The fierce rivalry of Cisco Systems (CSCO) and Arista Networks (ANET) shows no signs of letting up. Cisco claims to be regaining share in a key market — the so-called “cloud titans.” But Arista’s cloud business still has plenty of momentum heading into 2022.
Both Cisco and Arista sell computer networking gear built into giant data centers that whisk internet content to mobile phones and personal computers. Microsoft (MSFT) and Facebook-parent Meta Platforms (FB), two of the cloud titans, have been Arista’s biggest customers.
Cisco stock analysts say the company has signaled that it’s winning more product orders from Arista customers. That may be the case.
But Arista’s own cloud business seems to be doing just fine for now.
Revenue From Microsoft Drives Arista Stock
In both the December quarter and full-year 2021, Arista revenue rose more than 27%. In 2022, Wall Street projects 30% revenue growth to $3.84 billion.
Meanwhile, Arista captured 30% of 2021 revenue from cloud titans, with Microsoft accounting for half that, the company said. Needham analyst Alex Henderson estimates that Facebook accounted for 7% to 9% of 2021 revenue. The rest of the 30% came from cloud titans Amazon.com (AMZN), Alphabet‘s (GOOGL) Google or Apple (AAPL).
“This was indeed an exciting and memorable year for Arista,” Chief Executive Jayshree Ullal told analysts on the company’s fourth-quarter earnings call Feb. 14. “It marked the return of the cloud titans’ growth, coupled with diversified momentum across our product lines and customer sectors.”
Annual spending by cloud titans on internet infrastructure varies. Some pulled back in 2019 and 2020 affecting both Cisco stock and ANET stock. Arista revenue rose 31% in 2018 and 12% in 2019. It fell 3.9% in 2020.
Meanwhile, Facebook is expected to account for more than 10% of revenue in 2022. Facebook plans to increase capital spending as it targets the “metaverse.”
“Well, look, we’re used to volatility from our cloud titan customers,” Ullal told analysts. “We experienced the highs of 2018 and then the lows of 2019 and 2020. So (now) we’re in a period where the cloud titans are clearly investing.”
Arista Expanding Into Enterprise Market
Ullal has been Arista’s CEO since 2008. Before that, she worked at Cisco for 15 years, rising to the level of vice president and general manager in the enterprise group.
Amid volatility in the tech-heavy Nasdaq, ANET stock has retreated 11% in 2022. But it is up 60% from a year ago. Meanwhile, Cisco stock is down roughly 12% thus far this year, but up about 20% from a year ago.
One question is how much revenue growth could moderate beyond 2022. Arista is gaining ground in the so-called “enterprise” market — large companies, government agencies and educational institutions. In November, Arista projected 100% sales growth to $400 million in 2022 for “campus” network switching gear sold to large companies.
Jefferies analyst George Notter in a recent note to clients said Arista is relying less on cloud titan growth.
“The resumption of Cloud Titan strength is a big contributor to the 30% year-over-year growth that the company is looking for in 2022,” he said. “However, we expect there’s also a healthy contribution from Arista’s other expansion opportunities. Of course, Arista’s Cloud Titan customers can be lumpy — as we saw in 2019 and 2020. It’s quite possible that 2023 cloud provider growth will moderate significantly vs. what appears to be an extremely strong 2022.”
Ullal also pointed to Arista’s diversification on the fourth-quarter earnings call.
Opportunities Seen In Noncloud Space
“I just want to clarify that independent of the cloud titan capex spend, I believe we can enjoy a double-digit growth for quite some time to come in the noncloud titan space,” she said. “Arista has a foundation to keep growing double-digits for multiple years to come.”
Meanwhile, if Cisco can sustain gains vs. Arista that would impress Wall Street.
“While only (roughly) 6% of revenues, we view (cloud) strength as accretive to the P/E multiple,” Barclays analyst Tim Long said in his note to clients.
He went on to say: “Our analysis suggests that Cisco has been enjoying some accelerating relative share momentum in Cloud over the last several quarters, with its cloud run rate surpassing ANET and Juniper Networks (JNPR) since late last year.”
Cisco stock rose on its fiscal second-quarter earnings.
A 33 Percent Order Growth Aids Cisco Stock
In Cisco’s January quarter, product orders increased 33% year-over-year, marking the third straight quarter of 30%-plus order growth. “Web Scale” product orders ostensibly from cloud titans were up 70%, slowing from 200% growth in the previous quarter.
The cloud titans are starting to upgrade to 400-gigabit network infrastructure from 100G technology. Cisco is selling both 400G semiconductor chip products and network switches.
Analysts say a market share shift is possible among Arista, Cisco and Juniper as the 400G product cycle unfolds.
On an earnings call with Cisco stock analysts, CEO Charles Robbins said: “On the cloud side, what I would tell you is that we are continuing to win new use cases with our integrated systems and Silicon One systems as well.”
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.