The Street is mulling Friday's story by TheInformation saying that Amazon.com’s (AMZN) Amazon Web Services unit is “considering selling its own networking switches for business customers,” in competition with Cisco Systems (CSCO), Juniper Networks (JNPR), Arista Networks (ANET) and others.
There’s some debate today about how serious this move by Amazon, if true, would actually be.
Arista and Cisco shares are actually bouncing back from Friday’s sell-off, with Arista up $6.13, or 2%, to $272.62, and Cisco up 90 cents, or 2%, to $42.68. Juniper stock is up 3 cents to $27.89.
Juniper, I should note, is the first of the three to report earnings this season, scheduled for July 26, after market close.
Among those rather concerned about this are Credit Suisse’s Sami Badri and Mitchell Li.
They opine in a note to clients today that "this could be a formidable competitor to industry incumbents,” especially because of the software Amazon would presumably put on the switches, its "Software Defined Network,” or SDN, code, which underlies Amazon’s own operations.
The authors think Juniper is "most exposed to this development," with Cisco and Arista being in a “better position to compete given their solid switching products, strong customer following and installed bases."
They rate Juniper stock at Underperform given it has a "small footprint,” and that its networking-software code is "less established” than Arista’s “EOS” software and Cisco’s “ACI.” The latter two "address key customer demands with very well engineered solutions."
Less concerned is JPMorgan networking analyst Samik Chatterjee, who thinks the sell-off of networking stocks Friday was "largely led by panic relative to Amazon’s entry into any new market segment."
The "overall financial implication” of any AWS switch gear is “limited,” he thinks.
For one thing, customers would need to spend a lot on operating costs to maintain the so-called “white box” switches that AWS is presumably developing.
"One of the primary reasons that white-box hardware has till date seen traction primarily with cloud companies is due to the large IT resources required to support the implementation,” observes Chatterjee.
"Only large enterprises will, in our view, be able to dedicate enough IT resources to pursue such an implementation."
For another thing, this is not new technology, he points out: white-box switching equipment has been around for a long time now and is 11% of the market for "data center" switching.
