Cisco rises as Amazon denies plans to build rival hardware
Shares of Cisco (CSCO) are on the rise after Amazon (AMZN) said it is not planning to start selling network switches to other businesses. Piper Jaffray analyst James Fish sees the confirmation by the e-commerce giant as removing the potential shadow of Amazon on the networking space, with Cisco's main challenge remaining around Arista Networks (ANET) taking market share and shifting its business model toward software. AMAZON NOT AIMING TO SELL NETWORK SWITCH: Amazon has officially denied that AWS plans to start selling network switches to other businesses, according to MarketWatch. "Cisco and AWS have a longstanding customer and partner relationship, and during a recent call between Cisco CEO Chuck Robbins and AWS CEO Andy Jassy, Andy confirmed that AWS is not actively building a commercial network switch," a Cisco Systems spokesman had told the publication, a statement later confirmed by an AWS spokeswoman. Last week, The Information's Wayne Ma and Kevin McLaughlin had reported that the e-commerce giant's cloud unit was considering selling its own networking switches for business customers. The report, which cited a person with direct knowledge of the unit's plans and another person who has been briefed on the project, said AWS' plans could pose "a direct challenge to incumbents in the business-like Cisco." PIPER SAYS FEARS 'OVERBLOWN AS SUSPECTED': In a research note to investors following Amazon and Cisco's confirmation that the former is not entering the network switching market as previously speculated, Piper Jaffray's Fish argued that the new information removes the potential "shadow of Amazon on the space," making second quarter earnings more about the fundamentals than competitive hype. The analyst noted that he continues to recommend Cisco and Arista as his top networking picks as he had suspected the fears were "overblown" around Amazon. Additionally, Fish pointed out that whitebox switching has consistently represented less than 3% of the overall switching market and has not had as large of an impact as many suspected. Overall, with the removal of the Amazon threat for now, Cisco's main challenge remains around Arista Networks taking market share and shifting its business model towards software, he contended. WHAT'S NOTABLE: Commenting on the first media report pointing to a potential Amazon entry into the network switch space, JPMorgan analyst Samik Chatterjee previously argued that Arista, Cisco and Juniper Networks' (JNPR) underperformance was "largely led by panic," as the overall financial implication of AWS' supposed entry into the networking equipment market on branded switch manufacturers would be limited. The piece of data center capital spending from large enterprise customers that AWS was thought to potentially target is only a $2.5B opportunity relative to the $12B data center switching and $16B campus switching market, Chatterjee said. PRICE ACTION: In morning trading, shares of Cisco have gained about 1% to $42.57, while Arista's stock has gained over 2% to $280.29. Shares of Juniper are fractionally down to $28.11.