Q4 2021 Arista Networks Inc Earnings Call

Okay.

Speaker 1: Welcome to the fourth quarter 2021 ARISTA Network's Financial Results Earnings Conference call. During the call, all participants will be in a listen-only mode.

Welcome to the fourth quarter 2021, Arista networks financial results earnings conference call during.

During the call all participants will be in a listen only mode. After the presentation. We will conduct a question and answer session and instructions will be provided at that time, if at any time during the conference you need to reach an operator. Please press the start button followed by the number zero.

Speaker 1: Instructions will be provided at that time. You can leave at any time during the conference.

Speaker 1: star button followed by the number zero. As a reminder, this conference call is being recorded and will be available for replay from the investor relations section of the Aristo webinar.

As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of the Arista website. Following this call.

Mr Bank, nothing Mooney Arista as head of corporate Finance and Investor Relations you may begin.

Speaker 2: Thank you, operator. Good afternoon, everyone, and thank you for joining us.

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

Speaker 2: with me on today's call are Jay Sri Olaal, Arista Networks President and Chief Executive Officer and Ida Brennan, Arista's Chief Financial Officer.

With me on today's call adjacent Yolanda I, just don't networks, President and Chief Executive Officer.

And EDA Brendan.

Chief Financial Officer.

Speaker 2: This afternoon, Arista Networks issued a press release announcing the results of a fiscal fourth quarter ending December 30, 2021.

This afternoon I, just didnt networks issued a press release announcing the results of its fiscal fourth quarter ending December 32021.

Speaker 2: If you'd like a copy of the press release, you can access it online at our website.

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

During the course of this conference call Arista networks management will make forward looking statements, including those relating to our financial outlook for the first quarter of fiscal year 2022 .

Speaker 2: During the course of this conference call, Arista Networks Management will make forward-looking statements including those relating to our financial outlook for the first quarter of fiscal year 2022, the longer-term financial outlook for 2022 and beyond.

The longer term financial outlook for 2022 and beyond.

Speaker 2: our total addressable market and strategy for addressing these market opportunities.

Our total addressable market and strategy for addressing these market opportunities.

Speaker 2: the potential impact of COVID-19, supply chain constraints, manufacturing capacity, and inventory purchases on our business.

The potential impact of COVID-19 supply chain constraints manufacturing capacity and inventory purchases on our business.

Speaker 2: product innovation, and finally the benefits of acquisition.

Innovation and finally, the benefits of acquisitions.

Speaker 2: These statements are subject to risks and uncertainties that we discuss in detail in our SEC filings, specifically in our most recent Form 10Q and Form 10K, which could cause actual results to differ materially from those anticipated by these statements.

These statements are subject to risks and uncertainties that we discuss in detail in our SEC filings specifically in our most recent Form 10-Q and Form 10-K .

Which could cause actual results to differ materially from those anticipated by these statements.

Speaker 2: These forward-looking statements apply as of today and should not be relied on as representing our views in the future, and we undertake no obligation to update these statements after this call.

These forward looking statements apply as of today and should not be relied on as representing our views in the future and we undertake no obligation to update these statements. After this call.

Speaker 2: Also, please note that certain financial measures we use on this call are expressed on a non-GAAP basis and have been adjusted to exclude certain charges.

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

Speaker 2: we have provided reconciliations of these non-GAAP financial measures to GAAP financial measures in our earnings press release. With that, let me now turn the call over to Jayshree.

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

With that let me now turn the call over to Jason.

Speaker 3: Thank you, Wenc, and welcome to your first earnings call at Arista. We're excited to have you on board as our Executive Head of Corporate Development, IR, and Finance. Thank you, everyone, for joining us this afternoon for our fourth quarter 2021 earnings call.

Thank you Wang and welcome to your first earnings call at Arista.

I need to have you on board as our executive head of corporate development and IR and finance.

You everyone for joining us this afternoon for our fourth quarter 2021 earnings call.

Speaker 3: If there's one thing the pandemic has taught us, it is that it comes with variant surprises. With vaccines and booster choices, we certainly hope that all of you and your families are safe during the latest spread of the Omicron variant. I am proud of our employees for adapting and thank our partners and customers for placing their trust in us during these ever-changing times.

If there's one thing the pandemic has taught US is that it comes with Varian surprises with vaccines and booster choices. We certainly hope that all of you and your families are safe during the latest spread of the omnicare on VI Mary Anne.

I am proud of our employees are adapting and thank our partners and customers for placing their trust in us during these ever changing times Dr.

Speaker 3: Back to Q4 2021, we delivered revenues of $824.5 million for the quarter with a non-GAAP earnings per share of 82 cents. Services and software support renewals contributed approximately 21% of the revenue. Our non-GAAP gross margins of 64.3% was influenced by increasing supply chain costs.

Back to Q4 2021, we delivered revenues of $824 5 million for the quarter with a non-GAAP earnings per share of <unk> 82.

Services and software support renewals contributed approximately 21% of the revenue our non-GAAP gross margins at 64, 3% was influenced by increasing supply chain costs.

Speaker 3: We've registered a record number of million-dollar customers as a direct result of our momentum in the enterprise and campus traction that we have experienced throughout the year.

We registered a record number of million dollar customers as a direct result of our momentum in the enterprise and campus traction that we have experienced throughout the year.

Speaker 3: We have now surpassed in excess of 8,000 cumulative customers.

We have now surpassed in excess of 8000 cumulative customers and.

Speaker 3: In terms of Q4 2021 verticals, Cloud Titans was our largest vertical, followed by the enterprise, followed by the specialty cloud providers at third place, financials at fourth place, and service providers at fifth place. All the verticals grew well at double-digit percentages in 2021.

In terms of Q4 2021 verticals cloud Titans was our largest vertical followed by the enterprise followed by the specialty cloud providers that took place financials at fourth place and service providers that took place.

All of the verticals grew well at double digit percentages in 2021.

Speaker 3: In terms of Q4 geographical mix, international contributions were strong at 29%, with the Americas at 71% for the quarter.

In terms of Q4 geographical mix International contributions was strong at 29% with the Americas at 71% for the quarter.

Speaker 3: Shifting to annual sector revenue for the year in 2021, Cloud Titans registered approximately 30% of the revenue. Enterprise and financials came in at approximately 40% and the providers at approximately 30%. Microsoft was the only greater than 10% customer at a 15% contribution. We do expect Meta, formerly Facebook, to become our second 10% revenue customer in 2022 as we improve lead time.

Shifting to annual sector revenue for the year in 2021 cloud Titans registered approximately 30% of the revenue enterprise and financials came in at approximately 40% and the provider is at approximately 30%.

Microsoft was the only greater than 10% customer at a 15% contribution.

We do expect meta formerly Facebook to become our second 10% revenue customer in 2022 as the improved lead times.

Speaker 3: I would now like to invite Anshul Sardana, our Chief Operating Officer, to shed more light on our Cloud Titan execution. Thank you, Jayshree.

I would now like to invite <unk>, our chief operating officer to shed more light on our cloud Titan execution.

Thank you Geoffrey.

Our cloud business continues to be strong.

Speaker 2: In 2021, we successfully transitioned from prototype to trials to production on our latest products for 100, 200, and 400 gigs.

In 2021, we successfully transitioned from prototype to trials to production on.

On our latest products for 100, 200 400 gig.

Speaker 2: The Arresta 7800 is now deployed at scale for data center spines, DCI and regional spines,

The rest are 7800 does not deployed at scale for data center spine.

<unk> and regional spines.

And AI spine clusters.

Speaker 2: The URISTA-7388, which we co-developed with META and announced at OCP November last year, is also now running successfully in production data centers. We not only continue to

The rest of $73 88, which we co developed with meta.

Ounsted Otp November .

November last year is also now running successfully and production data centers.

We not only continue to do well in existing use cases.

Speaker 2: but also winning in new areas like WAN and Cloud Edge.

But also winning new.

New areas like Wan and cloud edge.

Feedback from our largest customers is consistent.

Speaker 2: RISTA products are easier to work with and have far fewer issues than competition.

Mr products are easier to work with and have far fewer issues than competition.

Speaker 2: While there is often speculation about shareships in some of our use cases.

While there is often speculation about share shifts and some of our use cases.

Speaker 2: Demand for our products from these cloud titans remains healthy. To quote one of our.

Demand for our products from these cloud Titans remains healthy.

To quote one of our largest customers directly.

Speaker 2: Vista continues to maintain and even grow its leadership position in these high-volume leaf spine deployments.

Mr continuous to maintain and even grow its leadership position in these high volume leaf spine deployment.

Speaker 3: Back to you, Jayshree. Thank you, Anshul. We look forward to our continued partnership with the Cloud Titans, something you and the entire engineering team has been nurturing for over a decade.

Back to your district, Thank you and we look forward to our continued partnership with the cloud Titans is something you and the entire engineering team has been nurturing for over a decade.

Speaker 3: In terms of annual 2021 product lines, our core cloud and data center products built upon our highly differentiated Arista EOS stack is successfully deployed across 10, 25, 40, 100, 200, and 400 gig speeds. This drove approximately 64% of our revenue with strong cloud and enterprise spending cycles.

In terms of annual 2021 product lines, our core cloud and datacenter products built upon our highly differentiated Arista Eos stack is successfully deployed across 10 25, 4100 204 hundred gig speeds. This drove approximately 64% of our revenue with strong cloud and enterprise.

Spending cycles.

Speaker 3: We believe we will continue to be the number one in market share for both 100 gig and 400 gig ports, according to industry analysts.

We believe we will continue to be the number one in market share for both 100 gig and 400 gig ports according to industry analysts.

Speaker 3: Our second market is network adjacencies comprised of routing, replacing routers, and the Cognitive Campus Workspace.

Our second market is network adjacencies comprised of routing, replacing routers and the cognitive campus Workspaces, we doubled our campus revenue at approximately $200 million in 2021, and aiming to double again to $400 million in 2022.

Speaker 3: We doubled our campus revenue at approximately $200 million in 2021 and aiming to double again to $400 million in 2022. Our investments in the Cognitive Campus Switching Spines and Wireless generated significant customer wins versus incumbents.

Our investments in the cognitive campus switching.

<unk> and wireless generated significant customer wins versus incumbents.

Speaker 3: We successfully deployed in many routing edge and peering use cases, winning Tier 1 and Tier 2, Tier 3 service provider projects for routing. Our investments in the simplification of the routing stack and the edge is yielding traction. Just in 2021 alone, we introduced six EOS software releases across 37 platforms. We delivered over 1500 features in routing over the past two years.

We successfully deployed in many routing edge and peering use cases, winning tier one and tier two tier three service provider projects for routing our investments and the simplification of the routing stack and the edge is yielding traction.

