Arista Sees Weak Demand for White Box Switches
While white box advocates see the switches as valuable to the New IP, Arista just isn't seeing demand from customers, CEO Jayshree Ullal said on an earnings call Thursday.
Arista does "not see the white box at all" in its vertical markets, Ullal said. "We have 3,390 customers. I have seen the white box phenomenon in maybe single-digit customers out of the 3,390," she said.
Where white boxes are used, network operators are experimenting with them, rather than using them in production, Ullal said. And companies that have white box switches also work with Arista -- for example, Arista works with Facebook on the Facebook Wedge switch.
Arista has not seen an uptick in interest in white boxes over the past six months, Ullal said.
Arista's perspective contradicts other industry viewpoints. Cisco Systems Inc. (Nasdaq: CSCO) executive chairman John Chambers told Light Reading he sees white box switches as the company's chief competitor in the future. (See What's Next for White Boxes in a Post-Chambers World? and How Cisco Will Compete Against White Box Switches.)
That leaves an apparent rift between Arista and much of the rest of the industry. It's possible Ullal and other companies are talking about different segments. Arista specializes in infrastructure for big data centers.
Heavy Reading analyst Roz Roseboro says she's "not surprised" Arista isn't seeing much demand for white box switches."
"Arista plays at the very high end of data center switching -- people who need really high performance and are willing to pay for it," she says. "White boxes are generally more attractive to people who want less expensive boxes that they can get in large volumes, in many cases to support highly distributed networking capabilities."
She adds, "It's a hot topic because disaggregation itself is a threat to the traditional model, and Google and Facebook have proven that it can work."
It's also possible the companies are using different definitions of white box switches. Facebook, for example, insists its Wedge switch is not just another white box, but it is an open source design, and the social network has built its vast data center strategy on open source hardware. (See Facebook Reinvents Data Center Networking and Facebook in Production Testing of Open 'Wedge' Switch.)
And it's possible Ullal is just being coy. Single-digit numbers of customers doesn't sound like much, but when your customers include companies as big as Microsoft Corp. (Nasdaq: MSFT) -- as Arista's does -- that can be a big deal.
White box switches serve as fundamental building blocks for SDN, which is in turn foundational to the New IP. By freeing network operators from vendor lock-in and using advanced operating systems for programmability, network operators can achieve the agility they need to provide new kinds of services and business models to customers.
As for the earnings themselves: Arista reported revenue of $195.6 million for its second quarter ending June 30, up 41.8% year-over-year and 9.2% sequentially. The non-GAAP gross margin was 65.8%, compared with 67.9% a year ago and 66.1% in the previous quarter. Non-GAAP net income was 38.8 million, or $0.54 per diluted share, compared with $23.7 million, or $0.35 per diluted share, in the second quarter of 2014.
For the third quarter, Arista expects revenue between $208 million and $212 million, non-GAAP gross margin of 63% to 65%, and non-GAAP operating margin about 25%.
Arista traded at $81.51, down 3.64%, after hours.