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Arista Networks (ANET)

Participants
Jayshree Ullal President and Chief Executive Officer
Curtis McKee Assistant Vice President, Corporate and Investor Development
John McCool Senior Vice President, and Chief Platform Officer
Anshul Sadana Chief Operating Officer and Senior Vice President
Ita Brennan Chief Financial Officer
Charles Yager Director of Product and Investor Advocacy
Anita Marshall Morgan Stanley
David Vogt UBS
Amit Daryanani Evercore ISI
Aaron Rakers Wells Fargo
Samik Chatterjee J.P. Morgan
Fahad Najam MKM Partners
Jeff Kvaal Wolfe Research
Paul Silverstein Cowen
Sami Badri Credit Suisse
Rod Hall Goldman Sachs
Jason Ader William Blair
Jim Suva Citigroup Investment
Simon Leopold Raymond James
Tal Liani Bank of America
John Marchetti Stifel
Ben Bohlen Cleveland Research Company
Jon Lopez Vertical Group
Alex Henderson Needham
James Fish Piper Sandler
Kyle McNealy Jefferies
Call transcript
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Operator

Welcome to the Second Quarter 2021, 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].

conference from recorded at the website this this available will the reminder, following replay for Investor call. a is and being be Arista As Relations section call to the turn now will Mr. I over of Product Advocacy. Charles Yeager, and Director Investor Sir, you may begin.

Charles Yager

release Officer. thank issued Officer, Good me the us. ending Arista's and announcing call Jayshree Ita and today's a President Networks Financial for Ullal, joining Brennan, Thank you, Arista its everyone This and for you Networks fiscal Operator. XX, are afternoon, June press afternoon, With Arista on Chief results Chief Executive second-quarter XXXX.

like of a If you you'd at copy can online access it release, website. our the

the expressed non-GAAP these and after note certain use to that in them adjusted call on as we the our undertake apply could third business, During with of recent XX-K, financial addressable please forward-looking charges. to on the those strategy financial These on and market, and discuss today relating Also, for anticipated call, certain Arista the basis of views for of that representing the filed XXXX those in you to this financial conference call. uncertainties in as impact to and differ our from addressing in XXXX total statements, our statements of COVID-XX of SEC, which a year, We been fiscal potential we obligation and XX-Q Network's these are detail and quarter cause not management opportunities, Form statements our innovation, specifically product most future. risks Form outlooks which beyond, the materially have longer-term the and exclude acquisition, including no results documents and this are will the our measures our to statements. make on for rely market actual update benefits the by this subject forward-looking course should outlook these

the to these earnings of financial that, over call GAAP measures non-GAAP financial measures turn reconciliations in have our With Jayshree. release. will press We provided to I

Jayshree Ullal

for expertise for We especially this safe XX% also to as the for hope of engineering afternoon Charles. with South-Central Charles. Advocacy, you, Liz opportunity of non-GAAP [Indiscernible] delivered the in and per specifics. a Share second software with our systems is and I times, to Delta our with a post-pandemic resurgence contributed you're this Thank services XXXX approximately networking $X.XX, X-K Stein, you QX of recently XXXX everyone variant. the call. Director XXX.X Thank renewals of like revenues of to Relations quarter long new joining I Earnings these Back all with being closely and working earnings us welcome record Liz. vaccinated Investor Welcome, Region our ran quarter warmly time million take Liz deep revenue. most manager. the would

margin Gross momentum non-GAAP by of and XX.X% the Our was contribution. and enterprise services software influenced

execution. light tied largest record shed our vertical. of the logistics, XX%, Platform was on cost with at components the and quarter. to was close customers and I In like contribution QX this to XX% would our we light manufacturing supply Cloud this for Welcome, of with accumulative networking Titans second, Chief mainstream porch rate expedite the providers shipments consider attraction, to be path The milestone. at some place. And specialty the financial shortages healthy President, million XX escalating followed to fourth new international XXXX, enterprises. We and The by at million-dollar and are logos customer pleased McCool, in quarter. a place providers chain strong invite the cloud In John key golden our Vice and and John. a saw Senior more industry-wide Officer, of Americas service third We were including customer enterprise a cloud

John McCool

global elevated have escalating capacity, combined we in Therefore, times component extended COVID the near continued to for Thanks, all these and of product chain XXXX. remain To XXXX in expedites notable semiconductor Factories Component supply of The are mitigate highest times full foreseeable costs in lead pre-pandemic across and output, norms. impact times, roughly headwinds, is flexibility in we've Arista future. manufacturing. the range with lead due for of an extended demand steps industry-wide a Most and which demand. operating the we've XX-XX segments, weeks. are Jayshree. have doubled lead expected expect to on limiting changes seen and taken for number increase increases electronics are from in

maximize and capacity First, we utilization. to manufacturing material procedures improved

XXXX We times. for to are to lead our adjust commitments our purchase increased for supply constraints. inventory increasing additional emphasis placed new We on forecasts offset components for products

closely and to execution working are we're look Jayshree. expansion And of Back environment. challenging with our half plan you, supplying beyond. improvements and our redoubling efforts chain we forward this Finally, in in to second for Clearly, programs. to XXXX strategic the macro suppliers capacity

