On Friday, May 9, 2025, Arista Networks (NYSE:ANET) participated in the 20th Annual Needham Technology, Media & Consumer Conference. The discussion, led by CFO Chantel Bryda, focused on the company’s strong Q1 2024 performance, its strategic approach to the AI market, and potential challenges from tariffs. While Arista reported significant revenue growth and promising AI initiatives, it also acknowledged potential risks from tariffs that could impact margins.
Key Takeaways
- Arista reported a 27.6% increase in Q1 2024 revenue, with a gross margin of 64%.
- The company is targeting $1.5 billion in AI-related revenue, split evenly between front-end and back-end solutions.
- Potential tariffs could impact gross margins by 1 to 1.5 percentage points if not mitigated.
- Arista is expanding into campus networking, aiming for $750 million in revenue.
- The company views AI infrastructure spend as potentially secular, with a long-term growth outlook.
Financial Results
Arista Networks experienced robust growth in Q1 2024, with revenue increasing by 27.6% year-over-year. The company’s gross margin reached 64%, surpassing its guidance of 60-62%, thanks to a favorable customer mix, particularly from enterprise and cloud specialty providers. Looking ahead, Arista has guided Q2 revenue at $2.1 billion, maintaining a full-year revenue growth target of 17%.
Operational Updates
Arista is proactively addressing potential tariff impacts, which could affect gross margins by 1 to 1.5 percentage points. The company is exploring various mitigation strategies, such as operational flexibility, commercial negotiations, and as a last resort, price increases. Arista is also working to USMCA certify its products and is considering setting up manufacturing in Mexico and Southeast Asia.
AI Initiatives
The company is heavily investing in AI, with four major pilot projects targeting 100,000 GPUs each. Arista expects these projects to reach production by late 2024 or early 2025. The company is focusing on both front-end and back-end AI solutions, with a goal of $1.5 billion in combined revenue. Arista sees AI infrastructure spending as a long-term opportunity, potentially moving beyond cyclical trends.
Campus Networking
Arista is diversifying into campus networking, which represents a total addressable market (TAM) of $16 billion out of a $70 billion TAM. The company aims to generate $750 million in revenue from this segment, viewing it as a foundation for long-term growth.
Future Outlook
Arista remains optimistic about its growth prospects, expecting continued momentum throughout the year. The company plans to update its full-year guidance once there is more clarity on the tariff situation. Arista sees significant potential in the AI market, with a roadmap extending over the next eight years, and aims to expand its presence in campus networking.
Q&A Highlights
During the Q&A session, Arista emphasized its strong relationship with key customers like Oracle, attributing its success to a focused networking approach and comprehensive product offerings. The company coexists with white box solutions, each serving different market needs. Arista also acknowledged potential supply chain challenges in AI deployment but remains confident in reaching $10 billion in revenue sooner than anticipated.
In conclusion, Arista Networks is navigating both opportunities and challenges in the AI and networking markets. For a detailed overview, readers are encouraged to refer to the full conference call transcript.
Full transcript - 20th Annual Needham Technology, Media & Consumer Conference:
Ryan Kunz, Analyst, Needham: Good morning, and welcome to Needham’s technology media and consumer conference. I’m Ryan Kunz. I cover the networking and optical sectors as well as the space sector here at Needham. Really excited to have Arista Networks with me today for our fireside chat. We’ve got CFO, Chantel Bryda.
Welcome, Chantel. How are you?
Chantel Bryda, CFO, Arista Networks: I’m good. Thank you. Nice to see you, Ryan. Happy Friday.
Ryan Kunz, Analyst, Needham: Yeah. Happy Friday. Well, let’s dig right in. Arista just had results, feels like to me a couple weeks ago because it’s been so crazy. That was just a couple of days ago.
Let’s start with review of your first quarter and what some of your thoughts were, what were the main takeaways you want investors to highlight from your results?
Chantel Bryda, CFO, Arista Networks: Yeah. Thank you. You know, Jayshree and I were pleased with the q one results. We thought it was a very solid print to the quarter, you know, 27.6% revenue growth, solid margin, and I think very robust operating margin. So I think, pleased with the momentum in the first quarter.
And, you know, I think you could you could see it through some of the customer wins that Jayshree spoke about, you know, some of the things we’re seeing with the AI customers and cloud. So super excited, and, you know, that turned into a pretty robust q two guide as well.
