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.

Did Lloyd Carney Really Know About Q-Fabric When He Was At Juniper?

When a company has been struggling or experiencing an underperforming stock price for many years, an agent of change through new a new CEO is typically needed to attempt a turnaround.  When I was a Wall Street analyst, I would always listen very carefully to what a new CEO of a public company would say in their first public interactions with Wall Street.   In particular, I would listen to see if the new CEO was likely to be an agent of change or not and whether the initial comments seemed rational and well thought out.  A case in point many years ago that raised a yellow flag for me in a company in the TMT sector was when a new CEO of a company talked about bringing integrity/ethics back to the company was a priority.  Shortly after this first conference call, however, the new CEO was sued by his former employer for violating an anti-compete clause.  Maybe it was a coincidence, but the turnaround never happened in this company

One recent example of a positive change of CEO has been Marissa Mayer of Yahoo.  In watching her speak during a January 2013 Bloomberg TV interview, I was very impressed with how she acknowledged Yahoo’s current lack of presence in mobile, but how she planned to address this by leveraging mobile partnerships (e.g. with Facebook) and the daily habits people have using Yahoo for content around sports, stock quotes, weather, etc. as a path to a stronger presence in mobile.  There was no facade or setting ridiculous expectations, but rather a realistic assessment of the current situation and a reasonable path to improve the company’s position in mobile.  The interview of Ms. Mayer can be found here:

http://www.bloomberg.com/video/yahoo-ceo-says-personalization-is-future-of-search-XDvwyS~OTCOMXwWq~j8m2w.html

Ms. Mayer is also getting a lot of press lately about her decision to have Yahoo telecommuters return back to the office.  The reality is telecommuting does not foster a strong culture for technology companies in my view.  More importantly here, is Ms. Mayer is trying to change the culture at Yahoo.  She is trying to be the change agent the company needs.  For Yahoo to turn around and be a more important company in mobile and social networking, the company will need to work more together.  Since Ms. Mayer took only a two-week maternity leave, she is clearly practicing what she is preaching.

Now, let me reflect on another recent CEO change and my initial concern on some of the comments made by the new CEO.  Specifically, I am talking about Lloyd Carney, the new CEO of Brocade.  In looking at Lloyd’s background, he seems like a good choice for Brocade.  Lloyd was formerly CEO of Xsigo (which was acquired by Oracle) and Micromuse (which was acquired by IBM), the COO of Juniper and President of Nortel.  With such a strong background, Lloyd certainly has the qualifications and potential to be successful in being a change agent for Brocade and generating strong returns for its shareholders.

While Lloyd Carney’s background seems solid, I was confused with some comments he made in two recent public appearances as CEO of Brocade.  Specifically, Lloyd made some comparative and reflective comments on the Q-Fabric Data Center Switch, which was developed at Juniper Networks, a competitor to Brocade.  The two comments are shown below:

…. And I’m a technologist at heart, an engineer at heart. And the thing that attracted me most, primarily, to Brocade was technology. I mean, I saw the fabric. I was at Juniper as COO, so I knew how QFabric was created.

Source: seekingalpha.com

Brocade Communications Systems Management Discusses Q1 2013 Results – Earnings Call Transcript, February 14th, 2013

… The fabrics that compete with us today are the Juniper Fabric, which uses the QFabric, which uses the ASIC chipset that I developed 10 years ago when I was there. Very complicated, not very scalable solution,…

Source: Seekingalph.com

Brocade Communications Systems’ CEO Presents at Morgan Stanley Technology, Media & Telecom Conference (Transcript), February 25, 2013

Lloyd Carney was COO of Juniper in the 2002-2003 timeframe. At that time, Juniper was not even in the Ethernet Switch business (Juniper formally entered this market in 2008), let alone the more elaborate Q-Fabric data center switch that was generally released to the market in the second half of 2011.  Juniper publicly disclosed the R&D efforts around Q-Fabric in 2009, when the product was code named Project Stratus.  I find it hard to believe that Lloyd new anything about Q-Fabric when he was at Juniper, as the product concept most likely did not even exist in 2002-2003 and I also doubt the ASICs used in Q-Fabric were being conceived in 2002-2003.

Now while this all might be obvious given how long ago Lloyd was at Juniper, the question is why did he make such comments?  I do not know and I hope next time he speaks in the public domain, someone asks for a clarification. But until then, these comments raise a yellow flag to me.  In the meantime, I wish Lloyd all the best in his new role as CEO of Brocade.

Disclosure: I own shares of Yahoo. NT Advisors LLC may currently or in the future solicit any company mentioned in this blog post for consulting services.