Jayshree Ullal

the and entire stepped We welcome as to. have that newest Thanks, up a in Susan manufacturing Vice-President Hayes, really work appreciate team John. disciplined manufacturing strong addition. diligent We your the you and

time half their the strive XXXX. for we as second during We will keep also of understanding thank better and and to lead our constraints patience doing in recover customers our

momentum Continuing Our of like never examples enterprise and strength X our stronger. would on I theme of enterprise with share success. been has you customer to wins,

or we stores wired downtime APIs enhances, EOS, drove Arista staff IoT the was the plus in CloudVision. switches switching all powers open XXXX, expansion retail, our In natural and for use across into win both with cases. Ethernet over without for markets a with downtime expanded was We across have. data both campus. and of We magnitude data real-time automation providing XXX and first for began these wireless, The the stores cannot cognitive to and center analysis campus tolerate of the of in win sector these Retail proliferation they and data able center perform routing. DANS with upgrades absence warehouses. remote the with retail the risks hallmark

for win routing major both center but software-led, a financial cases, routing. to EOS EVPN, deployment routing more and Arista continues U.S. using was spine its protocols Multicast. in with also center data a use a Our automated Arista simplified, VXLAN, second supporting of standard-based with not features, enterprise the just expand routing data core and

Arista's CloudVision. three transactions. to a back-to-work system, approach device alternative, build-as-you-go from and for fifth to who to to applications share an in cohesive higher According XXX-gigabit entertainment trials. flexibility unify a with took standard speeds, the support enterprise networking. quality visibility. large becoming often superior inflection data prefer to deployment able of datasets Arista In number client-to-cloud with enterprises the capability spine was customer ports build cognitive disruptor a as media This also using XXXX This proud consistently. our rapidly months, Arista gain X wanted the to to strategy combined from for XX center all innovations XXX migrate We product see a and high Ethernet of first within cognitive for across and continues year switching year. with market common and ranging XXX to included Our Arista was of campus XXX customers these examples, international their with billions a then experts, gold enabling market customer SILO campus customers customer Wi-Fi. the consecutive to cloud of included extension few for industry an and An easy simple to operating Legacy scale, are after We're be as and the leader access months for chosen Gigabit in providers. of the

share well-positioned greater is Arista, first to normal shipped customer ethernet And and in cloud achieve Financial to Officer business growth analysts; In And Chief our paid number of XXXX, are with in high-performance part of We an X obstacles, means competitive placing increased market million proactive with demand, experience. data-driven tactics, operations, X.X forward our than believe this, combined the of to next poised to A-game, up prescriptive volatile and in specifics. XXX-gig, predictive of phase With We will have diversification. our Ita, switching. is typical believe with and high-performance and live and us also in now according cloud a with chain this port which supply leadership I more we for while financial and the to ports our XXX-gig the A-team. A Greek, we summary, customers, our its do networking. platforms, Arista over for be name, XXX-gig, I'll half the great at pass it your

Ita Brennan

million were geographical first subscription Shipments in acquisition-related GAAP up end constrained on all a strong International in or up quarter, in charges, for our Titan non-GAAP international Overall full and of to shift to provided our of and afternoon. QX our with basis non-cash XX.X% revenue, results in reconciliation XX.X%, industry-wide at our reflected XXX of -related and to Cloud results for carefully performance came compensation in Thanks, other businesses. XXX earnings from and approximately million, impacts, QX is XXX.X to in in contributed in-region quarter-over-quarter stock-based well above deployments was our certain good million. of disruptions. This is selected the the up Jayshree. chain XXX.X of on quarter. navigate of XX% upper supply from a software Cloud XX% QX QX. the items. guidance period the our upper XX.X% second mix margin shortages release. And QX non-recurring healthy quarter the analysis the specialty guidance non-GAAP includes approximately combined COVID Services of the range and customers in based revenues end XX%. we remain by continue XX.X% above XX% our of revenue Total A gross and from revenues our and as guidance This in year-over-year

down software of were higher up XX.X% or from introduction recognized chain million. million. in expenses of million last the healthy at costs in last and with employee-related these some costs the Sales quarter revenue, million up at marketing last XX.X offset the spending Operating quarter. revenue, mix in expense expenses XXX from of XX.X% XXX.X quarter spending a for X.X% from for R&D XXX.X or came the period. we new related or incremental lower the XXX.X quarter period, million of demo enterprise million more supply While in reflected XX.X This and were than quarter revenue product at and was revenue, period. by increased

COVID a to travel we marketing As from benefit and reminder, -related lower continue expenses.

in last of G&A Our or X.X% million revenue, at costs quarter. consistent with came XX.X

mix. approximately for XX.X%, quarter million and expenses favorable quarter income income Our Other revenue. Other and quarter million quarter an income some or in the resulted of or was and X.X geographical for XX.X% of reflecting XXX.X interest was revenue. net tax for expenses our amounts. This million approximately effective offset included of XX.X% a X FX the income the the by for operating unfavorable XXX.X improved income of rate million were

for Our number was approximately $X.XX Results of diluted number prior the shares. XX.XX from earnings-per-share quarter the the year. of share diluted million XX% up

to quarter the ended at turning repurchase common billion. approximately equivalents, X.X the sheet, during shares the investments balance Now, cash, quarter. not stock cash and of did second our We

As commencing we repurchase shares X repurchased million authorization worth years, now over 'XX. against our of or billion shares QX $XXX Board $X a million X.X recap, have in to

continue opportunistically mandate. remaining execute to will against the We

reflecting and from from Inventory in returns last period. cash in chain. of days affecting QX, we second in Inventory million days, to down down operations XXX.X performance million for period, billings continued as cash DSOs Net XXX.X prior of XX operational quarter Income quarter, continue Inventory X.X. came in solid generated quarter. performance certain and in in increased XXX period the buffer components supply the slightly to X.X Turning in the were at and at XX the from the linearity the to We investments times, from up products. million

term basis. total revenue million quarter, revenue product sectors. is QX. last services-related Approximately, service clauses to acceptance up up and renewals, balance of for quarter-over-quarter from the linked deferred revenue, customers majority and XX products Our deferred balance deferred The is and a of balance, in to which new from on XX the million, directly across was vary can the million XXX largely million XXX represents various timing related

