Arista stock sinks on weak guidance as company cites softening business from a cloud ‘titan’

Pres­i­dent and CEO of Arista Net­works Jayshree Ullal

Scott Mlyn | CNBC

Arista Net­works shares fell as much as 25% after the data cen­ter switch mak­er gave quar­ter­ly rev­enue guid­ance came in much low­er than ana­lysts expect­ed because of declin­ing from a cloud cus­tomer.

Arista did­n’t dis­close the name of the cloud cus­tomer in its state­ment.

“While we expect a sud­den soft­en­ing in Q4 a spe­cif­ic cloud titan cus­tomer, we are com­mit­ted to a sus­tain­able and strong foun­da­tion of long-term growth, inno­va­tion and prof­itabil­i­ty,” said Jayshree Ullal, Arista CEO, in the state­ment.

For all of 2019 Arista expects that Microsoft and Face­book will each rep­re­sent 10% of rev­enue, Ullal told ana­lysts on a con­fer­ence call on Thurs­day. In its sec­ond-quar­ter earn­ings report, the com­pa­ny said Microsoft rep­re­sent­ed 27% of rev­enue in the 2018 fis­cal year.

“After we expe­ri­enced the pause of a spe­cif­ic cloud titan’s order in Q2 2019, we were expect­ing a recov­ery in sec­ond half 2019 for cloud titan spend,” Ullal said. “In fact, Q3 2019 is good evi­dence of that. How­ev­er, we were recent­ly informed of a shift in pro­cure­ment strat­e­gy with a mate­r­i­al in demand from a sec­ond cloud titan, reduc­ing their fore­cast dra­mat­i­cal­ly from orig­i­nal pro­jec­tions for both Q4 2019 and for cal­en­dar 2020.” 

The cloud cus­tomer that sud­den­ly low­ered has tra­di­tion­al­ly giv­en Arista mul­ti­ple quar­ters’ of vis­i­bil­i­ty into its plans to buy new equip­ment, and it’s mov­ing to be focused on real-time fore­cast­ing, Ullal said. The cloud cus­tomer also is delay­ing a refresh of servers, and there is a cor­re­spond­ing delay of a net­work refresh. 

Arista, which com­petes with Cis­co, for $540 mil­lion to $560 mil­lion in rev­enue in the fourth quar­ter. Ana­lysts polled by Refini­tiv had expect­ed $686.2 mil­lion.

The Pen­ta­gon said last week that Microsoft had won a hot­ly con­test­ed cloud com­put­ing con­tract that could be worth up to $10 bil­lion over a decade. 

“The first thing that hap­pens with these large con­tracts is they get con­test­ed, and so while the award will be giv­en, we it will be time for us to see mate­r­i­al ben­e­fit,” Ullal said. “It may take six to 12 months.”

In 2020 Microsoft should have a usu­al spend­ing pat­tern, said Anshul Sadana, Aris­ta’s oper­at­ing .

“We have not been giv­en any mes­sage,” he said.

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