Home Networking company Despite Supply Chain Problems, Arista Networks Records Business

Despite Supply Chain Problems, Arista Networks Records Business

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As everyone now knows, just-in-time manufacturing has its downsides during a global pandemic. Demand can rise dramatically or fall off a cliff, depending on the nature of the product, and if you are lucky enough to see a spike in activity, manufacturing to meet that demand becomes a challenge as factories are not fully staffed. in personnel and do not obtain raw materials. for your products becomes more difficult and takes longer for the same reasons.

It all really becomes a mess. And during a global pandemic that locked everyone at home for a long time, semiconductors look a lot like toilet paper, and sooner or later the supply was not going to keep pace with the demand and we see that the Delivery times for components and finished devices are now double what they were before the coronavirus pandemic. It’s crazy. And it’s utterly astonishing that companies like Arista Networks have been able to continue to grow during the pandemic, given the severity of the supply difficulty.

“In my decades-long career, I’ve never seen it wander,” Jayshree Ullal, CEO of Arista Networks, said on a call with Wall Street analysts reviewing the numbers for the second. quarter of 2021. “Ever. It’s the worst I’ve seen, and there have been some pretty big ups and downs. And more than the worst I’ve ever seen, I think it’s going to drag on too I guess we all hope we all recover from the COVID pandemic, but everything from copper shortages to wafers starts with assembly to labor, people, logistics, freight. Pretty much every aspect of it is also called into question. “

Anshul Sadana, the company’s chief product officer, said it was not just the shortages, but the buying panic that made matters worse. The semiconductor and device makers that companies like Arista Networks depend on never expected such a mismatch between demand and supply, causing the first crunch, then the second crunch comes as the pandemic goes on, then companies try to buy in advance to try not to be the one who can’t buy material even later for future projects. Just because the capacity of the hyperscaler and cloud builder seems endless to its users, the Super 8 has to budget for excess capacity, and their services were slammed during the pandemic and they needed more of everything: servers, storage. , switching, routing and copper cables. Copper is a bottleneck in the 21st century? Who would have thought?

The advantage of this, explained Ullal and Sadana, is that with delivery times on components and finished products ranging from 40 weeks to 60 weeks – double the norm – Arista Networks has twice the visibility on what customers want to do. So, forecasting demand, ironically enough, has become easier. These “cloud titans,” as Arista Networks call them, account for the bulk of the company’s switching business, but they normally only tell the switch maker what it will need maybe only a quarter or two. in advance. Now they have to reveal their plans further if they hope to have the equipment they want as there is no slack in the supply chain. The components are lacking, the factories are running at full speed and it is still not enough to meet the demand. So they have to order sooner than they otherwise would and then wait like the rest of us for all kinds of things.

As you can see, Arista Networks has been hit pretty hard by declining revenues from the end of 2019, that was before the coronavirus pandemic hit the global economy. (Although there is a growing consensus that the virus outbreak began between September and October 2019; this is a correlation, not a causal link when it comes to Arista Networks. .) until they have no choice but to dump their networks, or at least consider using a more advanced network in their new data centers, after the pandemic caused a huge increased capacity demands among their own users. The cost of 200 Gb / sec and 400 Gb / sec switching was too high – especially for optical transceivers – and industry had to find workarounds to make these higher speeds more economically acceptable. There’s no way a cloud titan pay more per bit moved with new equipment compared to old equipment. (We believe that day is coming as Moore’s Law slows down and process narrows become more difficult and costly. So they better get used to the idea.)

But that transition is starting, and it’s not too early for all of those companies selling high-speed Ethernet switching. (There’s a reason Marvell just shelled out $ 1.1 billion to acquire the switch chip and the recent Innovium unicorn.)

These two charts, which Arista Networks provided in their Q2 2021 financial report, summarize the state of the data center switching market and how it is evolving. First, a chart that shows the Data Center Ethernet Switch revenue by business type:

The Super 8 Group predicts that the 650 Group will account for more than half of the Switch’s revenue by the end of 2025, when the forecast period ends. This represents more than $ 10 billion in sales at eight companies. The rest of the cloud providers and telecom and service operators make up about another quarter, and all other businesses – small, medium, or large – will only account for about a quarter of all switching revenue.

Chew it up a bit.

Now take a look at this forecast from the Dell’Oro Group which shows revenue by port speed on switches:

While the adoption of 100 Gb / sec Ethernet switches has increased, this was not enough in 2020 to compensate for the drops in speeds of 10 Gb / sec and 40 Gb / sec and those of 200 Gb / sec, which would have had to help, were non-existent. and frankly only starting to gain momentum. Last year, for example, Arista Networks had 75 customers purchasing switching hardware at speeds of 100 Gb / sec, 200 Gb / sec, or 400 Gb / sec – and to our knowledge, two of them (Microsoft and Facebook) were in the Super 8 and accounted for 30.5% of the company’s $ 2.32 billion in annual sales. Word on the street is that Google is bowing down to buy Arista Networks hardware and Facebook is picking up the pace again after a hiatus to go straight from 200 Gb / sec to 400 Gb / sec, and now Arista Networks. projects that it will triple or quadruple the size of its customer base in 2021 for customers operating at speeds of 100 Gbps or more.

During the 100Gbps cycle, Arista Networks has had around 30% of the ports in recent years, compared to around 22% for the switching and routing industry juggernaut Cisco Systems, which is a remarkable achievement. And another notable feat, which Ullal noted on the call, is that Arista Networks has now shipped a total of 50 million Ethernet ports in the data center since it discontinued stealth mode in 2008 and started shipping products in earnest in 2009. The next 50 million could take half to a third of the time, depending on how the bandwidth ramps up in the years to come.

Our argument is that the 200 Gb / sec and 400 Gb / sec dead zones for Arista Networks make it easier to compare in 2021. All companies win the comparison lottery every now and then, and they also lose it every now and then, like Arista Networks certainly did in 2020.

In the quarter ended June, Arista Networks achieved $ 566.5 million in product revenue, up 31.2% year-on-year, and $ 141 million in service revenue, up 14.5% . Software and services sold by subscription accounted for 22.3% of global revenue, or $ 158.1 million, up 10.4% sequentially from the first quarter of 2021. (This is a new measure the company is giving, so we don’t have the annual comparison.) , 8 percent (now bad for a primarily computer hardware company). The company ended the quarter with $ 3.28 billion in the bank and spent no money on share buybacks. (In 2019, the company’s board of directors approved a three-year, $ 1 billion buyout, and the company has spent $ 763 million so far. All companies need stocks they need. can distribute to employees, and of course, it helps the earnings-per-share comparisons which we’ve learned to ignore altogether because it forces companies – yes, we’re talking to you, IBM – to go down the wrong path down the road. the future.

Arista Networks has never been keen on forecasting that is too detailed and never so far into the future, but has told Wall Street it will see revenue of between $ 725 million and $ 745 million in the third quarter, which will obviously set a new record – and one that will most likely have to be broken again in the fourth quarter. We’ll have a better idea of ​​whether that can happen in thirteen weeks, when third-quarter numbers become available, and whether we’ll all be stranded again because of the Delta, Delta-Plus, and Lambda variants of the coronavirus. Who knows what 2022 will bring? Arista Networks senior officials will give some idea before the end of the year, but certainly not now. There are too many variables and unknowns.


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