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ANET Arista Networks

Participants
Curtis McKee Director of Corporate & Investor Development
Jayshree Ullal President & Chief Executive Officer
Ita Brennan Chief Financial Officer
Anshul Sadana Chief Operating Officer
Pierre Ferragu New Street Research
Meta Marshall Morgan Stanley
Erik Suppiger JMP Securities
Rod Hall Goldman Sachs
John Marchetti Stifel
Jason Ader William Blair
Brian Yun Deutsche Bank
Ittai Kidron Oppenheimer
Ben Bollin Cleveland Research
Sami Badri Crédit Suisse
Tejas Venkatesh UBS
Aaron Rakers Wells Fargo
Paul Silverstein Cowen
Jeff Kvaal Nomura Instinet
Alex Kurtz KeyBanc Capital Markets
Tal Liani Bank of America
Simon Leopold Raymond James
Jim Suva Citi Investment Research
Samik Chatterjee JP Morgan
James Fish Piper Sandler
Ryan Koontz Rosenblatt Securities
Tim Long Barclays
Call transcript
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Operator

Welcome to the Fourth 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 McKee, Director Development. Corporate of Curtis Investor begin. may you Sir,

Curtis McKee

Thank afternoon, are operator. Ita With Networks you, Good and Brennan, me joining you President Officer. on us. Arista��s for Chief today’s Executive call Chief Jayshree Financial Arista everyone, Ullal, Officer, and thank

press Networks results announcing for December its This afternoon, release ending XXXX. Arista fiscal XX issued a the fourth quarter

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

to Arista call, outlook Networks will During we the to quarter litigations, the our conference course the of relating uncertainties longer-term XX-K, financial and this not statements, risks market anticipated forward-looking our of year, benefits of those statements in which innovation, recent in for and of management undertake are documents them could in including cause outlooks, fiscal of filed after statements Form recent and apply with XX-Q update to results discuss materially that detail our make this first industry acquisitions, representing future. subject the financial as call. opportunity, no most impact our on the and to the SEC, and should We These you XXXX the the forward-looking which our today, these these statements. in differ from Form rely as specifically views actual obligation by those

non-GAAP on certain note and charges. a expressed please financial been Also, basis are adjusted on measures use exclude call have we certain to this

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

Jayshree. over will I that, With it to turn

Jayshree Ullal

afternoon with our call. for call year-end. of consistent $X.XX. welcome typically Arista fourth joining quarter renewables And at share approximately of a first per contributed a us revenue the We earnings Curtis. $XXX.X non-GAAP delivered earnings XX% you, earnings the of and million non-GAAP thank Thank Services your revenue XXXX you the everyone for with higher this to

of XX.X%, our the strong was margin XX.X%. software-attached influenced enterprise vertical by gross margins associated performance products. Overall a and at XXXX gross non-GAAP Our in came

dollar direct number QX we record with end In at revenue our a XXXX a of in of customers enterprise of QX, as over XX% XXXX registered Facebook at acquired and total of providers cumulatively cloud actually the in the throughout We customers was strongest segment have X The second XX.X%. and fifth Microsoft tier momentum. year, and now largest segment By in XXXX, much consistently the service the and is financials vertical. titans fourth providers place, cloud place. in largest specialty by X followed third enterprise result the

been was Both X and Arista with providers service you XXXX XX%. at tier cloud in have XX% Americas providers international geography, of contribution as slow know, the for terms us.

in Arista highly networking products terms flagship software management as a In and in of especially become of stack XXXX products with delivered you the have year and redefining disruptive gold spine banner networking. The platforms. XXX gigabit XXXX a new Series know standard differentiated XXXX

including portfolio Wi-Fi edge innovations We with wired, Power wireless products switches Ethernet cognitive new substantial over We for of X. new XXX-gigabit launched a also introduced campus and platforms. XX

data Our management this inherent merchant multiple federated one software is control flexibility our differentiators. silicon planes brings across plans key and of and

profitability. delivering as well CloudVision cloud systematic control, we third-party change telemetry, In doubled and in with We real-time automation features. CloudVision our continued scale, innovations our have particular, availability, customers as U.S. in streaming

pleased both in now are increased licenses and software annually. total perpetual total X% of acceptance bookings of the subscription We with approaching revenue

engineering network strong software and pioneer Networks, into XXXX an deeper began acquisition, third a visibility. increased in market SDN Big expertise This packet close strategic a We entry for Switch combination with our QX, us is the decade a almost multi-cloud founded ago. the step of of broker brining

public, Big software-driven expanding Switch, networking we've center clouds. fabric platforms more Gartner based know Switch's monitoring deeper been in and that to you deep private Magic status Big hybrid data analytic networking with data Arista. Both mission on with switch complementing With the focused we dense a companies or Quadrant. strength analyzer a are across our in unique also As always visionary as share a mission

We welcome team well Technologies XXX and BCN but family BSN to team know forward into customers the Arista with not better. them, with to a only approximately getting Dell really strengthened partnership, we're -- as look with as

contribute strength Big to become bookings the not do and our material, to in Switch While to software and accretive calendar we goal expect acquisition is is this our XXXX.