Ryan Kunz, Analyst, Needham: Yeah. And and the the margins there, the nice uptick are, you know, steady and strong on margins. Is that related to customer mix, product mix? What were some of the mix results there?
Chantel Bryda, CFO, Arista Networks: Yeah. No. You know, we entered the year with a 60 to 62% gross margin guide, so coming in to 64. It was customer mix related. You know, our products definitely don’t have mix between them, but the customer mix, we were pleased to see some of the upside coming from enterprise and our cloud specialty providers.
So across the board, pleased with the growth that we saw.
Ryan Kunz, Analyst, Needham: For sure. For sure. And, relative to your guide, you had a very healthy, second quarter guide as well. You’re feeling good about that, outlook at least in the next ninety days before the before the the tariff uncertainty hits us?
Chantel Bryda, CFO, Arista Networks: Yeah. You know, generally, we see momentum for the year coming through the top line. The second quarter, you know, we chose a we chose a point versus a range this time just to be sure that the outside world understood our confidence of that 2,100,000,000. And so that was very intentional by Jayshree and I. So, yeah, we’re excited.
And, again, we’re excited across the various segments that supports the 63% gross margin guide. So, yeah, we’re having you know, these are the reiteration, excuse me, of CapEx from some of our largest customers. And so, you know, generally, the the conversations are going very well.
Ryan Kunz, Analyst, Needham: That’s great. And then you you maintain your year, which implies maybe a flattish second half from first half with maybe the uncertainties after the ninety day tariff passes. I mean, what was your thinking on kind of maintaining the year at this point? And investors may be a little disappointed with that outlook, I mean, considering all the strength you guys have been delivering for many years?
Chantel Bryda, CFO, Arista Networks: Yes. I think there’s some context here. We’re very aware of what the math says in the second half, but we wanted to give context. So we entered the year 15 to 17%. We raised it to 17%.
We had a very robust q one, guided a strong q two. We’re not changing the year yet, which isn’t that different from Marissa’s general philosophy on guidance until we have some of the clarity on the cost side. So the tariffs to us aren’t necessarily a top line conversation. It’s how do we bring the whole p and l together for one connected updated guide. So we see momentum continuing through the year.
There’s no scenario where we see a drop off in the second half. So I think the the full year update will come once we get the pause, you know, the fentanyl, the immigration, the reciprocal tariff sorted out, and then we’ll come up with one guide. So that’s that was a choice. You know, we could change our guide, drop our guide, or hold the guide. So we, you know, we tried to give the wording through our language on the first half.
We see the momentum continuing through. So we look forward to a very good year. Yeah.
Ryan Kunz, Analyst, Needham: That’s great. I mean, in the big scheme of things, that’s that’s a real win. I mean, a lot of companies withdrew guidance or really withheld comment and said, we think it’s gonna be okay, but we really don’t know. To maintain the guide, you know, I think certainly is a win there. Relative to the high proposed tariffs, I think they have a lot of the entire tech industry a little bit on edge here.
You’re not alone. Do you anticipate that that that you might have to raise price in exchange for that, and that raised price could impact demand volume? I mean, what are the different scenarios that could play out for you here? Walk us through the different options, as investors should think about it in the second half.
Chantel Bryda, CFO, Arista Networks: Yeah. And, thank you for that question because we put a lot of work to be as clear as we can on what how we feel the tariffs will unfold. So the first in first, point I’d like to go is we’ve kind of bookended the the impact. If all the reciprocal tariffs came into effect, if USMCA held as it was, you know, we had said on the year, it’s a point to a point and half of gross margin if we did zero mitigation. So that’s if you wanna call it worst case scenario.
And if you’re running at 64, 60 three, and the guide’s 60, that’s why we kinda held the guide because it’s it encapsulates that. It doesn’t mean that’s where we’re going to end. So we have three things we’re working on. We’re working on the fungibility of our operations like everyone else is. We’ve had great conversations between Malaysia, Vietnam, and Mexico.
Ryan Kunz, Analyst, Needham: Great.
