Arista Networks Inc at JPMorgan Technology, Media and Communications Conference Transcript

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

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : Maybe if I can just start off you did report results recently, I think one question that we have been starting off with all our coverage company's is just to kind of set the background in terms of we've heard about supply chain constraints starting -- stemming some COVID. Just a background in terms of how was it in 1Q? What's the road forward in terms of supply chain headwinds? And we can take it from there.

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : All right. Any visibility on when we get back to a normal level, completely normal level on the supply chain side?

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : Okay. Before I move on, I saw a lot of people dialed in kind of after we started just given the tight changeovers between sessions. So let me remind investors on the line that you do have the option of sending in questions through the Q&A feature, and I will ask it on your behalf as you send them in. So let me move forward Ita on that same line of thought. I think one thing that you mentioned in the last earnings call is your revenue outlook with the cloud titans have improved modestly. Not a significant change, but there's kind of that incremental positive view on that revenue outlook. Maybe help us understand kind of how sustainable you think that is? What's driving that? Just so that we can -- I think there was a general expectation that cloud is -- the cloud guys are pulling in a lot of equipment. So just help us understand what you're seeing from them at this point?

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : All right. In general, what we've seen is led by the higher cloud usage that we've seen, I mean, we all are using video conference calls, et cetera. There has been some parts of the supply chain that have shown administrator kind of a pull-in from the cloud companies like Sovos et cetera. Any thoughts as to why networking equipment is in kind of following as closely as some of the other parts of the data center? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 13, 2020 / 6:40PM, ANET - Arista Networks Inc at JPMorgan Technology, Media and Communications Conference

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : Got it. Maybe looking a bit more longer term, did have very strong growth years when we look at 2017, 2018. Some of the moderation in that growth does suggest that cloud companies have been extending or pushing out the refresh cycle for networking equipment and typically probably kind of sweating the networking equipment assets a lot more than they used to. But again, correct me if I'm wrong there. I think the question would be kind of what have you seen on that front? Is there something which is kind of waiting for a upgrade cycle to really move into the next year? Or is this more something structural where the cloud companies have decided that that networking equipment will be on a cycle than in the past?

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : No, sure. Definitely appreciate that. Let me move to kind of specific to more the 400-gig upgrade cycle that everybody is very focused on. I think there's one line of thinking that we've been getting from some of the companies we're talking to, which is this COVID disruption can push out some of the timing from the cloud providers in terms of that upgrade whereas the other line of thought, at least from investors is why can't -- if there's a bandwidth concern or a capacity concern, why can't the 400-gig upgrade, be kind of pulled forward in that sense. Maybe what are you seeing in terms of your conversations with customers? We've generally heard that your peers are sampling with some of your kind of customers as well. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 13, 2020 / 6:40PM, ANET - Arista Networks Inc at JPMorgan Technology, Media and Communications Conference So what are you hearing from them in terms of timing? Is there any disruption here in kind of the process itself just because of the COVID-led kind of the problems that we have at this point?

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : Got it. I mean, usually, we would take some of the audience questions towards the end. But as I'm reading through, and it's kind of quite relevant to the 400-gig topic. So let me just take it right now, which is the question reads, how is Arista thinking about the size of the 400-gig upgrade cycle? Curious how they're analyzing the TAM opportunity? What are the inputs underlying those estimates? Yes. That's kind of the question. And anything in terms of how do -- I guess, how to quantify the TAM is going to be primary question?

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : Okay. When we think about the 400-gig upgrade cycle, you mentioned the initial opportunities will be in the DCI layer, primarily starting from a 400-gig. If I understand -- kind of based on the -- what the industry analysts have, it does look like Arista has a much bigger share when it comes to the spine and the layers within the data center and as you get closer to DCI or when it's typically been kind of the other vendors like Juniper who might have more share there. So when you're thinking about kind of the early share opportunities in 400-gig, do you see necessarily kind of without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 13, 2020 / 6:40PM, ANET - Arista Networks Inc at JPMorgan Technology, Media and Communications Conference being more challenging than the early 100-gig adoption in terms of gaining share? Or are you seeing this as a kind of a similar ramp in terms of market share for Arista as you had seen with 100-gig?

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : Moving to white box, I mean, definitely, we're discussing white box less than we used to 2 years ago because their momentum appears to have slowed even with some of these Tier 1 hyperscalers. But one question that we kind of keep getting from investors is, what prevents companies like Facebook, Microsoft that are still leveraging a lot of the branded vendors in the future following down the same path that Google and Amazon have gone? We understand that white box momentum has slowed in the layers that they're kind of looking to displace branded vendors. But longer term, is there necessarily a different path for Facebook and Microsoft than like Google and Amazon?

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : Let me go ahead and take the second question that came in just because, again, this ties into the white box theme and is more centered on the U.S. software and the value-add for Arista through the U.S. software. The question reads, one of the themes this year at OCP is disaggregation of everything not just hardware from software, but even splitting traditional monolithic NOS into smaller components. If this trend continues, where does Arista view its continued source of value-add to the cloud titans?

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : Got it. So let me move to the enterprise side of the business. And thanks for bearing with me for all these questions on the cloud business. One of the most interesting things that kind of as you announce your move into campus was the expansion of that addressable opportunity that you have, which now gives you much more opportunities for growth than you had just within the cloud data centers. So can you help us kind of just size of that opportunity, you steadily rolled out more products targeted at the campus. So how do you think about kind of the increase in that addressable TAM that you've been going after?

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : Got it. Let me just remind investors that you have any -- if you have any questions, you can send them through the Q&A feature. Just keeping on the enterprise business, Ita, for a bit more. In terms of -- as we now kind of are in a environment that is very uncertain, not a lot of enterprises know which way it's headed or how strong the recovery will be, there is a general expectation of a moderation in spending from the enterprises. But at the same time, I think most of your exposure was to kind of these financial services firms where, I think, the expectation for weakness is much more modest than kind of the broader market. So just help us think about what you've seen till date in terms of weakness from -- or any order trends from your enterprise customers that might indicate whether it's kind of more resilient than you would have expected? Or is it more in line? Just help us think through that? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 13, 2020 / 6:40PM, ANET - Arista Networks Inc at JPMorgan Technology, Media and Communications Conference

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : Let me clarify on that front. One comment that you had on the earnings call recently because you kind of positioned the business to run or operate at 2018 levels. How much of that is a reflection of kind of the OpEx commentary in terms of running the business in terms of operating expenses at the 2018 level? And how much of that is to understand that based on your current visibility, if that's kind of the revenue, where you're thinking about positioning yourself in terms of the revenue outlook?

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : Got it. And just to kind of then as we start to wrap up here, the last question would be, if I keep that commentary about the OpEx being at the 2018 level in mind, you have also these aggressive targets on the campus revenue site for $1 billion over a few years. How does that impact kind of how aggressive you can be towards pushing towards those targets? And does that running at a lower OpEx level mean to some extent that you push out some of those revenue targets in terms of the timeline that you would have expected earlier to meet them?

Question: Samik Chatterjee - JP Morgan Chase & Co, Research Division - Analyst : Great. Just in the interest of keeping everyone on time here, given the schedule -- tight schedules, thank you both for participating at the conference. And thank you to everyone dialed in or listening in as well.