Just in 2021 alone we introduced six software releases across 37 platforms. We delivered over 1500 features and routing over the past two years.

Speaker 3: The total campus and routing adjacencies together contribute approximately 14% of revenue as a compelling alternative to legacy networks.

The total campus in routing Adjacencies together contribute approximately 14% of revenue as a compelling alternative to legacy networks.

Speaker 3: Our third category is network software and services based on subscription models such as Arista ACARE, Cloud Vision, Dance Monitoring Fabric or DMF observability, and the Advanced Network Detection and Response, NDR, with AVA sensors for security. Arista's subscription-based network services and software contributed approximately 22% of total product revenue.

Our third category as network software and services based on subscription models, such as Arista acre cloud vision DANZ monitoring fabric, our Dms observer ability and the advance network detection and response and Dr with Eva centers for security Arista.

Arista subscription based network services and software contributed approximately 22% of total product revenue.

Speaker 3: We are proud that Cloud Vision has now exceeded over 1300 cumulative customers as a highly differentiated integral element for our customers' network agility and operations.

We are proud that cloud vision has now exceeded over 1300 cumulative customers as a highly differentiated integral element for our customers' network agility and operations.

Speaker 3: To recap our discussion at November 2021 Analyst Day, the networking industry is ripe for this digital transformation to data-driven networking.

To recap our discussion that November 2021 out of the state the networking industry is ripe for digital transformation to data driven networking.

Speaker 3: Arista is well positioned as a leader in this client to cloud networking. A key part of the strategy is to bring these cloud-first principles to every aspect of the data network.

Arista is well positioned as a leader in this client to cloud networking.

A key part of the strategy is to bring these cloud first principles to every aspect of the data network.

Speaker 3: Software functions such as routing, security, and observability are inherently embedded into the Arista EOS.

Software functions, such as routing security and availability are inherently embedded into the Arista Eos.

Speaker 3: Our EOS has evolved to a third-generation software stack with both state- and store-driven NetDL functions.

U S has evolved to a third generation software stack with both state and Star driven net D L functions.

Speaker 3: NetDL, our network data lake architecture that we launched in November 2021, is resonating well with customers.

<unk> D L. A network data Lake architecture that we launched in November 2021 is resonating well with customers.

Speaker 3: We're building upon our cloud network heritage to bring proactive platforms, predictive operations, and a prescriptive experience to unify data sets from multiple sources.

We're building upon our cloud network heritage to bring proactive platforms predictive operations and a prescriptive experience to unify datasets from multiple sources.

Speaker 3: We are consistently harnessing the powerful combination of NetDL and AVA, our autonomous virtual assist, to gather, store, and process multiple modalities of network-generated data and network-related data.

We're consistently harnessing the powerful combination of net D L and Eva autonomous virtual assist to gather store and process multiple modalities modalities of network generated data and network related data.

Speaker 3: Ava uses a supervised AI ML algorithm and natural language processing to help network operators with root cause analysis and threat hunting.

Eva uses a supervised AI ml algorithm and natural language processing to help network operators with root cause analysis and threat hunting.

Speaker 3: Looking ahead into 2022, as I engage with worldwide customers, I'm observing fatigue and frustration with our peers' discontinuity in products and low support and quality.

Looking ahead into 2022, as I engage with worldwide customers and observing fatigue and frustration with our peers. This discontinuity in products and local support and quality.

In contrast, our riskiest pursuit of World class data driven networking is unwavering.

Speaker 3: It cannot be achieved by us alone. We're joining forces with industry leaders to collaborate with Microsoft, VMware, Red Hat, Equinix, Palo Alto Networks, ServiceNow, Slack, Slunk, Zscaler, and Zoom, to name a few, that together build our collaborative ecosystem.

Cannot be achieved by us alone rejoining first the forces with industry leaders to collaborate with Microsoft Vmware Red hat <unk> Palo Alto networks service now slack Splunk, Zee scalar and zoom to name a few that together build a collaborative ecosystem.

Speaker 3: In summary, I'm so proud of our team's execution across multiple dimensions in 2021. With a record-setting year at 2.94 billion, 27% annual growth, and a cash flow for the first time exceeding a billion dollars, this was indeed an exciting and memorable year for RISDA.

In summary, I'm, so proud of our team's execution across multiple dimensions and 2021 with.

With a record setting year at $2 94 billion, 27% annual growth in our cash flow for the first time exceeding $1 billion. This was indeed, an exciting and memorable year for Arista.

Speaker 3: It marked the return of the Cloud Titan's growth, coupled with diversified momentum across our product lines and customer sectors.

It marked the return of the cloud Titans growth, coupled with diversified momentum across our product lines and customer sectors.

Speaker 3: A VISTA's profile and affinity with customers is heightened to earn a strategic seat at their table.

<unk> profile and affinity with customers is heightened to earn a strategic seat at that table.

Speaker 3: And so despite the supply chain obstacles that we now expect to continue into 2023, we have emerged stronger. We reiterate our 30% annual growth outlook mentioned at November's Analyst Day, as we now aim for 3.85 billion in 2022 and multiple years of growth ahead. Now I'll turn it over to Ida, our CFO , for financial specifics.

And so despite the supply chain obstacles that we now expect to continue into 2023, we have emerged stronger.

We reiterate our 30% annual growth outlook mentioned at November's Analyst day as we now aim for 385 billion in 2022 and multiple years of growth ahead now.

Now I'll turn it over to eat our CFO for financial specifics.

Speaker 4: Thanks, Desiree, and good afternoon. This analysis of our Q2 and full year 2021 results and our guidance for Q1 2022 is based on non-GAAP and excludes all non-cash stock-based compensation impacts, certain acquisition-related charges, and other non-recurring items.

Thanks, Jerry and good afternoon. This analysis of our Q2 and full year 2021 results and our guidance for Q1 2022 is based on non-GAAP and excludes all noncash stock based compensation impacts certain acquisition related charges and other nonrecurring items.

Speaker 4: In addition, all share-related numbers are provided on a post-split basis to reflect the 4-for-1 stock split completed in November 2021.

In addition, all share related numbers are provided on a post split basis to reflect the four for one stock split completed in November 2021.

Speaker 4: A full reconciliation of our selected GAAP to non-GAAP results is provided in our earnings release.

A full reconciliation of our selected GAAP to non-GAAP results is provided in our earnings release.

Speaker 4: Total revenues in Q4 were $824.5 million, up 27.1% year over year, and well above the upper end of our guidance of $775 to $795 million.

Total revenues in Q4 were $824 5 million up 27, 1% year over year and well above the upper end of our guidance of $775 million to $795 million.

Speaker 4: We continue to see strong demand across all our market sectors with particular strength from our Cloud Titan customers as we ramp our new product.

We continue to see strong demand across all our market sectors with particular strength from our cloud Titan customers as we ramp our new products.

Speaker 4: Shipments remain constrained in the quarter as we continue to carefully navigate industry-wide supply shortages and COVID-related disruptions.

Shipments remained constrained in the quarter as we continued to carefully navigate industry wide supply shortages and COVID-19 related disruptions.

Speaker 4: Services and subscription software contributed approximately 21.2% of revenue in the fourth quarter, roughly in line with Q3.

Services and subscription software contributed approximately 21, 2% of revenue in the fourth quarter roughly in line with Q3.

Speaker 4: International revenues for the quarter came in at $242.1 million, or 29% of total revenue, up from 25% in the third quarter. This completes a year of strong international performance, with international revenues for the year growing 46% on a year-over-year basis.

International revenues for the quarter came in at $242 1 million or 29% of total revenue up from 25% in the third quarter.

This completes a year of strong international performance with international revenues for the year growing 46% on a year over year basis.

Speaker 4: This reflects healthy performance with our in-region customers combined with solid contributions from our larger Cloud Titan customers.

This reflects healthy performance with our in region customers combined with solid contributions from our larger cloud Titan customers.

Speaker 4: Overall gross margin in Q4 was 64.3 percent, just above the midpoint of our guidance range of approximately 63 to 65 percent.

Overall gross margin in Q4 was 64, 3% just above the midpoint of our guidance range of approximately 63% to 65%.

Speaker 4: We continue to recognize incremental supply chain costs in the period and began to see an increase in cloud titan revenue mix in the quarter.

We continue to recognize incremental supply chain costs in the period and began to see an increase in cloud Titan revenue mix in the court.

Speaker 4: Operating expenses for the quarter were $206.2 million, or 25% of revenue, up from last quarter at $192.4 million.

Operating expenses for the quarter were $206 2 million or 25% of revenue up from last quarter at $192 4 million.

Speaker 4: R&D spending came in at $130.3 million or 15.8% of revenue, up from last quarter at $125 million.

R&D spending came in at $130 3 million or 15, 8% of revenue up from last quarter at $125 million.

Speaker 4: This primarily reflected increased headcount and employee-related costs in the period.

This primarily reflected increased head count and employee related costs in the period.

Speaker 4: Sales and marketing expense was $61.2 million or 7.4% of revenue compared to $55.8 million last quarter with increased headcount and a higher variable compensation expense.

Sales and marketing expense was $61 2 million or seven 4% of revenue compared to $55 8 million last quarter with.

With increased head count and higher variable compensation expenses.

Speaker 4: As a reminder, we continue to benefit from lower COVID-related travel and marketing expenses.

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

Speaker 4: Our GNA costs come in at $14.7 million or 1.8% of revenue.

Our G&A costs came in at $14 7 million or one 8% of revenue.

Speaker 4: Our operating income for the quarter was $324.2 million, our 39.3% of revenue.

Our operating income for the quarter was $324 2 million or 39, 3% of revenue.

Speaker 4: Our other income and expense for the quarter was a favorable $1.5 million and our effective tax rate was approximately 19.4%.

Other income and expense for the quarter was a favorable $1 5 million and our effective tax rate was approximately 19, 4%.

Speaker 4: This results in net income for the quarter of $262.4 million, or 31.8% of revenue.

This resulted in net income for the quarter up $262 4 million or 31, 8% of revenue.

Speaker 4: Our diluted share number was 319.75 million shares, resulting in a diluted earnings per share number for the quarter of 82 cents, up approximately 32.3% from the prior year.

Our diluted share number was $319 75 million shares resulting in a diluted earnings per share number for the quarter of 82 up approximately 32, 3% from the prior year.

Speaker 4: Now turn to the balance sheet. Cash, cash equivalents and investments enter the quarter at approximately $3.4 billion.

Now turning to the balance sheet cash cash equivalents and investments ended the quarter at approximately $3 4 billion.

Speaker 4: We repurchased $176 million of our common stock during the fourth quarter at an average price of $113 per share.

We repurchased $176 million of our common stock during the fourth quarter at an average price of $113 per share.