Chantel Bryda, CFO, Arista Networks: The second one is how much can we absorb to have the right commercial conversations with our customers? And third is we will we will in we will have a tariff increase for prices if we need to, but it’s kind of the third on the three of the mitigation
Ryan Kunz, Analyst, Needham: Yeah. Strategy points. Yep. Yeah. Yeah.
Yeah. Work your way down from the top down there.
Chantel Bryda, CFO, Arista Networks: That’s right. That’s right. So we’re pretty clear. We’ve done a lot of really granular work. So I feel I feel, confident coming in.
We have a handle around it. Assuming nothing changes with the section two thirty two ones, those are the only ones we don’t have information on.
Ryan Kunz, Analyst, Needham: Gotcha. And any thoughts about accelerating production ahead of July 9 at all in terms of, like, getting product here to kinda ease that transition ahead?
Chantel Bryda, CFO, Arista Networks: Yeah. Absolutely. So the other thing you did, we know our inventory went from 1.8 to 2,000,000,000 quarter over quarter. Yep. Most of that, if a lot of that was to do with buffering to your point, Ryan, in the sense of bringing components or finished goods in.
Yeah.
Ryan Kunz, Analyst, Needham: Yeah. Yeah. Perfect. Exactly. And then relative to customer behavior, so what are you broadly hearing from customers about this situation?
And are you seeing evidence of customers that want to pull in or might be pulling in a little? What’s what’s been kind of the tone relative to that magic in in July?
Chantel Bryda, CFO, Arista Networks: Yeah. You know, I would say, generally, the statement is not a lot of conversation to try to get things earlier. It’s probably less than one hand of customer count, discrete counts where we’ve had conversations, so very bespoke. So not a lot of customers asking or suggesting or feeling that change in their pattern for this year. So a few, but not material.
Yeah. Now I don’t know if that changes as we get closer to July, but I think, generally, people understand their spending for the next couple quarters. So
Ryan Kunz, Analyst, Needham: Yeah. Great.
Chantel Bryda, CFO, Arista Networks: Yep.
Ryan Kunz, Analyst, Needham: And you you mentioned you’ve got a lot of flexibility in terms of working with your your Centimeters partners about location and and setting up in, you know, Mexico and Southeast Asia seem to be the the favorite flavors of of of this decade, and you’ve got you’ve got flexibility on both sides there?
Chantel Bryda, CFO, Arista Networks: Yeah. We absolutely do. You know, a couple of things is, you know, we’ve had great relationships with all of them as we’ve come up in the ten years since the IPO. So we’ve established great relationships. We’re also, you know, of a size now where, you know, those contract manufacturers would like to do business with us.
So lots of great capacity exploring scenarios in all three areas. We’re close to having most things USMCA certified. There’s a few things we’re just working on. So generally, yeah, generally, we’re we’re aware. Now no matter what that fungibility is, it still takes six months to reorient a supply chain.
So, you know, we’re we’re trying to balance bringing inventory in and not making changes too early that we wish six months from now we hadn’t made.
Ryan Kunz, Analyst, Needham: Yeah. And what what what’s the activities there? You mentioned the certification for Mexico production. What sort of things are those related to?
Chantel Bryda, CFO, Arista Networks: It’s just a few there’s just a few products that need a couple of subcomponents
Ryan Kunz, Analyst, Needham: to make it
Chantel Bryda, CFO, Arista Networks: a %. That’s it’s just around the edges. Yeah.
Ryan Kunz, Analyst, Needham: Content related stuff?
Chantel Bryda, CFO, Arista Networks: Yeah. That’s right. That’s right.
Ryan Kunz, Analyst, Needham: Gotcha. That’s great. So that’s a great update, and and and glad you guys are feeling good going into this. A lot of companies aren’t aren’t as lucky as you to have the the purchasing power and flexibility and and and the nimbleness. So that’s that’s terrific.
Maybe shifting gears here and talking about AI, which every investor I get peppered weekly as for the number one topic of what’s happening in AI spend and infrastructure and we could probably talk for hours about it. But you’ve about your four, really important pilots that can that have potential to scale to 100 k GPUs and your $750,000,000 target for back end for this year. Can you update us on on those projects? And from your perspective, how they’re progressing and how how investors should think about them over the balance of this year?
Chantel Bryda, CFO, Arista Networks: Yeah. Happy to. So let me start with the punchline. We we reiterate and are confident in the seven fifty million back end and the $750,000,000 front end, so the 1.5 combined. Now talking about those pilots specifically, so we have four pilots and then a bunch of different various enterprise CSP, you know, kind of AI things going on.