in customers. to XXXX expect year the introductions, expanded were the revenue payable significant result acquisition and addressing were in customer we XX.X conjunction and QX, expenditures product X.X days, of days XX.X inventory in cases our clauses and may receipts These combined with payments. million. and volatility quarter levels reduced reminder, a use Counts up new increased a upfront from rate, for existing healthy with customer-specific trends Cabin be As price testing increased days in and product of new the of acceptance with deferred amounts. timing

outlook third our strong for favorable XX% the market the turning the approximately across all and of quarter first Now, the from for XXXX, growth revenue first of to half half sectors demand comparisons reported beyond. of with combined We reflecting XXXX. year-over-year healthy

continued expect given the see second will XXXX. deceleration move through in we the revenue as in we likely we growth, top-line experienced While some half recovery in back the of strength demand year-over-year half,

to Turning constraints continue Gross supply costs. Industry to component margin. pressure

outlook as incremental we to these the Inventory mix volatility context, when of sold XX% our products this are Income statement as on driver be future and quarter-by-quarter the will customer recorded basis. will remaining be recognized of to continue Gross a key XX%, in With with margin costs initially Some reiterate of periods. in only the

remain spend build in quarter marketing and third expansion. our a and to location and fund support business, in to the the we XX CapEx cash committed to land we for of go-to-market of innovation investments support our purchase to data million across to to approximately expect growing in sales Clara. investments, to center Turning With flow, the R&D Santa and regards engineering

We will details over this the coming of quarters. provide project more

margin to and is for all of need new monitor on of inherently to XX%. we guidance and With our for QX follows. our its Revenues our challenges This of an attempt mitigate to results Quarter gross Finally, items this a approximately XX% as stock-based above, on non-GAAP the any non-cash and XXX situation as Third to impacts current chain. remains and compensation operating the backdrop, as impact other our margin supply to discussion situation understanding uncertain of base guidance continue our COVID-XX business unfolds. approximately will outlook XXX excludes XX%, and million million, and at to nonrecurring discussed reflects and

the to Our diluted of effective I expected turn million is XX back Charles. with to call tax shares. shares approximately XX.X% be rate now approximately Charles. will

Charles Yager

Thank going single time move please portion to you for everyone request We're Thank understanding. themselves Call. I'd Operator, take Arista you to of now Due like it a constraints, the your Ita. Earnings the to that question. to Q&A away. limit to

Operator

first with Marshall Arista question from earnings will call. of instructions] We of portion now the begin [Operator the line Q&A the comes Anita Your Morgan Stanley.

Anita Marshall

a -- be if if as of there'll just this maybe the in give Inventory is. a guessing of worse could where Portfolio. of any but are questions I'm thanks. on the Great, the it then you sense couple portion that today, And relates -- supply chain constraints to

get high-speed the sense service to of or of, on the trying Thanks. it campus Just more is products provider Portfolio? a

Jayshree Ullal

Anita. Thanks

they're know rate, let about affected memory, don't every I if John supply it we're affected I all just pinpoint passive like think weeks as component I but our the comment, from to weeks products. XX is heard, John, chain, can XX you XX on I'll you in chips, XX all weeks components, double right? expedite copper, to it; fees. logistics, been vary experiencing anywhere affects so weeks, or And times our said, lead we've

John McCool

Yes.

Jayshree Ullal

we Depending level. increase on the at campus, data you are experiencing name the levels it. switching, across component part, board, component center, And routing, the they're of

it, pass not we're if can, and as in But it I to more of except across-the-board. can think it absorb anything much Now, we of levels. it offset and much as as customers our than going don't we and it's try modest onto help

Anita Marshall

Thank Great. you. Okay.

Jayshree Ullal

Thanks, Anita.

Operator

UBS. of next David the Boyd line question Your from with comes

David Vogt

guys little there you Thank been has some noted, earlier kind better competitor -- into Can the that just they're guidance? of mean a this pull bit it given were how Thank let's of little just visibility, what forward X up for to that you're lead industry without about, placed months, to a pull book has relative that seeing bit thinking given taking quarter Does for a strength A the you talking suggesting guys does a little supply specific next, the question. to and recently your orders Great. X the my over getting the you. bit you call quarter as constraints. fourth constraints? visibility the and backlog this obviously about and order explain

Jayshree Ullal

Sure, David.

know, to our few the I've that always in but up you visibility, last our quarters, lead As we've due visibility gone limited noted had has time.

I So, proportion to longer a times, think there's slightly visibility. direct long lead

that need visibility it's So longer with, Anshul, And normally particularly visibility tied to for to to to better they're know into able one with that in XXXX. lead more some Titans supply quarters do get with to been they going realizing want think us XXXX beyond have to do that And two the Cloud product. directly I times, do we closely them Anshul planning to works and the get. add we we the what have that? to you

Anshul Sadana

Yes, tell customers I our if signals discussions get they would or pull-ins That's with say non-binding is demand we the happen we're us. get we much where more not content. seeing the It's customers. doing order it, visibility how won't

Jayshree Ullal

prudent just customer. David, planning, from It's a

David Vogt

helpful. you Great. very appreciate it. that's Thank much. I No,

Jayshree Ullal

Thank you.

Operator

question comes Amit next with Your from Daryanani ISI. Evercore

Amit Daryanani

always now buy. to if Arista? perhaps more to for love shift their build the a more and relied Cloud afternoon. that the I couple XXX-gig in gets white-box technology question's products, know question. lot spent Good on white your I'd to guess XXX-gig folks your the a complicated is the perspective that and would for how really taking as risk. more customers I really of the to with have Titans to looking box time seeing Thanks of my years to start opportunity. white differentiated love I have against explaining you're underlying software last And And get you've stack think XXX-gig, my around potential historically what's boxes own skewed talking

Anshul Sadana

is it Company box The with short I the has boot. have collaboration a we visit committed that is us. talked sophisticated, their past, And we've don't about our and are on partnership much they nothing the But it so go mission, will with fairly in they're If here. changes because any happen have talent. not will front. the Sure. to simply harder the the vendor it's they ahead wide industry, next-gen is about in more if on be co-development on the to believe changed we

customers And actually where With to years mission. moving along big consider will from that change, few situations materialize. a We the then our few very take on are the outset, no buying expected.

