Arista Blooms, but Customers Feel Unfulfilled

Mitch Wagner
11/3/2016

Arista reported 33% year-over-year revenue growth for the third quarter, despite supply chain and manufacturing problems.

Revenue for the third quarter ending Sept. 30 was $290.3 million, up 8% sequentially and 33.4% year-over-year, beating analyst expectations by $6.82 million. Non-GAAP net income was $61.2 million or $0.83 per diluted share, compared with $42.4 million or $0.59 per diluted share in the year-ago quarter, beating analyst expectations by $0.10.

Arista stock traded at $80.08, down 2.44% after hours.

"Arista is clearly in the midst of a tornado cloud market," Jayshree Ullal, Arista president and CEO, said on the company's quarterly earnings call Thursday afternoon.

Arista grew despite lengthening lead times on product fulfillment in the second and third quarter. But Arista has "every intention to recover" in the fourth quarter of this year and first quarter of 2017, Ullal said.

The lead time in the second quarter was four to ten weeks, compared with the ideal of one to eight weeks. By the third quarter, the lead time stretched to six to 12 weeks, Ullal said. This should improve for some products in the fourth quarter and all by the first quarter of 2017, she said.

Arista attributed the fulfillment problems to supply chain difficulties, and ramping up a new San Jose, Calif., manufacturing facility.

Arista is laboring under a US ban on importing products, a result of ongoing intellectual property litigation brought by Cisco against Arista. (See Arista Banned From Importing Products – Cisco.)


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The decision on that litigation is still pending, as Arista awaits US Customs approval to a software workaround for import constraints, Ullal said. Arista is confident it's operating within the law and will not face ongoing problems meeting demand.

For the fourth quarter, Arista expects revenue of $310 million to $320 million, non-GAAP gross margin between 61% and 64% and non-GAAP operating margin of about 26%.

Citing highlights of the quarter, Arista said it has entered into a strategic partnership with Hewlett Packard Enterprise , expanding on the existing HPE Converged Architecture agreement announced in June. HPE customers and partners will be able to buy Arista switching products directly from HPE starting Nov. 7.

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