So I think the three out of the four so two out of the four, very confident, a hundred thousand GPU range to close out in the fiscal year to get to production. The three out of four, it’s gonna be q four, q one, just balancing on the edge, but, again, a hundred thousand GPU. The fourth one is an InfiniBand shop that just started, so they’ll be more of a 26 going through, you know, the stages. But, generally, what I would say is great partnerships. They’re all doing it a different way, trying to get to the same kind of goal.
So we’re learning a lot as partners to them, as vendors, suppliers, you know, extensions of their engineering team. But we’re very excited about what they’re learning, but it takes some time. But once they have these up and running, they themselves will be able to rinse, repeat, and hopefully working with us as they continue to build out their CapEx plans.
Ryan Kunz, Analyst, Needham: That’s great. I mean, it sounds like you’re really positioned to gain some share in AI back end here as spending continues to shift and seeing there was a lot of investor skepticism. I’m sure you heard coming in the first quarter about spending, where it was headed, we overspent on AI infrastructure. And every company came out, including yourselves and said, no, it’s demand has remained strong. You you feel good about the the overall market opportunity for you in AI and the the budgets out there?
Chantel Bryda, CFO, Arista Networks: Yeah. We do. I I think we do. Yeah. It’s always nice when some of our largest customers go first before us in earnings so we can we can be sure what we’re.
But, we do. We feel just as much momentum as we saw last year in the sense of the types of conversations. I think this is a hypothesis, but I think we’re starting to realize AI might be secular, not cyclical, because I think there’s a little bit of that going on. So I think, you know, that’s not for me to determine, but that’s what it seems like. Yeah.
And so there’s this really there’s this really great kinda outlook by the six fifty group, and they talk about, you know, we’re kinda in year two of three of content creation and models. And then we’re gonna go into this agentic AI, which is supposed to be just south of a trillion dollars of spend, and then you get into autonomous. So there’s almost like an eight year road map of AI related, you know, topics and scenarios and use cases. So very excited on that. And I think, you know, for the back end, because we have a lot of choice, from products for our customers, I think that’s when when the option’s best of breed, we have a very good chance of winning.
Ryan Kunz, Analyst, Needham: Yeah. For sure. I mean, especially upmarket with the the biggest cloud builders, you know, they they they I’m sure they tend not to, take a turnkey NVIDIA solution. They wanna go best of breed, they wanna do it their way. They they’re sophisticated enough to do that.
So
Chantel Bryda, CFO, Arista Networks: Yeah. Great.
Ryan Kunz, Analyst, Needham: So Great presence.
Chantel Bryda, CFO, Arista Networks: Yeah. Thank you. Yeah. We
Ryan Kunz, Analyst, Needham: we That’s fantastic. And then, you know, on the front end, you mentioned briefly there the seven fifty target. You know, I’m sure it’s a little hard to always parse out exactly what is in a front end versus what traditional cloud model. You know, how do you measure that up, and, what kind of trends are you seeing relative to the front end on these AI focused, programs?
Chantel Bryda, CFO, Arista Networks: Yeah. So it is a bit difficult to parse it out to your point. But, generally, I would say, you know, the fact we’re we are reiterating seven fifty on the front end, we’re very excited about that. We see we see we see customers realize that it’s going to take both to fulfill the needs of the end user case that they have. You know, I’m pleased that, you know, on the industry data, Arista shows up as the leading vendor, not just branded, but leading vendor when it comes to front end Ethernet AI revenue.
So we very much hope to keep that spot. You know? I think the choice of our products, the learnings we get from some of our customers, we can, you know, pass through the industry. We’re very excited about that. And at the end, as you kind of move into agentic AI versus the model creation, it might open up this aperture to be you know how Jayshree talks about 30 to 200% kind of additional front ends needed for every back end dollar?
Ryan Kunz, Analyst, Needham: Yeah. Yeah.
Chantel Bryda, CFO, Arista Networks: I, you know, I think that the one to one right now works well, but I think it could get north of the one to one.
Ryan Kunz, Analyst, Needham: That’s great. Super interesting.
Chantel Bryda, CFO, Arista Networks: Yep.
