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ANET Arista Networks

Participants
Charles Yager Director, Product and Investor Advocacy
Jayshree Ullal President and CEO
Ita Brennan CFO
Anshul Sadana COO
Simon Leopold Raymond James
Tim Long Barclays
Ittai Kidron Oppenheimer
Samik Chatterjee JP Morgan
Alex Henderson Needham and Company
James Faucette Morgan Stanley
Aaron Rakers Wells Fargo
Alex Kurtz KeyBanc Capital Markets
Tejas Venkatesh UBS
Jim Suva Citi
Rod Hall Goldman Sachs
Amit Daryanani Evercore
Brian Young Deutsche Bank
Paul Silverstein Cowen & Company
Jeff Kvaal Nomura Instinet
Sami Badri Credit Suisse
Erik Suppiger JMP Securities
Tal Liani Bank of America Merrill Lynch
George Notter Jefferies
Hendi Susanto Gabelli
John Marchetti Stifel
Andrew Vadheim Wolfe Research
Call transcript
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Operator

Welcome to the Third Quarter 2019 Arista Networks Financial Results Earnings Conference Call.

During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. [Operator Instructions] As a reminder, this conference is being recorded and will be available for replay from the Investor Relations section at the Arista website following this call.

the to turn now will call Mr. over I and Yager, Director Advocacy. Product of Charles Investor begin. may you Sir,

Charles Yager

Thank afternoon, operator. you, Good joining you us. for everyone, and thank

Networks’ Officer; on and Chief me today's are Ullal, With call Financial Officer. Chief Ita and Arista Executive Brennan, Arista's Jayshree President

third Networks fiscal ended afternoon, for Arista announcing results XXXX. a issued This September release XX, press the its quarter

website. If it online access release, you you can would like a copy the of Company's the at

including those the we the of statements will SEC, detail conference with Form those make for Arista outlook of call, the XXXX actual longer documents term of these to management to filed course in financial discuss innovation, specifically Networks’ relating XX-K, the benefits our cause the results litigations, outlooks, Form impact materially acquisitions, During are this of opportunity, uncertainties differ year, quarter in and and financial our to industry which in forward-looking XX-Q the fourth subject market most the recent our statements. from our fiscal recent risks could and by which that anticipated and

exclude future. this forward-looking non-GAAP undertake update certain as and of today, the on them charges. a basis use are obligation and certain no These to financial call. after have on as Also, representing we statements please these on views measures in should statements not to our been call expressed you apply rely We note adjusted this

measures have our We these of release. financial GAAP provided reconciliations in to non-GAAP earnings press measures financial

to call over the turn I'll Jayshree. that, With

Jayshree Ullal

XXXX quarter joining Thank afternoon Charles. our this earnings third you, everyone, call. for us Thank you, for

of to again earnings a of $X.XX. once contributed a per approximately growth revenue share combination Our demonstrated with with grew was non-GAAP a revenue. Services XX% record that million profitability $XXX.X non-GAAP

performance delivered titan our cloud enterprise gross of solid a from margins XX.X%, and non-GAAP verticals. by influenced We

of one a expansion In drive to to quarter. customers rate of throughout day customer at this QX logo new terms per we customer new number the trends, and the of record registered in continue two

be The our greater and QX, largest to XXXX, we remained expect calendar Microsoft service third tier of For cloud the XX% do vertical now In than fifth at customers and will is fourth our cloud X segment financials and providers place titan segment one. modern place. second consistently our that revenue, in provider coming have two with specialty largest enterprise in becoming Facebook. and

In the of international with was Americas QX, geography, in contribution XX% the XX%. at terms

introduced places to CloudVision as CloudVision important In the cloud terms in our in across [ph] it. Arista’s enhancements and world CloudVision analytic and The tasks have we cloud operations network network these advancements XXXX. many operators the or the of providers principles largest for cloud of bringing operations ante new platform, call to telemetry of PICs, products, to same sizes. is organizations in ups to driven capabilities automated telemetry the enterprise deliver the the in network CloudVision improve enterprise. many that the we

bring to agility, SDK devices can Key CloudVision capabilities open platforms scale, metrics enterprise. highlights from dynamic we the and XXXX where integration across entire SNMP-capable managing multi-vendor including elastic deep divide and of visibility, include visibility third-party

for further specific a were color pause the QX a XXXX, cloud guidance, XXXX titan’s like in we After titan to we on in cloud some drop. spend. I experience XXXX recovery would significant our of half second offer orders given QX expecting

evidence good In of that. fact, QX XXXX is a

XXXX both reduction in a a original of XXXX. strategy procurement demand we dramatically their reducing material calendar in for cloud second for QX with recently were projections forecasts a shift However, and informed from from titan,

Naturally, guidance. to this brings of QX type impact a sudden our volatility and severe

should the XXXX. be in titan flat this forecast segment, of believe cloud cloud Given calendar to this tepid forecast as and modeled volatility we down

remains switching for share opportunity want take overall to solid and to both strong. reiterate that market do our XXX-gig an high-performance I and

which are year of shipping first Cognitive strength on for very our portfolio enterprise segment growing first products, in and of financial now shipments. proud Campus the quarter million success of full in in We is our the with track $XXX

like that, Ita for I'd to financial to it specific turn more metrics. over With

Ita Brennan

and afternoon. good Jayshree, Thanks,

our our analysis impacts, This our for acquisition-related release. earnings XXXX non-cash guidance non-GAAP other in our all is and and to A charges on of full GAAP items. non-GAAP QX based stock-based QX reconciliation results and excludes compensation provided results is certain non-recurring of selected

reflecting the guidance quarter, Service service strong, above from Total remained to revenues down of of up million seasonality renewals. $XXX.X of last year-over-year in were our revenues $XXX XX% $XXX revenue, XX.X% QX million, representing midpoint million. typical and of XX.X% approximately

healthy for came revenues in cloud performance revenue, of Overall million the guidance volatility our largely down is was U.S. gross the prior This the margin total above titan deployments, shifts mix our QX down of to geographical This XX% or verticals. in slightly quarter period. cloud by XX% combined good $XXX.X midpoint International contribution quarter. in enterprise from in and titan XX.X%, XX% financial in a driven of towards with at reflects from and business. from XX.X% last the our XX%,

or growth revenue, levels the last in slightly $XXX.X prototype the up product-related million at higher expenses XX.X% or and came from spending reflected from and of Operating for of slightly million quarter. spending quarter at quarter were up $.X period. XX.X% $XXX headcount $XXX.X last NRE of This million. a in million revenue, R&D a

