Arista Networks Inc at UBS Global TMT Conference (Virtual) Transcript

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

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Yes, perfect. So without further ado, let's just jump right in here. I know it's late in the day for some people. On your last earnings call, in lieu of an Analyst Day, you highlighted 3 major contributors that you give -- that give you confidence in sort of a multiyear growth cycle. Maybe we could start with your core cloud and data center business and the 400-gig opportunity at a high level to get everybody sort of up to speed, that might not have been on the last call. So the Ethernet switching market is undergoing a transition, whether it's cloud service providers, telco service providers or large enterprises, investments are being made to upgrade infrastructure. Given your relative position and market strength, can you kind of touch on how you see

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. And then maybe just on the qualification comment. Obviously, a lot has transpired over the last 6, 7, 8 months. Maybe you can kind of give us some thoughts or some insight on what's changed recently to give you greater confidence in terms of the trajectory that you laid out today and on your last earnings call. Is it easier to get individuals to take the time to actually perform the required work to qualify products to get people in the door effectively? Or is it just the expectation that once we get sort of a better working environment with a vaccine potentially next year, those gating factors become a little bit easier to overcome?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Right. I mean, can you share any color or commentary if there's any difference between some of the major vertical markets that you compete in, whether it's the Cloud Titans market or enterprise? Or is it pretty much uniform in terms of the challenges and the opportunities that you face from this pandemic at this point? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 07, 2020 / 9:40PM, ANET.N - Arista Networks Inc at UBS Global TMT Conference (Virtual)

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. And then -- and you mentioned sort of the constraints that you operated under over the last couple of months. And I think you touched on it on the last call, you saw improvements in the supply chain. But I think you did mention that you still were somewhat constrained, I think, if those are the words that you used, with some lead times entering into Q4. Any kind of commentary or thoughts on that today?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Right. Fair point. Good point. And then when you think about proof-of-concept and testing, obviously, your enterprise business has been exceptionally strong recently. And we were just talking offline about customer wins and some opportunities that you have within the large enterprise, not just in the 100-gig market, but in 400 gig. Has the COVID pandemic changed the behavior of the enterprise market to the point where the market opportunity or the addressable TAM is larger or more accessible today than it might have been 6, 7 months ago? Is there something unique about the digitization efforts for large enterprises that have been sort of pulled forward that are an opportunity that you can take advantage of?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. And then maybe just sticking to sort of the core cloud and data center market. I know we get a lot of questions from investors in terms of the pace and the timing. And obviously, there's a degree of uncertainty given the economic climate and the pandemic backdrop that we're all living through still to this day. But when you think about -- to your earlier comment about the second half of 2021, can you maybe expand upon that for a second? What gives you confidence, whether -- is it capacity constraints that you're seeing from some of your customers? Is it just demand trends that are just data-driven that require sort of the investment that you're articulating maybe if you can expand on that a little bit. So we have a better sense for what are some of the underlying drivers that you're seeing.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Right. And when you think about some of your larger Cloud Titan customers, obviously, there's an expectation that there's going to be a significant investment spend in 2021. And I think you said it repeatedly in the past, and you just sort of intimated it just now that the network spend is not obviously the lion's share of the spend. But against that backdrop, is that the right way to think about it sort of directionally that investment, whether it's from a large Cloud Titan or second-tier cloud provider, bodes well directionally for your demand. Maybe it's lagged by a quarter or 2, but that gives you some confidence in the second half of next year.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. And then another question that we get pretty often from investors is, and I'm sure you get it, fairly consistently is the generic threat from white box. Obviously, they've taken share in the switching market, in large part, by players like Google and Amazon. But obviously, maybe just give us a sense from your perspective, where we are today, what do they bring to the table today that you can't bring to the table or maybe a competitor can't bring to the table? And how would you sort of characterize your competitive advantage going forward when you think about the transition and sort of the next evolution of data center spend. Is there something that is digitally native about -- I'm sorry, go ahead.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : No, I was going to say, obviously, you guys were the leaders from a digital-native perspective.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Right. So maybe let me ask it a little bit different way, and maybe we can go from there, too. So how much value do you think -- or how much value can we ascribe to the actual hardware piece of the business going forward. And what I mean by that is, obviously, if Facebook wants to use their own operating system, Microsoft, the same or the industry, how does that change your dynamic going forward from a business model perspective? Obviously, a ton of inputs, a ton of variables. But just maybe help us think from a top 50,000-foot level, how you think about it going into a discussion potentially for an expansion of a relationship with a Cloud Titan player? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 07, 2020 / 9:40PM, ANET.N - Arista Networks Inc at UBS Global TMT Conference (Virtual)