of more with As multiple Arista networking forefront of place uniform is the cloud more Spaghetti we the silos operating networking making But really and We in clear XXXX, mainstream. boxes not area future and new that systems it software-driven a believe and OS'. that wrap or the architecture. in cloud is do I see

in are spot X our of We of leadership and proud gigabit the ready market ahead XXX number us. for switching XXX-gigabit migration with Ethernet

going that trials customers. are experiencing with several are well We

$XXX our quarters as are first target first for revenue million achieve four We campus to the of well. poised

doubled two we continues systems Our to us the years. area important investment go-to-market strength engineering over be capacity and have sales for an as the past

departure Sadana, PE us. Smith the Worldwide new a Vice roles with President Rivelo the been conjunction President transition of in With seamless, Chris Vice advisory firm his Senior to Manny Sales; Customer to reporting of Kohli to of role following Engineering, Senior to executive has to of and the promotion Ashwin Anshul their to

the ways. Ashwin and tenure us epitomize Arista have Chris Both long and with

sectors and architectural a me frustrated seeking and the customers strategic better to franchises to healthcare, winning anxiously leverage quality touch, As banking, we I've clear including Large of world is across name increasingly and high-tech, few. are media, principles. to cloud-based traveled it enterprise that enterprises we're hundreds insurance, retail

the in all welcome non-cloud across the relevance this momentum Arista million and years. networking with quality dollar the critical customers almost is refreshing the strategic with our verticals. them. three software and within programmability lowest vulnerabilities continue doubling Our to and I is gaining past industry a to change happen expect

for With specifics. it that, I'll to over Ita turn more financial

Ita Brennan

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

quarter conjunction up million quarter. typical lower renewal Total total the at of QX down fourth $XXX.X were above quarter, $XXX International our of from in revenue the revenues revenues in midpoint XX% million product $XXX.X the quarter total seasonality the or in third for revenue guidance from XX% revenues to $XXX last revenue, and XX.X% of service of approximately in number. year-over-year million, X% XX% reflecting Service represented million. came up with

revenues heavier for of revenue, down customers. was XX% from titan in deployments year, our accounted cloud year. the for driven to by shift prior mix total in XX% largely by U.S. year Looking geographical the the international This

quarter. Overall up gross to last in from financial XX% our XX.X% with of lighter contribution XX%, performance QX reflected verticals. margin combined cloud XX.X% guidance our good above was and period and in titan enterprise range a upper the end This from of the

in largely at Operating at the quarter were reflected period. or $XXX.X or $XXX million in costs last This and decline revenue, for XX.X% last quarter. down of $XXX.X spending expenses million came down the lower engineering from prototype quarter R&D revenue, million XX.X% million. $XX.X of from

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

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

quarter for million XX.X% income was $XXX.X operating the of Our or revenue.

position reserves Other of for and related million was the a some the income tax This tax with was favorable rate and tax relevant following quarter XX.X%. uncertain our expense release authorities. lower $XX.X approximately reflected effective agreement the final rate tax

to expect over some that however, upward time. tax note, do the we pressure effective on see Please rate

As XX.X% the of of various resulted in revenue. This million or to continue rules. tax tax modify jurisdictions income $XXX.X net for quarter their

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

balance Now the for equivalents This price million and investments per cash quarters. at stock weighted approximately $X.X a brings quarter during $XXX sheet. year turning our the ended the million quarter at repurchased $XXX $XX.X share. billion. three the repurchases of total our common to to We average over of Cash,

of $X us our The a XXXX. stock commencing of QX and common a our reminder, performance operating from authorized billion generated operations from has repurchase As allows of flows. capital decrease shares affecting is of income cash a We million three-year in approximately $XXX cash in requirements repurchase million. the funded stock net and in Board to working opportunistically program program fourth strong quarter Directors $XXX.X

timing XX up in down in days came XX the Inventory reflecting period. from billings last period. QX, X.X to days, the the $XXX million times, turns DSOs million in prior increased of quarter. in Inventory were from the up X.X% at quarter, $XXX from in

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

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

Jayshree XX% we As Microsoft Facebook XX% had at and year; at the greater mentioned, customers two XX.X%. in than

If Capital $X.X from payable inventory approximately you were million. and timing payments. represented the XX% year. of expenditures referenced Facebook the were have exclude the of days revenue recognition QX, up quarter deferred in the would days, reflecting of revenue receipts above for product Accounts for XX XX days

first to the turning beyond. quarter Now our for and outlook

a on muted the this guidance, not full call. to reiterate overall an While to at a has demand takes and our and been we're last provide with business challenging picture. year our cloud significant for discussed year XXXX point wanted position in we puts various volatility

flat for to we This deferred year-over-year due continues this basis. part the being business believe $XXX XXXX. we decline revenue a revenue forward revenue to likely half cloud to of XXXX combined of first with in from result meaningful demand of XXXX, the a on tough comparisons in of will down in As with year-over-year product look the million trend trend this recognition

provider large for specialty and Enterprise from but decline expected offset fully expected enough revenue healthily are grow will likely yet the sluggish cloud, service year. remain to not financials cloud and are the to

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

Focusing R&D weighting and given we need in sales business towards our cloud. in balancing revenue the We'll headcount, specifically with coverage first and target trend this financial to market the on lighter number manage typical prudent lower QX, investments quarter a continue range, expect expand with to growth to management. a in carefully

This revenue. upfront perspective, today. us Big brings subscription acquisition recognition services software represents and earlier this additional amount a strong Networks an announced From a We of is business fair who deferred and with talent pool. some of revenue the transaction, software engineering license immaterial capabilities a Switch financial a

business acquisition will our financials beginning integration accounting first in the the and for and recorded be We're now quarter. the

expenses first revenue guidance our in and small Switch Big the a included have We for contribution for months two of quarter.

analysis. We will on income statement clarity go-forward the once accounting we've additional completed purchase impacts, provide the

does the QX for guidance reflect not our from any in outbreak coronavirus China. Finally impact ongoing

have China, While footprint significant we be supply chain manufacturing do a some not impacts. direct indirect in there may

situation We mitigate will to these and look monitor the to unfolds. as attempt

With for follows: to revenues shares of this impacts is shares. approximately non-GAAP million as XX%, excludes our first $XXX is results backdrop, is our guidance to and approximately items approximately approximately other gross as XX%. the quarter based margin all XX% any of expected operating XX.X non-recurring margins tax a on million of stock-based compensation non-cash rate and $XXX diluted of be And approximately million, which effective of per

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

Curtis McKee

you, Thank Ita.

you a portion earnings the I'd to to that everyone We like single your to Due question. request time going of move to limit to Q&A please call. Thank Arista understanding. themselves are the for constraints, now

