Cisco (CSCO) Wins Patent Infringement Lawsuit Against Arista

Per a Reuters report on Friday, Cisco Systems Inc. CSCO won another patent ruling against Arista Networks ANET regarding the use of Cisco’s network device technology in Arista’s Ethernet switches without the former’s permission.

As per Mary Joan McNamara, the judge who presided over the case at the U.S. International Trade Commission (ITC), two of Cisco’s patents were infringed by Arista. Although the ruling is scheduled for a review over the next few months by the commission, if found guilty, it could lead to a ban on Arista’s products being imported in the U.S.

Cisco had filed the case in Dec 2014 alleging that Arista used Cisco’s patented technologies in its switches to enhance performance and speed of networked devices and computers.

What does this Win Mean for Cisco?

Currently, Cisco is the largest manufacturer of switching systems that connect servers within data centers as well as the ones used to connect to the Internet. However, competition in the switching business is intense given the presence of major players such as Huawei, Hewlett Packard Enterprise Company HPE, Juniper Networks, Inc. JNPR and Arista.

Notably, Arista, which was founded in 2004 by two former Cisco executives, has been slowly gaining traction in the switching space, which is a major concern for Cisco.

As per an IDC report, the worldwide Ethernet switching market generated total revenue of $6.29 billion in the third quarter of 2016, up 2% on a year-over-year basis. On the other hand, total revenue for worldwide enterprise and service provider router market was $3.56 billion, which grew 2.6% on a year-over-year basis.

While Cisco’s combined revenues out of its service provider and enterprise routers declined 4.8% on a year-over-year basis, Arista’s Ethernet switching revenues grew 31.5% on a year- over-year basis.

Although Cisco rules 53.3% of the market share in the switching business, the company is reluctant to lose business to a competitor such as Arista, which is emulating the moves of the switching giant.

Stock Price Overview

Shares of Cisco have performed in-line with the broader Zacks Computer Networks industry on a year-to-date basis. While the stock has returned 10.7%, the industry generated a return of 10.2%.

The not-so-impressive behavior of the stock could be primarily due to intensifying competition from several smaller players, slowing order growth from service providers and challenges in the emerging markets.

Zacks Rank

At present, Cisco carries a Zacks Rank #4 (Sell).

A better-ranked stock in the broader technology space is Juniper, sporting a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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