Ryan Kunz, Analyst, Needham: Yeah. And in terms of your big customers, Oracle’s really emerged as a big player, not not just from Arista, but, a lot of the other players. I was just on management team talking about how Oracle is doing, and, they’ve really come out of the scene strong, here. You know, how are you how have you been successful at at Oracle there? Any any ingredients to your success at Oracle?
And, you know, I’m sure each of these big customers has different kind of architectures and requirements. You know? How do you align yourselves so tightly with these huge players in in the world of cloud?
Chantel Bryda, CFO, Arista Networks: Well, I appreciate that. So the thing I would start with having been at Arista just over a year now and been at some of the other companies, that are much bigger in the in the world, we’re just a % pure play networking focused. And so you feel it. All 4,500 people wake up every day just to think about networking. So if you have that in mind, no matter what we’re working on, it’s to solve those things for customers like Oracle.
That’s all we’re focused on. And so if you look at the breadth of product that we have, you know, we have a lot of choice for the back end Ethernet AI. We have a lot of choice for the front end. And so I think we have the products, and then it’s just how do we adapt it to the use case, Ryan, versus not having that fungibility or flexibility across our product line. So that’s the first thing is the product.
The second is the software, the OS. You know, customers that they’re familiar, it’s easier to grow with knowing what what there is. And the third thing is is I think we just have really focused engineers in our team that partner with them. And so, you know, they they feel they they feel it’s an extension of what they’re trying to do, and they really appreciate it.
Ryan Kunz, Analyst, Needham: Yeah. I mean, I think EOS is you know, every every company thinks their technology is the best. But, you know, from my own work in this space, I mean, EOS really seems unmatched in the industry in terms of its uptime and modularity and always super important factors that I think other companies just cannot match.
Chantel Bryda, CFO, Arista Networks: Well, we’re we fight hard to keep that spot. Thank you. And the fact you can upgrade as you’re operating is a big deal for a lot of our customers. To have a lot of planned end time. So so all those things that we continue to not sit on our our laurels.
We we fight every day to make sure we’re staying in that engineering kind of mind space with them. Mhmm.
Ryan Kunz, Analyst, Needham: And, you know, I is Oracle a relatively relatively new large account to you coinciding with it being added to the Cloud Titans that it just got you you were so successful there that you you wanted to move them into that group?
Chantel Bryda, CFO, Arista Networks: Well, there’s a definition for Titan. Right? So it’s the it’s the amount of connectivity they have.
Ryan Kunz, Analyst, Needham: K.
Chantel Bryda, CFO, Arista Networks: So they get to they get to distinguish that based on how they operate as a customer company. But for us, you know, I think that we were thrilled in the sense of the amount of business we have with them. It suits this kind of category, so it makes sense to us. Yeah.
Ryan Kunz, Analyst, Needham: Awesome. Yeah. And, you know, the what the other big question besides AI, I I get, and I’m sure you get conflict too, is is competition from White Box. It’s it’s always top of mind from investors. You know, can you kinda walk us through your view of, you know, where White Box sees the most success within the the big the big customers, the big cloud customers, the titans, and and where Arista sees the most success and you have your your barriers to entry that you think are are formidable?
Chantel Bryda, CFO, Arista Networks: Yeah. No. I think I think it’s a it’s a it’s an important question, I think, right here and right now. Although I’ll say the topic ebbs and flows depending on what’s what’s kinda going on in the news cycles. So so I think that white box, if anything, I think that our customers are even more certain now having worked ten, fifteen years with Arista, ten, fifteen years coinciding with White Box.
We’ve always coexisted. I would say that the great thing is some of our largest customers are super clear, and we work with them. This makes sense for White Box. This makes sense for Arista Mhmm. Or a branded vendor.
And so I think we’re pretty clear when we’re having customer conversations. We’re not surprised. They’re multi vendor strategies. You know, there’s use cases, and you’ve heard Jayshree mention on the earnings call. There’s use cases for white box, and you can imagine what they are.
Yep. You know, it’s low margin, high output, not complicated.
Ryan Kunz, Analyst, Needham: Or if you wanna Yeah.
