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Arista Network
26-12-2018, 01:24 PM.
Post: #1
Arista Network
Arista Networks (previously Arastra) is a computer networking company headquartered in Santa Clara, California, USA. The company designs and sells multilayer network switches to deliver software-defined networking (SDN) solutions for large datacentercloud computinghigh-performance computing and high-frequency trading environments. Arista's products include an array of 10/25/40/50/100 Gigabit Ethernet low-latency cut-through switches, including the 7124SX,which remained the fastest switch[4] using SFP+ optics through September 2012, with its sub-500ns latency, as well as the 7500 series, Arista’s award-winning modular 10G/40G/100Gbit/s switch. Arista's own Linux-based network operating system, EOS (Extensible Operating System), runs on all Arista products.----From Wikipedia

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26-12-2018, 04:50 PM.
Post: #2
RE: Arista Network
They are doing something disruptive to Cisco's business, worth looking out!
Full-time Investor and Blogger at https://kelvestor.com/

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26-12-2018, 07:24 PM. (This post was last modified: 27-12-2018, 01:43 AM by Barefoot.)
Post: #3
RE: Arista Network
Yes. They have already disrupted Cisco, eating into Cisco market share in the past few years. The lowest share price in early 2016 was approximately US$60. The highest price reached in early 2018 was around US$300. That is a 400% gain in two years. The price has since corrected with the general market and is currently around US$189 (that is a forward PE around 26). A bargain? Many analysts think that it has alot more room for growth and growth will bounce back above annual 30%. If that is so, then it is a bargain at this price. However, a few analysts think that the growth will slow down to teens area. The company sees itself growing at 24% annual rate going forward.

The company that i shared in the China subforum is the counterpart of Arista in China. China is 5 years behind USA in cloud data centre and they are determined to catch up. For this reason, I am seeing Fujian Starnet is very likely to follow the development path of success as Arista.

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27-12-2018, 10:16 PM.
Post: #4
RE: Arista Network
Long time investor of Arista Networks, I think the TTM PE is closer to 25 (net margins around 30%, revenue around $2b, current market cap around $15b, TTM earnings hit by $400mil legal settlement with Cisco) , top line growth rate expected to be around 20-30% next year. High runway (currently revenue only 5% the size of Cisco), high margin, highly profitable business (mainly a software company).  Currently my largest position (recently added).
“If you buy a business just because it’s undervalued, then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.” - Charlie Munger

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28-12-2018, 01:45 AM. (This post was last modified: 28-12-2018, 01:46 AM by Kaimin.)
Post: #5
RE: Arista Network
I do have some experience in the networking field, and friends in the industry who I've spoken to about the subject, and I'd like to clear up some myths about the networking industry, especially with regards to this new super growth networking companies.

The traditional explanation for this "disruption" has to do with software defined networking (SDN). A very short version of this very technical subject is this - SDN transfers control of the network topology, comprising the configurations of many network devices, to a centralised controller instead of the many devices in a network needing to be configured individually (and often physically). This allows "on demand" allocation of network resources to the numerous incoming and outgoing packets, compared to the traditional model where each set of network devices was configured for a certain network LAN and each LAN had to have a large bandwidth buffer (i.e. a bandwidth capacity with a margin of safety to the maximum expected bandwidth). The latter was inefficient, with utilisation rates being estimated as low as 15%. But by combining the network resources together, the expected bandwidth spikes fall greatly relative to the total bandwidth used, so companies needed to install less bandwidth capacity overall. This is a very short summary of the effects which does not include the subtleties and benefits of SDN - it skips a lot of stuff about more flexible network management, higher security and visibility et cetera.

@kelvesy and @Barefoot
What most people jumping into this hot industry don't realise is that the biggest SDN company by market share is actually Cisco. Cisco does in fact produce very good and popular SDN products. Cisco's revenues in routing and switching have not been declining, they have just been growing very slowly, in low single digits. Why has it been growing so slowly, and Arista, Juniper et cetera so quickly? The answer is a mix of a number of factors. The first and most easily quantified is that the global networking industry is growing only at a moderate single digit rate, about 4-8% and Cisco holds an enormous market share, about 50% as of 2018. So there is a limit on its growth. The second is that as mentioned above, SDN does lead to some reduction in the needed bandwidth. In the industry the pricing is price-per-port (for a port with a certain bandwidth, i.e. 100GB). So while Cisco does grab a lot of SDN market share, it does so at the expense of its traditional products, cannibalizing its own revenue. The third is traditionally explained as "price", which is only half of the story. It doesn't explain how Cisco grew so much when all the while its products were so expensive. The other half is the much more difficult to quantify "quality". Networks, like utilities, is an industry with an enormous emphasis on delivering the service with zero downtime, which combined with massive spikes in demand, means the backend needs to be well engineered, capable and robust. This is an entirely qualitative opinion, but recently companies like Arista have begun producing products of comparable quality to Cisco's. I think it is much better said that new companies have begun offering products of comparable service, at a lower price. There was also the alternative explanation that Cisco's iOS, a unified command line on all Cisco products, had a network effect that gave Cisco products seamless integration and familiarity. But with the advent of interoperability between different brands of network devices and open source standards, this eroded. 

