Analysts had been disappointed that Arista Networks’ second-quarter forecast didn’t exceed $191 million. They might have been appeased today, as Arista’s actual second-quarter revenues topped $195 million.
That represents 9 percent growth over the previous quarter and 41 percent over the second quarter a year ago.
Nothing has really changed in the Arista formula. While the company has been making inroads into service-provider networks and is trying to court more business from hyperscale cloud providers, its primary markets remain financial institutions and the enterprise. That formula seems to be working just fine.
Still, Arista does want to be a factor in service provider networks and has been talking to Tier 2 and “small Tier 1” providers, CEO Jayshree Ullal said on Thursday’s earnings call.
With these new markets, Arista is “going for footprint and market share,” potentially at the expense of gross margins, Ullal said. Arista has long said its gross margins are likely to level out to the industry average of 60 to 65 percent. Gross margins were 67 percent last year and have already dropped to 65 percent, she noted.
That will be particularly true if Arista can get more ensconced with the “cloud titans,” she added. Arista already gets substantial business from Microsoft and is selling to “six of the seven” cloud titans — but the company is hoping to sell a lot more into this sector, and the huge volumes of those sales would come at lower margins.
Another iron in the fire for Arista is its converged-infrastructure partnership with HP, announced at HP Discover in June. In that market, HP is assembling compute, storage, and networking pieces in a fashion similar to what VCE does. Arista considers that an exciting market, and “we could not have played in it without a big partner like HP,” Ullal said.
The partnership is only weeks old, with “single-digit customers wins” so far. “It’s a good start, but a long ways to go,” Ullal said.
Ullal also dismissed the idea of a threat from white box switching, even in the hyperscale cloud networks. She said Arista has only encountered white box as a serious competitor in “single-digit customers out of 3,390” total, noting that “it tends to be large experiments and labs” rather than production deployments.
For its second quarter, which ended June 30, Arista Networks reported revenues of $195.6 million and net income of $24 million, or 33 cents per share.
For the same quarter a year ago, Arista reported revenues of $137.9 million and net income of $21.6 million, or 34 cents per share.
Non-GAAP net income of 54 cents per share surpassed the analyst estimate of 46 cents, as reported by Thomson Financial.
Arista is forecasting third-quarter revenues of $208 million to $212 million.
Separately, Arista plans to spend $15 million in legal expenses this quarter — a “peak” point, new CFO Ita Brennan said, as the two patent suits brought by Cisco are going into hearings in September and November. Decisions from the hearings aren’t expected for nearly a year after each hearing.