Does ANET really belong in the doghouse?

[doppelg36]

I’m not sure their story is quite over. My impression is they are being conservative with estimates because they are beholden to their customers upgrade schedules so they can’t accurately predict very far into the future. They also have tougher comps based on 50+% growth in 2017. They delivered 40% Revenue growth last quarter. We have been warned, but don’t have proof they are slowing considerably.

By the by, I pulled this from page 27 of the march 10-Q

Revenue
Product revenue increased $116.3 million , or 39.9% , in the three months ended March 31, 2018 compared to the same period in 2017 . The increase was primarily driven by our existing customers as they continued to expand their businesses. In addition, our newer switch products have continued to gain market acceptance, which has contributed to our revenue growth. Service revenue increased $20.8 million , or 47.1% , in the three months ended March 31, 2018 compared to the same period in 2017 as a result of continued growth in initial and renewal support contracts as our customer installed base continued to expand. We continue to experience pricing pressure on our products and services due to competition, but demand for our products and growth in our installed base more than offset this pricing pressure.

Excluding the reclassification to other current and noncurrent liabilities in connection with our adoption of ASC 606, deferred revenue decreased $42.7million from December 31, 2017 to March 31, 2018, which was primarily due to a decrease in deferred product revenue as customers continued to certify and accept our 945 investigation-related product redesigns.

We expect to continue to work with these customers to complete their remaining qualification activities and expect to recognize any remaining 945 investigation-related deferred revenue as revenue at that time. We expect our revenue may vary from period to period based on, among other things, the timing and size of orders, the delivery and acceptance of products, and the impact of significant transactions. In addition, while we expect our revenue to continue to grow in absolute dollars on a year over year basis, our revenue growth rates are expected to decline as our business scales
expected to decline as our business scales.

[thejusticier]

I do see different investment or trading styles around, and the one pursued here is basically getting into growth and watch it for every or over a few quarter(s), or in some case over even shorter periods. Once there is an inkling of slowing they would get out.

ANET having done nothing since February could be a reason to get out and to get in something ‘better’.

Again, I don’t think the view of growth softening this year is any indication that the 'market is not there or it is not large enough to sustain the growth that most haven been accustomed over the past year. Who can really know that, right? so some just get out because they don’t know and some others with longer term views stay invested-some knowingly and some just believing.

ANET didn’t do much for almost 2 years after its IPO. I know because I’ve held it over that time. It was only talked about in here when it started to move up of course. 100G has been a great growth spur for them and I am confident that this Team is going to provide more innovative solutions in future that will spur more growth.

I think most of the talks here are about the shorter terms and arguments that may not turn out to be relevant in a year or 3 or 5 or 10 or more later.

tj

[Smorgasbord1]

This has been a great discussion, with quite varied viewpoints.

Here are some additional observations on Artisa:
• Here’s how they describe themselves (https://seekingalpha.com/filing/4008317 )
Arista Networks, Inc. is a supplier of cloud networking solutions that use software innovations to address the needs of large-scale Internet companies, cloud service providers and next-generation enterprise. (emphasis added)

• Arista’s approach to the “Campus” market is a long term play, involving AI. They call it “Cognitive Campus Campus.” Some may have read the announcement as hardware (the 7300X3 can support 256 100-Gig ports), but it’s really software, actually AI software. There are a few pieces here:

First, whereas most systems today store only a sampling of what’s going on (telemetry data), Arista stores it all in their SysDB (https://www.arista.com/en/solutions/telemetry-analytics ). Sampling means you’re only taking state every 10-15 minutes, which is not only a lifetime in networking behaviors (Heck, even the 5-second intervals some vendors have isn’t good enough to really debug problems). Polling means you’re only getting averages, not actual events as they occur. With Arista, you get every state change, both as it occurs, and saved for later forensics or compliance/auditing.

Second, Arista includes an Analytics Engine that can find trends and problems, and since all the data from all Arista software controlled devices is together, it does so across the whole picture, not just isolated components of sub-sub-networks. In addition, SDKs and APIs (part of NetDB) enable other data analysis tools to be applied. (https://www.arista.com/en/solutions/telemetry-analytics )

But, back to AI. Arista’s CEO, Jayshree Ullal, has a blog that is almost always interesting and technical. She actually telegraphed Artisa’s interest in AI back in Feb: https://blogs.arista.com/blog/-the-future-of-cognitive-cloud…

AI servers together with an Arista leaf-and-spine network and storage appliances can form an important AI nucleus. We have tested these solutions with NVIDIA and Pure Storage to offer the highest IO density per appliance. …

In small steps, Arista has already begun its journey through CloudVision’s® machine learning implementations. If there is an abnormal traffic rate, anomalies are quickly pinpointed and corrected.

I bolded that last paragraph. This isn’t just about fast ports - that kind of speed thing went out with Juniper decades ago. It isn’t even about the configurability of SDN anymore (although Arista provides automation there as well). It’s about things like self-healing networks.

