Arista Networks Inc at JPMorgan Global Technology, Media and Communications Conference (Virtual) Transcript

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

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : I wanted to just kick it off here, and I know the audience probably will have questions as we go along, but just getting to the biggest change that we've noted on the last earnings call in relation to your commentary, you sounded a lot more upbeat about cloud provider spending. That's driven a lot of questions, obviously. Just to then kind of dig into that a bit, how should we think about that improved outlook in terms of visibility into some of the upgrades, 200-gig, 400-gig that you talked about related to some of the more standard capacity expansion, more data centers coming online, which is more of the usual kind of CapEx trajectory. So if you can help us break that down. And again, thanks for taking the time to do this.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Before I move further, and Anshul, thanks for that, that sets the backdrop quite well, investors do -- investors who logged in or dialed in do have the question, if you think of asking a question, (Operator Instructions), and I can ask it on your behalf as they come in. 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 25, 2021 / 3:45PM, ANET.N - Arista Networks Inc at JPMorgan Global Technology, Media and Communications Conference (Virtual) Anshul, just moving to the other topic that has been, and I know you've answered probably numerous questions on this, is market share through the upgrade cycle with cloud titan customers. That's been kind of the key discussion point here for the last 6 months or 12 months almost. Now you talked about the execution. It's giving you higher visibility. So what are you seeing in terms of visibility related to your market share with the cloud titan customers, as you call them, I think?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Again, as I move forward, if you have any questions, anyone in the audience, please send them in. Anshul, so you mentioned new competitions always being there. Some are making more noise around this cycle. I think, largely, when we talk to investors, there is a broad expectation that Cisco will gain some share in the upcoming 200-gig, 400-gig cycle because of offering silicon diversity to cloud customers. So how important of a driver do you think that is? I know Broadcom is largely aligned with offering -- Arista is largely aligned with offering Broadcom chips. So do you need to have a similar strategy of where you offer silicon diversity as well, if this is going to be a material driver for Cisco to gain share?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Let me follow-up on one of the comments you made recently about one particular hyperscaler moving back from white box to branded equipment in -- potentially in the future. I know you've kind of, in terms of timing, sized that up as something that will take multiple years to come through if that does come through. But if you can share your insights on what are some of the challenges that these hyperscalers are still facing with using white box on a consistent basis? And what could be the drivers that essentially get them to evaluate branded equipment, again related to white box. 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 25, 2021 / 3:45PM, ANET.N - Arista Networks Inc at JPMorgan Global Technology, Media and Communications Conference (Virtual)

