Why Optical Circuit Switching is Arista Networks’ Long-Term Problem
OCS is not a near term danger to Arista but can pose a structural threat to Arista’s “blue-box” networking moat in the long run.
In last week’s Semi Doped Podcast, I proposed a “4D chess move” that I thought Hock Tan, CEO of Broadcom $AVGO, was playing. Why would a CEO whose company has a strong history of products in Co-Packaged Optics (CPO) go out of his way to play up copper interconnects on the most recent earnings call?
The hypothesis went something like this: if networking went to CPO, then Broadcom’s switching silicon business (even with CPO enabled) is open to disruption by optics-native solutions like Optical Circuit Switches (OCS). Copper staying alive keeps the game on Broadcom’s turf. This has implications further down the stack for companies like Arista Networks ANET 0.00%↑, who buy Broadcom’s Tomahawk series switches for their “blue-box” networking solutions, then layer their proprietary software (EOS) on top.
Later in the week, FundaAI mirrored a similar sentiment in their weekly research note:
If NVIDIA’s ecosystem were to move scale-out networking toward CPO at a large scale, it would likely be negative for Broadcom. On one hand, it could allow NVIDIA to pull more of the switching and optical stack into its own system architecture, weakening the role of merchant switches such as the Tomahawk family. On the other hand, widespread CPO or NPO deployment would structurally reduce the value of traditional pluggable optics, DSPs, and retimers — segments that are part of Broadcom’s existing profit pool.
FundaAI argues that the impact of near-term CPO deployment goes beyond just Tomahawk switches for Broadcom and affects a whole swath of other products geared towards faster copper interconnects such as DSPs, retimers, and pluggable optics. This directionally extends my original displacement theory.
In this post, we go beyond just the copper vs. optics interconnect discussion and look at a higher tier of the AI networking infrastructure. Specifically, we address whether OCS poses a structural threat to blue-box networking solutions like Arista’s, which are especially poised for an explosive growth period in 2026.
For free subscribers:
The Structural Threat: Introduction to Optical Circuit Switching (OCS) as a long-term threat to Arista Networks’ proprietary “blue-box” networking solutions.
Arista’s Moat: How its software prowess as a hardware company creates a moat
Rise and deployment of OCS: Details on how OCS works and its advantages. How Google successfully deployed OCS, achieving 30% capex and 41% power reduction.
For paid subscribers:
Protecting the Moat: Analysis of why OCS cannot easily slot into a spine switch’s role yet.
Near-Term Outlook/Long-Term Contraction: Discussion of Arista’s strong near-term growth driven by AI accelerator deployments, and the real threat to Arista’s high-margin spine switch business from OCS.
Future Scenarios: Three possible ways optics could play out for Arista.
Sell-Side Critique: Commentary that underplays the significance of the OCS threat.
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Arista’s Software Moat
Arista is a networking company that buys merchant silicon from Broadcom, layers its Extensible Operating System (EOS) on top, and works with contract manufacturers like Jabil, Sanmina, and Foxconn to build the networking switch hardware that goes into datacenter racks. The important thing to note is that Arista designs no silicon. They differentiate entirely on software.
Arista’s EOS software is the moat — but it is a packet switching moat: one that is most prone to be displaced by optical circuit switching (OCS) in the medium to long term. Every piece of data flowing through an Arista switch gets broken into packets, and the silicon inspects each one to decide where it goes. At scale, this creates enormous software complexity: congestion control, load balancing, real-time telemetry across hundreds of ports. That complexity is what Arista is really good at, and what customers pay a premium for. Arista’s “blue-box” approach packages a single software platform (EOS) that works across its entire product portfolio. This is an important moat because customers can deploy network solutions at scale with minimal software engineering effort. The added software layer makes bluebox switches costlier, but turnkey.
On the other hand, companies like Edgecore and Celestica provide “white-box” networking solutions: the networking hardware with only a primitive software layer that supports open-source network operating systems like SONiC, leaving the software implementation to the user. White box solutions are substantially cheaper and allow customers to bring their own software if they already have it, or have the means to develop it. Meta, for example, runs their FBOSS software on whitebox hardware. It also avoids vendor lock-in.