Jayshree Ullal

think But this to of commodity appreciate basic then mean, our I stack, software our when software I and vanilla our that's want stuff, to think continue. the innovation, chosen. if you really way our without Arista want and you'll XXX-gig if collaboration, is buy you you gets our just engineering, stack,

Amit Daryanani

Perfect. Thank you.

Jayshree Ullal

Amit. Thanks,

Operator

comes question next of Aaron Wells the Your with from line Fargo. Rakers

Aaron Rakers

wanted Thanks progression actually and to on Yeah. question of taking the about the for of the I business within the ask quarter. subscription congratulations model. the

at we as start the think there As Company? look to for investors way is you. or that increasingly the about being Thank should how driver growth visible any services an line, we

Jayshree Ullal

you for more. wishes. the Thank Wish Aaron. Thanks, we could ship

fix -- strong the These I of from -- a subscription Monitoring are later. long-term business, but you icing you we think obviously And very the from doing detection network cake. will, and When continue with well right? of AI-driven up revenue, DANZ of because response revenue security, three-year good bit look to service and CloudVision Cloud as the on the little you such are our acquisition stickiness a two-year, can a so not our has to as A-Care. necessarily issue indicator real strong We'll an or all, renewals or to layered think is the U.S., shows with what Fabric. at subscription just But software that, or are margin bookings long-term imagine icing one-year, so a contributes see the if

business. XX% believe so, will to be together, we've a XX% And we said, the the two always contributor to

Operator

Samik Morgan. J.P. comes with Your line the from next Chatterjee of question

Samik Chatterjee

the just comment Hey, good you did strong demand if accelerating. as third when taking s. like you're is of for And other it seeing off some what example, guidance talk can seeing Titans from does about a question. enterprise like increase in starting that the Cloud the afternoon. customer that verticals mind, a the from we've traditionally Thanks you Telco quarter full my Similarly, as customers. percent demand Jayshree, like for look Wondering like you're high-single-digit. well of seen as backdrop for keeping

just historical all I should infer the rates trends? to moderation So, supply-driven that's of terms in

Jayshree Ullal

demand think well. or case from providers. I we away strong, wouldn't First the of Titans of well. verticals five our Relative all, large Specialty of doesn't guess it's contribution well. would last I post-pandemic Cloud are rising necessarily the the we're but I and tides we era, in it on just a that, is thank success In are more, our highlight Enterprise that but and you. I could would I basis are all financials raise stronger, everything, take them service doing compare Historicals is of so aside, our having ship with to Cloud numbers, all QX wish contributing QX, to the say doing

Samik Chatterjee

think of if very I just was year, uptake assembling the mean, COVID more That that the in quarter-over-quarter. saw look with up time. significant what QX a at an of or was at given it something you XX% was Yeah, happening year I you was, last

Jayshree Ullal

Right. And that. once previous years like

Samik Chatterjee

the QX good XX% that's XX place to Thank the -- year-over-year, think guide, midpoint a start. Yeah. you. I of

Jayshree Ullal

Samik. Thanks,

Operator

the next of Najam from Your comes question Fahad Partners. line with MKM

Fahad Najam

question. you Thank taking my for

the absorb your I there. Are price? pricing? and increasing on, in this also In comment you're of terms the using about Maybe the you are costs an experiencing? their the they are a environment, opportunity pricing talk you would the appreciate planning that passing are you market competitors as as seeing comment terms aggressively of can of any costs you on on it. maybe well? pricing in to incremental dynamic Can Or

Jayshree Ullal

expect try say They talk But Well increases with absorb impact models, that to really with we are existing will our best to in the but position Inventory. to about don't Fahad, not or that going On Well, any where a I'm to we competitors. don't you. that will increase prices on selected our significant have on Maybe I costs. us. we're slightly, Fahad backlog share they'll the

the So, year. gross changes next price changes make of or impact impact margin we will real any our our

Fahad Najam

response. I appreciate the

Jayshree Ullal

Thank you.

Operator

the question line of Jeff next Kvaal Your Wolfe comes with from Research.

Jeff Kvaal

wondering bit be a wondering Yes. deceleration year you you to have about that tailwinds we about in year, started don't considering about considering there we complete little all -- the much think talk you a that sense. to when should the start it, but should we half are I'm are the as want that Thanks this think one-time if anything expecting shape very Obviously, back we makes of of much. XXXX. I'm any too talk about be to it. which to

Ita Brennan

setting I specific start to year obviously good about just played I We're good base in because grow that's year. year, it out. too have now a to solid, an strong XXXX of us early getting business mind, unusual This slope that for it's mean, think is to pandemic off this little it some demand. and the XXXX. numbers very did putting a Yes. Bear how but up next the is

I early at giving you XXXX, well take it's it's a the just for across broader; We'll little probably yet. bookends executing verticals. think too but we're next shot a quarter it's some and

Jeff Kvaal

Ita. you, Okay. Thank

Operator

from comes question next Your --

Jayshree Ullal

Jeff. And creating for the Anshul, and nice demand. Chris, whole Thanks, team job

Anshul Sadana

Jayshree. Thanks,

Operator

next line Cowen. comes Your Paul question from of with Silverstein the

Paul Silverstein

for did line to Jayshree, year? for hear top that the growth you, question. and now XX% say expecting or the I you you're A were Thanks. clarification

Ita Brennan

you hear No, did say not her that.