Sales million in increased last offset with and X.X% reductions somewhat revenue, marketing by from costs. quarter, or sales headcount $XX.X expense other was up of

consistent were million, or approximately costs last $XX at X.X% quarter G&A Our revenue. of with

rate income in net of $XXX.X $XX.X of favorable and Our XX.X%. and the a our for effective quarter million, XX.X% This resulted revenue. or operating expense was income for the of income for million, XX.X% approximately tax quarter the Other $XXX.X million was or was quarter revenue.

for Our $X.XX, in from diluted number a share was share quarter quarter prior resulting earnings XX.X% XX.XX for the number shares, year. million diluted up per the the

the of weighted average $X.X approximately a We quarter, the million at the Now, balance $XXX quarter per repurchased during equivalents a cash of investments billion. turning $XXX and to at stock price share. common sheet. Cash, ended our

‘XX. As has program will This flows. a cash a operating funded authorized of repurchase reminder, us of in be and with Board to stock common commencing allows $X opportunistically our billion our QX repurchase Directors stock three-year shares program

X.X turns Inventory quarter, QX, million in period. We to strong income million from at quarter. in in down in timing were days, XX cash $XXX capital reflecting of last the reflecting performance $XXX.X up X.X the from the a up approximately million prior of quarter, net billings DSOs from decrease $XXX.X in working decreased period. and million. came from generated third operations the Inventory of the $XX in times, requirements XX days

million, balance million $XXX.X QX. from deferred up revenue was in total Our $XXX

the statement reminder, with is the our in of any a revenue first half product amounts been exclusively the income As deferred almost deferred now balance services having significant year. recognized through related revenue

the of payable the payments. for days XX down XX million. receipts Capital were Accounts were [Ph] days, expenditures timing inventory QX, in and $X.X from reflecting quarter days

Now, turning outlook for to the our fourth beyond. and quarter

volatility key our continue our share a for XXXX a and year-over-year demand of recovery titan. down remainder result are paused demand strong reduction indications who [indiscernible] being from We likely for saw from business. forecast QX another this XXXX. of from for in and Arista by in second customers flat to had dramatic of from customer significant We to basis the XXXX not but be do activity the on part cloud quarter the surprised into experience business only All will these positioning at these the actions to in

this to at overall not make points. to guidance we're position we did While a the point following want in provide for XXXX,

and revenue impact deferred its on recap a Firstly, XXXX on results.

product outlined revenue redesigns year revenue $XX deferred customer was QX in deferred, calls, which non-Microsoft amounts of ‘XX, in features. and represented million prior the in recognized pending of product bills acceptance and QX As prior $XX million respectively. sales, These for legal and ships we and

in for to [ph] revenues While not X% up this growth, approximately XXXX update typical recent this our of and the cloud above, QX some combined revenue At in believe comps first at QX XXXX. forecast of tough does XXXX described point, may ‘XX the this first level. quarter seasonality we cash quarter for result set trend with the year-over-year impacting particularly metrics,

to driver. On the margin gross our overall of we front, being reiterate with mix key gross XX% XX% outlook the margin would customer

growth manage in the We prudent to sales market will expand coverage need our investments continue with and in balancing with headcounts the R&D targeted carefully business financial to management.

repurchase Finally, an you stock should manner. the us mandate expect executing continue in against to see opportunistic

items all gross margin backdrop, approximately margin non-cash approximately is based of With excludes non-recurring a is follows: as our XX%. impacts $XXX XX% million quarter, of this of as guidance to the to which of XX%; operating Revenues and $XXX of million; approximately on other stock-based and compensation results fourth any non-GAAP

of shares be Our XX.X% million. effective to diluted is tax approximately rate expected XX.X approximately with

now Charles. turn call to the will Charles? back I

Charles Yager

Ita. Thank you,

everyone to single of portion Q&A constraints, the to to call. limit please move to a themselves like Arista to going that time I'd Due now We’re the conference request question.

from Raymond Simon the of [Operator Leopold instructions] Your line question first with James. comes

Your line is open.

Simon Leopold

very you on for much and the given I call. taking the appreciate us added this question. you've disclosures details Thank

So, be of business as encouraging, digits commentary, going scale thanks indicator, double the XXXX to could XXXX seem web given CapEx at that a a for understanding looking terms the back the for year wanted an at that. guys. and for in maybe Azure I of revenue AWS be get suggesting better better to CapEx least forecast lines or like

and what cloud cautious Just trends revenue healthy square wondering to from web your Thank how trends more you think looks titans? better the we you. like spending should tone capital on the relative

Jayshree Ullal

which Thank There's QX explain, recent CapEx is calls, lot of trying consistent actually the overall going flat flat is to but a down reported of we're cloud is the down, forecast I [Technical down. down quite for for you, same our as trend Simon. overall to volatility year overall cloud projecting Well, many to titan was next on for in and spend. trend CapEx Difficulty] going QX the that with

nearly have Now, prior you a point were tracking [Technical Difficulty] CapEx, the we one of well. in --as remembered view from as that networking you this, may as of years nil cloud know, not things

not to there's we're some And redistribution to is correlation. in in cloud networking. not what to one CapEx that So, the a cases, seeing one infrastructure,

could initial as this believe look reasons second half in we and more and deployments why that you are XXXX, cloud by initially year customers deployments predicted we for products think is it’s start XXXX. use down of had So, if the the investing to mainstream year. two We And titan many aspects. buying slow But, early because purchase have adoption. will infrastructure extending XXXX. XXX-gig network at other trials year, delaying also this will second as or are than longer the be other it in initial production half a server XXX-gig shipping shifted we of second And the the assets the their

customers change us XXXX. causing the their investments in to is and So, be XXX-gig the extending muted more of deployment about

Simon Leopold

that. for much very you Thank

Operator

Long Tim from comes with Barclays. question next Your

Your line is open.

