Cisco Margin of Victory Over Arista Networks

The International Trade Commission (ITC) determined Arista Networks has violated three of five patents of Cisco.

The ITC issued an initial determination (ID) 944 on research and found that Arista has violated three patents ( '537,' 592 and '145), and no violations were found in the other two patents (' 597 and '164) . The ruling upheld the findings of the ITC staff which was published in September 2015, and we believe this will not be a complete surprise to the market. We see mixed results for both companies, and we see a long battle ahead, with limited impact so far on the fundamentals of business and industry. We reiterate our Outperform Arista (ticker: ANET) and Underperform rating Cisco (CSCO).

More specifically, the device of the '537 relates to the initiation SysDB managed have a set of configuration data router. Arista has not yet filed an ITC solution for Cisco reviewing claims in this patent. The '592 and' 145 are connected to local private networks and Arista has already introduced solutions that are awaiting approval of the ICC. If the determination of the case 944 is finally confirmed by the ICC in June 2016, the Commission may issue an exclusion order prohibiting Arista to import some equipment or appliances outside the United States prescription is also possible ban for certain stocks of Arista . However, while the decision is a short-term challenge for Arista, the company confirmed a version of the operating system extensible solution for the second quarter of 2016.

multiple fronts Cisco IP demand Arista, a long way to go: 1) In December 2014, Cisco sued Arista in the Northern District of California, alleging Arista violated 12 patents, and copyright violation that is related with industry standard line interface (CLI); 2) Cisco has also provided both cases, designated 944 and 945 respectively, ITC intends to accelerate the decision. In the case 944, ITC has yet to give the final decision in June 2016, and then issues a repair order accordingly two months (August or September). In addition, the initial determination of the case 945 will be published on April 26; 3) Arista patent lawsuits filed in the US Trademark Office and inter partes review (IPR) requesting the nullification of patents. Also attacked Cisco-against competition in January. Very simply, that no short-term solution of this difference is IP.

Arista, it was expected that the finding: 1) In the case 944, the administrative court upheld staff evaluations published in September 2015; 2) Due to the infraction occurs in the software, the company has developed solutions for release in the second quarter, ahead of the exclusion order; 3) The company announced minimal disruption to customers even if the conflict has been conducted since 2014. We see growth in sales in 2015 for the year to date by 44% and customer growth on the order 20%. We maintain our outperform rating and target $ 90 price and noted that the current level Arista is trading at an enterprise value (EV) / sale of three times, this is a reduction of 18% for the next generation of pairs of centers data despite superior growth potential and profitability.