Jayshree Ullal

never Paul, Ita would those did say say? you Obviously, but I what things,

Ita Brennan

QX We talked about the of guidance the growth. year-over-year for midpoint

Paul Silverstein

the -- this expecting response XX% a Let the ask margin definitely quarter, me And That last let me also costing I you ask how in Any you in you said structure? was you're question, for what for in can for the now growth chain year. on responded question supply comment -- thoughts Q&A. you to think a in expecting revenue you is much on the you're and year, because year?

Ita Brennan

I and we on that in you specific now think Once a there. it you you year becomes the get it, the want give but reasonable get QX, to for you we think layer easier. number, you probably about know a view QX number lot put year. to I of can a QX the can when don't

extended, times -- much, In revenue some weren't are clearly, to lead a to number hard that it, really try compare extended; it's terms hard lead world. do that. more of put can it's we're put number much think kind of very times obviously that always I to going how to how We on if on normal to a don't

Paul Silverstein

particular. All right, those Cloud concentrated highly and I in more can that been can historically, think more you success But having since I you've Titans vintage, with ask Microsoft you Facebook. within given some prove response, of of with Google insight in recent Any you folks, you some share us?

Jayshree Ullal

across strategic, Microsoft very all team are is job great diversifications And while and I and our very in think customers, have we Paul, other Actually, important sectors. doing you summarized also. well. customers Stack both the a it very Cloud Facebook

Anshul Sadana

question, Next please.

Operator

Sami Your line Badri Credit the next with from of comes question Suisse.

Sami Badri

a commentary just clarification deceleration. regarding Hi. Thank you. A just little the half second on Ita's

from bit sequential I Is growth hoping be be could I little would if just XX% there are sequential guidance. even XQ any out Now, us and XXXX? in extrapolated if where just some we're and give balance, out there to negative that any clarify the low I out decline we forecast sequential want and into today, a potential Ita, in was And I you'd getting of XQ? range.

Ita Brennan

we're guide but quarter-over-quarter. the growth at usually there's their quarter. clearly and not QX good you QX given We've to trying midpoint too is strong a far, Yes. Again, good a --

the conclusions it your out laid to for that, from I but you draw So, I think pretty own leave much we've year.

Jayshree Ullal

is shipments because time our really we're Sami, our we I a think well. to is convey so We doing supply -- to can quarter approach one our only at need this we'd constrained. execute strong; on the shipments chain and like is demand message

Sami Badri

Got it. Thank you.

Jayshree Ullal

Thank you.

Operator

comes question Goldman Hall next with Your from the of line Sachs. Rod

Rod Hall

Cisco And on the thanks or margin Hi, think I'm and at of guide. have this bottom? my goes you That's ask gross We a their they guess is wanted do your that from worsen? -- sideways curious we I to similar I their margin on was guidance. about there, follow-up. were the first at September, question. or their had for guide from in this it's margins could the I continue impact on said things view, at In note, when to point least margins Yeah. point bottoming, supplies talking whether question. the bottoming words, for a gross to gross unknown were you other

Ita Brennan

forward, have components and for components chain significant QX, are that's ship did more mix. Yeah, stuff, normal the even the offset in was chain those in I and -- we are components the I than into. we think it whenever will those on supply more think incorporated we that as are impacts some get customer by those paying than look supply we But Rod, better certain recognized cost products that just

So, margin given we commitment and see some will that the probably gross we levels drag for have. on purchase some time just inventory

offset mix enterprise helping the to customer that, biggest driver. mix is is that mix -- are still but healthier. far We The by is

XX% time a quarter, pressure number mix we heavy but stay be. that on a to to XX% place have can feel you I margin gross over if we that for So, like there's that's range. a cloud think we are in see the safe quarter where going And good, to

Rod Hall

mean margin you possibility you that that, XX, you a quarter for think say over do say XX materially quarter. lower a already it's signaling when in guess you -- or some do have percent I'm from that's what pressure think the down in probable do thinking do -- XX than wondering, you And I dragged, because is, you’re you longer? you when I'm next this is a

Ita Brennan

we Yeah, mix. you mix, some a a customer you mix valid. that will be think I where that's biggest of so a this On it be quarter -- particular offset XX a mix is range again, be again helping is the plus be the The in XX saw at could heavy the quarter, there's XX, to really good, stuff. particular very enterprise still plus think solid quarter the even that. driver I customer will could But back because below

see going still range. move is You that but -- comfortable very over gross a think will around we're to I time, in margin bit

Jayshree Ullal

Ita -- Rod As said,

Rod Hall

Okay.

Jayshree Ullal

margin lot As higher this year. later when be is actually and and more year realized. will of cost realized inventory costs Ita said, that gross be a next our The would pressured --

really then lower to rule And the be the mix, on better XX, right? have out XX really we side on then XX the Recognizing the that cloud high costs good a to don't if side being are of we of could I of -- mix, so, have we enterprise If possibility XX. a

Rod Hall

sense. Yeah, makes

Jayshree Ullal

predicting the really shortages enter. going And -- supply costs is going are XXXX. in semiconductor nobody of away to

Rod Hall

half. to No, absolutely second me And here then the not. strong look we trajectory as enterprise the enterprise that indicators leads -- into spending very are the

Just the strong look your pipeline, to curious, equally does thoughts does your you? or in mean, on are or that how what pipeline enterprise I look that

Jayshree Ullal

I run short yes. you've is answer questions, Rod, think out the of but

Rod Hall

Okay. it. Appreciate Thanks.

Jayshree Ullal

Thank you, Rod.

Operator

comes next question from with William Jason Blair. Your of the line Ader

Jason Ader

where to compare does supply How guys. prior career chain this question situation you've for supply is HI, seen constraints? My in periods your Jayshree.

