March 7, 2012 / 9:55 PM / 6 years ago

Arista Networks fends off buyers, looks at IPO

NEW YORK (Reuters) - Arista Networks, a company formed by Cisco Systems Inc (CSCO.O) veterans that makes fast network switches used in high-frequency trading, has rebuffed takeover overtures from larger rivals and is instead having internal discussions to go public, possibly as soon as this year or early next.

“We are profitable,” Chief Executive Officer Jayshree Ullal told Reuters, “and what we are doing is taking that cash and investing it back into the business and R&D and sales and marketing.”

The fast-growing company is considered one of the top-tier takeover targets in Silicon Valley, although it is not under pressure to sell because the founders are also the financial backers, sources close to the matter said.

Ullal, who joined Arista in 2008 after more than 15 years in a number of senior roles at Cisco, said going public would help increase awareness of the company’s brand.

Like Facebook Inc FB.N, she said, Arista’s shareholders will eventually exceed 500, the number a private company can have before it must start disclosing financial information to the U.S. Securities and Exchange Commission.

Arista introduced its first networking products in 2008 and has doubled its revenue every year since, Ullal said.

The Santa Clara, California, company counts Andy Bechtolsheim, a co-founder of Sun Microsystems and one of the first major investors in Google Inc (GOOG.O), among its venture capitalist founders.

Arista is one of the first companies to build software around silicon from a third party such as Broadcom Corp BRCM.O. The result is a high-speed network switch that has found applications in high-frequency trading at exchanges such as the Chicago Board Options Exchange.

Rivals Cisco and Juniper Networks Inc (JNPR.N) are following Arista into that sector. Last year Cisco launched its Nexus 3000 series, which was especially designed for the high-frequency trading market, and will release Jawbreaker, its next-generation switch later this year. Juniper also released a comparable application called QFX 3500.

“Arista’s strategy makes a lot of sense,” said Morningstar Inc analyst Grady Burkett. “They don’t have to spend a lot of money on hardware development. They are attacking one very specific segment of the market. And they build software from the ground up.”

Arista joins many other Silicon Valley companies looking at going public on the heels of Facebook’s $5 billion filing earlier this year. They include security software maker Palo Alto Networks, technology management software maker ServiceNow and human resources software provider Workday, sources familiar with the situation said previously.

But unlike some of these other companies, Ullal said, Arista still has some work to do -- including finding a chief financial officer -- before it can go public.

Arista will also look to expand its five-member board in the second half of 2012 or early 2013, around the timeframe for an IPO, she said.

    CISCO DNA

    Bechtolsheim and David Cheriton, a computer science professor at Stanford, invested $100 million to start Arista in 2004.

    Bechtolsheim is the chairman of Arista, and Cheriton is its chief scientist, the person behind its Linux-based network operating system.

    Both Cheriton and Bechtolsheim spent several years at Cisco after the giant networking company acquired their companies in the 1990s.

    Chief Technology Officer Kenneth Duda spent almost three years as a software engineer at Cisco, and Arista recently hired a 15-year Cisco veteran, Christophe Metivier, as vice president of manufacturing.

    Ullal also appointed Dan Scheinman, who spent 18 years at Cisco, to Arista’s board in November.

    “Dan, like many members in the company, has a lot of Cisco DNA and remembers what it was like to scale the company and prepare the company for explosive growth in the 1990s,” Ullal said.

    Additional reporting by Nicola Leske; Editing by Lisa Von Ahn

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