Defying a recent report predicting a slowdown in cloud spending, Arista Networks said Thursday that spending by cloud titans will lead the company to a strong fourth quarter.
The news came Thursday as Arista reported third-quarter results exceeding Wall Street’s expectations. It’s a sign that Arista’s strong year so far should continue into 2016, with the exception of the first quarter, which tends to be weak for all equipment providers.
Goldman Sachs analyst Simona Jankowski had downgraded Arista to “Sell” early this week, noting that third-quarter capex reported by the cloud giants (Amazon Web Services, Apple, eBay, Google, Microsoft, and Yahoo) was noticeably weak.
But Arista — which claimed Microsoft Azure as its largest customer in previous years — is seeing a burst of activity out of that sector. “We think we will see some lumpiness in the direction of more cloud-titan spending in the next few quarters,” CEO Jayshree Ullal said on the call.
Arista’s gear is used by six of the top seven cloud players. Not all of them buy from Arista every quarter, but demand from the group overall “has been very high and has grown unabated,” said Ullal.
The cloud titan business comes at the cost of margins. In the fourth quarter, non-GAAP gross margins will probably be “at the lower end of our typical 63 percent to 65 percent range,” CFO Ida Brennan said on the call. Arista’s official forecast is for non-GAAP gross margins of 62 to 65 percent.
On the top line, though, Arista continues to grow and has a milestone in sight. “We are poised to accomplish a $1 billion run rate next year,” a year earlier than the company had expected, according to Ullal.
For its third quarter, which ended Sept. 30, Arista reported revenues of $217.5 million and net income of $28.7 million, or 39 cents per share.
For the same quarter a year ago, Arista reported revenues of $155 million and net income of $21.9 million, or 30 cents per share.
Non-GAAP net income of 59 cents per share beat out the 53 cents analysts were expecting, according to Thomson Financial.
Arista shares were up roughly 3.5 percent in after-hours trading.