Jayshree Ullal

I’m and all never person Well, seen there I close pretty man worst But we ups starts be will the COVID think also of copper I've people, it's it, be all to power, I I've seen everything pandemic. oldest. logistics, the from ever the freight. here, we're more asking This worst it. shortages my dispersed. recover decades, than wafer several some from you're going seen big I’ve to guess glad to assembly have career And to hopeful, Never. downs. to prolonged. been oldest And is it In the the

it is add you about every too. of youngest want the more to to person Anshul, that do anything challenged, here? as aspect Just

Anshul Sadana

time? [Indiscernible] you -- is it and for in this in XXXX who and but offers this industry world for very industry try in the result, can But and run. demand mismatch big supply time is a what's this to And book that predicting run so on. you to will not crunch, said maybe planned react think recovery chain a constrained, just in at Could what happened plan but long and never are supply I an people where things quarter. knows demand. a will ahead be when into be I one a last to [Indiscernible] as longer prepared The

Jason Ader

of Jayshree, because that type hit point is some just have and at demand pocket, of And inevitable ahead we'll air ordered everyone we're some going air a time to it see needed they pocket? will what

Jayshree Ullal

given have, one know planning to think the we affect not but diversification I don't I of the answer customer will Jason, that, the business type of of the planning others.

them XXXX. some for planning are in hoping of I'm ahead that XXXX some and planning for So, are

off, the pockets you air balance if will will. And so,

Ita Brennan

that over It's what least and deployed, not you're you're I will it is at filled; its Jason, visibility, the for to get -- pretty deploying And the the so demand good, helps. right? when not -- customers larger for time think

Jayshree Ullal

That's situation. says, - very right. much, expand It's a-land-and as Ita

time. buy You and then from just nothing don't long a land

Jason Ader

Very good. Thank you.

Jayshree Ullal

you. thank And

Operator

comes line question Investment. of Your Citigroup Jim from with Suva next the

Jim Suva

you you. strength. markets, one of two out have just if you. results question Is in call all that across really that great seen have so were months outlook, to being would and driven posted nine have or Thank are you've and back, Thank to would to to us kind ago, strength strong look impressive only not it you really or there it your outlook? say your you guessed a I have related because and you end as the or And that that's revenues really want been six one

Jayshree Ullal

remember Jim, But might you to want most would to or year a any They're or five let strong. question, Anshul, his place. of would you, less And or saying, it I feel second bad but by, of growing thought the ago, Thank add you a down. -- are this credit fifth to just bullish to double-digits. preface flat Titans. I surprised as what And Cloud they again, for rating Jim. that? by to ask We fourth fact, if all answer Anshul, Anshul all third team. were you we in do lot on positively verticals goes love I'm and you them me be very me even it's

Anshul Sadana

But a upgrade the makes a strong their upside XXX, for end Cloud what about is demand Well, year impacts? cycle Sure. We've and the and serving been happy difference keeps into over the enterprise adoption for quite of mix expand us, quite but just our And time. But with And into good positive at their And customers we're businesses. getting Titans planning by the started the, deals transitions. the not despite XXX-gig to a the in COVID into talked strong the a so so that in campus, long that the famous growth, super themselves That's surprised enterprise. very for some is we we're a facility. on are way time, a very growth just monitoring market that there, our in and customers, It's too. XXX,XXX,XXX. large primary have us go. area both also

Jim Suva

Thank congratulations. you, and

Jayshree Ullal

Jim. you, Thank

Operator

comes from of Simon James. Your Raymond next question Leopold with the line

Simon Leopold

U.S. and Does plan modeling just your the year in when Thanks for on question. own terms Thanks. sell change thoughts do cancellation the this taking for project. would At to a of and you of a announced do overall business? the of one the government comes with that in beginning July, that longer-term? of you into it the project you how it wondering given I'm into your that forecasting essentially put this participants Jedi out rebid. the to project forecasting your factor What

Jayshree Ullal

I certifications. except sure don't we making much all think the had really we've very it Simon. Thanks, factored in

want Anshul? that add to You to more,

Anshul Sadana

change we It's year Simon, not is this a saw any last in related contract significant if as award the to XX-years. that.

program doing the is -- there's other gone, [Indiscernible] the so contract but programs the addition, with be government Jedi companies. might In many

any just either. noise. don't big downside gets really the upside s. we mixed big there's think I see never into -- We saw it So, any don't

Simon Leopold

for big How government you? typically is

Anshul Sadana

why This we one it cloud direct. see No, customers, but of our going this case, through this don't wasn't in through going us. was which is

Jayshree Ullal

Cloud really It's government. not It's Titan.

Simon Leopold

I good vertical. in sounds but past. about government don't you've like I Yeah. it general it the that in -- a No, know because guess talked

Jayshree Ullal

No, for haven't. in year-over-year, better. do kind but go. we long of We our big concentration has enterprise but or us, government we -- a any I way large lot It are could not a to a it's momentum. improved into is contribution of mixed terms

Charles Yager

Next question.

