On Thursday, Arista reported glowing fourth-quarter earnings and a healthy first-quarter. The company’s stock was up $4.97 (7%) at $72.96 in after-hours trading.
That’s still off from $73.53 on Dec. 4, the day before Cisco sued Arista for patent and copyright infringement. (The copyright case stems from alleged plagiarism in Arista’s command-line syntax and user manual.) And it’s way off the $93.53 peak that Arista enjoyed in September.
Still, Arista claimed that the lawsuits aren’t hurting business — partly because most of the industry believes Cisco is suing primarily because Arista has become a credible threat.
“I literally had customers comment to me that this is because of our success,” CEO Jayshree Ullal said on Thursday’s earnings call. “The investors are more worried about it than our customers.”
But it’s also true that patent lawsuits can take years to complete. On the earnings call, Arista General Counsel Marc Taxay summarized the additional legal actions Cisco has filed since Dec. 5. It all adds up to “a multiyear battle, and we intend to litigate this in the courts, not in the media ” he noted.
Cisco took its case to the U.S. International Trade Commission (ITC) on Dec. 19, prompting the launches of two ITC actions — one for the 12 alleged patent infringements in the Dec. 5 lawsuit, and one for the alleged copyright infringement. The ITC will hold its initial determination for the cases in January and April, respectively. Any ITC action isn’t likely before mid-2016, Taxay said.
On Dec. 24, Cisco filed additional claims with U.S. District Court in the Northern District of California, based on the same 12 patents, two additional patents, and the alleged copyright violations. This resulted in two more cases — one hasn’t been schedule yet, while the other is on hold until the ITC decisions come down, meaning it isn’t likely to see resolution until 2017, Taxay said.
Arista expects its legal expenses to be $5 million to $7 million during the first quarter.
Running the Numbers
For the quarter ended Dec. 31, Arista reported net income of $31 million, or 43 cents per diluted share, on revenues of $173.5 million. Non-GAAP earnings of 53 cents per share blew away the analysts’ estimate of 38 cents as tallied by Capital IQ.
For the fourth quarter a year ago, Arista reported net income of $13.7 million, 23 cents per share, on revenues of $114.8 million.
Microsoft represented 15 percent of Arista’s revenues during all of 2014 — but that’s an improvement from 22 percent in 2013. Analysts would be wary of any signs of Arista becoming overdependent on Microsoft, which is the company’s largest customer by far.
Arista expects first-quarter revenues to be $164 million to $172 million, a range that would beat the $161.75 million consensus forecast, according to Capital IQ.