Speaker 4: As a recap, this completes the April 2019 billion-dollar repurchase authorization, having repurchased a total of 16.7 million shares at approximately $60 per share. In addition, we initiated repurchases against the October 2021 billion-dollar board authorization, purchasing $72.9 million, or 590,000 shares in the quarter, at an average price of $124 per share.

As a recap is complete the April 2000, $19 billion repurchase authorization, having repurchased a total of $16 7 million shares at approximately $60 per share in.

In addition, we initiated repurchases against the October 2000, $21 billion Board authorization.

Purchasing $72 $9 million or 590000 shares in the quarter at an average price of $124 per share.

Speaker 4: The actual timing and amount of future repurchases will be dependent on market and business conditions, business requirements, stock price, acquisition opportunities, and other factors.

The actual timing and amount of future repurchases will be dependent on market and business conditions business requirements stock price acquisition opportunities and other factors.

Speaker 4: Now turning to operating cash performance for the fourth quarter. We generated $225 million of cash from operations in the period, completing our first year with cash generation in excess of $1 billion.

Now turning to operating cash performance for the fourth quarter, we generated $225 million of cash from operations in the period, completing our first year with cash generation in excess of $1 billion.

Speaker 4: This reflects the strong earnings and cash flow potential of our business model, even in a period of increasing investments in inventory and supply chain.

This reflects the strong earnings and cash flow potential of our business model, even in a period of increasing investments in inventory and supply chain.

Speaker 4: DSOs came in at 58 days, up from 49 days in Q3 reflecting the linearity of billings and deferred revenue growth in the period.

Dsos came in at 58 days up from 49 days in Q3, reflecting the linearity of billings and deferred revenue growth in the period.

Speaker 4: Inventory returns were consistent with last quarter at 1.7 times. Inventory increased to $650.1 million in the quarter, up from $575.7 million in the prior period, reflecting increased component buffers and some added inventory costs.

Inventory turns were consistent with last quarter at one seven times inventory increased to $650 1 million in the quarter up from $575 7 million in the prior period, reflecting increased component buffers and some added inventory costs.

Speaker 4: Our purchase commitments for the quarter were $2.8 billion, up from $2.1 billion in Q3. This is in response to increased lead time, now extending into 2023, and continued strength in demand.

Our purchase commitments for the quarter were $2 8 billion up from $2. One in Q3. This was in response to increased lead times now extending into 2023 and continued strength in demand.

Speaker 4: As a reminder, we continue to prioritize newer early life cycle products for inclusion in these strategies in order to help mitigate the risk of excess or obsolescence.

As a reminder, we continue to prioritize newer early lifecycle products for inclusion in these strategies in order to help mitigate the risk of excess or obsolescence.

Speaker 4: Our total deferred revenue balance was $929 million up from $800 million in Q3. The majority of the deferred revenue balance is services related and directly linked to the timing and term of service contracts, which can vary on a quarter by quarter basis.

Our total deferred revenue balance was $929 million up from 800 million in Q3.

The majority of the deferred revenue balance services related and directly linked to the timing in term of service contracts, which can vary on a quarter by quarter basis.

Approximately $160 million of balance up from $113 million last quarter represents product deferred revenue largely related to acceptance clauses for new products. Most recently with our larger cloud Titan customers.

Speaker 4: Approximately $160 million of the balance, up from $113 million last quarter, represents product deferred revenue, largely related to acceptance clauses for new products, most recently with our larger Cloud Titan customer.

Speaker 4: As a reminder, we remain in a period of significant new product introductions combined with healthy new customer acquisition rate and expanded use cases with existing customers.

As a reminder, we remain in a period of significant new product introductions combined with healthy new customer acquisition rate and expanded use cases with existing customers.

Speaker 4: These trends, in conjunction with reduced levels of upfront in-person testing, have resulted in increased customer-specific acceptance clauses and higher product-deferred revenue amounts.

These trends in conjunction with reduced levels of upfront in person testing have resulted in increased customer specific acceptance clauses and higher product deferred revenue amounts.

Speaker 4: Accounts payable days were 63 days, up from 47 days in Q3, reflecting the timing of inventory receipts and payments. Capital expenditures for the quarter were

Accounts payable days were 63 days up from 47 days in Q3, reflecting the timing of inventory receipts and payments.

Capital expenditures for the quarter were $8 5 million.

Speaker 4: Now turning to our outlook for the first quarter and beyond. As outlined at our Analyst Day, we expect to achieve year-over-year revenue growth for 2022 of approximately 30%. This reflects continued healthy demand across all our market sectors, tempered by the impact of a difficult supply environment.

Now turning to our outlook for the first quarter and beyond as outlined at our analyst day, we expect to achieve year over year revenue growth for 2022 of approximately 30%.

<unk> continued healthy demand across all our market sectors.

Inferred by the impact of a difficult supply environment.

Speaker 4: On the gross margin front, we see continued industry-wide supply constraints and elevated logistics costs, with some offset from customer price increases.

On the gross margin front, we see continued industry wide supply constraints and elevated logistics costs with some offset from customer price increases.

Speaker 4: While we expect gross margins for the first quarter to be in the range of 63 to 64%, we would highlight the potential negative impact of customer mix in future quarters.

While we expect gross margins for the first quarter to be in the range of 63% to 64%, we would highlight the potential negative impact of customer mix in future quarters.

Speaker 4: If we are successful in improving supply and enabling our Cloud Titan contribution to accelerate, it would likely result in growth margins below the typical guidance range.

If we are successful in improving supply and enabling our cloud Titan contribution to accelerate it would likely result in gross margins below the typical guidance range.

Speaker 4: Now turning to spending and investments, we remain committed to growing our investments in R&D to support innovation across the business and sales and marketing to support our go-to-market expansion.

Now turning to spending and investments we remain committed to growing our investments in R&D to support innovation across the business and sales and marketing to support our go to market expansion.

Speaker 4: With all of this as a backdrop, our guidance for the first quarter which is based on non-GAAP results and excludes any non-cash stock-based compensation impacts and other non-recurring items is as follows.

With all of this as a backdrop our guidance for the first quarter, which is based on non-GAAP results and excludes any noncash stock based compensation impacts and other nonrecurring items is as follows revenues of approximately $840 million to $860 million gross margin of 63% to 64% and operating margin at approximately 30.

Speaker 4: Revenues of approximately $840 to $860 million, gross margin of 63 to 64 percent, and operating margin at approximately 38 percent. Our effective tax rate is expected to be 21 percent, with diluted shares on a post-spit basis of approximately 320 million shares. I will now turn the call back to Vick.

8%, our effective tax rate is expected to be 21% with diluted shares on a post split basis of approximately 320 million shares.

Now I'll turn the call back to Vic.

Speaker 5: Thank you, Ida. We're now going to move to the Q&A portion of the Arista Earnings Call. To allow for greater participation, I'd like to request that everyone please limit themselves to a single question. Thank you for your understanding. Operator, please take it away. We will now begin the Q&A portion of the Arista Earnings Call. In order to ask a question,

Thank you Peter we're now going to move to the Q&A portion of the Arista earnings call to allow for greater participation I would like to request that everyone. Please limit themselves to a single question.

Thank you for your understanding operator, please take it away.

We will now begin the Q&A portion of the Arista earnings call in order to ask a question. During this time simply press Star then the number one on your telephone keypad, if you'd like to withdraw your question Press Star. One again, we ask that you pick up your handset before asking questions in order to ensure optimal sound quality and any intra.

Speaker 1: star 1 again. We ask that you pick up your handset before asking questions in order to ensure optimal sound quality.

A time, please do limit yourself to one question.

Speaker 1: The first question comes from the line of Rod Hall with Goldman Sachs. Your line is open.

Your first question comes from the line of Rod Hall with Goldman Sachs. Your line is open. Please go ahead.

Speaker 6: Yeah, hey guys, thanks for the question. So my one question would be regarding the enterprise momentum, given the disclosure on the split, the enterprise growth in 21 is over 40%. And I wonder if you could dig a little bit.

Yeah, Hey, guys. Thanks for the question.

My one question would be regarding the enterprise momentum given the disclosure on the split.

Enterprise growth in 'twenty was over 40% and I Wonder if you could dig a little bit into the verticals, where you're succeeding there and talk a little bit about sustainability of that momentum and it's extremely strong women by the way congratulations over $1 billion of revenue there well over 1 billion. So.

Speaker 6: seeding there and talk a little bit about sustainability of that moment.

Speaker 6: extremely strong women. So, by the way, congratulations, over a billion dollars of revenue there, well over a billion. So just wondering if you can give us more color on what's going on in enterprise, how

Just wondering if you can give us more color on what's going on in enterprise, how that looks for 'twenty two.

Yeah.

Speaker 3: Thank you, Rod. So yeah, the contribution has definitely been a pleasure to watch.

Thank you Rod so yeah. The contribution has definitely been a pleasure to watch and the traction by the way. The enterprise also includes the financials. So we've had some very good traction with financials, which has been a long time customer for us, but we very much landed in expanded into financials. So that would be Ah Ah moment of <unk>.

Speaker 3: By the way, the enterprise also includes the financials, so we've had some very good traction.

Speaker 3: with financials, which has been a long time customer for us, but.

Speaker 3: We very much landed and expanded in the financials, so that would be a moment of pride for us. But we are going across many cylinders on the enterprise. We're seeing a lot of activity in the health care, in the media and entertainment, across international geographies, and of course the campus traction is also included in the enterprise.

Bright for us.

But we are going across many cylinders on the enterprise.

We're seeing a lot of activity in the health care and the media and entertainment across international.

National geographies and of course the campus traction is also included in the enterprise. So a lot of diversity in our enterprise momentum and it's one we're proud of and expect to have continued this year as well.

Speaker 3: So a lot of diversity in our enterprise momentum, and it's one we're proud of and expect to have continuing this year as well.

Speaker 6: And could you just maybe give us anything on campus? Like, how's that going? I know there's been a lot of demand generally, you know, for campus. I don't know how you're.

And Richard could you just maybe give us anything on campus like how's that going.

I know theres been a lot of demand generally for.

Campus Wi Fi, but I don't know how you are.

You're feeling there at the moment.

Speaker 3: Yeah, so I think in general, as we have shared with you, we are doing extremely well with our own Arista EOS customer base, who is very familiar with us. And therefore, we are seeing a lot of million dollar customers just embracing Arista EOS in the campus. So that would be a point of real success.

Yeah. So I think in general as we have shared with you.

We are doing extremely well with our own Arista Eos customer base, who is very familiar with us and therefore, we are seeing a lot of million dollar customers just embracing Arista Eos in the campus. So that would be a point of view our success. The second thing I'd say the thing is we're not just seeing Wi Fi, but we're really seeing the unification.