Tim Long

could [Technical it as had they're as flat just I to more sudden to business well. Difficulty] Number change? highlights cloud it -- If this is up customer recent it you spending even And maybe Thank talk their seems secondly, down risks trend large it just said, could a titans as just little why changing? has is just other bit for the a doing changing, you. two-parter. do about some than that And or a again, one, as it, visibility Any think the the is is that on customers? follow of you to more tail you long a the the

Jayshree Ullal

Okay.

cloud going there to forecast I'm the to So, reasons, elaborate. and titan ask to expert think, main dramatically, reduced I specific were cloud our and whose Anshul, two COO

they to is, just-in-time managing more and type inventory of forecast. the CapEx shifting the and First a for modulating networking are

spend real So, quarterly intervals. forecast three And typically, visibility, us they're this [ph] even is time delaying four, moving by particular do to the get extending significantly you extended, now, Anshul, assets and a two-quarter that? server titan they more sometimes much And want network than the at is, that year. second too. a their assets to and gave cloud server is once to add more the

Anshul Sadana

now, right [ph] one well, server server. enough is this cloud upgrading network they doing we’re they might decision request generation, in want but request delay specific Jayshree, the that’s as didn’t for the seeing right. absolutely see they the titan, impact ROI and to they are the upgrade because rate just The not

Jayshree Ullal

will the And But, to flat, stronger, will part answer your other weaker. Tim, be some we some on will so, cloud of titans, that see all think of question, the we be average to be flat down. some other

Operator

Ittai from comes Kidron next Your Oppenheimer. question with

open. Your line is

Ittai Kidron

needs visibility, to on Hi. I but want moving still the business that I then up have guess, to that your business, you come means here, recent shouldn’t explanation your I to of CapEx not just-in-time, long you Jayshree. was, affect where your follow in, might customer? mean, there to of that with and keep moving of that building. was this titan guess, business build upgrade the refresh just bulk kind as new no cloud server is with I platforms, the cycle, existing as refresh

Jayshree Ullal

is it got you connectivity. first of us -- Bulk always to network. is servers it was of Bulk for layer, to put multiple there a of the obviously levels build

The second data layer and sign Difficulty] usually regional is center [ph] [Technical

Operator

by. gentlemen, please stand Ladies and

currently are conference will We resume Thank for facing patience. you difficulty. monetarily. technical The your

Jayshree Ullal

Ittai? Did you hear the answer,

Ittai Kidron

Yes.

If could everybody you in said. I it? hope mail. repeat wasn't something got the I it think, disconnected I

Jayshree Ullal

question No. now repeat to But, answer. your have I to the remember

Ittai Kidron

just no again, is, the regarding reiterating new is are question we refresh, new build business them, to nature is question build, greenfield The with your with there it the of them? tied sever

Jayshree Ullal

have and start clearly is, we answer with storage, Yes. network. -- servers the with No. if you don't the And connect can't don't

nature spend, which the be to the But, with turn layers as regional our networking which cause is of titans and additional starts use spend network creates the more titans the spend. So, symptom, the aggregation cases well. in of correlated server can or that's

Now, mean centers. that they new data spend on doesn't don't

to the networking or then they network, to buy into XXXX infrastructure first will of have they that will serves reflects correlated we're the most the time. spend well in a late could But, buy including for centers. to CapEx go the new think, fashion and XXXX, the Because many titans, to servers which they one I healthy data that new back cloud likely. take the have discussing, of

Ittai Kidron

you could follow-up, just a Microsoft it mean JEDI won at how the and does what contract, your do that to what you, for look as that Maybe do business?

Jayshree Ullal

team that large and contested. first these that. certifications hard get on pleased they very the partnership contracts We’re with our with very vendors. the with that, thing And titan federal you said Anshul Having as imagine, can cloud happens work is and

take be the months. to see while material given, XX So, may award for think us it will benefit, we may be time to X

Operator

next Chatterjee question comes with JP from Your Samik Morgan.

Your line is open.

Samik Chatterjee

cloud visibility Just volatility wanted of what It Is the on you’re you forward? titans, the I your stability the sounds have like that seeing in if see them. that of segment about terms you terms moving And kind going commentary can you drive or fair, beyond from in X to spending more or cloud spending focus on this patterns just what on ask side? about providers. from and more tier to that elaborate you does more

Jayshree Ullal

Yes. Samik, you. thank

providers majority in tier our titan, place. While Xth Xth came guidance specific was the at that and of due providers cloud the X commentary my to you the specialty might service noticed cloud both and in have

deadlocked. been this specialty have think first the view, the [Ph] providers my the is And segment X the weak have is results tier I time been mixed. cloud and in

economics matter own are ones public well which tier to from X companies and now or ‘XX rely in cloud I their -- growing for started new having cloud the sense, do of cloud decide on go titan. review XXXX a they and investments the more their think, company specialty very that to us make

the And X some it tier to difficult some this are compete, continuing finding are of strategy. with companies

a for is us. And much in this it don’t bag especially from QX, So, we expect category. success mix

Operator

next comes question and Company. Alex Your with from Henderson Needham

Your line is open.