Chantel Bryda, CFO, Arista Networks: If you wanna do the more complicated things, the more robust things, the higher outcome premium value in engineering, then it’s a branded vendor like Arista. So for us, nothing has really changed. Know, this market is growing at such pace. Everyone’s gonna have room to grow. And so we don’t see it as a share shift.
We see white box kinda share shifting with each other, and so that’s for them to have. But as far as barriers to entry, the barrier to entry to us is we don’t wanna be a 10% margin business. That’s not what that’s not what we do. And so we could choose to place the play there, but we don’t, obviously. And that’s a choice as a business model.
And so, you know, I think that to me, it’s very clear on the distinction.
Ryan Kunz, Analyst, Needham: Mhmm. That’s great. Yeah. Yeah. In the big picture of AI, kinda going back to kinda where we are in this cycle, we started the conversation there.
You know? There you know, there’s been some fears that we were maybe at a peak, and there was gonna be some consumption issues around, you know, overbuild of capacity. You know, where do you feel based on, you know, your demand signals, where do you feel like we are relative to to demand and supply of of AI infrastructure?
Chantel Bryda, CFO, Arista Networks: Yeah. I would, if I had to bet, I I would say we’re nascent. And and I do not see overbuilding. I see that, you know, the pace is is quickening in the sense of a lot of these players. And it’s not just the the few we talk about.
There’s a lot in between the neo clouds. There’s some of the larger enterprise getting in, you know, some of the providers who provide the AI networks. And so for me, for us, we don’t see it as a at the edge and maybe we’re ending. We see it as kinda just the beginning of the next few years at a minimum. You know?
Now, you know, how the CapEx moves, I don’t know because we don’t know 26 CapEx yet. But, generally, the conversations on the road maps, it feels like the beginning.
Ryan Kunz, Analyst, Needham: Yeah. And, you know, the the Neo Cloud types, the tier two types, it seems like that’s been a solid segment for you historically, maybe not quite as fast growing as the titans. But relative to AI, it feels like very early days. And are are you in the early days, you think of penetrating that emerging segment? Do you have similar position you feel like in with the neo clouds?
Chantel Bryda, CFO, Arista Networks: So I do think that generally this market takes longer. You know, there are a few that stand out, of course. But generally, this is a space that’s gonna take longer either through their funding, their business model, their talent. So I think this is a just starting to go. We have great conversations.
When when the customer’s looking for choice of we have very good conversations. If they’re looking for turnkey or are asked to look at a turnkey kind of bundle solution, sometimes we’re not invited to those conversations. But, you know, we’re seeing a lot of them wanting choice across all the parts of their Neo Cloud venture. And so it takes a little longer, but we’re very much in the conversations, very excited. And and I like the fact that these are more international conversations, you know, which are great.
You know, it’s not it’s definitely not just in The Americas as you can imagine. Yeah. So, yeah, very excited. And, hopefully hopefully, they get their teams and their designs and things up together, and that’s that’s that’s what will dictate, I think, how fast they grow.
Ryan Kunz, Analyst, Needham: Yeah. It it feels like the market really is pushing the bounds of how fast it can grow. Right? There’s only so many so much talent, so much available equipment, so many leaders in this space that can only install so fast. So it feels like we’re pushing the boundaries of that growth limit, including availability like power and data.
That’s what
Chantel Bryda, CFO, Arista Networks: I was trying to mention.
Ryan Kunz, Analyst, Needham: Lots of limits and we’re growing at this and hopefully that limit is enough to sustain a relatively steady growth rate and not have too big of a of an oversupply at some point. But
Chantel Bryda, CFO, Arista Networks: Yeah. Totally agree. Totally agree. But the other thing I would say too is that, you know, part of what we’re also excited about is that just regular data center spends happening. Yeah.
Camp campus We’re just getting started in campus. So even with the diversification, hopefully, they all cycle through in a great way. We can keep the growth rates we hope to.
Ryan Kunz, Analyst, Needham: It’s pretty amazing. Up until a couple of years ago, all we’ve all of our folks focused on was traditional cloud, and that was the that was the shiny object. And everyone forgot about the shiny object.
Chantel Bryda, CFO, Arista Networks: Yeah. Yeah. Exactly. Exactly. It’s fast it’s fascinating how quickly we can pivot with recency bias.
Ryan Kunz, Analyst, Needham: Yeah. And that that that old business is pretty solid, and it continues. It’s a it’s a it’s a profit engine for you guys, I’m sure. Just keep cranking. You got customers.