Speaker 3: The second thing I'd say we're seeing is we're not just seeing Wi-Fi, but we're really seeing the unification of wired and wireless across the edge, and that's been a very interesting momentum as well in the campus. So a lot more work ahead of us, as you'll all often point out. These numbers are still small, but we're looking to make them larger.

A wired and wireless across the edge and that's been a very interesting momentum as well in the campus. So lots more work ahead of us as you'll all often.

Point out these numbers are still small, but we're looking to make them larger.

Great. Okay. Thank you guys.

Right.

Speaker 1: Your next question comes from the line of Sameek Jadergi with J.P. Morgan. Your line is now open.

Your next question comes from the line of Cemig Chatterji with Jpmorgan. Your line is now open.

Great. Thank you for taking my question and congrats on the results has been Hum.

You mentioned in your prepared remarks about improving.

With Oh, I think meta in particular, but maybe if you can just dig into that a bit more hows visibility today in terms of.

Improving lead times as we go through the year or where do you see the supply chain spending today is it better or worse than maybe a quarter ago and any.

Sort of details on where you're seeing the most shortages. Thank you.

Oh. Thank you so I mean, well first of all I wanted to say thank you customers are giving us more visibility on your forecasts that has helped a lot and then usually without cloud Titans, we only got one or two quarters, now where literally getting a year, which helps it helps US plan. It helps us project that helps us do a whole lot of things and Ashley and the team have done a phenomenal job there.

Speaker 3: Thank you, Sameek. Well, first of all, I want to say thank you, customers, for giving us more visibility on your forecast. That has helped a lot, and usually with our cloud tightness, we only got one or two quarters. Now, we're literally getting a year, which helps.

Speaker 3: It helps us plan. It helps us project. It helps us do a whole lot of things, and Anshul and the team have done a phenomenal job there. That being said, I do want to say that supply chain, we felt, improved in November when we met with you all at the Analysts' Day.

That being said I do want to say that supply chain. We felt improved in November when we met with you all at the analyst day, but declined in January when we started seeing some decommissioning some of Alcoa component vendors. So I would I would describe our supply chain shortages as to step forward and one step backward.

Speaker 3: but declined in January when we started seeing some decommits from some of our component vendors. So, I would describe our supply chain shortages as two steps forward and one step backward. We don't like the one step backward, but between the Omicron virus, the labor shortages, the logistics, and the component shortages, we're suddenly experiencing another wave of uncertainty in Q1 over here.

We don't like the one step backward, but between the omicron virus, the labor shortages and logistics and the component shortages were suddenly experiencing another wave of uncertainty in Q1 over here.

Speaker 3: So we do have elevated lead times, so some of our components, as I've shared with you, they're anywhere from 50 to 70 weeks. It's no fun. But therefore, I think our commitment for the year will be back and loaded. We'll keep improving every quarter. But Q1 isn't the great indicator of our supply chain improving.

So we do have elevated lead times for some of our components as I've shared with you they're anywhere from 50 to 70 weeks, it's no fun, but therefore I think our commitment for the year will be backend loaded will keep improving every quarter.

But Q1 is integrate indicator of our supply chain improving.

Okay. Okay. Thank you.

Thanks.

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

Speaker 1: Your next question comes from the line of Jason Ader with William Blair.

Speaker 7: Yeah, thanks and thanks for the disclosure on the breakdown of campus and routing and the software.

Yeah. Thanks.

Thanks for the disclosure on the breakdown of campus in routing and the software.

Speaker 7: I guess my question is, what was the growth?

I guess my question is what was the growth in 2021 for those two particular products segments campus routing, which was 14% of revenue I think you said and then the software which was 22% year over year growth rates for those two.

Speaker 7: 2021 for those two particular product segments, Campus and Rapid.

Speaker 3: Oh, gosh, maybe either you can help me. I know the campus is excellent. It was double, right? So it's 100%. I don't have the numbers for me on software and routing offhand. Maybe we could ask you, Jason? The software piece was probably going pretty much in line with the business, right? Because the percentage of revenue is pretty constant. The routing piece is sub, but I don't have that to hand.

Oh Gosh, maybe you can help me I know the cactus is excellent. It was double right. So the pharmacy I don't have the number for me on software and routing off hand, maybe.

The software piece was probably growing pretty much in line with the business right because the percentage of revenue was pretty constant.

The routing piece itself, but I don't have that to hand.

Speaker 7: Okay, all right, so so yeah, if you can locate the kind of campus routing for 2020 at some point, that would be helpful. I can.

Okay, alright, so so yeah. If you can locate the kind of campus and routing for 2020 at some point that would be helpful. I can follow up offline, but.

Yeah. Thanks.

Speaker 3: Passes doubled, so we know that 100%. Right, but routing I was curious about. You combined those two, right, as 14%? Yeah, as a contributor we did, yes. We'll get back to you.

<unk> doubled because we know that the 100%.

But routing I was curious about you combine those two rate is 14% yeah as a contributor we did yes, we'll get back to you.

Very good thank you.

Speaker 8: Thanks for taking the question. I want to see if maybe you could discuss a little bit of the moving parts in your cost of goods sold. And what I'm thinking about specifically is whether your component suppliers, particularly semiconductors, have retroactively raised prices on you, or if we're going to see higher input costs maybe six months from now, as goods you've ordered last year start coming in at higher prices. If you could help us unpack how to think about those drivers. Thanks.

Six months from now as good you've ordered last year start coming in at higher prices. If you could help us unpack how to think about those drivers. Thank you.

Speaker 4: Yeah, I mean, we've definitely seen, you know, increases in prices. And we've talked about that, right? You know, we had some some orders that were repriced. So there has been some repricing of backlog, right, given the extended lead time.

Yeah, I mean, we've definitely seen them you know increases in prices and we've talked about that's right.

We had some some orders that were repriced. So there has been some repricing of backlog right given the extended lead times.

Speaker 4: that's just the reality as people try to fulfill against that open backlog to those suppliers, we're seeing that they need to make increases there. So we've definitely seen some of that. So I think it's a combination of both. You're seeing ongoing kind of disruptions and increases as you go forward, but also some repricing of

That's just the reality is people trying to fulfill against that open backlog to those suppliers were seeing that they need to make increases there. So we've definitely seen some of that.

So it's I think it's a combination of both youre seeing ongoing kind of disruptions and increases as you go forward, but also some repricing up.

Speaker 4: of our backlogs to these suppliers, right? Do we know kind of where this is going to go next? I think we're watching that very carefully.

Our backlogs to these suppliers right do we know kind of where this is going to go next I think we're watching that very carefully.

Speaker 4: to see if there are further increases. We've obviously passed on some of those increases to our customers with the price increases that we've made. We've been transparent about what we're seeing on the cost side, and we'll continue to do that. We'll continue to monitor with the buyers and with customers and take what actions we need to take as we go forward.

To see if there are further increases we've obviously passed on.

Some of those increases to our customers with the price increases that we've made and we've been transparent about what we're seeing on the cost side and we will continue to do that we'll continue to monitor them with suppliers and with customers and you'll take what actions we need to take as we go forward.

Speaker 8: But just to be more specific, do you expect gross margin would be weaker in the second half of your calendar year or similar to the...

But.

More specific do you expect gross margin would be weaker in the second half of your calendar year or similar to the first half.

Speaker 4: Yeah, I mean, I think what I go back to kind of our normal commentary around gross margin. I think what we've said is.

Yes, I mean, I think what I'll go back to kind of our normal commentary around gross margin I think what we've said is as we.

Speaker 4: As we fulfill backlog.

Fulfill backlog that was kind of at older pricing, we will see some pressure. There then we'll start to benefit from some customer price increases that we put into place, but that's not going to happen for some time, because we had quite a.

Speaker 4: that was kind of at older pricing, we'll see some pressure there, then we'll start to benefit from some customer price increases that we put into place, but that's not going to happen for some time because we had quite a large backlog and long lead time. At the same time, we will see some mixed shifts between the different pieces of the business. So I think we can...

A large backlog and long lead times at the same time, we will see some mix shifts between the different pieces of the business. So I think we can.

Speaker 4: You know, we can maintain some similar gross margins across the various pieces of the business, but then as the customer makes shifts, that will have a bigger impact. That's why, you know, we would caution, you know, as we're able to improve supply and grow that cloud Titan piece of the business, again, it will have a negative impact and gross margin in outer quarters potentially, right? So, I think it's a like for like kind of sector to sector. I think we can do a good job of kind of managing that, but then as we mix between the different pieces, again, that's going to have an impact. Thank you.

We can maintain some similar gross margins across the various pieces of the business, but then as the customer mix shifts that will have a bigger impact that's why we would caution.

As as we're able to improve supply and grow that cloud Titan piece of the business again, it will have a negative impact on gross margin in outer quarters potentially right. So I think it's a like for like kind of sector to sector. I think we can do a good job of kind of managing that but then as we mix between the different pieces again, that's going to have an impact.

Thank you.

Okay.

Your next question comes from the line of Amit <unk> with Evercore. Your line is now open.

Speaker 9: Your line is now open. Thanks for taking my question, and congratulations on the good print here. I was hoping you could just talk about the recent 7800R3 offer.

Thanks for taking my question and congratulations on a good print here.

Yes.

If you could just talk about that.

<unk> hundred three often at the muscle that was call it spine offering.

Around the same topic.

Lots of Super AI cluster.

To understand what is the solution all about.

Speaker 10: next-gen products that we already have in place or is it for new workloads new applications that's potentially expanding your time and if it is I'd love to understand you know what are these

Nextgen products you already have in place or is it for new workloads, new application, that's potentially expanding your Tam and if it is a loved one.

What are these workloads and how much of your time expand by with these offerings. Thank you.

Speaker 3: Always a good question, Amit. Thank you. I'll kick it off, and then Anshu will go into more detail. So first of all, we have been very strong in the cloud network, which we largely call the front-end network, the leaf spine architecture. And we've been pioneers and thought leaders there.

Always a good question Amit. Thank you I'll kick it off and then I'm sure will go into more detail. So.

First of all we have been very strong in the cloud network, which we've largely call our front end network the leaf spine architecture.

We've been pioneers and thought leaders there.

Speaker 3: The back-end network, which is largely based on a lot of compute-intensive and now AI-intensive workloads also require the same focus on building a very purpose-built network, especially when you have a lot of small packets and large elephant flows and you're dealing with a tremendous amount of metaverse applications and traffic.

The backend network, which is largely based on a lot of compute intensive and now AI intensive workloads also required the same focus on building a very purpose built network, especially when you have a lot of small package and large elephant flows and you're dealing with a tremendous amount of meta versus applications in.

Speaker 11: So this is a new area that's historically, as Facebook indicated, been implemented with InfiniBank.

