Switch Wars (At An Interop Near You)

This week the networking industry will attend the annual Interop trade show in Las Vegas.   While Software Defined Networking (SDN) and its potential disruption or new growth driver to the networking industry continues to be the main hot topic in the industry, the Data Center Ethernet Switch market remains a vibrant, good growth market in the near/intermediate future.  SDN will clearly be a major force in the networking industry over the next several years, but winning Ethernet Switching Data Center customers and footprint today will only enhance a networking company’s chance of being relevant and driving the transition to SDN.

In the past week, Data Center switch vendors Arista, Brocade and HP all announced new Data Center Ethernet Switch products.  In addition, Juniper announced its new Data Center switch about a month ago.  These and other competitors such as Extreme, Dell, and Huawei are all aiming to be of significant size and the number two Data Center Switch vendor after Cisco, which clearly dominates this market with over 65% market share.  In looking at all the recent Data Center switching product announcements, it seems to me that Arista with its new 7500E continues to stay ahead of the Cisco challengers when looking at a variety of key metrics such as latency, scalability (i.e. supports up to 100,000 servers in a two-tier design) and interface port flexibility (i.e. single line card for 10/40/100GbE).  While these hardware metrics suggest Arista continues to stay ahead of its peers, Arista also was early in developing an open based operating system based on Linux, which positioned the company’s Data Center switch products on the SDN path well before SDN was a hot topic in the networking industry.   In simplest terms, Arista seems to be given the networking industry what it wants, namely, a strong technical product line that offers both best in class hardware metrics and an open and easy to use operating system.

While the battle for number two after Cisco in the Data Center switch market is far from over, especially given the larger resources some of Arista’s competitors possess in terms of R&D, distribution and product breadth beyond switching, Arista seems to me as the one to beat.  I also think Arista’s technology product momentum is making them the likely company to beat in the high profile NYSE Data Center Switching “jump ball” that has been ongoing on for several months.   From a stock perspective, if Arista (currently a private company) can continue to leverage its technical advantages in the Data Center Switch Market through increasing market share, its success will likely take away a key potential stock catalyst for its publicly traded competitors.   While Cisco will always be the number one in Data Center Switching, a strong, rapidly growing number two could make for a good investment opportunity.  Right now, Arista is making that challenging for its publicly traded peers.

Disclosure: I do not currently own shares of any company mentioned in this blog post.  NT Advisors LLC may solicit any company mentioned in this blog post for consulting services.