 points of market share on a base of 12%, driving continued stronger-than-forecast growth. This company is best in breed.” Seyrafi had noted that when FBN began covering Arista in September 2014, “one of the key bear points” was that Microsoft revenue was “quite robust,” comprising 11% of total Arista sales, as Microsoft built out Azure. He thought, though, that revenue for Arista might decline after the buildout. Instead, Arista said 2015 revenue from Microsoft topped $100 million, 12% of total sales, “so sales to MSFT do not appear to be slowing down,” said Seyrafi. FBN retained its outperform rating with an 80 price target for Arista stock. So what’s happening with little Alliance Fiber Optics, where adjusted EPS crashed 80% to 5 cents in Q4, while sales fell 13% to $16.4 million? Google “plummeted from 45% of revenue to 20% in (Q4) as it sharply reduced inventory at the behest of its new (Alphabet/Google) CFO (Ruth Porat) and cut capex by 40%,” said Needham’s Henderson in a separate research note Friday. Alliance “was caught in the crossfire,” he said. “But all indications are that that’s over. Google is expected to meaningfully increase spending in 2016, and the shift to 25G architectures should strongly improve AFOP’s results. … Despite the miss in (Q4), we are maintaining our 2016 and 2017  EPS estimates and reiterating our buy rating and 20 target price.” Needham expects adjusted EPS of $1.18 for 2016, up from  95 cents in 2015. Image provided by Shutterstock .

When Earth Rumbles, Will Silicon Valley Tumble?

As Silicon Valley remains firmly rooted as the global center of technology and innovation, rarely mentioned is one huge fact that could blunt a ton of good vibes: The area is due for a  major earthquake. “There are going to be infrastructure problems,” David Walters, Cisco Systems ( CSCO ) director of global safety and security told IBD. “If it’s 6.5 or greater, the bottom line is that a lot of people are going to be walking.” The U.S. Geological Survey says there’s a 72% chance of a magnitude 6.7 or greater earthquake on one of the region’s many faults in the next 30 years. The percentage shoots up to 89% for a magnitude 6 or greater quake, USGS scientist Morgan Page told IBD. Either could be catastrophic. “The Bay Area has the highest density of active faults per square mile of any urban center in the country, and on a long-term basis it has the highest amount of earthquake energy released per square mile of any urban center in the country,” David Schwartz, a geologist with the U.S. Geological Survey, told the East Bay Express in 2005. “So we’re really kind of living at ground zero.” Silicon Valley Earthquake Damages Could Near $200 Billion A magnitude 7 or greater quake would “likely” spur damage to buildings and infrastructure in the range of $95 billion to $190 billion, says Renee Lee, an analyst with Risk Management Solutions, a firm that models risk for insurance companies. “Despite the area being really well educated about earthquakes, and the substantial investments in infrastructure, we will expect to see some pretty significant damage if there’s a quake along the Hayward fault.” Scientists have long considered the Hayward fault one of the most likely candidates for a major quake within a few decades. The fault runs through Oakland and other heavily populated East Bay cities. What’s all but certain is that Silicon Valley will experience widespread utilities losses — water, power — as well as damage to buildings and infrastructure such as roads and bridges. A phenomenon called liquefaction — in which normally solid soil acts like a liquid — could wreak havoc on any firms with offices near the San Francisco Bay’s shore. Oracle’s main campus, for example, sits atop what’s called bay fill, a material that is highly susceptible to liquefaction. ( Oracle ( ORCL ) spokeswoman Jessica Moore refused to comment on the company’s business-continuity plans in the event of an earthquake, or any other natural disaster.) Facebook ( FB ) and Alphabet ( GOOGL ) also have large campuses located on land susceptible to liquefaction — though less so than Oracle’s (neither of these companies responded to requests for comment). The liquefaction risk to Apple ‘s ( APPL ) office in Cupertino is low. The good news is that the Internet will almost certainly continue to function, for the most part. Service disruptions are likely, but the core backbones that tie the Bay Area to the Internet will remain intact. That might not have been the case 15 years ago, though “even then there were major fiber cuts that the Internet weathered fine,” Mike Leber, CEO of Hurricane Electric, an Internet backbone provider, told IBD via email. And many Silicon Valley companies have been sure to locate data centers in other parts of the country, so service disruptions are less likely. “Our data centers are located at sites which have limited potential for severe weather and seismic events,” Yahoo spokeswoman Carolyn Clark told IBD in an emailed statement. Yet, though the experts can make educated guesses, no one knows how a big one might affect Silicon Valley, or any area, says Anne Wein, a USGS operations research analyst. “The hard work is going to be to get a description about what will happen,” she told IBD. “We’re just not there yet.” The USGS is studying the issue, what it calls “Project Haywire,” and is aiming to complete its research in April, according to spokesman Justin Pressfield. In the meantime, uncertainty will persist. “We haven’t had a major earthquake in the U.S. since we have become so connected with wired and wireless technology,” Wein said. “Do we have new vulnerabilities? How much redundancy is there? How will this new technology help us recover?” Of 15 large Silicon Valley tech companies — and several startups valued by investors at more than $1 billion — that IBD contacted for this report,  Adobe Systems ( ADBE ), eBay ( EBAY ), Oracle and PayPal ( PYPL ) declined to comment and nine did not return the request. Cisco provided access to executives for a wide-ranging interview, and Yahoo issued a brief statement. When asked why tech firms are reluctant to discuss business-continuity plans, Sam Singer, a public relations executive who specializes in crisis situations,  said tech companies are “better at talking about services and products. They’re not prepared to talk about public policy issues, safety issues, even though they ought to be.” He says that there’s no reason why companies shouldn’t be able to describe how they would deal with a natural disaster in the Bay Area without giving away proprietary information. “It’s important that companies discuss earthquakes,” Singer said. “They need to be leaders, and offer reminders to their employees, the public and the news media that we live in earthquake country.” Dick Evans, president of the Business Recovery Managers Association, a networking and information group for disaster recovery planners, told IBD that his group used to have more membership among major Silicon Valley firms. At the moment, he said, “we don’t have as many as we would like.” What Preparedness Might Look Like Cisco has been active in preparing for quakes. It might take the issue more seriously than others, in part, because it’s among the tech giants that were around during the Loma Prieta earthquake of 1989, Walters says. That quake, centered near San Jose and San Francisco, killed 63 people, displaced 12,000, destroyed an estimated $6 billion worth of property and caused an unknown amount of productivity losses. At Cisco’s main offices in San Jose, Walters says the company maintains what it calls “Arks,” which store water, food, tents and emergency supplies for all employees on site — enough supplies to last up to three days. And executives all carry three-day survival backpacks in their vehicles, he says. The company also has a mobile operations center that can staff 13 — and can turn it into a kind of mobile office for execs. The company has five command-and-control centers around the world — with satellite communications abilities and backup generators for incident response vehicles. And the company conducts earthquake drills at its main offices. “We have the right processes, right supplies,” Walters said. “We know as much as we can about the fault lines and we want to be as knowledgeable as possible.” He adds that USGS scientists come in from time to time to talk about the fault lines with Cisco’s safety and security team. The company also monitors incidents around the globe, and has a Tactical Operations team that it deploys on humanitarian missions to restore communications connectivity. Yahoo was willing to share a few details of its plans, though declined to provide access to business continuity executives. Spokeswoman Clark, in a statement, said “Yahoo has prepared our technology, as well as our physical spaces, to allow us to continue to run and operate our business either in California or other parts of the world in the event of catastrophe. We have invested at our mission-critical facilities to provide for alternative power supplies that will allow those facilities to run in the event of a loss of power or other utilities.”