Operator

We Q&A comes with Arista from the Your will Pierre [Operator Street of question Instructions] New first begin Ferragu call the Research. earnings now portion

Your line open. is

Pierre Ferragu

the for like Titan on taking questions. was you thanks I cloud clients. outlook you wondering my your saw gave Hi,

other we’ve the much the half about flat compute side a what first We've the slightly with much in better second it and comments year. So year. recovery bit it's like down suppliers numbers more from side. we've seen contrasting of have this the – And to which I it's we we'll contrasts surprising heard of that on last positive the understand year during – think much memory a means year-on-year, on of heard that half lot

on seem cycle to to for similar be back coming a seems you be slower you don't guys. So things

helpful. very so And would you way could us be any help understand that

Jayshree Ullal

Sure, as often very network because know And with correlated the of of compute and It's Pierre. many can I negligible comes is Arista's never reason piece. the the elaborate. take CapEx they cloud has question Anshul CapEx. and And decisions will spending numbers. total you X:X part storage and later. the the part it's small network first a almost the make network the The

lag. a there's So

quarters. And I've let second one half. as to you now, the can't say right two year QX we about often visibility whole our is So told alone or much

our based deferred especially are change. as did year-over-year and we know the the we XXXX both I reflecting understanding XXXX revenue of current our We're while their best at making and you absorption says, plans, might good comps of for predictions things what look XXXX. of on now, when Anshul enough. So

add. So to there has more nothing

Pierre Ferragu

Thanks, Jayshree. Thanks.

Jayshree Ullal

Thank you, Pierre.

Operator

next from Meta Morgan Your Marshall question Stanley. comes with

line Your is open.

Meta Marshall

just could And of an give bit in on Great. kind wanted due little just business know the purchasing Thanks. of Thanks. if traction? whether had activity I update of you seen kind any pause you to to macro? campus a

Jayshree Ullal

Meta Well, thank you. you, thank and

the it's Arista. for call think first with I you

welcome. So

our encouraged new We both the very customers had as as know XXXX. two acquisition. its So you existing only campus. quarters I'm by shipping of very in We've early full customer is response now well stages. enthusiastic started QX business from in our as campus And

$X about of campus. and was record we that As many look them been at I number talking our achieved, have I also million the have customers

on – And on that little very at very the of a bellwether more accepted see Wi-Fi along with and least our of from so technology And CloudVision. POE and our indication both clients was technology we well our that. Oasis we're QX island, been has good a macro not a I really and bellwether, we're or

Meta Marshall

Thanks. Great.

Operator

Suppiger question comes from with Erik Securities. next Your JMP

Your line is open.

Erik Suppiger

are taking in you One, going on? your terms which are with are focusing for the What Thanks Yeah. be to to the Switch? Big be question. -- integration products of going priorities what you

should anything with evidence see virus there the issues concerned impact any going China? that about on we be from is there? you secondly, Did Then of

Jayshree Ullal

first So on question the your going take maybe know title there. I'll and with what's you Anshul more COO about

team. the So were on for we the Switch? engineering incredibly the Big by as the impressed priorities of what's Well, first all, I -- said

Marc old the closed, company part detail. and It's big out we that. So Ita acquisition shout they the best into want of of much that the have best work I to very XX-year selected a went a and are for hard the give of there's and has lot to a Taxay

So of the product large employees, absorbed XX close two engineering. is end percentage at carries, the there Switch in of we the that the have the lines a them approximately -- acquisition, the And BMS, of which Big are monitoring Arista's nodes, and perfect cake, product, recorder explained monitoring complement just DANZ. which deeper in-line DANZ service icing product is integrated has is a switching nodes to I the it is cetera. as fabric and is BMS on visibility, et

fully is And we Dell more fabric infrastructure converged of like partners meant then BCF, for be which a converged a that to piece, our Technologies. expect important very with and especially

fully carried with both channels. So and different be products will but through supported

Anshul Sadana

coronavirus, on to question your manufacturing don't supply with and as direct China mentioned, China. Ita respect in To chain do any we

from their comes really of China. coming their effects down manufacturer’s sub-supplies suppliers second it So material raw to degree or our or

a our end the few of that's the saying So -- really New few big And a after we manufacturers after it's far for okay days are Year. been seen Chinese haven't short-term. just impact, any weeks because the

future. But answers it's the a month the there's extended where However, if materials situation the even we through and and the the in say time impact right have continues an rest it March. long early is over the can to now. expect and anything to for from label too Chinese factories supply of the in then period of an And suppliers more raw

is now So okay. for early, too it we're but

Erik Suppiger

Very you. good. Thank

Jayshree Ullal

Thank you, Anshul.

Operator

question Hall Goldman Sachs. Rod comes Your next with from

open. Your line is

Rod Hall

couple verticals I to guidance to I for and right and probably wanted of Yeah, or ask hi -- a guess order actually. to Thanks for wanted the question. I is guys. I wanted that girls. -- the question, girls

know us cloud, had that? thinking double-digit a mean that Ita expect know were than more So, I you could I by meaningful But you commented decline. what more you don't And you if for that at like give any if this year. decline feeling low don't sounds We that?

to there? something disclosing can guys then some you do And the provider bigger an that that happening in have – on of this under little you of kind verticals at Jayshree look we that them? we the we a be said sluggish, then you future the all or the declining what's is, flattish kind of positive year, think And could equation, bit there just subset growth to this considered question track there you almost so forward or other, the annual would in picture but want -- expecting a thinking are side revenue Is clarify, covers these that basis of on the I were of maybe it point commentary some verticals? at stabilization service least

Jayshree Ullal

Okay. many as of answer and try Rod your I'll questions.

