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Arista Networks in the spotlight: a closer look at one of the year’s buzziest IPO’s

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Get ready. Arista Networks, an SDN company that appears to be both fast growing and (gasp) profitable, is poised for its much anticipated  initial public offering. The Santa Clara, Calif. company logged a profit of $42.5 million on sales of $361 million last year, and Wall Street is clamoring to get a piece of the action.

So why all the buzz? For starters, Arista is banking that it can parlay off-the-shelf or “merchant” silicon to deliver the fast performance of custom chips used by Cisco(s csco) and others — but cheaper.  Second, its SDN focus which separates the physical network infrastructure from the management of that  infrastructure, means more flexible and adaptable networks that don’t require as many hardware refreshes. But unlike some SDN players, Arista, co-founded by Silicon Valley superstar Andy Bechtolsheim, has actual paying customers.

The company “has done good work, proving it can build a multi-hundred-million dollar business right in Cisco’s back yard,” said Alex Benik, principal with Battery Ventures.

Originally, the plan was to raise about $200 million according to Arista’s  S1 filing in March but in a revised filing last week it upped the ante to $240 million. The latter document also put Bechtolsheim’s ownership stake in the company at about 22 percent, a detail that was not initially disclosed.

Strong adoption in financial services and Microsoft

By any measure this is a hot IPO. Wall Street companies  — many of which were early users of Arista’s technology — are reportedly trying to snap up as much stock as they can —  The S1 SEC filing names Barclays, Citigroup and Morgan Stanley as key customers. These are the kinds of firms that have a vested interest in running the fastest networks around, as we’ve learned from  Flash Boys, Michael Lewis’s latest book.

But Microsoft(s msft) may be the company’s number one fan. Per the S1:

Revenue from sales to Microsoft accounted for 10% of our revenue for the year ended December 31, 2011, 15% of our revenue for the year ended December 31, 2012 and 22% of our revenue for the year ended December 31, 2013.

These are all impressive name brands, but the reliance on a limited number of big accounts could also be problematic, which is probably why Arista also made a point to note that its customer count grew from about 570 clients to 2,349 clients in the three years starting December 31, 2010.

 A big whoops on the way to going public

The road to the IPO was not without bumps. Earlier this month, Fortune’s Adam Lashinsky reported that Arista had offered “friends and family” shares  to him and other reporters — people who are typically prohibited from owning shares in companies they cover. That plan was subsequently nixed.

And then there’s the puzzling specter of a lawsuit  filed in April by Optumsoft, a software company started by Arista co-founder David Cheriton. In it, Optumsoft charged Arista with breach of contract and misappropriation of trade secrets over the Extensible Operating System (EOS) that runs on Arista’s Switches.

According to Arista Networks’ documents, Cheriton resigned from its board on March 1 but remains the company’s largest shareholder and “we believe, the largest stockholder and a director of Optumsoft.”

Given all this noise, it’s worth noting that there has also been talk that the IPO might not happen at all. Long simmering rumors that storage kingpin EMC(s emc) would love to buy  Arista, cropped up again last week — possibly sparked by EMC’s recent acquisition of DSSD, another Bechtolsheim-backed company. The prevailing take is that Bechtolsheim has enough clout to block any unwanted advances.  EMC could not be reached for comment and Arista Networks declined comment.

That sets up what one venture capitalist called a possible Cisco-Arrowpoint scenario. Back in 2000, Cisco was trying to buy Arrowpoint, which built technology to speed delivery of content over the web — and was reportedly offering north of $1 billion. Instead, Arrowpoint went public but within two months sold itself to Cisco for $5.7 billion.