So this this is a new area that historically as Facebook indicated been implemented with Infiniband, but the 75 7800 are three has a unique opportunity to place a smart as the Ethernet fabric for this AI workloads with.

Speaker 3: But the 7800 R3 has a unique opportunity to place its mark as the ethernet fabric for these AI workloads.

Speaker 3: With the right dynamic load balancing, with the efficient packet spring, with the congestion control and QoS, I will turn it over to the master of the 7800. Anshul, do you want to say more? Just a little bit more. Actually, you did a great job describing the R2. Thank you.

With the right dynamic load balancing with the efficient packet spring with the congestion control and Qos I'll turn it over to the Master. After 7800 onshore do you want to say more so just a little bit for this year did a great job describing there. Thank you.

Speaker 2: Ethernet classically has had hot spots when you try to saturate it with all these types of flows and heavyweight traffic.

Ethernet classically hot Hot Hot spots when you try to saturated with all of these types of flows and heavy rail traffic.

Speaker 2: But the 7800 can provide lossless networking across all of these nodes, GPUs, CPUs, data sets being sliced around and shuffled around, which is what creates the opportunity.

But the 7800.

Provide lossless networking across all of these nodes Gpus Cpus datasets being sliced it on their own.

Is what creates the opportunity for us.

Speaker 2: especially with the 7800, and the product is doing fairly well in the new AI ML Spine use cases. And I would say, to answer your question, we are in the beginning of a brand new cycle and a new TAM, because historically, Arista is new to this. And historically, it's traditionally been InfiniBand. Perfect. I'll wait for the next analyst.

Personally with a 7800 on the product is doing fairly well.

And also find use cases, and I would say to answer. Your question. We are in the beginning of a new brand new cycle and a new Tam because historically Arista is new to this and historically, it's traditionally been infant event.

Perfect I'll wait for the next honestly when you expand you're talking about thank you.

Thank you.

Your next question comes from the line of Tal <unk> with Bank of America. Your line is now open.

Speaker 1: Your next question comes from the line of Taliani with Bank of America.

Speaker 12: Hopefully you can hear me okay.

Hi, guys hopefully you can hear me okay.

I spoke with juniper about their solution for data centers in campus and Theyre seeing great growth in orders in and.

Speaker 12: I spoke with Juniper about their solution for data centers and campus and they're seeing great growth in orders and you are having, of course, great results.

You are having of course great results.

Speaker 12: The question I have here is between the underlying growth of the market and share gains from Cisco.

The question I have it.

Fortunately a heavier is between the underlying growth of the market and share gains from Cisco, where he is the answer to why suddenly this market is growing so much meaning are we seeing finally, Cisco is starting to lose share more substantially than before and this is why youre.

Speaker 12: Where is the answer to why suddenly this market is growing so much? Meaning, are we seeing finally Cisco starting to lose share more substantially than before and this is why you're growing so much?

Speaker 12: Or is it the answer is more about acceleration of growth in the market itself, and if that's the case, how do you look at it higher level, meaning what's the driver?

So much or is it is it the answer is more about acceleration of growth.

In the market itself and if Thats. The case, how do you look at it higher level, meaning what's the driver.

Speaker 3: Wow, wow, Tal, you're making us really think about the answer. I tend to think of it as Arista's execution and our relevance to our customers has gotten higher and higher. Maybe that means the competition is getting weaker, but more than that, in the past, if you just look back three years ago, we were a data center company.

Oh Wow Cow you made you are making us really think about the answer I tend to think of it as a risk is execution and our relevance to our customer has gotten higher and higher and maybe that means the competition is getting weaker but more than that in the past. If you just look back three years ago, we were a datacenter.

Company. If you look today I think we have many many more relevant components for the enterprise customer whether its campus routing data center interconnect the datacenter itself.

Speaker 3: If you look today, I think we have many, many more relevant components for the enterprise customer.

Speaker 3: whether it's campus, routing, data center interconnect, the data center itself.

Speaker 3: observability, monitoring, threat hunting, cloud vision, and the entire operation analytics and agility. So we have a better seat to the table for this modern set of workloads, where some of them are in the cloud and some of them are on the premise. And Arista is being sought out as not only the thought leader, but the advisor on how do they make this happen. So I think that has really changed because of our product portfolio and because of the customer needing an alternative. As I've said in my opening remarks.

Observer ability and monitoring.

Hunting cloud vision and your entire operation analytics and agility. So we have a better seat to the table for this modern set of workloads, where some of them on the cloud and some of them on the premise and Arista is being sought out as not only the thought leader, but the adviser on how do they make this happen.

That has really changed because of our product portfolio and and because of the customer needing an alternative as I've said in my opening remarks.

Speaker 3: Due to COVID, I think they've also had a better planning horizon.

Due to Covid I think they've also had a better planning horizon.

Speaker 3: They're increasingly more fatigued and frustrated with the existing players and they want an alternative. So I think the timing and our relevance is both now improved in the last couple of years.

The increasingly more fatigued and frustrated with the existing players and they want an alternative so I think the timing and our relevance as both now improved in the last couple of years.

Got it.

Speaker 12: Do you think that market share shifts are explaining more now than before?

Do you do you think that market share shifts are explaining more now than before.

Speaker 12: Or no, or it's the same. It's more about the growth in the underlying market and your ability to deliver the right products to the right customers, but less about share.

Or no or its the same its more about the growth in the underlying market and your ability to deliver the right products to the right customers, but less about share shifts.

Speaker 3: Well, I think we're definitely gaining in our market share in the 100 gig and 400 gig and data center switching. The other market share shifts are still small because we're still a small player. We have to work to get bigger. So I wouldn't call them shifts, that's the increased relevance on our side, but still small numbers. I mean, I think, Tal, we're certainly seeing, I would say, good new logo closure rates, et cetera, in that part of the business. I think it's hard to comment on share, but I think that there's definitely traction there. You see it in our numbers, obviously.

Well I think we are definitely gaining in market share in the 100 gig and 400 gig in data center switching the other market share shifts are still small because it's still a small player.

We have to work to get bigger so I wouldn't call them shifts that they increased relevance on oxide, but still small numbers I mean, I think Tal, we're certainly seeing I would say good new logo closure rates et cetera in that part of the business I think that it's hard to comment on share, but I think that there's definitely traction there you see it in our numbers obviously.

Got it thank you.

Thank you.

Speaker 1: Your next question comes from the line of Amita Marshall with Morgan Stanley .

Your next question comes from the line of meta Marshall with Morgan Stanley . Your line is now open.

Okay, Great maybe building on that question from Tal I guess just from your enterprise customers just curious as to whether.

Speaker 13: Great. Maybe building on that question from Tal, I guess just from your enterprise customers, just curious as to whether...

Speaker 13: organizations being basically forced into giving more visibility has made them more likely to be comfortable with architecture changes or really take a higher level kind of look at what they really want to be doing with their data center architectures that maybe they weren't comfortable with in kind of a normal course supply chain environment where they were just.

And our organizations being basically force them to give any more visibility.

Has made that more likely to be comfortable with architecture changes are really take a higher level kind of look at what they really want to be doing with their data center architectures that maybe they weren't comfortable with and kind of a normal course supply chain environment, where they were just.

Speaker 13: able to get product within a quarter. Just wondering if this is triggering kind of higher level discussions with customers. Thanks.

Able to get product within a quarter.

I'm wondering if this is triggering kind of higher level discussions with customers. Thanks.

Speaker 3: Yeah, Mita, I think you're exactly right. I think that planning horizon is a lot better. In the past, they were firefighting in the office. And today, when you have lead times that are so extended, they've got a chance to think about alternatives. Also, the CIO is extremely pressured to think about the cloud and what workloads they put on the cloud and what they put on the premise. So I think the overall enterprise architecture and redesign is well underway and Arista is a benefactor of that. Great, thanks. Thank you.

Yeah, I think youre exactly right I think that planning horizon is a lot better in the past they were firefighting in the office and today. We know when you have lead times that are still extended they've got a chance to think about alternatives also the CIO is extremely pressure to think about the cloud and what workloads. They put on the cloud and what they put on the premise so I think.

The overall enterprise architecture, and redesign is well underway and Arista is a benefactor of that.

Great. Thanks.

Thank you.

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

We can look further out.

Speaker 14: that quite a number of investors have is the runway for both Microsoft and Facebook on their respective board who are getting 200 gig bills.

So I'm quite a number of investors runway for both Microsoft and Facebook with respect to 400 and.

200, <unk> builds and I recognize.

Speaker 14: The world is probably not nearly as binary as many of us.

World is probably not nearly as buying areas when you're going to see.

Speaker 14: think. But any insight you could share on the runway for those bills and on what's next, assuming that at some point they hit

So you could share on the run with those deals and on what's next.

At some point hit peak levels.

Now eventually rollover.

Speaker 3: Well, look, we're used to volatility from our Cloud Titan customers. We experienced, you know, the highs of 2018 and then the lows of 2019 and 20. So we're in a period where the Cloud Titans are clearly investing from a CapEx. And increasingly, we are more directly correlated to the network CapEx.

Well look where we used to volatility from our cloud Titan customers, we experienced the highs of 2018 and then the lows of 2019 and 20. So we're in a period, where the cloud Titans are clearly investing from a capex and increasingly we are more directly correlated to the network capex.

Speaker 3: Anshul, you want to shed more light on that? Absolutely, I think the cloud titans have a very strong business model which is resulting in the investments they are making, so there's real strength there, number one.

Actually I want to shed more light on that absolutely can be.

The cloud Titan several very strong business model, which is resulting in the investments they are making some real strength there number one number two.

Speaker 2: All of these customers are planning fairly well, so we appreciate the visibility.

All of these customers are planning clearly we appreciate the visibility.

Speaker 2: And it's very clear they're not trying to stop these products in the warehouse. They absolutely need them to go live into their network. So the buildups are very real.

And it's very clear they are not trying to stop this product in the warehouse they absolutely need them to go live into their network. So the buildup for William Hill.

Speaker 2: Paul, if we had visibility for two or three years, we would be delighted, but we should be happy of visibility for one year. So let's not go beyond that, but for the near term, we believe the demand is strong. All right.

Paul if he had visibility for two or three years, we would be delighted, but they shouldn't be happier visibility for one year.

So, let's not go beyond that but for the near term we believe the demand is strong.

Alright.

Speaker 11: What's interesting to me, Paul, is what we're seeing consistently across all our Cloud Titan customers, and in fact, some of the specialty Cloud customers, is all their upgrades are in full swing. They're all investing. Additionally, they're putting more megawatt data center capacity annually, every year. And so we think this is a multi-year upgrade, but we obviously can't see much beyond 2022 right now, but we'll let you know as we do. But just so you know.

