Arista Networks posted record results for its latest operating quarter despite ongoing supply chain issues, and further the vendor said it expects results to remain strong into 2023. One item clouding this robust outlook was a strong increase in supplier decommits tied to those supply chain issues.

For the first quarter, Arista reported $877 million in revenues, which was a 31% increase compared to the previous year, and above the high-end of guidance. CFO Ita Brennan explained during the vendor’s earnings call that enterprise sales and “cloud titan customers” were a noted contributor to those results.

“We are pleased with the continued growth of our enterprise business in the first quarter, combined with robust next-generation product qualification and deployment activity with our cloud customers,” Brennan said, according to transcripts.

Net income surged an even more robust 50% year over year to $272.3 million for the quarter. However, Brennan did point to continued supply chain challenges, particularly in terms of silicon, as suppressing potential sales and elevating costs.

Dell’Oro Group noted in a recent report that Arista exited last year with strong market momentum. Sameh Boujelbene, senior research director at Dell’Oro Group noted earlier this year that as cloud service providers recovered earlier during the pandemic and grew faster than the rest of the market, “Arista is executing very well” in this segment.

Beyond cloud providers, Arista also penetrated an increasing number of large enterprise customers. Plus, “it appears that Arista had a head start in terms of planning for component shortages and building a healthy inventory level, which seemed to have helped them especially in the first half of 2021,” she explained.

Despite the strong start, Arista’s management provided mixed signals on the rest of the year.

CEO Jayshree Ullal came out firing by stating that the vendor expects the next 12 months to remain strong. Ullal noted that “visibility continues to be very strong for 2023, but I would also add that, in particular, the cloud titans and some enterprises are starting to plan for 2023. They have to start thinking about it now that we’re in Q2 here. So all this is to suggest that the demand is strong for this year.”

“Things could always change, orders could always be moved around,” Ullal added, “but in all my career across Cisco and perhaps even others I have never seen demand be so clearly purposed and strong.”

COO Anshul Sadana added that while supply chain challenges remain in place, Arista’s customers are beginning to take that into account.

“They very well understand it,” Sadana said. “Many of these cloud companies build their own compute and storage as well. So they're planning along with their own teams for 2023 right now. And their businesses are good, which means the underlying demand is strong.”

To reinforce that point, Arista boasted of an increase in purchase commits from $2.8 billion during the fourth quarter of last year to $4.3 billion in commits by the end of Q1 this year.

“The significant increase in commitments largely represents orders for 2023 and beyond, reflecting overall strength and demand for those periods and our expectation that this long lead time supply environment continues,” Brennan added.

Ullal also noted that “vendor decommits for certain components increased sharply in March 2022, with no clear relief in sight in the near term.”

Brennan added that this led to higher purchase costs and expedited fees during the quarter. This was tied to Arista’s suppliers either increasing costs for certain components at the last minute to ensure it could hit customer contracts.

“While we've added manufacturing capacity and component supply in response to this demand, supplier decommits make forecasting accelerated shipment momentum difficult,” Brennan said. “These decommits also have a negative impact on gross margin as we must turn to other sources to try to backfill decommitted components in the quarter.”

This uncertainty remained on the mind of investors as Arista’s stock sagged following the earnings release, but managed to regain most of that loss the following day.