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Got it. No, that's helpful. Just following up on that. You mentioned the complexity of the layer really driving where -- which layers they decide to kind of move back from white box to branded. So obviously, the implication of that is, you're thinking of like the DCI and the spine being the more immediate kind of opportunities or the bigger target opportunities relative to top of rack or leaf. I just want to confirm that when you start that -- see that change happening, it will be from the upward layers down more and move down into the data center further.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : In terms of just finish off the conversation here related to kind of cloud hypers -- cloud companies, not just the titans, but including the smaller cloud providers here just outside of the upgrades to 200-gig, 400-gig, how much of a runway does 100-gig have? Who are the primary customers that you can still aim to gain share with when it comes to 100 gig, particularly if you look at the cloud vertical in itself.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Before I move to the enterprise topic, let me again remind investors that if you want to send in a question, just use the Ask A Question button there. Anshul, actually, before I move to enterprise as a topic, let me ask you 2 more near-term questions, which I know have been top of mind here. Particularly, the first one being supply chain constraints, and obviously, you did elaborate on it on the earnings call as well. But since then, I think it's an increase in terms of the conversation just given Cisco reported more recently and talked about some of the challenges as well as some of the higher pricing that they're seeing from their own suppliers. So just want to get a quick check there as have things kind of worsened from the time we spoke on the earnings call? Have things gotten better? What are you really seeing the constraints on in terms of your product portfolio?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : I know you talked about -- on the earnings call, you didn't give an updated revenue guide just on account of the supply chain constraints limiting some of the visibility there. But is it primarily impact to revenue and visibility in terms of meeting the demand that you're seeing? Or is there a component of this, which is on the margin as well or headwinds to margins as well, where suppliers are raising prices on you, and you'll have to find a way to either pass it through or that impacts your margins?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : No, no, that's helpful. Anshul, I do want to ask you one more on kind of separate outside of the revenue drivers here, particularly given the amount of kind of pushback or concern we see on this front from investors, which is around the operating leverage. What we've seen is you've grown revenue roughly 20% year-on-year in 1Q and 2Q, the operating margin although has been very similar to last year. And I realize you're holding to your target model of 37% operating margin. But given that we've not seen much margin expansion, despite the strong revenue uptake, it obviously has raised some questions from investors about the operating leverage. So just wanted to see how you're thinking about operating leverage in the model as well as like when you think longer term, are operating expenses really going to grow in line with revenue because that would be very different from how generally companies operate.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : No, that's fair. So let's talk a bit about the enterprise opportunity here. And again, before I do, investors, if you have any questions, please send them through. So Anshul, just like as you expanded the enterprise portfolio, obviously, you started with the data center, now you have a campus portfolio. When we think longer term, it does raise the question, do you really aspire to be like a full-fledged solution provider like Cisco, for example, who you already compete with in a lot of fronts? Or is the thinking here that you pick and choose which parts of the network do you want to be in, where you want to be best-of-breed and largely remain kind of a solution provider with only certain pieces of the network that you can provide solutions to, but don't become a full-fledged solution provider. So I just want to get your thoughts around the longer-term kind of how you're thinking about positioning with enterprise customers?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : I still don't see any questions, and I'm surprised nobody wants to ask any more on the cloud market share. So I guess there is not as much of a debate anymore, which -- compared to a few months ago. But let's keep one more on the enterprise side, Anshul. I think you've expanded -- you rolled out the Campus portfolio there. You acquired Mojo. You acquired Awake. But in terms of the sales motion and where you're seeing really 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 25, 2021 / 3:45PM, ANET.N - Arista Networks Inc at JPMorgan Global Technology, Media and Communications Conference (Virtual) customers, like what gets you in with a new customer? Is that still largely the data center capabilities, and then it pulls through some of the rest of the portfolio? Or are you seeing new customers come in just on account of some of the Campus solutions and not necessarily just because you already have a position with them on the data center.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : All right. So Anshul, I did get questions over e-mail to ask you. So I guess, somebody is saying the Ask A Question button might not be easily visible. So let me take -- there are like 5 questions in here, but let me take a couple of them because you've addressed some of them already. So one of the

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Got it. Got it. The next question in that e-mail. So what are the unit economics of 400-gig switches versus 100-gig? Are 400-gig switches at a higher price? That's the first part. And I'll ask you the second part of that, which is more on margin, but let's go through the first part.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Given the price economics that you outlined, I think the second part of the question is largely around that, that as you sell more 400-gig, is it accretive to gross margin?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Let me -- I think we have like a minute here. So let me finish up with a couple of competitive questions here, competitive landscape questions here. One, I know you've talked about the enterprise market. So going back to the enterprise market here, you talked about it, but I mean essentially the way the landscape looks like today is everyone is trying to invest in the enterprise landscape and take share from Cisco, which is the incumbent. And there, the narrative definitely has picked up with like Juniper becoming aggressive, HP becoming impressive. And so any thoughts around that? It does seem like a bit more -- a bit tougher and maybe it requires more investment. The second part of that question, how does CloudVision now compare to some solutions like Apstra, which were acquired by Juniper because there seems to be much more of a multi-vendor alignment in terms of the solution that they are trying to provide to enterprise customers. 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 25, 2021 / 3:45PM, ANET.N - Arista Networks Inc at JPMorgan Global Technology, Media and Communications Conference (Virtual)

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Anshul, that's all we have time for, but thanks for this time. This was very helpful, very insightful. So thank you, again, and thanks for participating in the conference. 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 25, 2021 / 3:45PM, ANET.N - Arista Networks Inc at JPMorgan Global Technology, Media and Communications Conference (Virtual)