Your first. one, last

answer them. So is, by best we looking And granularity. try our more the I guess to do for ranking you're

advisement So under like it suggest and we that's you point we'll maybe take for do definitely anything Day. data a Analyst

cloud to back quarter. how definitely because down. means first now don't I down, flat we're provider, know double-digit your think We in much flat going exactly and And to to decline service the

Anshul I Analyst because think we and -- team much a more or maybe will second visibility half get sense. in Day that's really the good get when

of It's such seasonal is QX an QX. have extension We don't enough data. a But quarter. more

Ita bad. year. ask images, it's say. a have actually last yes the this in worst lot or to of think May the explains And I Service think I question So definition I not more we’d sluggish us And June. providers, think again that when to was

it better our breadth but bottomed believe not it out But is anything, feeling. we're can it's we worse. get of and only or slightly get So can't holding like

Rod Hall

it would range some Jayshree… around X be then sluggish, But

Jayshree Ullal

minus… or plus not X minus yeah,

Ita Brennan

Not declining further…

Jayshree Ullal

X. Yes. Above

Ita Brennan

like a implied little And bit but it decline amount think did it there, that we'd starts kind in from to hope, a slowly. Our sluggish of I fair right? to cover mean XXXX.

Rod Hall

Okay.

I thought. than better that's So

that. I So appreciate

you. Thank Okay.

Operator

with John comes Marchetti Your from next Stifel. question

Your is open. line

John Marchetti

Thanks very much.

curious as as the Just think a we closer and added business should – meaningful just about out just getting as towards the Jayshree the we little you've years, a couple of -- to I'm maybe bit of to on million campus the of that the look overall sort trending up end rate? pieces of how next I we're side growth this -- a contribution more there. of $XXX first reaching couple

in the sure over XXXX, at tax that And continue then up tick back this on expecting that expect to near rate, term? quick correctly should that real starting at the just wanted and time, make I over heard lower continue but we just may least it Ita rate lower that I to that least tax it Thanks. rate to we're

Ita Brennan

Yes let me the first maybe. take tax one

a So that's It's tax specific the rate of I released very some period. that the were mean one-off, QX XX%. right? in reserves

As about for we thinking QX. around over on what we pressure tax time. XX%. more That's downward somewhere There's rate that we've been probably pressure forward, go guided than upward structural the

is it's XX.X% XX%, in think that somewhere. range I So

But kind of you're was basis QX. you I in time, -- think That of a increase really will maybe for or And points longer-term the see timeframe. range for time. XX% current in all hasn't rate -- a more The of the take then now kind but tens statement. minus basis plus XX% changed it of it's couple structural

Jayshree Ullal

new enthusiasm the to being very the and when say is kid maybe received. the to us Arista, take campus. been seriously vision question term just fairly of be cognitive for Aruba We the Cisco largely cloud order in And been software, the John HP, has I And a enter and the to business. well billion for in $XX first have a a and there's block, market your mature on think taken

quarters baseline million the I a establish first growth. of really for delivering more think, $XXX So, four will

that doubling meeting, analyst said growth we I if didn't doubling last disappointed have translate very more into As and I'd be again. at the

be to the million my that team So to Day do details. I'm some. and looking $XXX take $XXX Analyst then exactly million on $XXX million in then more to how – on that would we maybe, and But

Curtis McKee

reminder, And much. per very Thank please to next question follow as please a you keep the one callers, move a call Great. Operator, up. and caller?

Operator

Ader comes Jason William question next with Your Blair. from

open. is line Your

Jason Ader

OS. guys you one yourself Jayshree, on prided have from day you. a Thank single

Switch you're Big have a second OS. to with going Now

So of the be OS? how just wondering Switch's I'm about thinking we should future Big

Jayshree Ullal

that's to twice No, three done We've Yeah. and a before. with had good OS deal really acquisitions actually the question. Yeah.

market, Big two. So before big answer high-frequency OS take it low did question, let's be it other The Metamako, it play Switch latency. really to -- very and was does EOS, not I role for the your FPGA-centric, right? the when a trading will

much into a OS CloudVision. than together. Mojo, we fully integration fabric, of wireless monitoring unification CloudVision radio same the CloudVision and with will expect to and bring a was inline And less Big really management switch, BMS and and so the Wi-Fi. the somewhat Dan's will fabric be immediately important integration monitoring integrated again, be that the OS important. wired We DANs transparent more

fabric we looking The and is a partner CloudVision. their and And this or there Nutanix that channel wants typical unique to not servers like go-to-market big storage. EOS is for with necessarily who's product. the the Technologies Arista technology believe cloud Dell customer, a But integrate

SoNiC or like [ph] this solution. So is converged a infrastructure very much FBOS

Jason Ader

right it the can that would of part about to market and that strategy? you served is serving with probably a therefore you So the have it overall reconcile never think

Jayshree Ullal

Murray if customers teaching overlap us over And is again, Kyle, we're speak. But are learning. customers, That's only we the our and days XXX early correct. we co-founder, and as one-third. Well, with at both there, its still Doug the look

XX%, us. are to XX% customers of So new the

Curtis McKee

Great. Jason. Thank you,

Jason Ader

Thank you.

Operator

question comes with Bank. next Your from Brian Yun Deutsche

open. is line Your

Brian Yun

ask the win deals? I are versus in gigs, Hi. a market of Thank taking to XXX-gig clouds. expectation just at high about where view, about well? your share your you question. Or you're the might maybe say as XXX-gig sizable conservative more the you XXX expected peers your level, wanted in peers? especially to think fair Thanks Can taking I that for opportunity. is see at XXX it's you. XXX-gig the hyperscale majority to But dominant - talk a for

Jayshree Ullal

lose the incumbent unnatural they speed I boat. don't think, our transition. peers wins an have XXX-gig why too, for should a very But to missed sizable know I seen on it's Well,

just So before. never number is the the done one became Arista in been fact networking that industry

XXX-gig that. Now have been what is, we overall see line time we with consistent on

mainstream early providers year, will it as deployments are be well. high-end particularly of obviously, also enterprises a cloud the big this will we but And, expect We second the the some in service play seeing role, half. and trials,

seeing, the material And half expect the so XXX-gig don't trials XXXX. revenue of of we and we're given until really second year this

other mixing isolation, thing is conjunction just always point the and happens always in XXX-gig and and And I'd out matching they're nobody XXX-gig in build it XXX-gig.

