Lead times double on network cat Arista's hottest selling lines as COVID-19 disrupts supply chain

Cisco's switch-slinging nemesis warns of business slipping back to 2018 levels

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Lead times for some of Arista's most popular network kit has doubled due to disruption to the supply chain caused by the novel coronavirus, and won't improve any time soon, CEO Jayshree Ullal is warning.

"We got supply constrained in March," she told analysts on a conference call discussing Q1 results, "I think we will be really constrained in Q2, so I do think Q2 is a case of less about demand and more about [being] supply constrained."

Cisco's switch selling nemesis reported revenues of $523m for the three months ended 31 March, down 12.2 per cent year-on-year: product sales felt the drop, falling from $523m in the corresponding three months of 2019 to $410.9m. Profit before tax fell to $161.8m from $206.67m

Highlights from the quarter, Arista said, included the purchase of Big Switch, the launch of an optical line system for 400G, and interoperability testing with Ciena of the 400GbE-Optimised Transport Solution.

The results in these rather uncertain times weren't as bad as they could have been: the biggest cloud services providers, which accounted for 40 per cent of revenues, kept on spending in the quarter. As Arista has found in the past, it is somewhat beholden to the whims of these organisations and whether they decide to reduce capital expense.

Enterprise customers, including those operating in financial services, made up 35 per cent of sales and smaller, specialist cloud providers the rest.

Geographically, Arista turned over 77 per cent of its sales in the US with the remainder being generated in the rest of the world.

"COVID-19 has required us to respond rapidly to changing events. In accordance with the country-specific shelters and orders, we have closed all our offices to assure employee health and safety," said Ullal.

"We are consequently experiencing supply chain constraints, and we are managing our global capacity with our contract manufacturers in San Jose, Mexico, Malaysia and coping with some inventory and component shortages.

"Lead times vary and have doubled recently for some of our popular products. Arista is working in lockstep with our customers in supporting their business continuity and planning throughout 2020," the CEO added.

Unlike many tech businesses, Arista boldly issued revenue guidance for calendar Q2 between $520m to $540m. Ullal was quite realistic about the prospects for things to rapidly change and said her visibility for the second half of this year is "pretty low."

Demand may hold up but supply likely won't. "While we expect demand from our cloud businesses to remain stable, we believe a number of other verticals could see some pause or slowing of IT spending pending clarity on the economic outlook," said CFO Ita Brennan.

"Given this uncertainty, we believe it's prudent to manage our investments carefully and manage our investments carefully and in a range closer to 2018 levels. We are prioritising key projects and customer engagements, while benefiting from a natural reduction in travel, marketing, and other variable expenses," she said. ®

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