Alex Henderson

in is cloud around sustained here no hoping a there around your spend how of that get extent you we you -- that, do was competitive customer? time share can you and little clarity at relative this are that confident fact it, could what that’s To you judge that to issue. have arms How causing I point? bit incursion

Jayshree Ullal

Microsoft, their always in confidence, the have have of see is as we to very cloud but they’ve changed in Facebook the and is just or you not continue a that cloud are business. case requires competition spend general. with to From us partnership know differently engineering aggressive But, will our always engineering, question. a their gives and in only and in distributing not generally, dynamics vendor relationship delaying pride aggression And Alex, close really the the ourselves what a especially perspective, partnership of competitive that’s not which customer co-development there. We good titans we been kind the CapEx titans. or relationship cloud

that, procurement, is box optimization there has been behavior, art, change. wise, look in There better when evidence et or been these is There So, change. at in cetera. white it that be customers you better there multi-sourced is than no we’ve the different in inventory there competitively relationship, process has seen any isn’t innovation. And you cloud can any always want past expect to but management,

trials. and products XXX-gig lot in of them a XX have We are

better. the Anshul, and to couldn’t you to So, add technology be that. do relationship partnership want

Anshul Sadana

well work direct as customers as changes working have of a It’s when And to with the demand these back the they are share, with customers. XXXX point these that of making aware architecture alternate there are the now, very customers that has right as and confident with customers that we down. well, closely well on simply us. along demand and our Alex, we collaborate that to we’re displacing very is quite roadmap well, feedback from gone we no that's these since comes very

customers well. worried and So, pretty their direct someone about else, as This is our not demand share the reduced. we're to going it not are

Alex Henderson

very much. Thank you Okay.

Operator

Your James question with Stanley. Faucette next from comes Morgan

Your line is open.

James Faucette

this a even opportunity permanent the the that is servers get change and in, to that we replacement by to On pull-ups the for guess, upgrade equipment, related and their architecture to come that or how back, cetera? cycle? they'll cycles, obviously, need how other sense related implementing -- somehow come networking, about to add just think already and been customers with asked. or back my at a is doing they're is frequency Adding so of trying strategy the and much. we're the looking this should capacity and additional lengthening as very what they're to Thanks questions have et this servers, networking current the what I I'm what extension,

Jayshree Ullal

Yes. Good question, James.

server years. in -- I cycles server server XX know no three the a server because have of In choosing server vendor, least are may there they to this delay at vendor, They in to -- new that go and case, particular by in generally, get that. is months and upgraded change the deployment emphasize to of that to You several tend And architecture timeframe. year. architecture, type this

change no is architecture, servicing, delay really but a of more, no no spend. a less, network So, in delay in it’s which causing

Anshul Sadana

Great. And balance need year then, not the If IO until so servers. out, refresh. estimate, from there’s need server, near as is that these they one things that long IO on. on But do has start some much short-term of they are planning impact the run, may their do term they in type this no these new cycle

Operator

Aaron with from comes Fargo. Wells next Your question Rakers

is line Your open.

Aaron Rakers

the Thanks for shift question. taking bit. Maybe little gears a I'll

outlined Company’s just kind margin really yourself you thus next kind move far? be -- alluded And campus take of model as into about think curious, would next commentary any to required of rates seen a position to about for campus profile just the As do you the I you've year. ramp kind kind investments how of previously of do on growth active that that project we year, into think the protecting I'm the the and the stance And, and that just more looking how you've Company?

Ita Brennan

the take Yes. I'll and Jayshree question. take campus the then, model question can

as model. the as operating we for some model business forward, as about the I we think believe and XX% margin time, talked in we long-term about operate about talked hopefully that the or can go minus far think we we plus we As

of We reductions guiding QX, revenue, XX% in with even for right. kind are the

expect up I you have But, recently. XX% to margin think XX% do probably flexibility you and more we So, putting won’t there. the see we've type operating that numbers some that have been

we continue So, to will targeted. make will investments be that

go in can we and et and because within R&D as invest to that cetera But market on headcount envelop. forward, side think important continue think that's as it us see we You’ll still we well. we and do sales

Jayshree Ullal

shipments we QX are for in our campus, And existing campus me What on to $XXX opening new. was first half half our said marching regarding quarters. are the my I but quarter. customers four pleasantly remarks, are first well million acceptance the as surprised is in

I If existing. you would have that, ask to forecast embedded were thought be I have that. wouldn't to would XX% me

our So, of campus. getting we're really a lot in interest

but segment would In enterprise of data reasons the fact, will small number only in is we of two enterprise workloads campus say, will can two architectural because that strong center, each the numbers QX relevant believe guide we versus the and campus both, I the enterprise, I our not public one more but influence is that shift and to the because the in of other, private. become in

at and on think, us and is CloudVision. our differentiated. I why, cognitive Wi-Fi architectural, when look I The displaying very both we're POE the really to switches

customers software So, on on much the with together on really an bringing appreciating our flow integration center. driven analysis, secure, differentiation data integrated are did security, cognitive, we like

So, progress execution and we like there. early our

Operator

from question next comes Your KeyBanc Kurtz Markets. Alex with Capital

Your open. is line

Alex Kurtz

question. I historically more driving understand is that Thanks. Yes. I part all and they what's then, go into downside their the second than that that's not is, spend clarifications a wanted the as of level you account into of the year, the from I Microsoft And to here sure earlier saw QX the make XXXX? guess largest we that disruption just customer. context this the given in have of

Jayshree Ullal

Yes.

So, not that we just it’s cloud it’s a one Alex, to second the had the time QX... last titan, clarify, the mentioned

Alex Kurtz

Right.