You got share. You’re not not gonna prove yourself in that market. Evolve, but not disrupt necessarily.
Chantel Bryda, CFO, Arista Networks: Yeah. For that, that’s absolutely a shared gain conversation, which we don’t take for granted. We very much focus on. But they’re great conversations. And so we, you know, we look at all those revenue drivers, Ryan, just so everyone thinks we’re not just focused on AI.
We are, but not just that.
Ryan Kunz, Analyst, Needham: Totally. You know, back to back to Neo Clouds here. You know, it would seem that maybe they’re less sophisticated in general. And their early deployments maybe would be more of the the turnkey NVIDIA approach because they don’t have the expertise to go best of breed, they kind of we need to make make phase one kind of simplify before they go best of breed. Is that is that you have you seen that behavior somewhere where NVIDIA is effectively competing in in some of these, you know, early nascent players at the early stages of their evolution?
Chantel Bryda, CFO, Arista Networks: I would say yes and no. I’ve seen we’ve seen both. I definitely have seen both. And and not surprising. You know, it’s basically usually us and NVIDIA in the conversations that we see.
So it makes sense. There’s a bit of both. There are absolutely ones that are looking to diversify away and some that, you know, for them, that seems like the best option here and now. We always remind them, you know, you have more choice if you go with Arista in your design. You know?
And so but yes and no. But the market’s growing. Like we talked about, it’s just starting and should grow pretty pretty well. So we’ll, you know, we’ll go in and look for our fair share of
Ryan Kunz, Analyst, Needham: it. For sure. That’s great. So the you know, we’ve we’ve I’ve taken also a lot of questions about some of your, balance sheet items around purchase commitments and deferred. And is does the AI business cycle for Arista look differently on that balance sheet compared to your run rate regular cloud business?
Can you walk us through that? Maybe changes in deferred, which seems to be growing quite a bit.
Chantel Bryda, CFO, Arista Networks: Yeah. So deferred is a combination of new products, new use cases, new customers. And so we have all three. And so when it comes to new use cases, new product, that’s the AI Venn diagram. And that’s some of the biggest, most complicated things that our customers are doing.
And those things take twelve to eighteen months. That behaves very differently. And new products, existing customer, you know, that’s probably more twelve, fourteen kind of months. So, yeah, bigger acts differently. And I’ve tried to be clear on the earnings that there’s gonna be some swings because there are larger things that come through.
You know, volatility, the amount growing, you know, that makes sense to us in the sense of some of these use cases. So all of those things are in there. And I think it just represents a risk to getting to a new kind of step function with a new new set of markets.
Ryan Kunz, Analyst, Needham: Mhmm.
Chantel Bryda, CFO, Arista Networks: So and this is same on the inventory purchase commitment side. That’s absolutely we have a long lead time cycle on our chips. Mhmm. So that you know, if we’re gonna be ready for some of these things, we need to be ahead of that. And that’s always been the case there, but very very comfortable with what’s happening there.
Ryan Kunz, Analyst, Needham: Got it. So it sounds like the composition within deferred may might maybe change you a little bit because there’s so many AI going on, so much AI going on. So Yeah. Yep. Yep.
Does that make sense? That’s great. Yeah. Yep. And and then, you know, as you think about your your 25 growth here, 17%, you reiterated, you know, how much of that is is AI driven?
How should we think about the growth rate of traditional cloud and the balance of your business? You know, from a top down perspective, how would you kinda parse out the the growth?
Chantel Bryda, CFO, Arista Networks: Yeah. I think that so we haven’t changed the year, but sticking to what we know now, but see the momentum in the first half. You know, I would say the AI, we’ve said, is at least 1.5. It’s a little difficult to know if more of the front end, but at least that 1.5 front end, back end AI. So let’s call it the one five.
Mhmm. You we’re seeing some great growth in campus. We’re excited about the data center refreshes. So we’ll see what we come out with as our revised guide. But, generally, you know, I think those are all working well.
But the AI specifically is that 1.5 target that we can, you know, kinda measure.
Ryan Kunz, Analyst, Needham: Got it. Yeah. And, that’s great help. Thanks for that. The, and then in terms of, competitors, we haven’t talked a lot about Cisco or Juniper too much.