Jayshree Ullal

Simon. Thanks,

Operator

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

Tal Liani

it Hi asking guys. without I'm to question directly. a trying ask

in over and the what's your win big Are a anything for for looking the takes, the Is that quarters? any can you is this looking next with few outlook us And Cloud you're big about what could the trick with of share pipeline Titans with Cloud Titans? one or there -- puts the announcements I Titans. have for? big happen Thanks. wins Cloud So, is, there question

Anshul Sadana

good. you're well results happy say the Segregation doing been so I customers. Look, with and very far, our upside there's expected. thought more has we're with you'd

it the our behalf. more the our especially internally, this complexity. so of We're know moving them. as Titans, obviously very next that no, in each big otherwise, products, supply customers There's aspect Cloud both them key making or well despite that, well. of that market. you big There's quo competitive and many hardware grow and our on we that's before big the their to on You market, We much about it's [Indiscernible] with a I so architecture don't of is of status dramatic as there's maintaining do If software. make and a anything But that with and grew, terms can't customers. focus these But on with a think we control entities. that be mentioned design, last And there's big no will achieved one milestones U.S. as while think change. are no to There shift. we're be over or can done announcement here. country need

Tal Liani

Titans results? this it Can also to the -- understand squeeze how another not overall growth? you one, Can I about is quarter if it you to of and okay. important talk last it's can I'm -- Cloud terms, in quarter trying in -- important if to if I contribution is how the -- relative

Jayshree Ullal

it's bracketed Tal. -- But we So, the said XX was from to annual we Cloud staying decided rather quarterly, within it to believe That's than targets go it. we Titans we the XX, annually to contribution XX% XX%. I gave.

Tal Liani

the to What much about the much growth? it than growth? of higher the of proportionately XX% Is the how Meaning, growth? XX%

Jayshree Ullal

don't we on comment No, --

Ita Brennan

contribution cloud important. and more on by the do look and to is want basis. is it I cloud quarter-over-quarter a try our important. growth quarter to think The becoming Enterprise quarter. hard we at But on pretty don't that most to It's

Jayshree Ullal

shipments. - Brennan: think A because Ita, make annually, Right. Ita I still by constrained more Yeah, it sense will we're

Jayshree Ullal

It if was or medium. false signal high, would be a said you it low,

number basis, much I annual and definitely growth the better be think it's be double-digits. an It'll will good. a on

Tal Liani

X mix. the vertical number the not it's sure. that for part of Still When think and important it's of no, an you important

Charles Yager

Tal. you, Thank

I think next the ready we are for question.

Tal Liani

Thank you.

Operator

Stifel. with Your from comes question Marchetti of the John line next

John Marchetti

if seemed bullish what you little early we part seem you year about that back I could a was were ed market. the just on go wondering that or two and last to brakes minute a little like bit bit the there. the of expectations; bit specifically Obviously, talking are pumping seeing little in spend more XXX-gig you a to it quarter, we change a seemed just

be would but curious it's a anything spend if still you time, I'm assuming Just market, that just little a could you're bit of Cloud Titan seeing and primarily there helpful.

Jayshree Ullal

Titans. more Well, than Cloud it’s actually

XXX when about Portfolio been products. whole I talked think since and the Arista Andy we if has and XXXX, XXX-gig trialing I remember, here was QX

a XX we to see increase. not XXX,XXX,XXX, expect -- significant combination of this So, XX --

Titans. to we Just had the triple customers last Cloud we you to to year XX expect and context that year this way give than in That's about quadruple here, some customers. more

Operator

And next Research from comes Bohlen Cleveland line of Ben with your question Company. the

Ben Bohlen

how XXX speed with XXX of saw with that see develops, it XXX for could versus you you about that the Good pace talked maybe you adoption. some think roll a and that they the taking talk of evolution perspective, what additional little getting bit from partners of next how year. as out, visibility in you question. or history terms Thank compares you afternoon. and about into how hyperscale Jayshree, even you With

Jayshree Ullal

Yeah.

really a that's good Now question.

like this I'm Right? pivot more Cloud and was think The very we year. And to to years least expect And finally hard customer with at it's Titan think inflection come, wrong,XXXX That's are see separate this base fast. of vibrant will this It why we XXX-gig and so remarkably something pace XXX-gig X XXX,XXX-gig XX-month think gradual. it's to many us more to Anshul? longer. adoption that. be if for And half XXX-gig our in out. the coupled use continue period, point or point 'XX, I at was Correct an will been I over in has where a I me XXX-gig. for in on probably second maybe shipments cases

You You want tail that, want to Anshul? -- is long to answer? there to a

Anshul Sadana

XX-gig. that better I went much it's It same than compatible to It note important with power Well, cost no-brainer think -- was XXXX,XXXX,XXX-gig consumption as when -- world very the the XX-gig, was as in backward XXX-gig compatible the to XX-gig. same

Jayshree Ullal

Yeah. No-brainer.

Anshul Sadana

XXXX,XXXX -- why are year optics adoption not well. and ones upgrade. XXX needed and is every they’re what that And Which this it's needed. layer of products that back involved cycles. in is These XXX-gig are absolutely last constrained like much were not going, why ever the cycles. year model earlier technologies at goes think, and I -- XXX-gig you they’re very come lot there the the winning And very that the material other new is using Which same. to, ZR different, well. different And the to next-gen on upgrade combined matters. and The would as data are XXX,XXX,XXX, as if a one were this Companies not for connections, network. which the I

Jayshree Ullal

that more capable, XXX-gig speeds you're deploy highest times timing. is getting for XXX-gig. product XXX,XXX know the on they'll the to how buy even What addition sidemen non-Cloud a but deploy them are customers on happening make ready I'd or independent they in like now only Titans they focused many that's is What's clearly sure make they'd on

Ben Bohlen

That's you. Thank great.

Jayshree Ullal

Ben. Thanks,

Operator

question with Group. comes the next from Your Vertical of Lopez line Jon

Jon Lopez

I feature you quarter. that this and carry second sets? statement or guess in XX income any secondly, sequentially is or product another the you XXXX? of to much. component you million into this thanks very heard -- constraints or one, And there with flow QX, or it's you'll of XX into then do half product the is about you deferred you believe million by the do all questions year two stuff Ita, that I say ascribe Hey, I thought expect had that that in the so I said counter grew I so you

Ita Brennan

Yeah. related products. new stuff. to It's used if number. not cases, more new added really QX, other at that of in stuff. and mean then stuff it some what we customers, recognized new even about I was of you it, drives kind side that the -- new supply That's is It's look

happens out any expect script got out. kind the comments is of that churn QX, QX. stuff is I that’s as bucket a off revenue, in given I lots of happening. revenue take to further that think that what in net But build, underneath think new balance We'll So, we've don't that bit how like, But you I -- some if in balance. there us of see around the

think I depleting would that balance we it's unlikely this that be probably year.