Amazon Customers Confirm: Cloud Transition Still Biggest Trend

After tracking down top tech execs of 10 Amazon Web Services customers and nine AWS “premier consulting partners” for interviews, Deutsche Bank analysts came away convinced that the migration to the cloud is still “the biggest and most disruptive trend in the enterprise IT market today.” Aside from “assessing macroeconomic risks to 2016 IT budgets (as) the topic du jour,” many tech execs are slowing their IT spending as they prepare to move their enterprises to the cloud, said Deutsche Bank analyst Karl Keirstead in a research note Tuesday. Keirstead questioned whether the macro headwinds that many blame for the current softness in tech spending are really at fault. “Even Tableau Software ( DATA ) cited this phenomenon,” he wrote. Tableau stock notoriously gapped down 49.5% Feb. 5, spooking investors and dragging many software stocks with it, after offering 2016 guidance that missed Wall Street expectations. Tableau stock, down a fraction, near 40, in afternoon trading in the stock market today , is more than 50% off its Feb. 4 close and 70% below its all-time high above 131 set last July. Amazon ( AMZN ) stock was up 2.5% in afternoon trading Tuesday, near 520 and 25% off its all-time high of 696.44 set in December. The runway is still enormous for cloud migration. Amazon’s AWS, Microsoft’s ( MSFT ) Azure and Alphabet’s ( GOOGL ) Google Cloud Platform combined have grown revenue to about $10 billion annually, a “tiny penetration” of the $500 billion to $1 trillion spent annually on tech services and products, Keirstead said. “The trend to AWS is clear … as more and more large enterprises are shuttering private data centers in a quest to become ‘data center independent’ and younger and smaller customers are piggy-backing on AWS as a faster and cheaper way to scale up in new geographies,” he wrote. Neutral Toward Oracle, Security Vendors The big legacy IT infrastructure vendors are feeling the brunt of the migration, he said. Those interviewed were “cautious” toward managed hosting and colocation data center vendors, neutral toward enterprise software developer Oracle ( ORCL ) and neutral (not negative)  toward security vendors because “most” customers won’t rely only on AWS security, Keirstead says. “It was a mixed  bag for Red Hat ( RHT ), as several of the ‘all-in’ customers seemed content to move to Amazon’s own Linux distribution,” he wrote. He said feedback was “bullish” on software-as-a-service companies  Salesforce.com ( CRM ) and Workday ( WDAY ). “We now wonder if AWS is creating a tailwind for the SaaS (Software as a Service) vendors … and if the IT services vendors could get a lift as enterprises look to move or re-platform workloads to make them more cloud-friendly,” Keirstead mused. Deutsche Bank maintains buy ratings on Microsoft, Salesforce and Amazon.  Salesforce is expected after the close Feb. 24 to report earnings up 36% for the January quarter. Salesforce stock was down a fraction Tuesday afternoon, near 59 and 29% off a Nov. 19 all-time high at 82.90. Rival Workday stock was up 2.5% Tuesday afternoon, near 50.50, still 48% off nearly two-year high set in October 2014. It’s scheduled Feb. 29 to report an adjusted loss of 4 cents per share for its fiscal Q4 ended in January, vs. 6 cents lost in Q4 a year earlier. Keirstead said he doesn’t doubt that macro pressure is “keeping a lid on infrastructure IT spending,” but big legacy players Cisco Systems ( CSCO ), IBM ( IBM ) and EMC ( EMC ) “have cited a ‘tough macro’ seemingly every quarter for 12-plus months, he says. “It is entirely plausible that the ongoing weakness in technology capex, private data center build-outs and hardware refresh activity is also due to ongoing structural shifts as large enterprises rethink their IT infrastructures to prepare for a transition to the public cloud model.”