Arista Networks Inc at JPMorgan Global Technology, Media & Communications Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : I'm starting all my sessions with sort of 3 broad level questions that -- it's almost mandatory that you answer. So the first one, and I'm sure you've got this question multiple times today, looking at the demand trends, customer demand trends on your side of the business, how you're thinking about the likelihood of a potential recession here in the near term?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Let me just follow-up on that because I'm sure given Cisco's earnings print last week, there are a lot of concerns about or a lot of investors would want you to confirm what you're seeing with the large enterprises in terms of order trends. And is there anything to be concerned there or any slowdown there that you're seeing in the recent weeks in terms of the -- just the large enterprise vertical? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 24, 2022 / 8:10PM, ANET.N - Arista Networks Inc at JPMorgan Global Technology, Media & Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. So moving to supply. One of the questions we're asking everyone as well as supply was already constrained, how much worse is the China lockdown, making it, right? And I think, again, just to sort of add the second question here, Cisco had a big supply issue with what seems to be power supplies being sourced out of China. Do you have any exposure even of low-value components of -- in the region?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Yes. Any predictions around when does supply normalize eventually?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Okay. So thanks for answering those. I'll move to the more company-specific questions here. And before I do, I see some questions coming in already. But for anyone on the webcast, just a reminder, you can send in your question I'll open it to the audience as well in a few minutes. So firstly, what I wanted to touch on, Ita, here is you've guided top line growth to return to a more normalized run rate of about mid-teens starting next year. Can you just break that down for us a bit more in terms of how to think about the drivers? How do you really get to that 15% mid-teens sort of number between the -- maybe break it down by the customer verticals or what your expectations are there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 24, 2022 / 8:10PM, ANET.N - Arista Networks Inc at JPMorgan Global Technology, Media & Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Ita, so if I follow-up on that, I understand you didn't issue a 2023 guide. It was a 3-year sort of view on what the company does on the top line. But even that 3-year view, are you able to break down that mid-teens into sort of how you think about the components?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Great. I guess this is more of a 2023 question for you, but maybe a bit -- any color that you can provide in terms of how we should think about pent-up demand or backlog going into 2023? And your visibility in terms of at least getting some supply improvement to digest that backlog in 2023?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. I just wanted to focus a bit more on the cloud vertical to start with. Historically, this vertical has been lumpy or inconsistent in terms of the spending pattern or the investment piece here. And do you see that changing in the future related to how they've sort of managed their spend in the past? I mean, one concern that we hear from investors very often is what gives us confidence that they can continue to spend at this pace or even continue to spend every sort of year on an ongoing basis. So what gives you that confidence as you sort of lay out the medium-term plan that this spend is a bit more sort of predictable rather than lumpy and inconsistent?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : You're clearly sort of very relevant to the upgrade cycle for your cloud customers. I mean, you're thinking of more than 30% growth with cloud this year. At the same time, there has been a lot of discussion around share loss to competitors like Cisco. There was an announcement related to Nokia more recently with one of your competitors. I think what we're seeing is investors increasingly sort of evaluating where the competitive landscape is, is there more sort of shared loss that sort of -- even if it's not material or new competitors coming into the space that we haven't seen in the past, that starts to become more of a trend going forward with your cloud customers who you've been really successful with, right? So how do you -- how do we think about sort of you being able to maintain share with the cloud customers related to sort of the noise we've seen around a few more sort of suppliers coming in into that competitive landscape? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 24, 2022 / 8:10PM, ANET.N - Arista Networks Inc at JPMorgan Global Technology, Media & Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. I know Anshul has talked about it in the past in terms of as you even see new competitors come in with your cloud customers, there's been sort of new use cases that Arista has been able to pursue to sort of balance out that share that you see as your fair share. Can you just dive into what are those incremental use cases that you're able to find consistently to balance out the share even as new competitors come in?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. One of the questions that I get on this front. If I step away from the market share discussion as well, is you had a big differentiation relative to your competitors in 100-gig, which helped in your success as well. As we go into 200-gig, 400-gig, the discussion of more competitors coming in with -- and getting share with your customers, does that -- what does that sort of imply in terms of differentiation of the product for Arista relative to your competitors? Is that technology differentiation somewhat compressing as we go to next-generation products? Like, that sort of more noise with more competitors coming in is leading to a lot of questions around how does the differentiation now compare versus 100-gig that you had?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Just to -- and you mentioned white box, just to round up the discussion there on the competitors, the narrative around risk from white box adoption has subsided quite a bit in the recent years, I mean, from what I can tell in my investor conversations. How are you looking at sort of white box share today with your cloud customers? And are you seeing sort of more of a stabilization? Or are you thinking increasingly about a reversal of share towards branded?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Let me take this question. Let's come in. And again, as a reminder, we'll just open it up to the audience in a few minutes if you have a question. So I'll break this question now, Ita, in probably a couple of parts just because it's a long one. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 24, 2022 / 8:10PM, ANET.N - Arista Networks Inc at JPMorgan Global Technology, Media & Communications Conference So Liz, I'm wondering if you can elaborate on the enterprise campus go-to-market strategy. I think most potential campus opportunities are from the current Arista users in data centers. How do you identify the issues that can get fixed best by Arista's Cognitive Campus products? And let's take that and then we can probably move to the next few ones too.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Let me just finish off with the last part of this question which hasn't been covered yet in your sort of response. How big is the international enterprise campus opportunity for you relative to the U.S.? Like, how do you think about where the low-hanging fruit is or where the first approach is versus how do you think about the international opportunity there?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Got it. Let me open it up here for the audience. Just wait for the mic. Thank you. Unidentified Participant Could you talk to supply chain, there's been weakness in consumer lately and that may alleviate some substrates? Are you guys seeing anything improving along the supply chain dynamic? And also because you guys have a contract manufacturer here in the U.S. so I don't know if that helps with the supply...

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Yes. Any other questions? Okay. Ita, I wanted to move to pricing, and you talked about pricing a bit on the earnings call and you've tried to sort of take pricing actions a bit less frequently than some of your competitors, in the number of times that they've raised prices. I mean, how are you sort of seeing -- How are you seeing customers respond to your pricing actions? And is sort of your approach to pricing sort of helping you gain any share in the marketplace?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. And have you seen any pushback on pricing from your customers? I mean, I would imagine, if at all, that would be more cloud. But like what are you seeing in terms of customers responding? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 24, 2022 / 8:10PM, ANET.N - Arista Networks Inc at JPMorgan Global Technology, Media & Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Last couple of questions. One, you did guide down gross margins in the near term on account of expecting more open market purchases for components that you have to make. I mean, as an investor, how would you think of -- sort of how should investors think about balancing growth in the year versus profitability? And I mean I would think that if you were not to make those open market purchases, that basically goes into your backlog for next year, not shipping to the customer. So how are you thinking about sort of striking that balance between growth and profitability?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Last one that I'll squeeze in. You have a strong balance sheet, good demand visibility with your backlog how are you thinking about sort of using the current market conditions to be more opportunistic with your buyback? Like, would you be sort of open to it or how you think about capital allocation?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Great. We've run out of time, but thank you both for coming to the conference. Thank you, everyone, in the audience as well. Thank you.