Arista Networks Inc Q4 2024 Earnings Call Transcript

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

Question: Michael Ng - Goldman Sachs - Analyst : Hi, good afternoon and thank you for the question. I was just wondering if you could talk about the timing of how the year might look like and how you expect the switches in the AI back end to be rolled out into production, the sale of these switches, types of deployment of next-generation video chips or hyperscale custom [matrix] on the compute side and, is that a gating factor that you're watching out for? Thank you.

Question: Amit Daryanani - EVERCORE ISI - Analyst : Good afternoon. Thanks for taking my question. I guess, Jayshree, there's always this concern around the impact of white box vendors through your revenue growth and you kill over the last decade. I don't think it's been an impediment for the company. But can you share your perspective that when it comes to AI networks, especially the back-end networks, how do you see the mix evolving white box versus OEM solutions and maybe just help us understand the differentiators that help Arista be successful on the front end. Do they extend the back-end networks as well, or is there something different we should be aware about? Thank you.

Question: Tim Long - Barclays - Analyst : Thank you. Wanted to touch on the Cloud Titan numbers if you par there. Obviously, one of them, Meta, looks like, based on the numbers you gave, if I heard it, write it down year over year. If you could touch on that and then the other, if we do the math for the other Cloud Titans, looks like it went up a lot. I don't know. I think Oracle was kind of in that already. Was there anything else going on? Other than the Oracle shift with the rest of the Cloud Titans where it looked extremely strong in 2024? Thank you.

Question: Ben Reitzes - Melius Research - Analyst : Yeah, darn Tim Long took my question, so I'm going to ask about gross margins, darn that guy. So about gross margins, so obviously they go between the 61 at the midpoint, after being much higher in the first quarter. I would think that implies a significant Cloud Titan mix though, and going throughout the rest of the year. Do you mind just giving some color on what is pushing down the gross margin a little more, and does that mean that Cloud Titans do accelerate throughout the year because the gross margin gets pushed down in your guidance? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 18, 2025 / 9:30PM, ANET.N - Q4 2024 Arista Networks Inc Earnings Call

Question: Meta Marshall - Morgan Stanley - Analyst : Great, thanks. Maybe another topical question from investors. Just over the past month has been DeepSeek and just as you think about kind of this 1-to-1 ratio you've talked about on back end versus front end, how you kind of see that changing as we've seen some of the kind of the changes to kind of thoughts around training and investments. Thanks.

Question: Aaron Rakers - Wells Fargo Securities, LLC - Analyst : Yeah, thanks for taking the question. Jayshree, I'm curious just kind of thinking about some of the questions we've gotten recently. When you see announcements like Stargate and, obviously, Stargate has the involvement of one of your newer Cloud Titan customers, how do you conceptualize REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 18, 2025 / 9:30PM, ANET.N - Q4 2024 Arista Networks Inc Earnings Call the opportunities set for Arista, vis-a-vis both back-end and front-end networking, in deployments like that? And then do you have any thoughts on just the broader context of what you're seeing on Sovereign AI opportunities in your business? Thank you.

Question: Atif Malik - Citi - Analyst : Hi, thank you for taking my question, Jayshree. I appreciate you calling out to pay attention to the guidance. Now you're retracing $750 million AI back-end sales this year despite the stalled, or the fifth customer. Can you talk about where is the upside coming from this year? Is it broad-based or one or two customers? And also if you can talk to the $70 billion TAM number for 2028, how much is AI?

Question: Atif Malik - Citi - Analyst : The $750 million in back-end sales. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 18, 2025 / 9:30PM, ANET.N - Q4 2024 Arista Networks Inc Earnings Call

Question: Samik Chatterjee - JPMorgan - Analyst : Hi, thanks for taking the question. Just maybe I can sort of bring up one more topic that's come up a lot in the last few days, which is the value of the EOS software layer to the back end of the network and particularly in the discussion in terms of rate of competition to like a white box player. How do you sort of emphasize the value of EOS to your customers? Can you sort of outline some of the sort of -- what are the key drivers we should keep in mind and again in that competitive landscape between white box and Arista? Thank you.

Question: Ben Bollin - Cleveland Research - Analyst : Good afternoon, everyone. Thanks for taking the question. Jayshree, I'm interested in your thoughts on your Enterprise strategy within G2000 and how that may be evolving as it looks like refresh opportunities are intensifying. Thank you.

Question: Simon Leopold - Raymond James - Analyst : Thank you very much for taking the question. I was hoping you could maybe double click on the cognitive adjacencies. It's been a meaningful part of revenue. I think you said 18%. If you could offer a little bit more color about how the elements of that are trending and your expectations for how that part of the business is growing in your 2025 expectations. Thank you.

Question: Tal Liani - BofA Global Research - Analyst : Hi guys. Two questions, one on Routing and one on Enterprise. Enterprise grew 16% this year. What drives it? Is it just regular growth of Data Centers, or do you start to see Enterprise's investing because of AI and obligations for AI? The second thing is about Routing. Routing used to be a small opportunity when it was just a license. Can you elaborate on Routing? What is your differentiation versus the others are bundling it with optics? What, how do you sell it? And then how big is the opportunity? Not in terms of numbers, but is it now a hardware with software or is it just software license like it used to be? Thanks.

Question: Antoine Chkaiban - New Street Research - Analyst : Hi, thank you for taking my question. I'd love to get your latest perspective on what you're hearing from service providers in AI. One of your competitors mentioned that they were seeing AI driving demand for service providers because they're building out their network in anticipation of an increase in traffic driven by AI. So just wondering if you could comment on that as well. Thank you.

Question: Antoine Chkaiban - New Street Research - Analyst : The classic service providers.

Question: Matt Niknam - Deutsche Bank - Analyst : Hey, thanks so much for taking the question. Maybe for Chantelle, I mean, you're sitting now on $8 billion worth of cash and equivalents on the balance sheet. So maybe just an update on how you'd prioritize uses of cash heading into 2025. Thank you.

Question: David Vogt - UBS Equities - Analyst : Great, thanks guys for taking my question. So Jayshree, I have a question about sort of the evolution of speed deployment that some of your M&M customers. Obviously, you mentioned 400 and 800 Gs have been, obviously a principal driver. How are you thinking about how that plays out in '25 and beyond? There's some wins out there. I know different parts of the network at 1.6 but trying to get a sense for how you think about, 400 into 800 into ultimately 1.6, not just in '25 but in '26 and beyond. Thanks.

Question: Karl Ackerman - BNP Paribas - Analyst : Yes, thank you. Could you discuss the outlook for services relative to your outlook for March in the full year? I asked because services grew 40% year over year and your deferred revenue balance is up another $250 million or so sequentially and nearly $2.8 billion. So the outlook for that would be very helpful. Thank you.

Question: Sebastien Naji - William Blair & Company - Analyst : Yeah, thanks for taking the question and we talked about this a little bit, but there's been a lot of discussion over the last few months between the general purpose GPU clusters from Nvidia, and then the custom Arista solutions from some of your popular customers, I guess just in your view over the longer term, does Arista opportunity differ across these two chip types and is there one approach that would maybe pull in more Arista versus the other? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 18, 2025 / 9:30PM, ANET.N - Q4 2024 Arista Networks Inc Earnings Call