So Anshul do you want to add to that?

Anshul Sadana

as Jayshree to XXX-gig, two everyone focused other not going growing everyone It's accretions just comments here. actually want know many Brian, you and remind I XXX-gig is in soon on sit. coming as else, are to I is planning discussed. do to or There it's XXXX. going us just single transition with I that not three years generation don't well or XxXXX are to roadmap, the on going whether our a It's customers three XxXX multiple well. XxXXX mean

availability on on Lastly, the be other in half that's networks to will backbone DCI and material year. space XXXX. hence scale of maybe second optical And still or some deployments any in that end the dependency there of be even is expected the

Jayshree Ullal

TAM even hit reiterate is a for billion, hundred I to TAM XXX-gig just know XXX-gig Anshul million And point, your the this year? the don't few $X.X will for

Anshul Sadana

not is a Pilot TAM.

Jayshree Ullal

one Yeah. okay, liner. a TAM, pilot, good Pilot is a not it's

Brian Yun

Thanks.

Operator

Kidron with Ittai comes question next from Oppenheimer. Your

Your line open. is

Jayshree Ullal

Hi, Ittai.

Ittai Kidron

one Yes. questions in. to one, limit Hi, Curtis to me tries I sneak but for know try Two ladies. me. I'll to

Dell Switch, Switch, there’s revenue a to relationship Microsoft if Big if do also want and is concentration acquisition understand of customer I Big the for big the Regarding remember for DANZ. I with correctly

you could that? if So, discuss

other nature And going Help understand within relationship how going companies look correctly. then forward? remember space, they work think is like Dell on of do me also to Cumulus, you Dell, have if the the I that

Jayshree Ullal

a question. good That's

First certainly of That true and could significant a but revenue not have concentration past see statistic, all, we any now. been didn't not Microsoft.

a they big top one is specifically some concentration. some XX, not but obviously XX% customers there's So and that have

selling was Switch how do partnership hardware back see How coming getting was the this? lot software-only to we disaggregated of switches. the stronger. So Dell with from question Big see was So, your really and hardware on do a Dell we

We stronger. partnership and that to continue our that to model and make offer strengthen Dell with plan

what So we doing and enterprise high-end and are very, complements titans not it changing is cloud Arista very motion well. sales in the the

no So change.

Ittai Kidron

Very good.

Jayshree Ullal

you, Thank Ittai.

Ittai Kidron

you. Thank right. All

Operator

with next Amit Evercore. question Your from Daryanani comes

Your line is open.

Unidentified Analyst

well this is Amit. switching I us can very to portfolio? for you. for help margin business had understand campus a also dialing Hi, profile Arvind [ph] you It question for in what perhaps business. your looks your versus But continues do this the broader about like

Jayshree Ullal

I margin is see versus generally to about portfolio as say our would But Okay. if our… versus same. you the oppose router the

Unidentified Analyst

Broader not… sorry, portfolio,

Jayshree Ullal

broader… The Okay.

Unidentified Analyst

broader. Just

Jayshree Ullal

the not pressure at different. is because significantly the Yeah, aren't but pricing Okay. same. More in margins campus always the that the way, market defined

Unidentified Analyst

Got it. Thank you.

Jayshree Ullal

Thanks, Arvind.

Operator

Ben Cleveland Your Research. next Bollin question comes from with

Your is line open

Ben Bollin

builds own for little you differ the you was approach how Switch think bit their OS afternoon. interested question. XXX-gig you to on Good I back taking for from your XXX. any in efforts. any specifically, how what thoughts Thank wanted the go talk a development And to have saw XXX-gig. I'm I hoping standardization in about partners could you efforts, you

for XXX? you How how saw with does what Just high-level there? margin do the And XXX? opportunity to compare that think thoughts you any then

Anshul Sadana

XXX-gig way the the there, go network. how being XXX-gig of entire terms the architecture to in customers are and Ben the to leading flow, largest contemplate through architecture our let's a needs able server say

end-to-end. upgrade So you have to it

be silos done and it. You upgrade cannot with in just

depend & and is lab in VR and large-scale today. So other that Leaf broader in And on optics architectures Design. that for the going do on networks almost can that's in you trials upgrading on. we one, the DCI step the where necessary is involved already And the but before so XXX-gig are Spine a backbone testing the

already that little these the our is with are It design is are NIC XXX-gig think very clusters, just best the and still there small and simply co-development XXxXXX also closed we not with well a spine. OS are the partners, our our already. happening in customers we've And gig co-development. GPU which AI, the that and actually bit For of with but customers and on FPGA to be a but type of deployment exist with very scale, starting may mini-leaf so working problem I already see

Operator

from comes question next Suisse. Your Sami with Crédit Badri

is line Your open.

Sami Badri

the I on regarding drag create XXXX Big are back mentioned this XXXX you And is question just going Switch XXXX some anticipating? you. XQ Big accretion specifics Or a had maybe XQ, hoping margin I Switch Thank in operating And for a is Hi. to XXXX? a accretion of that half this was for you you accretion? acquisition that is the that

Jayshree Ullal

then and but Ita much I'll it a challenged answer accretive of maybe be we XXXX. by like when terms the end to of question is Obviously, with drag it sooner. the team too second see you wouldn't to it I'd but if be of forecast the have call will in the could. accretive, I

Ita Brennan

I of from I going be of was once of with QX always think came that in out we QX, the being quarter where the business mean because was revenue to an margin that tight a Yes. have heavier. get mix at and operating perspective cloud we

seeing of So kind you in margin a operating QX. are lower

talked within we the And margin of we on about call we the kind then absorb I we'll Big line. I of say a kind being right? move the through can Switch out And operating that, QX, more of have we get on last to the think think had As once top XX% target. year.

out and other the work sort through. On stuff some accounting need to purchase the that next we once we call of

Sami Badri

Does campus? Or million just rate Big And the Is it. that Switch? ex-Big for that run clarification. stuff the include a any contribution? Switch is just Got actually $XXX

Jayshree Ullal

And talking was to our December QX revenue. it's Switch run XXXX, clarify want there I not I way Big was and rate, in right? well not QX $XXX No. we're to million. it's about on just So

revenue. So real

Curtis McKee

Thanks, Sami.

