In its first earnings report since the International Trade Commission (ITC) banned Arista Networks from importing some products that infringe on Cisco patents, the company’s executives were optimistic and somewhat feisty.
During its second quarter earnings call today for the period ended June 30, 2016, Arista’s CFO Ita Brennan talked about accumulating more inventory in the United States as a hedge while it awaits customs approvals in the aftermath of the ITC’s rulings.
“We are growing the inventory significantly and will continue to do that in Q3,” Brennan said. “It’s an ongoing process. We’re going to navigate through this. I think about it being temporary, but somewhat volatile in the next few quarters. We will be leveraging our U.S. manufacturing and levels we’ve built up.”
Arista began the process of setting up a U.S.-based manufacturing facility earlier this year, anticipating a potential ban on importing of patent-infringing products.
Brennan said Arista expects to grow U.S. inventories by another $100 million by the end of Q3. “We’ve put a lot of thought into multiple strategies in terms of the outcome [of the Cisco litigation],” said Brennan. “It’s hard to speculate, but we’ve been very cognizant to the various outcomes.”
Arista’s CEO Jayshree Ullal said, “The ITC found us to infringe two features out of thousands of features we have. We’ve really designed the ultimate product. We can build non-infringed product worldwide.”
Ullal was also bullish on Arista’s recently announced universal spine and leaf switches. “The standalone router market is migrating to switching and routing,” she said. “Our primary market is data center switching. We’re approaching our first $1 billion run rate. But the core router in the data center is really lacking.”
With its universal spine switch, Arista is taking aim at the market share of traditional routing vendors.
The company published a chart today in conjunction with its earnings, showing Arista compared to Cisco in terms of data center switching market share.
By the Numbers
For its Q2 2016, Arista reported revenue of $268.7 million, an increase of 11 percent compared to the first quarter of 2016, and an increase of 37.4 percent from the second quarter of 2015.
GAAP net income of $38.9 million, or 53 cents per diluted share, compared to GAAP net income of $24 million, or 33 cents per diluted share, in the second quarter of 2015.
“Arista reported a solid top and bottom line beat,” writes Goldman Sachs analyst Simona Jankowski in a research note today. “Guidance was also better, with 3Q revenues expected in the range of $279-285 million versus consensus at $280 million.”