Well I think Paul is what we're seeing consistently across all our cloud Titan customers and in fact, some of the specialty cloud customers is theyre all their upgrades are in full swing right.

They are all investing additionally, they're putting more megawatt data center capacity annually every year and so we think this is a multiyear upgrade but obviously you can see much beyond 2022, right now, but we'll let you know as we do.

Fiduciary.

For the past.

Build outs.

Speaker 14: far greater infrastructure, consuming far greater bandwidth, and I assume META, while it gets all the focus, understandably, from all of us, it's not the only and it won't be the last such program.

Ballroom for greater infrastructure continuance order bandwidth.

And I assume that a wallet gets all the focus understandably from all of us.

Mark do you want me to won't be the last such drawdown.

Speaker 14: If I could get a clarification from Ida on something she said earlier.

If I could get a clarification from Utah and some things you said earlier.

Speaker 14: Ida, when cloud dominated your revenue earlier after you went public back in 2014, you were doing 64 to 65 plus percent gross margin back then. I understand things change over time, but with cloud likely to increase its percentage of revenue over the course of the next year and you're cautioning about the impact, that customer mixed impact and gross margin, why would it be different than what we saw back when?

You don't win.

<unk> dominated the revenue earlier after we went public back in 14 you were.

Doing 64% to 65% gross margin back soon I understand things change over time.

Recall likely to increase as a percentage of revenue over the course of the next year and you're cautioning about the impact that customer mix impacting gross margin what would be different than what we saw.

Yeah.

What's changed.

Speaker 4: Yes, I think there's a couple of things in there, right? I think, you know, if you go back to what we said at Analyst Day, which was, look, we could grow 30% with reasonable growth rates across the business and, you know, be in that kind of 63 to 65% range, right? And I think that's still the case. I think that the script guidance is more a thing. If we're able to accelerate beyond that and we.

So I think there's a couple of things in there right I think if you go back to what we said at analyst day, which was look we could grow 30% with reasonable growth rates across the business.

In that kind of 63% to 65% range right and I think that's still the case I think that the script guidance is more thing if if we're able to accelerate beyond that and we really accelerated on the cloud piece of the business. That's when we'll see it kind of threatened the bottom end of that range maybe in.

Speaker 4: really accelerate on the cloud piece of the business, that's when we'll see it kind of threaten the bottom end of that range and maybe go below that. You know, it's a different environment in terms of just the cost structure and some of the cost inputs that we're dealing with, et cetera. You know, I think you have to think about the different, you know, cost increases.

Below that.

It's a different environment in terms of just the cost structure and some of the cost inputs that we're dealing with et cetera.

I think it's you have to take you have to think about the different.

Cost increases.

Speaker 4: logistics costs, et cetera, that we're dealing with now. And the flexibility just isn't there in the same way as it was back then. I mean, we've done a really good job, I think, and the team has done a really good job of, you know, optimizing gross margin over time, all right? But now your degrees of freedom are less, right? So I think it's a tighter cost structure.

Logistics costs et cetera that we're dealing with now on the flexibility just isn't there in the same way as it was back then and we've done a really good job I think and the team has done a really good job of.

Optimizing gross margin overtime alright, but.

But now you have degrees of freedom or less right. So I think it's a tighter cost structure.

Speaker 4: to deal with, and then it's a growing cloud presence. And again, we're just saying, okay, in that scenario, you could see some pressure on the bottom end of that range. I'm ready to take the next question.

To deal with them then it is growing.

Cloud presence them again, we're just saying okay in that scenario you could see some pressure on the bottom end of that range.

Operator, we'll take the next question.

Yeah.

Your next question export line.

Sami Badri with credit Suisse. Your line is now open.

Speaker 15: Hi, thank you. Uh, first question is maybe you could just frame for us how many, you know, how many uncaptured revenue opportunities have been created in 2022 as a function of some of the supply chain disruption.

Hi, Thank you.

First question is maybe you could just frame for us how many how many on captured revenue opportunities have been created in 2022 as a function of some of the supply chain disruptions and and disconnects and just a quick follow up after that as we kind of see the Microsoft in meta buildup is 10% plus.

Speaker 15: And disconnects and just a quick follow up after that is we kind of see the Microsoft and meta build up as 10% plus customers, but are there any 3rd or 4th potential customers that are ramping up their network in a way that they could become 10% plus over the next 2 to 3 years that you guys are seeing and we don't need to know who we just need to know if it's in the cars.

Customers, but are there any third or fourth potential customers that are ramping up their network in a way that they could become 10% plus over the next two to three years that you guys are seeing and we don't need to know who we just need to know if it's in the cards.

Yeah. The second question is a literally easier to answer at the moment, there's a lot of activity with all the cloud Titans, but no one substantially big like Microsoft is today and meta will be maybe if we can find another and cloud Titan customer.

Speaker 3: The second question is a little easier to answer. At the moment, there's a lot of activity with all the cloud titans, but no one is substantially big like Microsoft is today and Meta will be. Maybe we can find another M cloud titan customer to find that. I asked you a question on how many opportunities, I mean it's almost a theoretical question, Sammy. I don't know. We'll see.

Find that.

Ask your question on how many opportunities I mean, it's almost a theoretical question.

Sami because.

Speaker 3: We go into this engaging with all our customers and some happen right away. In fact, I heard today of a customer that we engaged with five years ago that we just won. So some happened in five weeks and some happened in five years. So we really don't have an exact precise answer on that ratio. But we just hope it keeps increasing because we've got plenty of time and time to serve it. Got it, thank you.

We go into this engaging with all our customers and some happened right away in fact, we I heard today of a customer that we engaged with five years ago that would be just one so some happened in five weeks since I'm happened in five years. So we really don't have an exact precise answer on that ratio.

We just hope it keeps increasing because they've got plenty of time to time and time to serve it.

Got it thank you.

Thank you Sammy.

Your next question comes from the line of Jim Suva with Citigroup. Your line is now open.

Thank you and Jay sharing either if you take a step back say three months ago. When we had our last call compare to now can you, let us know what end markets or verticals really ship impressed you both not only in the results, but maybe the bookings you mentioned youre getting a lot more visibility now I'm just kind of want.

Speaker 8: Thank you. And Jayshree and Ida, if you take a step back, say, three months ago when we had our last call compared to now.

Speaker 8: Can you let us know what end markets or verticals really impressed you, both not only in the results, but maybe the bookings? You mentioned you're getting a lot more visibility now. I'm just kind of wondering about your end markets. What's really impressed you and surprised you the upside the most versus three months?

During about your end markets, what's really.

Impressed and surprised to the upside the most versus three months ago. Thank you.

Thanks, Tim I would say I'm pleasantly surprised with the entire year not necessarily Q3 to Q4 I think the level of activity on enterprise has been something we're very proud of at the same time, our preferred partnership status with both cloud Titans and some of the specialty cloud providers as we just the team is just executing very very well.

Speaker 3: Thanks, Jim. I would say I'm pleasantly surprised with the entire year, not necessarily Q3 to Q4. I think the level of activity on enterprise has been something they're very proud of. At the same time, our preferred partnership status with both Cloud Titans and some of the specialty cloud providers, the team is just executing very, very well.

Well.

Speaker 3: and if anything you know well while the rest of the content of both about backlog and orders and order strength

And if anything in a while Arista doesn't tend to boast about backlog and orders and order strength.

Speaker 3: I am most proud of the execution that despite all of those happy capabilities, executing that and translating into revenue is a pleasant surprise from Q3 to Q4.

I am most proud of the execution that despite all of those happy capabilities executing that in translating into revenue as a pleasant surprise from Q3 to Q4.

Speaker 5: Operator, we'll take the next question. Your next question comes from the line of Erin Rakers with Wells Fargo. Your line is now open.

Operator, we'll take the next question.

Next question comes from the line of Aaron Rakers with Wells Fargo. Your line is now open.

Mr Rakers.

Yes, thank you for taking the questions and congrats on the quarter.

Speaker 6: and congrats on the quarter. I'm gonna build off that last.

I'm going to build off that last comment generally on kind of the backlog and as you guys. As you guys contemplated the 30% growth.

Speaker 6: kind of the backlog and, you know, as you guys, as you guys contemplated.

For the full year.

Speaker 6: You know, you've got both backlog buildup and you've got also, you know, either you've got some deferred revenue bill that you've seen over the last couple quarters.

You've got both backlog buildup and you've got also you've got some deferred revenue build but you've seen over the last couple of quarters.

Speaker 6: That 30% revenue growth guidance that you've laid out, do you assume that you carry a similar amount of backlog coming out of the calendar year as well as deferred revenue and product? Or do you expect that 30% to be somewhat driven by, you know, fulfilling against that backlog?

30% revenue growth guidance that you've laid out do you assume that you carry a similar amount of backlog coming out of the calendar year as well as deferred revenue and product or do you expect about 30% to be somewhat driven by.

Fulfilling against that backlog that you've seen.

Speaker 4: Yeah, I don't know that we're going to get into the whole backlog bookings conversation. I mean, it's just so hard for it to be meaningful right now, given the lead times and what's been happening with lead times, etc. I think on the deferred revenue, I would say, look, it's not our intention right now that that deferred balance would feed the 30%. We'll see how that goes as we go to the quarter. But we're not assuming right now that that's coming off the balance sheet.

Yeah, I don't know that we're going to get into the whole backlog bookings conversation.

It's just so hard for it to be meaningful right now given the lead times and what's been happening with lead times et cetera.

On the deferred revenue I would say look.

It's not our intention right now that that deferred balance would feed the 30% and we'll see how that goes as we go through the quarter, but we're not assuming right now that that's coming off the balance sheet.

Yeah, I think that's fair.

Speaker 16: Yeah, I think it's fair, Aaron. I think the broader thing to take away is demand is strong. Execution could be stronger if we had supply chain resolution. Right, right. Thank you, operator. Thank you very much.

And I think the broader thing to take away is demand is strong execution could be stronger if we had supply chain a resolution.

Right right. Thank you operator, and thank you very much.

Thanks Darren.

Thank you.

Question. Please.

Speaker 1: Your next question comes from the line of Alex Henderson with Needham.

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

Speaker 8: Great. Thank you very much. It's a pleasure to get one in.

Great. Thank you very much.

Pleasure to get one of them.

Speaker 8: I'm hoping you could talk to us about the broad.

I'm, hoping you could talk to us about the broad.

I think.

Speaker 8: all of the analysts who follow this category which is that if you look at the orders at extreme

Once all of the analysts to follow this category, which is the.

So if you look at the orders.

Extreme Cisco Juniper.

Speaker 8: And your 25% plus growth in 21 and 30% growth in 22 forecasted.

And your 25%.

Percent plus growth in 'twenty, one and 30% growth in 'twenty two forecasted.