Jon Lopez

you. Thank

Operator

with Your Henderson next question Needham. comes from the line of Alex

Alex Henderson

of price I thanks. the Great, in in alluded and on a talk talking switching X-XX% price could you you We've heard what is including variety players hoping through was that a bit than from more increases increases products, pricing. passing and market about about to. environment related little products, routing some the of terms Cisco

delta is Acacia bundle to you to change whether is products. trying that or fool's Cisco together errand? which that the with there a developing within of that the you And that You optical think be could of not context, relatively a obviously lot through are a that, there? talk your careful about approach can something actually the with switch-routed to strategic a on suggested you -- Arista a going bit Is platform pricing you And push concur little customers. architectural to

Jayshree Ullal

question. a that Wow, was loaded

one philosophically, So, for about making pricing. are I'm going the flight got and you It's to products got and discuss I delta we’ve Acacia pricing. think break it customers can budget difficult the But we’ve tell into in plan. who their parse competitors backlog, to Anshul, I our got two. us we've while

absorb in selective in to going to this much will have range on as we and of try will year the it we're X% gross margins the short-term Cloud -- the dramatically So, mix is that slight it affects will Titans And the as costs. to increases, changes year. as of to. said, base models, can if we still price That some tail-end alluded the customer our it next affect our in probably

for because and Acacia and it's all So, take pain to real thoughtful we’re customers Alex, only we're going for a say question? to significant to you the apply shortage there's pain and this increase. And the where cost try want be very to Anshul, and us real mitigate a it going

Anshul Sadana

Cloud They our Companies, way frame especially early they involved built do not optics. and customers a white like layer, solutions, ZR the the these run the not -- and Alex, the Yes. launched manner. we’ve not the as And buy bundled to 'XXs just to each They on allowed optics one. desegregate in for -- XXXXs. disaggregate these and every you boxes. know, in architectures XXX-gig,XXX-kilometer RFP been XXXX,XXXX-time since to would optics like are be for in switches bundled separate The

to competitive each is when. clear independently at be this to large our work optically time have is be other mentioned, and they And have concern. participate. can don't have why out. a Which -- come as we Here, cut Companies We not we to

Jayshree Ullal

many as optics’ to And we vendors. try qualify

the you qualifying have So, at any sure, that’s team of I'm a given right? time number vendors;

Anshul Sadana

optics ZR if But we’ve there's qualified a out there, it.

Jayshree Ullal

Yeah, I've noticed.

lead time too, I a your on understand. qualification As

Anshul Sadana

[Indiscernible] Yes

Charles Yager

Thank you, Alex.

Alex Henderson

Thank you.

Charles Yager

Next question.

Operator

Piper from comes the of question line next with James Sandler. Your Fish

James Fish

that me old is let have but being -- that say wouldn't squeezing just with before I here. was going Jayshree, wisdom, I you I’d wise. for Anshul to comment just a Hey, to And of in like that thanks so And age said, debate sign and

Jayshree Ullal

James. you, Thank

James Fish

let though is have just debate wise I'll that st, you and who Anshul offline.

Anshul Sadana

[Indiscernible] that Given

Jayshree Ullal

Good one.

James Fish

support Does help extend some something grew core gave. to spending, is, we the ranges will Microsoft like you you least look fulfillment So, it the are core guys is core with or guys. at midpoint looks for more use pick Thanks, environment your of think that some see up the about announce saw and they you relationship regions carrier those take their cloud, ' even AT&T to nicely, and be via carrier of pretty if to it? way Microsoft or Azure the a starting to XG as industry your the it of

Jayshree Ullal

when with Yeah. our know, short-term, as No, nothing -- that well. the I very particularly But a them some think XG it’s Azure. acquisitions to are you and made. providers we their in investments of of patience. you long-term you precludes, in win test recent much service them, the there's But win relationship-tied It

think our and back seeing Microsoft spine. take we personal upgrade tied where it XG -- specific will Today, next on time. it’s primarily to Microsoft, wins core independent are and We But probably own platform emerge in routing the Azure. I It much very will are the to to several the years.

Charles Yager

are Okay, timed we -- for

Jayshree Ullal

Thank you, James.

Charles Yager

One more ques --

Jayshree Ullal

Last but least. not

Operator

question of McNealy comes Kyle Jefferies. line Next from the with

Kyle McNealy

currently sensitive be versus gross less Notter. lot question. your may some traditional that the a thanks small, seeing but chain you help might at for for HI, using bundled all provide any little the ports with color areas? This any that cloud make the customers margin of be It or or quite the there's quantifiable mix to a in hardware George sale? if EOS you standard Curious change still in mix EOS could a Kyle is in issues supply you're the what around can and

Jayshree Ullal

Kyle. Thanks,

network example enterprise of Now in almost hybrid it multi-cloud very cloud premise with tiny one an also some has strategies. do but U.S. it's software strategy very ports, where strategic and is Cloud every customers more to of I these very, -- platform, a had our

influence say to top multi-cloud. of on So, mainstream strong and still Cloud of I is into U.S. millions ports is the of would that connect the on platforms,

Kyle McNealy

Okay. Great, Thanks. helpful. that’s

Jayshree Ullal

Kyle. Thanks,

Charles Yager

Arista Earnings the QX,XXXX This Call. concludes

you results, section of our can We have information today. on which a additional for website. you Fiscal the us our on access posted Thank joining presentation which Investors provides

Operator

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

now You may disconnect.