CSCO/ANET

Investment Analysis Clubs Saul’s Investing Discussions
#1

I am interested to discover there seems to be no-one at TMF who can quantify in figures, however approximately, the threat to ANET’s business in the hypothetical case (obviously a very necessary calculation) of CSCO being 100% successful in its remaining litigation.

That rough calculation seems to me to be a prerequisite to any write-up or re-rec because of its potential effect on the company’s valuation. There is some wordy fluff - or nothing at all - but it is a strange omission - and equally strange that no-one thinks it matters.

2 Likes
#2

$350 million plus some licensing fees.

Nevermind though that patent office has ruled invalid the two patents at issue.

Nevermind ANET has already worked around one such patent and the other patent expires in mid-2018.

ANET has already sourced domestically its products and thus getting around the ITC.

Not too worried about it. Still, something to keep watch on.

Tinker

5 Likes
#3

Thanks Tinker. You say the ‘patent office has ruled invalid the two patents at issue’ which I did not know but sounds very promising. Will the court base its decision on that opinion? Obviously CSCO strongly believes otherwise; presumably that the court may take it into account but it is very far from a certainty.

#4

I have litigated cases for more than 20 years now and it still amazes me the confidence the other side shows even when they do not have a case to stand on. Makes you wonder what they know that you do not. And most of the time it is not a dang thing.

Here, the patent office decision will be appealed by Cisco and will run its course in the appellate process.

And again, one of the patents at issue expires next year, so who really cares.

That is not to say it cannot be a continual thorn in the side. But the trial on the patents in California, will not start until next year from the latest information that I heard. And it will be a jury trial. And even if Cisco wins, Arista will post a bond, and it will be appealed for another year or two. It will be the same old same old, and by the time it is done it will all be old technology anyways.

Cisco is litigating these issues to the hilt because Arista is the first company in its history to ever successfully challenge and eclipse Cisco. In 100gb switches, Arista is now #1. Arista also has technology that makes it utterly disruptive to certain routing technologies, that are of course Cisco’s other main industry besides switches.

Besides that, to the former CEO and Chairman this was personal, as one of his protégés is the CEO of Arista, and the still actively working with Arista founder worked with Cisco for many years as well, not to mention that Arista is actively recruiting Cisco employees from some of their more innovative teams and doing so successfully.

So Cisco has reasons to litigate this all the way into the ground and then some. The law firms it employs are welcome to do so, as they are big law firms, and big law firms have associates that they smash into the ground at $300-$500 an hour for enormous profit, and little regard to the associates as human beings. So why not from both ends. The expense is nil for Cisco since they have more than $40 billion in revenues. It is a larger nuisance for Arista, but has not stopped ARista from gathering more than a billion dollars, and most of it from cash flow, and continuing to take marketshare and innovating, and all with less than 10% of revenues for sales and marketing, 25% for R&D, and a smidgen, relatively speaking for litigation, although it is a continual distraction. It is one Arista has gotten use ot as the cost of doing business.

Tinker

21 Likes
#5

You say the ‘patent office has ruled invalid the two patents at issue’ which I did not know

Hi streina, it’s really old news now. The patent office decided the two patents were completely invalid. Arista asked that the import bans thus be lifted, but the US “Trade Commission” (or something like that), which is a part of the Commerce Dept, said they wouldn’t lift the import ban until the courts make a final determination. With appeals, that could be a long time. To me, this is just Cisco’s attempt to harass Arista. Cisco knows they will lose in the end, but this is a grudge fight, and it won’t matter in the end, as Tinker says, as it will be old technology by then. Total real danger to Arista is truly negligible at this point.

Saul

1 Like