Arista is essentially a software company with low capital expenditure, and the business is doing great with the recent earnings call guided $3.25B in AI networking revenue for 2026, doubling YoY. Customer concentration is high, with 42% of revenue coming from just two major hyperscalers (likely Meta, Microsoft). But when it comes to Arista, there are a few important things to note:
Their spine switches are the high ASP, high margin product line. The EOS software is most useful when the complexity is high, like in spine switches that have >500 ports.
The rack switch needs to be updated for every networking generation because it relies on the capabilities of the underlying silicon inside. For example, Broadcom’s Tomahawk 6 supports a total data bandwidth of 102.4Tbps, while the upcoming Tomahawk 7 is expected to double that.
The price premium of Arista switches becomes less defensible at lower network layers. For example, Meta is one of Arista’s biggest customers while also having their in-house FBOSS networking solution. Meta likely uses a hybrid white/blue-box approach where they use lower cost switches in the leaf/top-of-rack layer, but blue-box for spine switches.
If you need an introduction to leaf/spine and networking/interconnect architecture, check out an earlier deep-dive. If you want to go deeper into Arista’s business model, Chipstrat has a nice explanation.
The Rise of Optical Circuit Switching
Optical circuit switches do not deal with data packets in the electrical domain. Instead, they simply redirect light from the input port to the output power using a variety of methods such as MEMS mirrors (Google/Lumentum), liquid crystals (Coherent), silicon photonics (iPronics), piezoelectric actuators (Polatis) or even robotic manipulators (Telescent). Think of OCS as a way to simply steer light in the right direction, and with talk of the emergence of CPO, it allows the entire routing domain to be purely optical while the conversion to electrical signals happens right at the silicon level with the co-packaged optical engine.
One major advantage of an OCS switch is that it will support multiple generations of interconnect speeds like 800G, 1.6T, 3.2T, and so on. The reason is that only light is being rerouted, and the OCS does not really care how fast the signal encoding is. This inherently makes OCS future proof compared to silicon switches that need upgrading with every networking generation.
Google was the earliest to deploy OCS in their Jupiter network architecture of which the OCS part was called Project Apollo. Their early deployments were based on in-house MEMS OCS switches, but of late Google has been switching to commercial MEMS OCS providers like Lumentum. Lumentum’s last earnings call stated a $400M order backlog in OCS hardware that was net-new to the company, from three different customers. Coherent is also increasing customer engagements with a growing backlog of OCS QoQ.
The reason Google is an early adopter is their key early insight in 2022 was that traffic patterns on long timescales are quite predictable and traditional leaf-spine architectures are typically overkill. Because traffic is stable, Google could get away with the downsides of OCS technology because network reconfigurations are rarely required. And when actually necessary, the switching speed from the network switch need not be as fast as what silicon offers, which is good for OCS because many of the technologies currently used are slower. Google’s software prowess and unique network architectures have enabled them to steadily deploy OCS their spine network, including in 3D torus configurations of TPU clusters.
Although Google is currently using OCS in production, adoption in large scale deployments does not go much further than that at present. The other customers in Lumentum’s $400M OCS backlog could very well be Microsoft, Nvidia, or Meta, given their recent participation in Open Compute Project’s recently announced OCS project. Uses for OCS goes beyond spine switches too – with applications emerging in backup pooling, scale out, and when everything goes optical, possibly even scale-up. But by all practical measures, OCS is still in its early days and there are still challenges to be solved.
After the paywall:
Protecting the Moat: Analysis of why OCS cannot easily slot into a spine switch’s role yet.
Near-Term Outlook/Long-Term Contraction: Discussion of Arista’s strong near-term growth driven by AI accelerator deployments, and the real threat to Arista’s high-margin spine switch business from OCS.
Future Scenarios: Three possible ways optics could play out for Arista.
Sell-Side Critique: Commentary that underplays the significance of the OCS threat.