There are 2 aspects to Arista’s approach:

1. The “collapsed” Spine topology that gets rid of tiers and more and more reduces the differences between routers and switches. This means instead of a fixed hierarchy of sub-networks that restricts how data can flow, you can literally place everything on a single tier and then use software to configure how traffic flows.
2. A software-driven, AI-assisted, management process that not only lets you know what’s going on, it makes it easy to configure and re-configure networks, perform updates across multiple devices with a single click of the mouse, and now even fixes things for you.

I’d add that the security enablement aspects of SDN should not be overlooked. Firewalls are so 20th century. IoT is become more widespread than ever before, which means orders of magnitude more devices are sending and receiving data over networks than ever before.

• Arista has always been good about helping customers migrate to their solutions. Networking customers don’t want upheavals and can’t tolerate long down times. They are partners with companies like VMWare, Aruba, etc.

This is a well-thought out article on where Arista is heading: http://www.eweek.com/networking/arista-introduces-new-switch…

It talks about Ullal’s subtle attack on Cisco’s “intent-based” approach, and describes that breaking into the campus market will not be an overnight affair:

The move into the campus opens up a host of new possibilities for Arista, according to Brandon Butler, senior research analyst with IDC. “They’re really saying that there’s no reason to manage your campus architecture differently than what you’re doing in the data center,” Butler told eWEEK.

Not all customers will gravitate toward such a unified approach to managing data center and campus networks, but those with heterogeneous campus environments and those looking to refresh their architectures could see benefits.

However, there will be challenges for Arista, the analyst said. The campus network market is fairly well-established, and it will take time for Arista to build up the salesforce and go-to-market strategy to make a significant run.

I know the trading style emphasized on this board is like the Pony Express (https://www.history.com/news/10-things-you-may-not-know-abou… ), where you ride a fast horse until it tires and then switch to a fresher horse. However, I still think there is a place in most portfolios for long term buy and hold, for picking a good steady ride that doesn’t require weekly or even daily review, yet will provide rich returns over time. I agree that it remains to be seen whether ANET is truly that type of company, but it looks promising to me still.

[mauser96]

.I still think there is a place in most portfolios for long term buy and hold, for picking a good steady ride that doesn’t require weekly or even daily review, yet will provide rich returns over time. especially if case of some sudden Back Swan event or a more than usually rapid descent into a Bear. It’s nice to have stock of companies that will come out the other side intact .

I sold my ANET but might buy back at the right price. 25% growth is good. So ANET is on my watch list .We may need either a general market decline or some false FUD to bring the price down a lot.

Fighting that army of Cisco salespersons is not going to be easy. For many of their potential customers ,present systems are good enough, the need for change has not reached the critical “fix this problem or you will be fired” level. There are lots of demands on IT budgets, and in many cases switching would have to be pushed hard from the top layers of management.

[MONYMAN3]

“.I still think there is a place in most portfolios for long term buy and hold, for picking a good steady ride that doesn’t require weekly or even daily review, yet will provide rich returns over time. especially if case of some sudden Back Swan event or a more than usually rapid descent into a Bear. It’s nice to have stock of companies that will come out the other side intact .”

I have a few of these also. For me, I don’t expect FB, BABA nor NVDA to double this year. I think that 20-30% growth will be fine for me. I would expect that these 3 would weather a bear market and come out the other side. I do trade around in names such as these. When FB had the FUD event regarding privacy I went over weight by 25% buying at 164.525, 160.85, 156.88 and 149.90. When the event was over I sold the overweight at 193 figuring 200 was a near term heavy resistance. This trading money I am/will put back into faster growers.

Rob

[MarkoKurs]

“There are lots of demands on IT budgets, and in many cases switching would have to be pushed hard from the top layers of management.“

Hmmm, in my eyes the world is changing… management 3.0 leaves a LOT up to the specialists, and if arista appeals to the specialist side, ease of management and thereby reduction of time spent on networks, they have a good chance.

No longer do things need to get pushed by management, instead workers need to display the improvements changes would bring.

[mauser96]

in my eyes the world is changing as it always has, but at much faster rate today. Human nature, resistance to change, not wanting skills to be devalued, bosses liking being bosses , etc, etc. has not changed that much. The processes Christensen and Porter wrote about have not changed much in most companies .

[WillyMoe]

Greetings!

For all Fools that still have a position in ANET, I would steer you to taking a little time out to watch this interview of Mr Bechtolsheim.

https://youtu.be/GjR7sRASjdo

After listening to success after success, and as a gambling man, I’m willing to continue holding my shares and add on any dips. I dont see any reason to bet against him creating great value for shareholders over the next 3-6 years.

I enjoy reading these posts and feel privileged to be able to do so.

Cheers!

Scotty G