What is also not very well known is that SDN is not a set of products, it is an architecture. Generally speaking it is composed of two parts - one, a group of network devices capable of being remotely configured and two, a centralised controller (a piece of software). All the major network companies sell both, with a varying degree of interoperatability and functionality between each other. This is a very large blow to investors dealing with SDN because while the controller is a piece of software very obviously built for SDN, there is no definition on what is SDN hardware and what is not. The broadest definition would be any remotely configurable network device, in which case Cisco devices supporting SSH and SNMP (two kinds of protocols for remote configuration), are SDN devices and Cisco has been selling them since the early to mid 2000s. The strictest definition would be only devices that support OpenFlow (an open source SDN protocol) and some other proprietary SDN protocols are SDN devices. The latter is also a stretch because its possible to install OpenFlow support onto older Cisco devices, but I think it is more useful because OpenFlow supports a much more seamless and robust SDN architecture. This reinforces my argument, which is that SDN is not a key factor in the rise of these companies.

@Wildreamz Arista is not a software company. Just 12% of its business comes from Services. High profit margins is a trait in the industry because of the technological barriers needed for entry, and companies have a much stronger preference for quality than price for the reasons mentioned above. A networking software play would be VMWare, one of its segments provides an SDN controller and according to this it is the second largest SDN player, behind Cisco. Comparing Cisco's revenue and Arista's on a one to one basis is not fair as Cisco produces a lot more than routers and switches (which is what Arista solely makes in its non services revenue). Less than 50% of Cisco's revenue comes from routers and switches. Their services revenue is also misleading as Cisco provides a much wider variety of software services than Arista.

Predicting the future growth prospects of Arista is beyond me, and I think no one can do it reliably. But I did find this useful graph that shows the decline of Cisco relative to Arista. Note that high speed data center switching is just a part of the networking industry, albeit a big and growing one. If we assume this reflects the entire business of Arista, which is not completely unfounded, it can grow about 4 times before its market share reaches Cisco, after which it will grow at the rate of the global networking market.

[Image: 18374402_14790337262767_rId5.png]

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28-12-2018, 03:36 PM.
Post: #6
RE: Arista Network
A visibility of +300% earnings growth is acceptable for me, especially at today's valuation. In fact, even if they just grew 100% I think this would be a successful investment. We have the added optionality of them breaking into other sectors of the networking space. Thanks for the detailed and technical writeup!

Found a blog with useful insight: https://blog.tsunanet.net/2018/01/why-i-...works.html
“If you buy a business just because it’s undervalued, then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.” - Charlie Munger

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28-12-2018, 11:57 PM. (This post was last modified: 28-12-2018, 11:59 PM by Barefoot.)
Post: #7
RE: Arista Network
Arista acquired Mojo Networks and prepares to venture into the wifi market. Any insight into the profitability and growth in this market? The corresponding Chinese company I mentioned is already a big player in wifi and enterprise WLAN market. So, it didn't surprise me that Arista is expanding into this segment. The only concern has been that 5G will obsolete wifi technology so it appears that this concern maybe unjustified.

I find that most western analysis left out competition from companies such as Huawei in the switches market but they have in fact already occupied a substantial share in the world market also in the expense of Cisco share. It appears that Arista may not capture the maximum potential market share.

Found an article on the superiority of Arista approach vs Cisco
http://latticework.com/arista-networks/

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04-01-2019, 11:08 AM. (This post was last modified: 04-01-2019, 11:13 AM by Wildreamz.)
Post: #8
RE: Arista Network
https://www.statista.com/statistics/2352...y-vendors/

[Image: lATiStl.png]

Only competitor still growing market share is Huawei; but I think Huawei will have a hard time growing market share among US and European customers over the next few years, given the growing distrust with the Chinese government.
“If you buy a business just because it’s undervalued, then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.” - Charlie Munger

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06-01-2019, 01:14 AM.
Post: #9
RE: Arista Network
(04-01-2019, 11:08 AM)Wildreamz Wrote: Only competitor still growing market share is Huawei; but I think Huawei will have a hard time growing market share among US and European customers over the next few years, given the growing distrust with the Chinese government.

However, in just less than a month, many countries that initially said they will ban Huawei communication products have reversed their stand. These includes UK, Japan , Italy, India, Czech and Germany. This could be partly due to recent British mobile giant's  O2 glitch that affected millions. Similar glitch happened to Softbank of Japan. Both use G4 communication infrastuctures provided by Ericsson.

https://www.businesslive.co.za/bd/compan...by-glitch/

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06-01-2019, 10:33 AM.
Post: #10
RE: Arista Network
(06-01-2019, 01:14 AM)Barefoot Wrote:
(04-01-2019, 11:08 AM)Wildreamz Wrote: Only competitor still growing market share is Huawei; but I think Huawei will have a hard time growing market share among US and European customers over the next few years, given the growing distrust with the Chinese government.

However, in just less than a month, many countries that initially said they will ban Huawei communication products have reversed their stand. These includes UK, Japan , Italy, India, Czech and Germany. This could be partly due to recent British mobile giant's  O2 glitch that affected millions. Similar glitch happened to Softbank of Japan. Both use G4 communication infrastuctures provided by Ericsson.

https://www.businesslive.co.za/bd/compan...by-glitch/

Do you have a source for those countries reversing their ban? I can't find anything on it.

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