Operator

UBS. Venkatesh Tejas from comes question from next Your

open. is line Your

Tejas Venkatesh

Thank you better like XXXX, was you. what than It down only in were a looks X% Microsoft expecting. bit

past in of on that percentage provided you color secondly… Microsoft XXXX. be you do that the could for And Given Jayshree as early then could hoping I what a was revenue.

Jayshree Ullal

be Tejas, right try a do to that now. fool Nice but I'd

teasing say I'm last You you. wouldn't we the you had after year. surprises

Tejas Venkatesh

such of than second improving, a Well of less Thank to and Tier one was this thing, about I with XXXX? that given is the in is cloud X But drag now wanted was the you. visibility better. XX% ask revenue it sort

Jayshree Ullal

XX% I None So verticals that's X a good of report are than that question our revenue. less Tejas.

Operator

Rakers with comes Your next question from Wells Fargo. Aaron

Your open. line is

Aaron Rakers

kind Thanks to large to that as last look forward I you their of cycle kind of last actually maybe flat out to a pausing on variable customers relates I cloud it with question, of build to the question. were titan consideration. one for quarter as dynamic taking want of that just your you server spending of alluded kind regard think

relative more would thought on if your As that's outlook how you or customers? cloud not quarter? changed of cloud last characterize how what kind this of slowdown that Has become your across of think you year the at any about you forecast all? today, to Just update roll pervasive titan titan whether you -- coming kind up out

Jayshree Ullal

Aaron. question a Yes that's good

So into all, the to from surprises first all forecast. factored being XXXX titan of just cloud reiterate are we that the remain specific received and

each is one numbers will this those unique. So cloud for titans other the be lower As right? year

into feeding necessarily others. the not So it's

their each their So one. architecture, their And that specific one is has specific to their that CapEx plans. migrations, timelines,

into wouldn't I roll other. So the one

Aaron Rakers

Okay. Thank you.

Operator

with from question Cowen. Silverstein Paul Your next comes

is Your line open.

Paul Silverstein

Right.

question from a I've cloud. different a to but similar angle respect got Just with

mentioned fact quarters So you think dramatic I to we what they several pause. And spoke went magnitude of did. the return, just it about a wasn't when would when question back that also but it ago you

So by have from not assume its you it. for I your I what was far it is visibility the is, for and at Facebook peak definition Microsoft now question

downstream and about speaking visibility speaking today period. -- an customers standpoint out. to like the But now the obviously look a that's what and quarterly that contributions from of next two have But what visibility as annual just those any visibility from you what’s but further a year will characterize or how you not Do quarter it? would looking

Jayshree Ullal

Hi Paul.

So you we if more to on cloud hasn't three our any go one than have quarter consistently and always said, to two years, think visibility back of I titans we've our that changed. don't last

this changed, trends of hasn't spent next how pause the and year we like. takes. year you I despite answer be. second of So year this would visibility what versus give get able to I on wouldn't in -- visibility terms broad that the be annual But and in but year the greater think half puts do will they next look of

Anshul Sadana

If I visibility We can add? surprises. their have into don't

Paul Silverstein

just enterprise the million you on plus quickly, referencing Guys enough. very kept Fair deals. Jayshree the one

three how you enterprise? almost in deals the Can it's doubled past years. tell you us said million-dollar over many You have

Jayshree Ullal

hundreds. Hundred, many

Paul Silverstein

well can't It target. because million be specifically. you’ll your be $XXX many about campus beyond hundreds, I'm talking

Jayshree Ullal

you're talking talking have only about was answer, that Oh, but see. overall enterprise about I campus. campus. Oh, don't I including I

Paul Silverstein

have… don’t Okay. But you

Curtis McKee

you, Thank Paul.

Operator

from Instinet. Nomura Jeff comes with question Kvaal next Your

line is open. Your

Jeff Kvaal

much. very thanks Yes,

sound year there get something some from tighter the a Tier your Arista be of customers just implication impinge an is OEMs availability switch chipset X that little in players of some monitoring last the to But hoped. quarter, hearing servers get can't necessarily we been the if that they that conversation be may is I the a case larger should of the and have servers then of the some can't your server all tenor that they had we given the might or web upon I'm have for them. would wouldn't want than other ago. want scale that wondering they sales We

Anshul Sadana

one -- just they chain or issues on fluctuation the a these or companies as one and really cloud it's short-term months, impact have of doesn't doesn't If it us of it much planning there, over gas variation two for supply So especially two impact us. months anyway. decouple our really

Jeff Kvaal

the the of a that in Thanks, talked growth clarification, is about as revenue stick think fourth place past a of year-over-year yard the mark? a Anshul. likelihood to you've still quarter then back us XXXXm Okay. in And coming to reasonable for I

Jayshree Ullal

We hope. that. Yeah, that's hope our for Jeff

Jeff Kvaal

you. Okay. Thank

Jayshree Ullal

Thank you.

Operator

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

line Your is open.

Alex Kurtz

provider cloud clarify just That I for to about Jayshree sluggishness service comment Thanks. sluggish for and both the comment that provider. service want verticals? was the

Jayshree Ullal

combined. Yes

Alex Kurtz

Combined. Okay.

us changes to Okay, versus you projection, infrastructure in growth here outlined Can considering you the thank them know cloud. on-prem outlined update and Jayshree of the in it that prior last you. quarter, an change on-prem how from see give some I spend maybe segment how on vertical? service provider moving you thought just cloud back views. you you but that was a was

was update wondering I on there's specifically. if So segment that any just

Jayshree Ullal

although significantly, of them some changed spend small Nothing's some still providers have the X are some Tier and of cloud evaluating. correct. resumed That’s

Alex Kurtz

All right.

