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Technology Stocks : Arista Networks
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From: FUBHO5/6/2016 7:42:22 AM
   of 24
 
Arista Will Ramp Manufacturing in the U.S.



Craig Matsumoto
May 5, 2016
3:07 pm PT



Arista Networks is hiring a contract manufacturer that will operate a facility in the United States, a decision that seems related to the pending U.S. International Trade Commission (ITC) decision in Cisco’s lawsuit against the company.

Arista announced the move during its first-quarter earnings call today, saying it involves a contract manufacturer that’s new to the company. In other words, it isn’t Foxconn or Jabil Circuit, the two manufacturers Arista uses today.

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For what it’s worth, Arista already enlists San Jose, Calif.-based Flextronics “to provide logistics and final configuration services in North America,” according to Arista’s annual report.

CEO Jayshree Ullal emphasized that the new manufacturer, due to be announced this quarter, will be operating in the United States. “We felt the need to automate the factory more and bring proximity to our headquarters and our headcount,” Ullal said during the call.

“Proximity” relates to the number of new products Arista has and is anticipating, such as the 7500R spine switch. In those cases, Ullal sees a benefit in having manufacturing reside close to Arista’s engineering.

But she acknowledged that the Cisco patent suits against the company factored into the decision, too.

The ITC ruled in February that Arista violates three Cisco patents. Nothing further will be decided until the ITC’s final determination on June 2, but it’s possible the commission could issue an injunction against the importing of Arista’s products — a move that would theoretically cut off Arista’s supply from overseas contract manufacturers Foxconn and Jabil.

Publicly, Arista has remained sanguine about this, saying it’s revising product designs to skirt around the patent issues. “We are absolutely prepared with the right design workarounds and the engineering workarounds” should an injunction come around, said Ullal.


(The June 2 decision relates to one set of patents, referred to as the ‘944 case. A separate case brought by Cisco, nicknamed ‘955, was due for an initial decision in April but has been delayed. Arista is providing a Web page to track these and other cases.)

Running the Numbers

Arista shares rose 5.5 percent in after-hours trading, to $63.58, as the company’s first-quarter earnings beat analyst estimates by eight cents per share.

Moreover, the company continues to grow while peers such as Brocade, Cisco, and Juniper talk about economic “headwinds” and “uncertainty.” Technically, Arista’s growth slowed down in the first quarter, but that’s partly the law of gravity; no one expected the company to grow at more than 40 percent forever.

In the first quarter Arista’s revenue grew 35 percent year-over-year – to $242.2 million from $179 million a year ago.

Net income was $35.2 million, or 48 cents per share, compared with $25.5 million, or 34 cents per share, a year ago.

Non-GAAP net income of 68 cents per share outdid the analysts’ consensus of 60 cents as measured by Thomson Financial Network.
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