Arista cats far from purring despite shifting plenty more switches in Q1

Dyspeptic hyperscalers belch: We couldn't eat another bite for now, thanks

Switch-making Cisco nemesis Arista Networks has reported a bottom line expansion in calendar Q1 financials, amid demand from hyperscale data centre operators, including Facebook - which recently unveiled a block switch developed in collaboration with Arista.

The company reported revenue of $595.4m for the three months ended 31 March, an increase of 26 per cent year-on-year, but flat when compared to the previous quarter – roughly in line with expectations.

“In Q1 2019, the cloud titan segment was our largest vertical,” Jayshree Ullal, CEO at Arista, said during an earnings call.

This was both a blessing and a curse: Ullal said the company had forecast a sluggish Q2, since it has already delivered a bunch of kit to its major cloud customers and expects a period of absorption in the first half of its financial 2019. Announcement of the coming slowdown sent shares in a downward spiral – trading 16 per cent lower after hours.

Arista was established by a trio of former Cisco executives and its head honcho Ullal spent 15 years with Switchzilla, working alongside its long-time CEO John Chambers, before switching sides. Arista then promptly started eating into Cisco’s revenue.

The company claimed it lured a record number of million-dollar customers in Q1. Enterprise clients were the second largest customer segment after Tier 1 cloud vendors, followed by financial organisations – the latter category was boosted by the recent acquisition of low-latency switching specialist Metamako. Tier 2 cloud specialty providers and service providers came in at fourth and fifth place.

Arista’s products were responsible for $505.4m in revenue in a quarter, up 24 per cent year-on-year, while services netted $90m in a quarter, up 38.7 per cent. Almost three-quarters of the revenue came from the US markets.

“We delivered two major new product announcements during Q1 with 7368 Spline that we developed in close collaboration with Facebook enabling both our flagship EOS as well as Facebook's OS to be supported on the platform,” Ullal said.

“We also introduced the 7130, the first low latency high precision network application platform. We're pleased with the increased acceptance of our software subscriptions with a record quarter for CloudVision having doubled our bookings from Q1 2018.”

Other numbers included:

  • Total cost of revenue stood at $215m, up from $170m a year ago, resulting in gross profit of $381m.
  • In terms of operating expenses, the company spent $120m on R&D, $51m on sales and marketing, and $15.5m on administration.

  • Income from operations totalled $194m, up from $139m a year ago, and the company earned $12m in “other income”.

  • Net income rose to $201m, up from $144.5m in the same quarter last year. Arista finished Q1 with $809m in cash, $3.3bn in total assets, and $932m in total liabilities.

The company has authorised a $1bn stock repurchase programme, which will run until April 2022, funded from working capital.

Arista’s current problems are highlighted in its guidance for Q2; the company expects revenue of $600m-$610m, lower than what was predicted by analysts - which investors quickly poured cold water over, with shares sinking rapidly.

“We saw less than the normal order strength in late March and in the month of April,” Ullal explained. “We are therefore forecasting slower growth in Q2 2019 from our normal and historical patterns. Some of the contributing reasons for this are one of the massive cloud titan providers fulfilled in 2018 have led to a period of absorption in the first half of 2019.” ®

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