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Right. No, that's a good point.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Point taken. And then I don't know how much you can kind of comment on this. We get this question a lot, and I'm sure you and your management team got this today at our conference. Any thoughts on how sort of Facebook and/or Microsoft play out over the next couple of years? Obviously, is it simply they're deploying effectively kind of a slightly different variety each of 400 gig. So in the case of Facebook, it's multiple channels of 200 gig and Microsoft probably, what, 400 gig straight out, out of the gate in 2021. Is that how you're thinking about '21 into '22 at this point?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. So that's incredibly helpful. So just in the interest of time, maybe we can touch on sort of these technology adjacencies that you laid out last quarter. Obviously, campus being front and center. Obviously a much smaller component or a much smaller piece of your overall business. Maybe just to give investors -- to level set investors, where are you coming from? Why did you decide to enter this market given that this is an incredibly challenging market, historically speaking, given the market dominance of the incumbent? And when you look at your product set and your competitive offering, maybe just kind of outline how you think you're going to be successful beyond sort of this initial $100 million to $200 million of revenue that you're sort of on the trajectory to generate?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : So then along those lines, when you think about sort of the other technological sort of adjacencies that you're talking about, obviously, you did the Awake acquisition, you just mentioned security. Maybe kind of talk through how this all kind of fits together in terms of your broader strategy. Obviously, acquisitions have been a relatively smaller part of the strategy going forward. What are you -- looking out over the next couple of years, what do you see as sort of an incremental set of technological skill sets and capabilities that you need to really drive this campus business forward? Is it more M&A, or... REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 07, 2020 / 9:40PM, ANET.N - Arista Networks Inc at UBS Global TMT Conference (Virtual)

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Got it. So it sounds like, obviously, Tier 1's going to be a critical component of the business going forward, but you still work with your existing partners and other components, other security components, whether it's Palo Alto. And so it will be sort of an integrated solution on a go-forward basis. Because I guess, if you talk to the -- if you talk to the security vendors, obviously, they feel like they're moving deeper and deeper into the network effectively, I guess, maybe not to put words in their mouth, but obviously, just I'd love to get your thoughts on. Would love to get your thoughts on sort of their sort of encroachment on the network side of the business and how you think that plays out.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. Great. And obviously, just to be sensitive to your time and the audience's time, maybe just a quick pivot to another end market that might be right for innovation, next-generation routing. Maybe you can kind of give us a sense for where you are after several years of investment and how you're thinking about that market as we go into 2021?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. And then just in the interest of time. I actually got this question sent to me by a couple of people. As it pertains to campus, I think it definitely makes sense to just maybe address it. So -- and just turning back to campus for a second, when you're thinking about when you're discussing with customers sort of the technology that you bring to the table, are customers -- let me rephrase this correctly, are customers looking for programmability? Or are they looking for sort of the traditional Cisco solution where, I guess, Cisco is basically holding their hand effectively during the entire process from RFP to actually deployment? And how do you guys think about that?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. That's incredibly helpful. I think we are about out of time. So I just -- I think we should probably end it there. Jayshree, thank you again for your time. We understand that you're very busy, given all that's going on from a COVID perspective and a market perspective. So again, thank you for your time, and thank you for everyone joining. And if anyone needs to reach out, you can reach out to me e-mail or call me directly, and I think we'll just end it there. And everyone, have a great evening.