Okay.

from as So see what longer near-term can it a -- don't secular you now you right opportunity see.

Ita Brennan

the in first half. not No

less not there's I -- think a mean… I drag.

Jayshree Ullal

not Not upside an either. amazing a drag, but

Curtis McKee

Alex. Thanks,

Operator

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

Your line is open.

Tal Liani

guys. have I Hi, questions. two

I -- remove sorry which I sorry Amazon which if -- Facebook, numbers. have perfect First, Microsoft,

Jayshree Ullal

am I confused…

Tal Liani

to Eventually answer. Yeah. to right I'm going get the

last wasn't that's and And I assume which, Microsoft, below X%. again, highest at XX%, So numbers because customer. I XX% assume growth it the remove a both this X% have perfect number then If X% Facebook years. I I Facebook what's for the if only year year, which versus is for

it So below that. to has be

assume anything lower below, is the even if X%. I than So growth

is, always see growing we the forget and question faster Facebook second strong. So growth faster growth to do? we've Microsoft used Microsoft, the why like you without exercise else, don't very related… this everyone doing not Because with always aren't and why question been was And we

Jayshree Ullal

your trying that. you how -- computed understand you still question? revenue compute to still your processing Did you we're because hold Can this. we're Hold first question, deferred in

Tal Liani

I No, did not.

Jayshree Ullal

Okay.

Ita Brennan

with like have is So we will say before right? that you flat from that's a there's vertical effectively -- this adjust right? is kind rate a revenue, to -- on effectively, deferred have have for that. revenue X% to to right, issue, you be start, $XXX right? that down So The from which when growth the XXXX, drag backfill of that So in you demand million, of going XXXX kind that, -- right? that But of even perspective, to cloud you XXXX

Jayshree Ullal

Yes.

Tal Liani

is or -- the But related to deferred else? the to deferred by Microsoft the everyone or way, deferred Facebook the related

Ita Brennan

you number. If about Facebook large back XX.X% It's XX% deferred, non-Microsoft right? in a deferred you And probably can a figure from XX% that impact, talked the was a obviously trace out that time, without it's as right? it we it's -- think and revenue the -- with I

Tal Liani

Okay.

Operator

Your next sorry. question comes from Simon Leopold --

Jayshree Ullal

fine. it's No,

Curtis McKee

right. Fine. All

Tal Liani

I -- had

Curtis McKee

we'll Tal, Hey,

Jayshree Ullal

Tal, we’ll we come back have to time. you if

Curtis McKee

Yes.

Tal Liani

Okay. Perfect.

Operator

Leopold question next Simon comes James. with Your Raymond from

Your line is open.

Simon Leopold

was confused to your you switching. provided had center data there. extending translates that useful intra heard And season got your question Thank this about this business an Tal's earnings whether into I from the Wondering you. of of forecast Thank Anyway, of commentary if made about their or commentary also we you. were was when the to for several new Great. the you ask quarter providers that you the servers. not I how during aspect you. hyperscale last only lives wanted aware

Anshul Sadana

of much we you've titans, refresh cloud they customers a cloud are quarter of as we now some the did what one we least and when market the seen very the have from Simon, No, stated our call earnings last well. this delaying other were seen that at doing where

this cloud seeing far, not customers we're so the with Arista even But in other space. the

we're with But large limited one and company sort So the architecture, for for the not don't us type customer. looking It's it's it's not the there. you're they're to with they're to the as referring trend. of next-generation to on that other exposed generation decide to We deal select. offloads of very market-wide specific as so cloud much, a to

Simon Leopold

by to And the year. translate, they math extend life way to out if, or say, figure is how some one there a

impact Is the how to So us or quantify get four-year. arithmetic a think instead of they thumb to help for three-year rule there you? replacement some of about

Anshul Sadana

someone that. quite sure it. on that's something call no, try focus. around But has I'm we don't to We have models not this

Simon Leopold

Okay.

Jayshree Ullal

the Mostly a in spend. delay of a year

Anshul Sadana

right. All

Simon Leopold

taking the question. you Thank for

Jayshree Ullal

Thank you, Simon.

Operator

comes with Your from Investment Suva next Citi question Jim Research.

Your is open. line

Jim Suva

very smart Thanks or are cloud just a talked refresh and a skipping purchasing. titan whether I'm two quarter a because a elongating about But their everyone. sincerely cycle, be one I question you or have Jayshree it you as Curtis, as guy others. or ago not just simple Ita

they using fit way standard or some was, White commentary more other well they're found maybe or compression duplexing compute better the that of after a Box standard. maybe a through Some to or or

-- you solutions? confident Thank can behind do had it they are revisit us, Or just that we've a feel truly that you of months delay? more just that several Or any Now topic? other at kind you. us looking visibility of give is

Jayshree Ullal

Yes.

I Jim, answers So of all true. think those not are the theories

on them working I with some Arista, we've always been internal using customer straightforward with pretty well as internal development been and been the think the development. has That as have us. they

comfortable forecast they continue So we partner feel an has the important and us. changed be with very to that

Jim Suva

it. Thank Okay. you Appreciate much. so

Jayshree Ullal

Jim. you Thank

Operator

comes from Your Morgan. next from question JP Samik Chatterjee

is open. line Your

Samik Chatterjee

the you're taking commentary we've kind that's given for of, wanted weaker my seeing your what seen slower to have I question. than your thanks spending QX from Hi, on obviously a seasonality kind you historically. just of customers

As example? full the XXXX of which decline remainder like look kind in weaker year, than of is you that for now kind are guide of last the given was normal we right comfortable it years year saw the through a have the I will rest that modest revenues? think time year for the the And you of kind assume seasonality to through the what visibility of fair we gave reiterating you be still

Jayshree Ullal

Okay.

a I'm Samik, cloud by about We large? you -- question. confused customers talking little not customers our are So your did give are

Samik Chatterjee

customers. Cloud customer. Cloud

Jayshree Ullal

Cloud customers.