Jayshree Ullal

we expect we’re for Facebook. to -- which north XXXX. projecting new will to customer be expect Microsoft, second concentration fully have to a titan specific of a customer them be we XX% cloud And, And

Alex Kurtz

any read spend what normalized -- of we year, just them? how more into kind returning do the early on to in XXXX just around this And XXXX with Microsoft, given disruption Jayshree, saw you

Jayshree Ullal

few Anshul, a words? do you want to say

Anshul Sadana

Microsoft, a on don't we then is are they so Alex, there nothing no, Sure. different long-term have but for guidance a pattern. usual far, spend

than… other not we given So, any have

Jayshree Ullal

no pause, not yet. blip, No

Anshul Sadana

correct. That's

Operator

Your next Venkatesh question UBS. Tejas comes with from

open. line Your is

Tejas Venkatesh

you. Thank

growth in to year years, contributed the vendors of cloud this the I the fundamentally anything asked content strong on vendor, the sort because reflect growth sort hiccup. you different very cloud we probably fundamentals bandwidth of One had cloud technology was -- has some changed? public vendor. of a have cloud drivers other over two that As have

So, drivers different seeing the pause. and you’re of is change? any yet there completely sort fundamental So, technology [Ph]

Jayshree Ullal

see change. Tejas, don't fundamental any I

our I TAM strategy in is valid. is think,

strategy their want think, and that don’t the feed I process, or the they very to other see has is more more more are would invest, optimization, to hygiene. Perhaps strong, change they more only care years. discipline, change. I five I adding any more allude four been last into their forecasting, But,

I as scale know will But, spend think, invest they are with mean equally they continue very they to and well. you doing doesn’t all that well.

Anshul Sadana

as their out tied and and of these more it no And refresh. with right was the with Tejas, and be to do standpoint financial for the cloud there to AI instance need. is need, for customers is internal fund. workloads well backbone their traffic a And the growing, more and you’re now as storage as both model there expectations you always pause, was QX networking planning, going But is need the in video second architecture when in networking. with is engineering traffic server nothing growth mentioned, and planning bandwidth long-term now some and change there from inventory titan other bandwidth I or to very seeing

customer this seeing the back do So, wait come trend not to refresh. obviously we're we and that But for change. have

Tejas Venkatesh

spending? any market share you. in elongation are and is Thank that realize follow-up, deal any of at change lower, enterprise your a I forth so you all? quick seeing And but

Jayshree Ullal

Too early.

bellwether you we As are the on enterprise. say, not

we change. we're not So, think are I we understand the new best cloud and products, indicator the of new better. we probably entrant much have Because

Operator

Suva Citi. Your Jim next question comes with from

open. is line Your

Jim Suva

I the one tier cloud challenge titan, both, maybe there of visibility this just won’t that cloud titan why change titan? of question. and this any The you, Jim. Thank risk won't other type Is in of second cloud or spread? it the the spread strategy even picture, have to why

Jayshree Ullal

will elaborate. comment have Anshul will I I Jim. you, Thank and

I quarter. the lot to answer see it two anyway, this titan, we that think, no, optimized a With of is, of short was one they’ve don’t risk visibility quarters. particular because

a since relying and quarter always on with that them. shift. were been particular dramatic if one how refinement see be change one system we belief it’s or and you big So, a would on plan or don’t further always cloud only, change big bigger two-year forecast a to customer we But titan and our two one to this quarters

Anshul Sadana

this in And own might purchases and facilities have going respect networking and data And to they other and is titans. their optimizing of past. center how their process then, their on internal issues fixing processing any planning are org, This not to cloud our with they the plan they live. had does apply

company, industry technology So, or very trend specific trend. not organization issues a in a an

Operator

comes Rod with question next Your from Hall Sachs. Goldman

is line Your open.

Rod Hall

what maybe around I with and wanted about with this. on you're to just playing the just implying verticals here check what you’re thinking thinking growth in I’m XXXX,

the or of you you end if that’s are next even so part could us then so better And for year, with about through you’re revenue you or guidance wonder put to thinking. growth. lower some that why maybe overall a a in I the of down already So, revenue eight growth materialize us in doesn't sort what up ballpark talk implying

one that’s thing. So,

of If of you could this weak. very wanted some revenue put ask And thing next rest the growth the is year? just us on clearly in I a growth is enterprise. And lot enterprise a spending then, kind depends for of to other ballpark

the seeing you there it observing? you And there. as your or think you're we're risk Thanks. numbers part into just with what update that How slowdown I much look if wonder we of is enterprise so, at us on XXXX, could least early

Ita Brennan

to out that then hand maybe Yes. part part. and last take I'll the first of on Jayshree the

not think business. a to trying rate a for XXXX yet I from the perspective, we're growth model overall call

seen because of aligned some second as we in been And We deferred. to the some is I extent have being and particularly not and verticals the put been deferred hope entirely, et we there enterprise, think, a to talked that. well on down. of to we’ve we've from of have quarter we continue, that the out part financial that cetera. everybody cloud although to impacts year, the comp the first make But, as business have I right? think, vertical for will continue sure the consistently quarter, that, What tried flat offsetting about tough the well, points is pretty and enter we some the that that see will growing

kind we’ve have which the business, cloud the as pieces, which of been gone that's the to is service part an used So, year. offset and through of really provider this

pretty QX I sure QX, to seasonality only to reflect make the that because we think QX number deferred we we guided and them correcting want much the we think up. I of correctly, reflect

Rod Hall

Okay. to us you -- tell then you if enterprise, And can want what?

Jayshree Ullal

us, any of not going feel everyone, XXXX. do we have financials. execution. by Yes. very some execution in for about of offset barring macro macro and just in the On into affects both we do enterprise situation, believe and that'll If demand situations very and TAM enterprise, a And influenced to-date flatness we hopefully But be by that our lot well, And opportunity the a that. affected so could would I we from we perspective, get good cloud.

