Fighting back against its rival Arista Networks (ANET), Cisco Systems (CSCO) plans to sell operating system software for networking devices without requiring customers to purchase high-end hardware, says a report by The Information.
It could be a good move by Cisco, a Dow Jones industrial average component, says Mitch Steves, an analyst at RBC Capital. He says Cisco could win more business from internet and tech companies such as Microsoft (MSFT) and Facebook (FB). They've been the biggest customers of Arista.
"If confirmed by Cisco, we think this would be a positive given that the company will offer high-margin software solutions to customers that are unlikely purchasing Cisco gear," wrote Steves in a report.
Arista sells network switches that speed up communications in cloud-computing data centers.
Arista Networks stock closed down 0.5% at 133.30 on the stock market today, after climbing 1.3% Tuesday to an all-time high of 133.97. Cisco slipped 0.8% Wednesday to 33.74.
Arista Networks on March 7 unveiled a new software strategy. The "containerized" version of Arista's EOS operating system enables its networking software to run on so-called "white-box" computer hardware, built by lesser-known suppliers from Asia.
IBD'S TAKE: Arista Networks is ranked No. 1 in the IBD 50, a roster of fast-growing companies. Arista Networks revenue jumped 35% in 2016 to nearly $1.13 billion. Look for more fast-growing companies at the IBD 50, which includes Nvidia and NetEase.
Internet companies buy networking gear from white-box suppliers to lower costs.
"As it stands today, many view Arista Networks as the high-end vendor as Cisco continues to evolve into a software/security/services company with more recurring revenue," said Steves.
The International Trade Commission has scheduled a hearing in April related to the Cisco-Arista patent litigation. Arista has denied infringing Cisco's patents, and it also says it has modified its network software to resolve issues.
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