Cisco has got a big plan to beat its greatest rival in the next big network market
- It is a good time to buy Cisco stock, advises Nomura analyst Jeffrey Kvaal in a note to clients.
- Cisco is in a good position against one of its most hated rivals, Arista Networks, in the next big thing to come to the networking industry: Networks that operate at speeds of 400 gigabits per second (400G) - four times faster than the fastest network today.
- Cisco has a team of people trying to win Arista customers away with Cisco's 400G tech, Kvaal says.
The time is ripe to buy shares of Cisco, says one of the company's long-time Wall Street analysts, Nomura's Jeffrey Kvaal. In a research note on Monday, Kvaal upgraded the stock from neutral to buy, and upped his price target to $46.
The stock was trading at just under $40 at the closing bell on Friday, and it's been many years since it's hit $46.There are a few reasons why Kvaal has become bullish on Cisco, just in times for the company's Q2 FY18 earnings report on Wednesday.
For one, he likes the company's security business, which he reckons is benefiting from Cisco's new push to sell software on a subscription basis. Cisco is now offering it customers all kinds of extra features and services when customers choose to buy an upgraded subscription of its software. For instance, Cisco premium subscribers get access to services like its Encrypted Threat Analytics, which helps companies analyze encrypted traffic to find viruses and other malware.
For another, he believes that Cisco's flagship networking switch for the business, the Nexus 9000 - as well as its corporate WiFi equipment - will continue selling well. Companies are shifting ever-more of their IT to the cloud, which will cause them to slow down on buying data center equipment like Cisco's networking gear, However, Cisco may not see a hit from that trend that for another year or two, Kvaal believes. In fact, he says, companies are beefing up their corporate networks right now to better handle the shift to the cloud.
But the biggest reason Kvaal is hot on Cisco is because the company has got a handle on selling its latest network equipment to the cloud computing providers themselves.
As companies more more IT to the cloud, the big money shifts from selling IT to companies to selling it to the web and cloud providers. Running a cloud computing service requires massively scalable networking infrastructure, and Cisco is riding the wave, Kvaal says, and is already making good progress. Cisco has nabbed Microsoft and Google as cloud provider customers, and is doing well in China, too, notching up sales to Alibaba and JD.com, he says.
Ethernet technology keeps getting faster to serve this need, too. The cutting edge in networking speed right now is 400 gigabits per second (400G) - four times faster than 100G, the current standard. Cisco offers 400G-capable networking equipment, as does Arista Networks, its biggest rival.In September, Morgan Stanley's James Faucette came down as bullish on Arista, saying he believed it was positioned to grab the 400G market, just as it had fared so well against Cisco in 100G. Kvaal says that Cisco has no intention of letting that happen. He writes, "we believe Arista caught a wave with the 100G cycle that propelled strong share gains in 2017. Cisco claims to have teams of people working to prevent the same from happening again with the 400G cycle as it hits scale in 2019 and 2020."
Cisco and Arista have a long and contentious history. Arista was founded by former Cisco star engineers and, under former CEO John Chambers, Cisco created what it called a "tiger team" dedicated solely to competing with Arista.
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