Rod Hall

on coming numbers. mean, Just I… back the I

Jayshree Ullal

Rod. ahead, Go

Rod Hall

year. me say, to that's your next looks a like to from easily scenario? don't plausible is Okay. growth number was mean, I that or could going mid Well, I if of I digits view, be single it point a crazy just it And know

Jayshree Ullal

to enterprise grow double a I into significant We’d crazy don't number. digits. think have it's

you enterprise us know. strongly doing -- because that you. think -- about how and the Everybody not We point, feeling teens projected Right? at QX, we back mid financials and at of the about optimistic this But, is the come QX day, growth will doing. analyst how is looking and give into is else then to well. cloud poorly I we're don't

Operator

Your next Evercore. from question Daryanani Amit comes with

Your line is open.

Amit Daryanani

lot taking a for I Thanks my guys. a of question guess question, clarification.

of one to That's the into cloud $XXX just you a and driver, could XXXX? then, enterprise secondly, the what as you on get maybe revenue most you do side think the or calendar all we Just revenue touch growth was the saw shifting patterns this meaningful And else? miss customer was to ensure something part. that that titan versus entire million [indiscernible], attributed

Jayshree Ullal

Yes.

to were largest and absolutely titan question, gap But, part of quickly answer was So the the guidance. The your the declines. Amit. they specific

As you new and deteriorating provider, X a deteriorating specialty was declining performance in to cloud had mix in the and declining too. performance we've tier a know service

a three one combination with all titan. specific was being cloud it So, majority of

and Now, with Mojo very Mojo wired, factored Mojo, the whole campus getting numbers, is really specific is ignited the into our much to we wireless, cognitive, think product. edge

We integration completed Wi-Fi. and CloudVision have of our

offerings managed cloud of in than legacy market is distributed and the place. the standard Mojo many Our controller offerings better

that well believe is we is Mojo. good and So from campus contribution our a doing

Operator

comes Young question from next Brian Bank. with Deutsche Your

Your line open. is

Brian Young

estimate. XXX-gig Hi. talk initial changed side? pushed about your Can what's one year been anticipated out sounds It the you for on like from deployment have XXX-gig the

So, view delayed kind deployments. get causing to you is your interested those of what on think

Jayshree Ullal

but now, began ready have of types our we spoke have when we’re you we and was remembered, products we XXX-gig were think ready. differentiated would first ecosystem I may We not products shipping the whether the foray, about XX it. ones, was always whether and Andy do, Bechtolsheim concerned, optics which

So, much a we by year. me, the moved be wrong, ecosystem if pretty and ready optics the now have am Anshul. Correct thought would

connect So, build and by products virtue if of to good you cannot optics trials, have more XXX-gig you don't than to -- it. anything

is So, of second year, from by which to will the before, moving, most second which initial will half from we ports half the thought be really we move believe means what installations XXXX, XXX-gig of the deployments millions optics of ports production thousands this XXXX. virtue

We're that XXX-gig are clear we we to And of But industry. products. very the be ahead always, as them. I shipping of are want proud

Operator

next Your Company. & Cowen from Paul Silverstein comes with question

open. line Your is

Paul Silverstein

you XX% questions, Two you question, period? I is wanted which could before said, titan is, Microsoft Facebook I’ve that and first I make One, time correctly, if heard for two may. of customers, sure the the just terms same to in the related XXXX,

Jayshree Ullal

Yes. That's correct.

Paul Silverstein

is forecast, from Okay. that question also is shifted And the two-quarter quarter particular said to the titan cloud one correct? you problem a

Jayshree Ullal

one forecasts and quarter. the Well four were specifically to to quarters, from shifted they’ve anywhere two now

Paul Silverstein

right. All

made said to them two putting with Microsoft, with respect what have degree. ‘XX, went isn’t that Here previously, [indiscernible] XXXX, the when One, they softness when coming with point you to the back that previously you question questions. are respect real the XQ in but to aside -- XXXX, you the

from you next insight, the forecast. to and about softness that shift previous talk into presume visibility giving It you when away two they've sounds to notwithstanding significant four-quarter decline they I the in So, given XXXX, forecast quarter like the you one year.

Jayshree Ullal

correct. That's

Paul Silverstein

talking How you’re expecting or this are at about you much question, somewhat softness different, point? related other The but...

Jayshree Ullal

If we the then you get can to allow other me question. Paul, to and that, answer can

Paul Silverstein

Sure.

Jayshree Ullal

given dramatic us This for us XXXX. dramatic cloud XXXX but reduction a given much has a particular for reduction has not of QX titan only

titans, this a fully they consistent, significantly. the and to and is next cloud unless reduce it’s So, expect titan come there year other cloud we back particular more pause

Paul Silverstein

if the capacity this your of hire cloud upgrade like new your silicon, question, the correct and inter-data you I’m -- That the as high right sounds at in broader will with made just and past driven switches XX.X configurations the the business, respect XXX-gig in points. and me point is cycle Trident as optics publically terabit center ready density I a least until price Cisco them fine introducing to [indiscernible]. well XXX-gig rack, that, like but and on it XXX-gig various Then, selling Tomahawk for In top at on is sounds aren’t you’ve wrong, switches that XXX-gig buy think you titans by deploy changed that. if thinking and/or that ready, Juniper the is for are Broadcom [ph] there --

Jayshree Ullal

with change Jericho no higher There will capacity Trident that Tomahawk, configuration. is used in No. be in and thinking XXX-gig

change until continue XXX-gig time this will incremental of in see deployments XXXX. to No change won’t But to from XXX-gig a be So, we that. wholesale there. there