Speaker 8: clearly a substantially higher rate of growth than at any time that this industry's produced.

It's clearly a substantially higher rate of growth.

And at any time that this industry has produced since.

Speaker 8: even probably the tech bubble. And so there's got to be a resolution to this environment, which is a return towards normalized growth, which I think if you exclude the titans is probably in the zero to 5% vicinity. And if you include the titans, it's probably no more than five to 10% vicinity. And which is what gave you rise to guidance of 10 to 15% with some share.

Even probably are the tech bubble and.

So there's got to be a resolution to this environment.

As a return towards normalized growth, which I think is.

If you need the Titans is probably in the zero to 5% vicinity and if you include the Titans is probably no more than 5% to 10% vicinity.

What gave you rise to guidance of 10% to 15% with some share gains how do we resolve this.

Speaker 8: How do we resolve this environment that we're in now with backlogs 30% to 50% at a number of companies?

Environment that we're in now.

With backlogs 30 with 50%.

A number of companies does it does it all rollover into down orders at some point.

Speaker 8: Does it does it all roll over into down orders at some point?

Speaker 2: Obviously, you don't have that backlog problem, but could you help us understand how to resolve 30% to 50% type quarter growth in an industry that's...

Obviously, you don't have that backlog problem, but could you help us understand how does resolved.

30% to 50% type quarter growth in <unk>.

Industry.

5%.

Speaker 3: Yeah, I'll try to answer. I think it's a very thoughtful question, Alex, that will this period of.

Yeah.

I'll try to answer I think it's a very thoughtful question Alex that will this period off.

Speaker 3: uh... you know extreme growth continue forever and the answer is no

You know extreme growth continue forever and the answer is no I'm.

Speaker 3: Nothing continues forever, every party has a beginning and an end. However, for Arista, there's tremendous opportunity. I just want to clarify that independent of the Cloud Titan cap expend, I believe we can enjoy a double digit growth for quite some time to come in the non-Cloud Titan space. I just want to make sure you understand that independent of this extreme enthusiasm and excitement era we're in, Arista has a foundation to keep growing double digits for multiple years to come.

Nothing continues forever I every party has a beginning and an end however for Arista, there's tremendous opportunity I just wanted to clarify that independent of the cloud Titans Capex spend I believe we can enjoy a double digit growth for quite some time to come and the non cloud Titans space. So I just want to make sure you understand that independent of this extreme in.

He hasnt been excitement era, we are in.

Arista has a foundation to keep growing double digits for multiple years to come now.

Speaker 3: Now, I do think we're in a found, you know, because of lead times, there's a frenzy, and people are booking and planning, and visibility is greater for us. And I think this will continue not only in 2021 and 2022, but it'll continue into 2023. We'll probably, and this is just a pure speculation on my part, settle in to a more normal growth thereafter. But even so, we don't wish for that growth to be in single digits. We'll be working hard for that to be much faster.

Now I do think we're in a found because of lead times as a frenzy and people are booking and planning and visibility is greater for us and I think this will continue not only in 2021 and 2022, but will continue into 2023.

Probably and this is just a pure speculation on my part settle in to a more normal growth thereafter, but even so we don't wish for that growth to be in single digits, we'll be working hard for that to be much faster.

Speaker 8: If I could just follow up on it. So do you think that as this occurs, that the orders that some of the other companies that have run these large backlogs start to roll over to reconcile? I mean, this is way above normal.

If I could just follow up on it so do you think that.

As this occurs.

The orders that some of the other companies that I've run these large backlogs start to rollover to reconcile.

I mean, this is way above normal.

Speaker 4: But Alex, it's a compression of time as well, right? Instead of having visibility to a quarter, you've got visibility to a period that's much, much longer. That's why you have to stay focused on deployments. And how is all of this going to get deployed? It's not all going to get deployed at the same rate that it's booking, that's for sure, right? So I think you have to think about it. That's why we keep trying to focus on deployments with customers. And when will stuff actually get deployed? Because the bookings number is more a factor of time and the planning horizon than it is anything else, right?

But Alex it's a compression of time as well right instead of having visibility to a quarter you've got visibility do periods. It's much much much much longer right. So that's why you have to stay focused on deployments and how is how does all of this is going to get deployed and it's not all going to get deployed at the same rate that is booking that's for sure right. So I think you have to think about that's why we keep trying to focus on deployments with custom.

And when when will stuff actually get deployed because the bookings number is more a factor of time and the planning horizon than it is anything else yeah. It's a really good point. Thank you Alex operator, we'll take the next question. Please.

Speaker 5: Yeah, it's a really good point. Thank you, Alex. Operator, we'll take the next question, please. Thanks, Alex. Thank you. Your next question comes from the line of Eric.

Thank you.

Your next question comes from the line of Eric <unk> with JMP Securities. Your line is now open.

Speaker 17: Thanks for taking the question. Two questions. One, in the campus business, can you comment a little bit about how much new logo business you're seeing? Is that doing what you want or how do you feel that's progressing? And then secondly, I think the Microsoft business was 21% in 21, and then I think you said it came down to 15.

Yeah. Thanks for taking my question two questions one.

In the campus business can you comment a little bit about how much new logo business, you're seeing is that doing what you want or or how do you feel that's progressing and then secondly.

I think the Microsoft business was 21% in 'twenty, one and then I think you said it came down to 15.

Speaker 17: The question is, is the overall Titan business holding up, is that the incremental downshift there being spread out across other Titans, or is that being carried more by the enterprise business that you're making up for that?

The question is is.

Is the overall tightened business holding up is that the incremental.

Downshift, there being spread out across other tightens or is that being carried more by the enterprise business that are that you are making up for that.

Speaker 3: Erica, I'm just going to answer the Titan question while I look over the campus data.

Eric I was just going to and so they are taking question, while I look over the campus data.

Speaker 2: Sir, you mentioned right at the start of the year we expected many of these new products

Okay sure.

We have mentioned right at the start of the year, we expected many of these new products new technologies to be deployed second half of the year.

Speaker 2: new technologies to be deployed second half of the year, and especially the 7800, the 7388 was launched November of last year, so they were somewhat back and loaded. Other than that, demand has been healthy and strong, so there's a little bit of timing gaps there, more related to supply of new products and technology, but there's nothing else to worry about within the cloud business. We believe they will be a strong contributor going forward.

And especially those 70 887 created was launched in November of last year. So they were somewhat back end loaded.

Other than that demand has been healthy and strong. So there was there was a little bit of.

<unk> Gupta, all related to supply of new products and technology.

But there's nothing else to worry about within the cloud business. We believe there will be a strong contributor going forward.

Speaker 3: To answer the campus question, I don't have exact numbers, but a good rule of thumb for you to think of is about half our customers came from existing and half came from new prospects. We're getting many, many new logos, obviously, that we're just starting with. Some of them start small and they'll get even bigger this year.

And you're asking a kansas questions.

Does that answer the Capex question.

I don't have exact numbers, but a good.

Rule of thumb for you to think of it about half of our customers came from existing.

And half came from new prospects and we're getting many many new logos obviously.

That we're just starting with so some of them start small and they will get even bigger.

This year.

Thanks, operator, good thank you.

Alright.

Speaker 1: Your next question comes from the line of James Fish with Piper Sandler. Your line is now open. Thanks, and happy Valentine's Day to the entire team here. Thank you, James. I'm convinced you guys like it.

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

Alright.

Happy Valentine's day to the entire team.

Okay.

[laughter].

Im convinced you guys like spending spending Q4 earnings with OSM Valentine's day to avoid your spouses a bit.

[laughter].

Uh huh.

Going back to Alex's question, given your comments around increased visibility for 'twenty, two and actually trace where you pointed out 2023, possibly.

Speaker 6: Given your comments around increased visibility for 22, and actually, Chase, where you pointed out 2023 possibly, can you guys help us kind of quantify how much of the business you actually have visibility?

Can you guys help us kind of quantify how much of the business you actually have visibility into today.

Really just the Titans and how are you thinking about that kind of potential net polen effective demand and orders in the second half of a year or 2023 into what were seeing to a good day.

Speaker 6: net pull-in effect of demand and orders in the second half of the year, or 2023, into

Speaker 3: Well, let me just separate the question you're asking, James. In the Titans, we historically had one or two quarters, and now we're saying we have at least a year. That's a huge factor in our planning. It's also the volume of purchase we have to make, the projects, et cetera. On the Enterprise, we've always enjoyed longer-term visibility. It's always been six to 12 months.

Well, let me just separate the question Youre, asking James and the tightened as we historically had one or two quarters and now we're saying we have at least a year.

That's you know that's a huge factor in our planning. It's also the volume of purchase we have to make the projects et cetera on the enterprise. We've always enjoyed longer term visibility, it's always been six to 12 months.

Speaker 3: So I would say, in general, one year is our visibility right now on projects. Not too much longer than that and not too much less than that. It's just enjoying the benefit of greater visibility on the titans is what's really changed.

I would say in general one year is our visibility right now on projects.

Not too much longer than that and not too much less than that.

It's just enjoying the benefit of greater visibility on the Titans is what's really changed.

Speaker 6: And on the potential for net pull-in of demand here from 2020.

Okay.

Potential for net pulling up demand here from 2023 and the 2022.

Speaker 4: It kind of comes back to the deployments, James, where they're not telling us they're going to deploy it all tomorrow. They're laying out kind of project plans and deployment plans over time, right? So it's not so much that these orders are pull-ins, it's more we're working with them to figure out when stuff needs and can be deployed, right? That's going to be a solution of their orders, obviously, but also the supply and when stuff can be deployed, right? Let's take a campus example. Invariably, it's a new building they're putting in or a new project they have.

And it kind of comes back to the deployments, James where it's they're not telling us they're going to deploy it all tomorrow theyre laying out kind of project plans and deployment plans over time right. So it's not so much that these orders or pull ins. It's more we're working with them to figure out when stuff needs and can be deployed right and that's going to be a solution of their orders, obviously, but also the supply and when.

And when stuff can be deployed right, let's take a campus example, invariably it's a new building there putting in or a new project. They have the project is most likely to be second half 2022 early 2023, but theyre planning now.

Speaker 3: The project is most likely to be second half 2022 or early 2023 but they are planning now.

So that happens all the time.

Speaker 4: That's not new. That's not pull-ins, per se, from a revenue and business perspective, right? They're just giving visibility.

That's not new that's not pull ins per se from a revenue and a business perspective, right there just giving visibility.

Speaker 3: But one thing I would want to reiterate is the planning horizon and the planning time and the think time on this has gotten a lot larger because of the lead time issue.

But one thing I would want to reiterate is the planning horizon and the planning time and I think I'm on this has gotten a lot larger because of the lead time issue.

Speaker 3: They never used to worry about it. They were doing just-in-time planning, and now they have to do one-year planning.