Okay, okay.

Yes, yes. makes sense. that Now

in feel look of our weakness in the way did So we reflected the we it's lot QX. which as time last and is, had same we spending a

of when nothing's rest get second think better we half more, the I to we the will as know about year stands changed. it but the

business. position The differentiate in compete, very Arista a get strong to and CapEx fields spend, the will that they

not rate be year market a the but winning we adoption do this We're sockets, share. the flat believe and will year. down we're losing to spend of So

Samik Chatterjee

Thank Okay. you.

Operator

Your next James Sandler. question from Piper comes Fish with

Your line is open.

James Fish

Day. Hey team, happy, almost Valentine's

the half of top over cloud headwind? customers linearity the it is headwind? course to flat going And want the I titan loaded is year down flat over of be $XXX guys digits to the to if to deferred inclusive million clear If the all. -- of double to was on go digits mix double flat just at of be and the down the you Or for back

Ita Brennan

Right.

flat you a right? double-digit number, expect the double-digit That play we that the all not When that right? So say where referencing down, but revenue, to that's basically meaningfully, we talked referencing be not revenue it as right? $XXX that we trying out and decline a million, are it's numbers number. right? revenue commentary to meaningful goes and includes obviously will it's see will That's demand So to decline saying said, about it that the double-digit

Jayshree Ullal

three linearity. me. Mark good our on Foss XX top question your answer given chart months. customers. million spend across to pretty in record the We $X QX then a linear I'm It was And And of just across has the QX. had customers looking at

So nothing unusual except more campus.

Operator

question Barclays. Long from with next Tim Your comes

open. is line Your

Jayshree Ullal

are Tim there? you Tim. Hi,

Curtis McKee

Tim?

Jayshree Ullal

to one. next go Let’s the

Curtis McKee

back. call Tim

Operator

question with next comes from Your Rosenblatt Securities. Ryan Koontz

Your line is open.

Ryan Koontz

on Thanks. big Thanks for their that to business speak could updates has of question. strategy been supercharge shipping to speak outlook for you a or could any of if wondering kind was going you that I that's to hyperscale piece destinations. your for the channel if Obviously, you? international. international to development But there

Jayshree Ullal

the more the small to led obviously, the always case. Europe even pretty and see service been some have Asia much in quarter. team Anshul invested and And significantly countries in providers. strong developed in We we're a course of wins international. enterprise a and important That's starting Pac. We international, the had channel especially some in customer

want So that's area been to add us. And actually that. strong I experience to for a of

a I think really. area growth of strong that's

Anshul Sadana

Both is in plan on a actually channel to you. And added we the have for of we headcount significant the development heads one have amount channel growth, a international. separate side,

ecosystem, a with coming a well along for EMEA And APAC set of different one so that's and So different well. partners as separate reasonably on. and

make As Jayshree with mentioned, fulfilled by them it the international are now to locations channel working channel led mostly but are we as well.

doing international organic well. the on, and if cloud of the So remove you so rest business is

Jayshree Ullal

the our And in customer come just one internationally generally of add to one But out are what other has customers the lower said, XXXX than Anshul U.S., of purchase internationally. cumulative sale. – higher logos quick

Operator

Long Barclays. Your Tim comes from with question next

is open. line Your

Tim Long

Okay.

about just Sorry, wanted I ask… to that. sorry

Jayshree Ullal

Tim. Hey,

Tim Long

doing? are kind of wanted to ask two How just Hi. related I you questions.

bit about First, the lot could been a chatter diversification of there's little you in silicon talk – switching a area.

starting to give us obviously your there. you with some, some can talk announcement an traction making big So customer a views, and about

how who's related any you Are So using you. they're to using it? white what think do what it the days? you seeing And or seeing overall just these on are there? change impact Thank box you is

Jayshree Ullal

– component merchant around three do notwithstanding We new been know Okay. announcement not been of themselves It's has have Look, ASICs dimensions. see big you a new. XX as this not are always Arista years. silicon ASICs and by

just couldn't case all a roadmap that one you silicon specific a we is received silicon Tomahawk product, have at will of ahead best-of-breed full have side where you ASIC, It's we've we our with confidence. more to we very standpoint, continue. and build of Trident, be believe can't point Jericho, vendor both always we the been – First pleased from and high the have and Broadcom a on from

can't is software, if not you by system. In interesting a itself silicon terms build of so

silicon competitive obviously, we So, feel most EOS, software many the across differentiated devices. is merchant

families, than it's it over that. think maybe supported we -- more silicon I XX

with thing, obviously general not And one. only going we like which selling that that's other in Broadcom leaves competing chips. and Cisco on is They're Intel business. to And so feel be that one our

Operator

Your Tal with last Liani Bank from question of comes America.

line Your is open.

Ita Brennan

Tal, question. the last you've got

Tal Liani

I I shouldn't the to is think want any number why is we don't something. just margin, By way, explain to remove the deferred both later But anyone We'll gross offline, and asked comment I could wanted remove you number sequentially in but quarter? next case ask take the question. The this it about I sides. can declining it it why. the

Ita Brennan

a ramp in always heavier They quarter. because enterprise to and No. right? takes heavier QX just We -- financials we're time be we'll the and cloud in first customer were enterprise mix has Larger heavy QX cloud mix didn't. in mix, QX.

Tal Liani

it. Got

Ita Brennan

right. All

Curtis McKee

will you the our which us X. note take concludes for today. XXXX this on Arista Tuesday, call, to QX moving Well, Tuesday, joining earnings will Okay. starting move May call. forward, QX Thank place earnings XXXX calls Please with that

on presentation, access which you can our posted have provides we Lastly, website. a section results, Investor fiscal of our which information our additional on

Operator

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

now You disconnect. may