Do you do you bump into them much in the the the new AI op new AI opportunities, or are they more competing in traditional cloud?
Chantel Bryda, CFO, Arista Networks: Yeah. That’s more of a that’s actually so for Cisco, it’s more of the enterprise conversation. Mhmm. Same with the HP Juniper. And, you know, I would say we’ve I I’d say the only thing that we’re seeing, and I think you’ve heard it mentioned before, you know, Juniper seems very much to be in a in a price situation in the sense of, you know, where they’ll go from a pricing perspective.
So that behaves a little differently, but not surprising, I suppose. Mhmm. So I think that that’s that’s nothing really changed there. When it comes to the AI back end, that’s the NVIDIA and Arista conversation. Mhmm.
So, you know, those haven’t changed a lot. So I I feel that we’re we’re pretty aware and know what we’d like to do in those scenarios. And I think it comes down again to for the back end AI, it’s it’s would you like a bunch of choice best of breed, or would you like one bundled conversation? And so the customer needs to decide at that point. We obviously have our view.
And, you know, we continue to introduce great products into the enterprise and the front end front end AI. So, you know, we’ll continue with that.
Ryan Kunz, Analyst, Needham: Exciting. And you mentioned campus there as important. Can we maybe unpack that a little bit in terms of your progress to date? You know, how do you feel like you’re doing relative to your share you you aim to gain? How much work still needs to be done either on products or channels to really execute there?
It feels like a little heavier of a channel sale model there. What can you tell us about kind of the campus opportunity for you? Feels like it’s taking a little bit of a backseat to all the AI excitement.
Chantel Bryda, CFO, Arista Networks: Well, I think it’s so I will say internally, I I spend as much time on campus as I do AI because I understand the long term of what this means as a foundational revenue diversification. And so a couple of things on campus. One is, you know, of our $70,000,000,000 TAM, it’s roughly 16,000,000,000. Mhmm. We’re looking at 750,000,000.
I would say, Jayshree and I talked about this is kind of the first year where all cylinders are firing for campus. We kinda introduced it through COVID, then we had to do some portfolio adjustments. Right. Now we feel the hardware, software, the portfolio. Mhmm.
We like we understand from a who’s working on what engineering wise inside the company. We’re clear we’re clear on how we’re gonna go to market. So I was very pleased with the q one growth of campus. We don’t disclose that quarterly, but you can just know I was pleased with it. So we feel we have all those.
And the way that’s vindicated or validated for me is that we’re winning campus first and not small campus deals without even being in the data center. So for me, that’s a great signal that Arista’s in campus now. And so we’re we’re it’s a longer sales cycle to your point, Ryan. And we are working with the channel and partners more intently for this particular segment.
Ryan Kunz, Analyst, Needham: Right.
Chantel Bryda, CFO, Arista Networks: So we’ve been putting money there, investing in salespeople. So I hope everyone’s excited that Arista’s declared we’re getting into campus because we’re ready to.
Ryan Kunz, Analyst, Needham: Yeah. That’s that’s great to hear. I mean, Cisco’s the gorilla there, and, you know, they they they seem pretty beatable these days.
Chantel Bryda, CFO, Arista Networks: Well, we’re gonna we’re gonna definitely do our bit to get that share that we want.
Ryan Kunz, Analyst, Needham: Yeah. Juniper has been doing well pretty well too, and that’s been campus with with Mist. Yeah. Great. You know, in in terms of of wrapping up, anything you wanted to close out with message for investors here and and finish our conversation?
Chantel Bryda, CFO, Arista Networks: Yeah. So just to wrap it up and remind, as you guys exit to your weekend and many other calls today, remember the $70,000,000,000 TAM Arista has ahead of us. Recall that Jayshree mentioned on the earnings call, we see 10,000,000,000 earlier than she originally thought at the last analyst day. We’re excited about AI, traditional data center, and campus. We have clarity on tariffs, so we’ve tried to be as clear as possible to give you bookends.
And we’re very excited to get to our next earnings call, talk about more innovation and give you what our new guide is.
Ryan Kunz, Analyst, Needham: Great. Well, thanks so much for joining. Great conversation, Chantel. Thank you.
Chantel Bryda, CFO, Arista Networks: Thank you. Take care. Bye.
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