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Needham issued a glowing report on Arista Networks ( ANET ) Thursday, but it fell 4.1% to 61.11 in the stock market . And Arista’s No. 1 switching rival Cisco Systems ( CSCO ) closed down 0.8% to 27.38. On a trading day when indexes started out on an up note, declined and ended mixed, a fractional slip for Cisco after its 2.1% gain Wednesday can be taken in stride. However, both stocks saw rather wide trading ranges Thursday — especially Arista — coming off its 3% gain Wednesday. There “could be confusion on SONiC,” Needham analyst Alex Henderson told IBD. SONiC stands for “software for open networking in the cloud,” free software-defined networking (SDN) that makes Cisco’s high-speed switches less needed. Microsoft ( MSFT ) announced this contribution to the Open Compute Project at the OCP U.S. Summit in San Jose, Calif., on Wednesday. “SONiC will enable cloud operators to take advantage of hardware innovation while giving them a framework to build upon an open source code for apps on the network switch and the ability to integrate with multiple platforms,” posted Kamala Subramaniam, principal architect of Azure Networking, on a Microsoft blog Wednesday. “SONiC is not just prototyped software but deployed today and planned to run at scale in the future.” Arista is part of Microsoft’s team that created SONiC, along with Broadcom ( AVGO ), Dell and Mellanox Technologies ( MLNX ). Broadcom stock closed up 1.7% to 144.42. But Microsoft stock fell 1.5% to 52.05 Thursday and Mellanox slipped 0.6% to 48.42. As for Arista, SONiCally confusing or not, the company is “superbly positioned” to grow, Henderson wrote in a research note issued Thursday. “We like to think we are pretty technology savvy, but we always feel humbled when we go into Arista and delve into the technology landscape in detail,” Henderson said. “We hit a number of key issues including the 10G to 25G transition, the quality of the Broadcom Tomahawk, the opportunities in storage, the potential of the Jericho chip in the Edge router market, and the advantages Arista has in the SDN market. “This last point is particularly punctuated by the Microsoft contribution of . . . SONiC to the Open Compute Foundation. We come away convinced that ANET has multiple avenues of growth, and we expect continuing share gains.” He reiterated Needham’s buy rating and 105 price target. Henderson noted that “Cisco has been questioning the quality of the Tomahawk chip” but Arista, which made the Tomahawk chip set available in its switches in September, “argues the bugs in this first pass are minor and easily worked around in software” and has “good traction in the market already.” He said Arista “seems to be seeing accelerating conversion of storage area networks (SAN) to storage over IP as “major customers drive to a single unified architecture over IP.” He also observed a “solid ramp,” starting in the second half of this year, for Arista’s 25G/50G/100G speed transition and learned that “Arista thinks some portion of that (Edge router) market can be addressed with much lower-cost switches.” Arista’s “Linux-based, open, programmable and merchant silicon-based products are winning, and the trends continue to increase its advantage,” Henderson said. “We expect ANET to continue to outperform Cisco.” He probably means Arista should outperform Cisco’s growth rate. In the fourth-quarter, Arista grew adjusted earnings per share by 51% to 80 cents, on revenue up 42% to $245 million. In Cisco’s last quarter, ended in January, it grew adjusted EPS by 8% to 57 cents on flat revenue of $11.9 billion. In the current quarter, analysts polled by Thomson Reuters expect adjusted earnings to grow 22% for Arista and 2% for Cisco. Image provided by Shutterstock . Scalper1 News
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