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Arista: Demand for 25/50 Gigabit Ethernet switches to rise

Arista Networks expects sales of its new 25/50 Gigabit Ethernet switches to pick up this year after a slow start.

Arista Networks Inc. customers haven't bought many of the 25/50 Gigabit Ethernet switches the company introduced in September, but the vendor is expecting sales to pick up -- particularly among large Internet companies -- in the second half of the year.

Arista gave the update last week after reporting revenue for the fourth quarter ended Dec. 31, 2015, rose 41.5% year over year to $245.4 million. Net income increased to $43.9 million from $31 million a year ago.

During a conference call, CEO Jayshree Ullal told financial analysts the company's 10/40/100 GbE switches continued to make up the bulk of the company's hardware revenue. Nevertheless, she said she expects 2016 to be a pivotal year for the company's newer 25/50 GbE switches running Broadcom Corp.'s Tomahawk Ethernet chipset.

"This is a key year for Tomahawk, meaning good acceptance of 10 gig, 40 gig and 100 gig, [but] we still haven't seen 25 and 50 really take off the way we had wanted to," Ullal said. While the new hardware got lots of media attention last year, "the year of 25 and 50 gig will really be this year."

Broadcom is expected to release in 2016 a chipset, dubbed Jericho, for 20/50 GbE switches, but those systems are unlikely go beyond trials in customer data centers this year, Ullal said.

The migration to 25/50 Gigabit Ethernet switches

To date, 10/40 GbE switches are the primary market drivers. Together, they accounted for almost half of overall market revenue in the third quarter of 2015, according to IDC. Newer 25/50 GbE switches are expected to become mainstream over the next few years.

In general, 25 GbE top-of-rack switches are aimed at data centers rapidly outgrowing 10 GbE. Because of the design, 40 GbE hardware is not cost-effective or power-efficient in top-of-rack switching.

What we see in our customer base is everybody is preparing for 100 gig spine.
Jayshree UllalCEO at Arista

Arista customers expected to buy 25/50 GbE switches this year have hyperscale data centers, with tens of thousands -- and sometimes hundreds of thousands -- of servers. Those same companies are also expected to deploy 100 Gigabit Ethernet switches. "What we see in our customer base is everybody is preparing for 100 gig spine," Ullal said.

Arista doesn't break out revenue by customer segment, but the vendor did not challenge an analyst's estimate that Internet companies with hyperscale data centers accounted for roughly a quarter of Arista's revenue. Those companies include Facebook and Microsoft, with the latter accounting for 12% of Arista's revenue in 2015, Ullal said.

Besides discussing products, Arista also provided an update on Cisco's patent infringement suit. An administrative law judge with the International Trade Commission ruled this month that Arista had violated three Cisco patents. As a result, the ITC could ban Arista products manufactured overseas from entering the United States if the products use the patented technology.

Ullal assured analysts the company was on track, as previously stated, to ship in the second quarter a network operating system update that removes the disputed technology from its Gigabit Ethernet switches. Arista continues to fight the lawsuit and has filed a countersuit against Cisco, accusing its rival of antitrust violations.

So far, the legal battle has not had an impact on Arista's business, Ullal said, noting that customer support has been "unwavering."

"Our goal has been to offer them appropriately designed workarounds with non-obtrusive upgrades, and they are very comfortable with our plans," she said.

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