Never used to worry about it they were doing just in time planning and now they have to do on your planning.

Your next question comes from the line of Ben Bolan with Cleveland Research. Your line is now open.

Speaker 1: Your next question comes from the line of Ben Bolin with Cleveland Research. Your line is now open.

Good afternoon, everyone. Thank you for taking the question.

Speaker 12: I had a question for you. I was hoping you could talk a little bit more about the 2.8 billion in your non canceled purchase commitments. Could you share any detail?

Peter I had a question for you I was hoping you could talk a little bit more about the $2 8 billion in your non <unk> purchase commitments.

You share any details on.

How you see that.

Speaker 12: timing of that comes in over time from a component perspective, how you think it might influence the risk of decommits, and could you comment at all about what you think spikes the decommits in January ?

The timing of that comes in over time from a component perspective, how are you.

You think it might influence the risk of Decommit and.

And could you comment at all about what you think.

Right the Decommit in January .

Yes, I mean, the $2 8 billion, there's a big piece of that that's kind of some of our key components that we've we've always buffered and we've extended the period of time that we're bumping for ourselves.

Speaker 4: that's kind of, you know, some of our key components that we've, you know, we've always buffered and we've extended kind of the period of time that we're buffing for. So the

Speaker 4: some of the chips and other things that just are new chips for new products, relatively low excess obsolete risk and difficult to secure and we are making kind of investments there to do that. So there's at least 50% or more is tied up in that and those will come in and we'll hold them and we'll use them when we need to use them. The rest is a class of the components because what we've seen is...

Some of the chips and other things that are.

Our new chips for new products relatively low.

Excess obsolete risk and difficult to secure and we are making kind of investments there to do that so there's at least 50% or more is tied up in Nash right and that those will come in and we will hold them and we will use them when we need to use up the.

The rest of the class of the components because what we've seen is it's not just about the key components anymore right. We have to get ourselves involved in other components broader set of components across the supply chain, because you need 100% of the Bom in order to be able to ship right.

Speaker 4: You know, it's not just about the key components anymore, right? We have to get ourselves involved in, you know, other components, broader set of components across the supply chain, because you need 100% of the bomb in order to be able to ship, right? And that's kind of, you know, you see decommits, the decommits are not what we would have considered key components before, they're just smaller components embedded in the bomb. So we're taking a broader view of that, and that's why you've seen that step up.

That's kind of how you see the commenced the decommit theyre not but we would've considered key components before there they're just smaller components embedded in the bonds. So we're taking a broader view of that and that's why you've seen that step up.

Speaker 4: happen again you know this quarter. In terms of when it gets received I mean the chips and stuff will come in I mean that they will come in and we'll hold them so you'll see a fair amount of that turn in.

It happened again.

This quarter in terms of when it gets received I mean, the chips and stuff will come in I mean that they will come in and we'll hold them. So you'll see a fair amount of that turn in.

Speaker 4: in 2022 because of that, just because it's the components that we're going to hold.

In 2022 because of that just because it's the components and we're going to hold.

Speaker 3: I just want to add, Ben, that what Anshul, John McCool, Susan Hayes, the entire team has done is they've historically had to focus on five or ten strategic vendors. I think that number has gone up 10x to 52%.

I just wanted to add Ben that what onshore John Mccool, Susan and say Hey is the entire team has done is they've historically had to focus on five or 10 strategic vendors I think that number has gone up to an extra 50 to 70.

Speaker 3: So the relationships we now have to maintain, keep, and understand, and appropriately design our products and wait for their timing has gone up by 7 to 10x.

So the relationships, we now have to maintain keep and understand and appropriately design a products and wait for that timing has gone up by seven to 10 X.

Speaker 3: And therefore, we have to make more purchase commitments and plan for them for a longer duration of time.

And therefore, we have to make more purchase commitments and plan for them for a longer duration of time.

Thanks, ladies have a great night.

Thanks Pam.

Speaker 1: Your next question comes from the line of George Notar with Jeffreys. Your line is now open.

Your next question comes from the line of George <unk> with Jefferies. Your line is now open.

Yeah.

Speaker 8: Thanks, guys, very much. I appreciate it. I just want to keep going on the question of purchase commitments. We ran a little exercise where we looked at the combo of your inventory and your purchase commitment.

Hi, Thanks, guys very much I appreciate it.

I just want to keep going on the question of purchase commitments.

Yes, we ran a little exercise, where we looked at the combo of your inventory and your purchase commitments and we tried to compare those to our estimate for your next 12 month hardware cost of goods sold.

Speaker 8: And we try to compare those to our estimate for your next 12-month hardware cost of goods sold.

Speaker 8: And granted, this is from Q3 ending and the numbers are much higher at Q4 end, but we came up with like 281% of your next 12 month hardware cost of goods sold estimated.

And granted this is from Q3, ending and the numbers are much higher in Q4, and but we came up with like 281% of your next 12 months' hardware cost of goods sold you estimated in.

Speaker 8: So, I guess the question in this is, you know, you guys seem to be so far out in terms of magnitude relative to all the other companies in the space in terms of how far ahead you're getting on inventory and purchase commits, like, is this, are we just grossly underestimating how much business you guys are looking at in the next 12 months or, you know, are you anticipating some real adverse changes in the supply chain, like, what's your perspective on that?

So I guess the question and this is you guys seem to be so far out in terms of magnitude relative to all the other companies in this space in terms of how far ahead youre getting on inventory and purchase commitments like is this or are we just grossly underestimating how much business you guys are looking at in the next two.

<unk> months or.

Are you anticipating some real adverse changes in the supply chain like what's your perspective on that.

Speaker 4: Yeah, Georgia, I think it comes back to, you know, thinking about the components again and where the kind of, you know, where the value of the bomb is and the commitments we're willing to make around some of those key components.

Yes, George I think it comes back to thinking about the components again, and where are the kind of where the value of the Bom is and the commitments we're willing to make around some of those key components and so they're not necessarily going to be consumed in this coming year, but we are willing to kind of take control of those components by making those commitments.

Speaker 4: So, they're not necessarily going to be consumed in this coming year, but we are willing to kind of take control of those components by making those commitments. And again, it's...

Speaker 4: You know, it's early life products and early life silicon. And, you know, we believe that that's a relatively safe bet. And it's the cost of capital, really, that we're tying up. So I think that's what you're seeing. It's not that everything that we've got purchased commitments out for now will be.

Its early life products in early life Silicon and we believe that that's a relatively safe bet and it says it's the cost of capital and really.

That were tying up so I think that's what you're seeing it's not that everything that we've got purchase commitment that for now will be.

Speaker 4: you know, will be consumed, shipped, and

It will be consumed shift in revenue and in 2022.

Got it.

One last question.

Speaker 1: Your final question today comes from the line of David Vogt with UBS.

Your final question today comes from the line of David vote with UBS.

Your line is now a great thing.

Speaker 15: Thanks for squeezing me in, guys. Notwithstanding some recent operational issues at Meta, just want to kind of get your thoughts on how sort of double-digit data center expansion, both at Microsoft and Facebook this year, plays into your sort of revenue, visibility, the balance of this year, and then how that plays into 2023. You know, obviously there's some delays in terms of qualification and when revenue would be in the books in 2022 from last year, but just trying to get a sense for how we should think about that in 22 and 23, given their aggressive pace of investment.

Thanks for squeezing me in guys.

Notwithstanding some recent operational issues that matter just wanted to kind of get your thoughts on how sort of double digit datacenter expansion, both at Microsoft and Facebook. This year. Please into your sort of revenue visibility the balance of this year and then how that plays into 2023, obviously there were some delays in terms of qualification and when revenue would be in the books.

In 2022 from last year, but just trying to get a sense for how we should think about that in 'twenty, two and 'twenty three given their aggressive pace of investment.

Sure.

Speaker 2: David, as Jesh and Aida have mentioned, we took a lot of time at the analyst day and today to go over our 30% growth plan.

David.

Peter mentioned.

Took a lot of time at the analyst day and today to go over 30% growth plans.

Speaker 2: and both of these customers are very significant parts of our business.

And both of these customers very significant parts of our business.

Speaker 2: One is already greater than a 10% customer. The other one will likely get there soon.

One is already greater than a 10% customer or the other one would likely get there. Soon so we have taken this trend into our models and into our guidance already.

Speaker 2: So we have taken their strength into our models and into our guidance already.

Speaker 2: We believe the demand is healthy. As you mentioned, they are investing very well across the entire world in new build-outs and data centers with new technology. And we are clearly the preferred partner they've had and they continue to have in networking.

We believe the demand is healthy there as you've mentioned theyre investing waiver.

The entire world of new build outs in data centers with new technology.

We are clearly the preferred partner they've had in the company to have a net booking.

Speaker 2: So we'll benefit with that as well. So to some extent, this makes up for the lack of growth in 2019 or 2020, now with this new cycle, and we'll enjoy.

We'll benefit from that as well.

It makes them this makes up for the lack of growth in 2019, our 2020 now with this new cycle.

We'll enjoy that growth with them.

Speaker 15: Andres, just as a quick follow-up, what percentage of that do you think spills into 2023 if, you know, if let's say Microsoft is delayed in terms of or back-end weighted in terms of building out 400 gig in their data set?

I'll just ask a quick follow up what percentage of that do you think spills into 2023, if Mike if let's say Microsoft is delayed in terms of.

Or backend weighted in terms of building out 400 gig in their data centers this year.

Speaker 2: It's very hard to model all the volatility we have with supply. I think right now, demand is strong, so it's really tied to supply of products, and these customers have enough other ways they can figure out how to deploy technology if we give them enough heads up, so that's less of a concern right now.

Alright, Tony hard to model all the volatility we have with supply.

[laughter].

Right now demand is strong so it's really tied to supply of products.

Do customers have enough other ways. They can figure out how to deploy technology. The if we give them enough heads up so that is lesser of a concern right now.

Speaker 5: Great. Thanks Anshul and thanks David. This concludes Arista Network's fourth quarter 2021 earnings call. We have posted a supplemental presentation which provides additional information on our results and you can access that on the investor section of our website. Again, thank you all for joining us today and thank you for your interest in Arista.

Thanks, David.

Includes.

Fourth quarter 2021 earnings call.

We have posted a supplemental presentation, which provides additional information on our results and you can access that on the Investor section of our website again. Thank you all for joining us today and thank you for your interest in <unk>.

Speaker 1: Thank you for joining, ladies and gentlemen. This concludes today's call. You may now dis-

Thank you for joining ladies and gentlemen. This concludes today's call you may now disconnect.

Speaker 18: Please wait. The conference will begin shortly. Please stand by. Please stand by.

Please wait the conference will begin shortly.

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Yeah.

Yes.

Okay.

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