Arista (ANET, Financial) designs network switches, routers and associated software that play a critical role in the internet infrastructure of large enterprises, and especially “cloud titans” such as Microsoft, Facebook and Amazon. Run by one of the more impressive management teams we have encountered, Arista essentially stole a march on incumbent leader Cisco at the high end of the market by combining innovative software with exceptional execution. Extremely high customer concentration—the company calls its big accounts “titans” for a reason— can make this a volatile business over the short term, which is why we were able to buy our stake after admiring Arista for many years. Over the long term, we expect continued adoption of cloud services, media streaming and AI-driven “hyperscale” computing to drive strong demand for Arista’s products and ultimately attractive earnings growth relative to the price we paid for our shares. We also expect the company to maintain its competitive advantage in its core high-speed switching markets while it continues a nascent push into corporate datacenters and campus networks.
From Ruane Cunniff (Trades, Portfolio) & Goldfarb's Sequoia Fund fourth-quarter 2019 letter to shareholders.