Paul Silverstein

just nominal we they that vendor, won't were they there's in switch speak appears this to that to But would can’t the be that change it clearly the the in deploying would demand you your general imply ask there again relatively imply but a and more been been is extent -- XXX-gig demand for lot titans Jayshree, softness that be general that cloud to it. if in we there, demand. the deploy will impact as obvious, a a are doesn’t But is is of customers, it, it XXX-gig, you does maybe that see there part unfair. won't see on

Anshul Sadana

The dramatic That theme, with are change for point terabit, refresh would well for for one have XXX of the very network cloud would do done, that added do have titans as them change capacity. well XX.X architecture. this by on delays otherwise is they really switches. and customers coming which and more overall have from delaying we good necessary that your by To their is covered products that XXX-gig

it hand that gets go they delayed refresh, until these So, because start architects in hand. just

You touch network it the together don’t architecture. independently, whole and [indiscernible] goes goes it

can’t side take network other those the the many has and on. the companies year doesn’t the because On XXX is in going the ecosystem XXX-gig cloud entire XXX work get will compatibility, optics entire on side, the and which work companies motions everyone by it and of ready, starts ecosystem a so least which at forgot two a with about large seeing upgrade because through Otherwise investor the you delays to general production. to getting with before

Operator

from comes question Nomura Kvaal next Jeff Instinet. Your with

Your line is open.

Jeff Kvaal

mean six whatever start that. being or that -- of reason downtick a sounded to strike fourth the the the we a what few your that as thinking in quarters. would It side come about through over as though after but about workout? understand timeframe cloud the server the typical kind you quarter want clearly of I push guess, when course maybe spending might And is of XXXX of XXXX, for XX, XX, over mask months now XX other is the refresh comments more months next we as does in it out likely me I

Jayshree Ullal

of think, is optimism to saying XXXX XXXX. is and because growth I the be cloud reason the possible Jeff, down earliest QX the titan in is we're will Yes. forecast flat any projections

XXXX the to server from you're from is to means is any now. to really that’s forecasts. deployment We’re which this flat means impact year over get of year by delayed cycle any a it’s down a IO year beyond kind a a And production now, thinking year a now, impact right from to

think minimum. XX I good a as rule a months thumb is So, of

Operator

comes Your Sami from Badri with question Suisse. next Credit

open. is line Your

Sami Badri

give commentary you you. trying the to have to third-party Europe context center strongest thank Hi, reported is data XXXX. question of commencing before the here. And capacity colocation I'm their of some for away backlog quarters, multi-tenant my some just some in in all providers some next square of that

titan. majority fair bookings cloud those by big Now, of are the driven actually being

is place way of cloud at that possibly That difference means these something seen because connecting? just are is ever different they're the a be favorable, as completely -- internationally, different this building, completely architecture uniquely titans looking the is vendors would topology, expand than a So, before? there they're taking we’ve or is alternative more we in that that way

Jayshree Ullal

cloud Sami, typically, us globally. the titans deploy

they know, is additional you have have we to size a us. of as As not center. center only with And they lot the but data data difference of the built international data that centers, expand architecture

which software means of or one into the they consistent may they same architecture, vendor. ideally size and and don't vary, they scale architecture, whether populated -- the uniform on be with highly will really, they're depending smaller, one wanted one going but repeat densities to So, really

will it a see they with that So, is to rare different repeat very it vendor.

see any So, uniqueness size. the except in centers don't international I data

Sami Badri

follow-up then, color. for sorry, you one on… And just that Thank --

Charles Yager

out of please? running question, Can to go the we’re we Sami, next time here.

Operator

Your next with Erik JMP Suppiger question comes Securities. from

Your lines is open.

Erik Suppiger

I this it XXXX, Yes, you're it And percent you I'm be customer the the just through issue much? the So as outlook how XX%, why that is or thank one it broader Titans one seems more titan understand, endemic not that should who you presumably is be get reducing for to want like beyond this thinking revenue. with into and of about by like carry would across we sure not should this universe if we cutting we call QX if taking question. for the XXish it is customer looks because this?

Jayshree Ullal

XXXX, don't our of the flattish think I with think very down do what cumulatively we is And larger we you may we're cloud large this means this, numbers down very it's titans. some, revenue. to will with it be smaller trend. to saying are well ones, I be flat And in on to the ones, depending -- titan well. going when that, not the for add because the with all five infrastructure, XXX-gig, to especially we lift of three keep transition performance not to, as move what cloud quite our servers, high a to as projection leverage they’re with happen their their a it’s year of going in next it's will XXX-gig trend specifically XXXX a in overall terms to adding see existing years

up So, on. I later forecast more anything XXXX, pick will it to except the read wouldn't for

Operator

question from Merrill with Liani America next Your comes Lynch. Tal of Bank

Your line open. is

Tal Liani

guys. Hey,

Most one you because to the have look if and remove quarter just year, So, down and think questions one you I revenue next said want I of thing. you're at also you year-over-year, going down XXXX. a XXXX customer to I understand understand, want this were asked, to

to provided strategy you I So, remove now I'm then trying or is of $XXX be if quarter this to growth Is who XXXX even understand kind what's remove million customer? of underlying that if the the customer customer everything else? this story and one this rethinking really $XXX that shortfall, million, down bad of bad one XXXX going was particular is

Jayshree Ullal

loaded Well, question.

that flat, way that types large I have get or of of that some cloud think the will to down right? and that titans, it some Anshul, go you will go and some to three that up, is will to to ones think flat aggregate of main down. this did that want we I is, do the add

Anshul Sadana

right… That’s

Tal Liani

general I end $XXX there million answer. that's mean, down I one very number. understand big the daym, giant is million customer who that's $XXX Right. of the is a a at off

have with remove happening that to we So, of what's rest understand it. to the

or its down? do it is is when the math, to So, up be rest going still the you still of

Jayshree Ullal

have it, First we don't of have a here, handful. remember, customers we rest of of all, hundreds

cloud the titans... So,

Tal Liani

it’s right. still mean, still XXX. quarter its I per is The meaningful, still There XXX, right?

