Arista Networks (ANET) stock sold off Tuesday after a setback in its long-running legal battle with networking leader Cisco Systems (CSCO) that could halt U.S. imports.
Arista's shares, which touched an all-time high of 103 on Jan. 5, plummeted by 12% to 88.23 on the stock market today, at a nearly two-month low. Arista went public at 43 in June 2014. Arista Networks is slated to report December-quarter earnings on Feb. 16.
Cisco stock edged down a fraction Tuesday to 30, short of its 50-day moving average, a key support line for any stock.
Arista sells network switches that speed up communications among computer servers packed into the data centers. Amid the legal battle with rival Cisco, Arista Networks has rushed to ramp up manufacturing within the U.S.
The U.S. Customs and Border Patrol agency late Friday said it would reinstate an import ban on Arista switches, pending further review, due to some "concerns" that its earlier decision in November to lift the ban was "incorrect." Cisco hailed the latest development in a blog post Saturday.
If the CPB reverses its earlier ruling, Arista would no longer be able to import products for sales to U.S. customers.
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"The good news is that Arista's U.S. contract manufacturer is up and running, which enables the company to supply its U.S. customers," said Jason Ader, a William Blair analyst, in a research report Tuesday. "The bad news is that legal uncertainty has reared its ugly head (just when we thought legal risks were subsiding), while both supply constraints and gross margins could be worse than expected in the near term."
Arista Networks has denied infringing o Cisco's patents. It also says it has modified its network software to resolve issues. Many of Arista's senior executives come from Cisco.
An International Trade Commission judge ruled Dec. 2 that Arista infringed on two Cisco patents. The ITC judge's ruling is subject to full commission review, which is expected to be completed by April 9.
However, an eight-person jury in December ruled that Arista owed no damages over Cisco's claims of copyright infringement.
It is important to understand that CBP has not ruled that Arista's products infringe," Arista said in a statement. "Instead, CBP has expressed concern that its original ruling was incorrect, based on input provided by Cisco.
"It is equally important to understand that Arista has not yet responded to Cisco's arguments and has not yet had an opportunity to address any concerns Customs may have as a result of those arguments. We look forward to engaging with CBP in the coming days, and we are confident that CBP will diligently and carefully evaluate the facts, as they have done throughout this process."
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