Jayshree Ullal

yet, perfect little to right. back bit. is a think have what we step think XXXX visibility to not of like have It’s I we happen going in we

we're some this with issue customer is this impact. have what what is we think has and customer, which saying a significant large particular I

We of have life. That's this been reality the the has rest unpredictable of cloud, which year.

good bottom been but have performing out aggressively cloud we of right? well the is are right which to we traction grow it sure and and it’s We the We But, clears we year, business. why the how specialty the flat right. that not has which them will to vertical hasn’t service of is that forecasting for see now, enough saw, QX, in provider, kind not saw next and it, completely, down rest say, offset the Offsetting in just well right. some go to we of significant is enterprise financials, been

Operator

Your from next question comes with George Jefferies. Notter

is line Your open.

George Notter

a much. that provider Hey, routing larger offset making And number your is bit of know, side, with I would products. that could earlier softness you're if customers you to that are cloud revenue very you one other an cloud the metrics on I would quite be of know the of in the opportunity be referenced a that some then guys repeat Is clarification, for Thanks guys. just are seeing the side. any that there progress great. there Thanks. were routing looking you the into helpful. incremental success routing, deferred insight you

Jayshree Ullal

Yes. right. George, are very you

use doing are strongest providers. our We for the routing with cases -- are cloud

well et very the cloud be we well use specifically. on It's providers case are And in improving routing. with tend all cetera, we're routing. with on cloud routing doing us these tier fewer cloud beside as for very but well doing all the X number in our and in several general landscape virtually titans in stronger So, in value obviously to providers, the

at opportunity that next year So, as well. as do an for look we

Ita Brennan

just 'XX. in the deferred, continuation what first of terms half then in the from we of on And saw

$XX in fixed million QX, in period. $XX that and product of million been basically in the prior in billed recognized product We deferred QX, have deferred have

a bar. a perspective it’s it’s this that prospective, from different a from contribute because didn’t [indiscernible] higher deferred So, revenue cash obviously but year, From revenue perspective cash QX. for revenue obviously

Operator

next Your Susanto question comes Gabelli. Hendi with from

open. Your line is

Hendi Susanto

can have phenomenon or large to the a extend cannot? would some when it share maybe similarly, technical that customer I understand to of the use perhaps assets more whether cloud when titan titan and you use. there Is customers risk delaying cloud not a about insight other like the of server

Anshul Sadana

their And the customer decision at update so need. same and other decided actually is industry only you [indiscernible] cloud delay those aligned cloud one their the adding But the a the XX, in as the seem we keep they of titan, the specific architecture choice as look the each from from and titan the anyone and one on not customers to All this well. to have own aligned capacity CPU XX wasn’t this [indiscernible]. they ROI, enough exact This with cycle, have offset mix servers, from upgrade. if for particular else of to them, manner there heard there upgrade does not industry others

have it that not So, customers I from was [indiscernible]. and it would just read way we the our heard

Operator

Your Marchetti next question from John with comes Stifel.

Your line is open.

John Marchetti

want the in make talked we for and the answered you back comment go you bit, Jayshree, make you ‘XX -- analyst the of cloud that sort teens take I to to that were I of a next do about heard up into sure the for being it's you upper back go and that ex altogether of a little about Rod’s right talking question down I to heard that still to points sort overall or way teens range. low If strip the out to still mid the adding cloud consider sure I double-digit even rest wanted just assume I business just that that outlook we cloud of to business, few sort you when ex range? if year day growth presentation how guys

Jayshree Ullal

Good question, John.

really more the high we’re average, said the be just would the current norms. cloud said teens. was that I be The did what the the cloud if cloud average to in thought in is the think specifically, the or below back that if projections analyst mid well, Arista Ita day, on going we would getting did teens;

norm the for XXXX. right down, you is Ita, mid that. So to table to with new being do want off flat the teens now to add

Ita Brennan

No.

of right. hadn’t that and the be thought we world the anybody world actually just -- where between We of would we part see growth slowish thinking be right. down to to that’s that contemplated in were where that be have down, think contemplating would faster cloud at think don’t to business I space would there we growth that point flat I were flat kind in declining. the would will that

Charles Yager

Thank you, John.

one more for time operator. question, have We

Operator

Wolfe from question Andrew Vadheim Research. last Your with comes

Your line is open.

Andrew Vadheim

XXXX, through enterprise over ramp Recognizing you in revenue pressures to would invest of a medium higher campus structural and segments, non-cloud, embrace could than previously heavily the recovers, service with more faster silver XQ the business growth Is something in and strength overall to maybe have maybe maybe lining have you provider and be to shows start starts more gross term, margin. would cloud potentially immediacy in more expensive that and ahead just anticipated? and that and other go even perhaps

Jayshree Ullal

to hasn't right changed. business that out point You're our fundamentally

fundamentals are Our great.

to XX. Our are gross XX margins

can committed If be at the end up our to of with don’t absolutely cloud and down, the valid. That grow we a is end Because think We XX%ish targeted margin. goes see committed R&D, in we're should Our band. that, higher said hiring TAM We like we would absolutely our -- the we’re think to up, we're beyond lower below more. If Ita be goes XX. we'll places. We XX to we I cloud to in on the But, don't itself band. could other want forecast going of band. being said, operating think I band investing. the do the the

invest segments. it to and in sales as in businesses in to R&D so, grow well as make And continuing and sense where and change marketing, strategy no other M&A our

Charles Yager

Arista results. Thank access can call. Investors on our presentation you, information website. the we section QX Please that posted concludes the That fiscal note have Andrew. on XXXX our additional earnings which of which provides a you

Operator

ladies joining, concludes and today's call. gentlemen. for This you Thank

disconnect. You may now