Arista Networks Citi TMT Conference

Thanks for having us. Yeah, thanks.

Yeah, I think it's a great question. We're super excited to, in the last earnings call, raised our revenue guidance to be 40% growth, $12.6 billion. We're very excited to be able to deliver that kind of guidance. If we think about it, deferred revenue is a topic. I think that if we just level set what deferred revenue is, if we're talking about the product deferred revenue, that means equipment that's been shipped, invoiced, and cash collected, but we have acceptance criteria that keeps us kind of skin in the game with the customer to get to the kind of net results they want to get to. If you think about what goes into here, it used to be the cloud.

If you go back a couple of years, the cloud deployments were put in there, and now AI has basically put that on steroids from a complexity, to your point. From a how do you interpret it perspective, I think if you look at Arista, there's a few things I would keep my eye on. I would keep my eye on the P&L growth, what's happening in deferred revenue. But I wouldn't do a quarter-over-quarter kind of thing. I would do a trend over four quarters, maybe six quarters, because things will come in and out generally, because it's an acceptance-based criteria. I would look at the purchase commitments, and maybe what's sitting on the RPO table. All four of those things kind of give you a picture of what's happening and what's to come.

I think that from the perspective of deferred revenue as well, and sometimes people don't understand that some of these deployments can take 18 to 24 months till we hit the acceptance criteria. So it's important to understand the timing of how long this can be and when we would realize it from a P&L perspective.

Yeah. Even though we're now going to be part of the S&P 100, we're only about 12 years old as a public company, right? We've had, I would say, two cycles, the cloud cycle and the AI cycle. What you're referring to, Atif, is during the cloud cycle, which is kind of the 2019, 2020, '21, you saw deferred revenue raise because we had this deferred construct because we had the use case of cloud, 400G and then coming into 800G. Then we kind of went through a little bit of cloud, and then AI took off. This AI cycle is the second one. The cloud one was about three years. We're in, I would say, going into year 2.5 to 3 on AI proper from a materiality perspective.

I think there's many years to come on this cycle, and so we'll have to see because we're talking about scale up, scale out, scale across, training, inference, front end, back end. We don't see AI going away anytime soon, so this cycle could be longer.

Yeah. We started the year, and I'm very transparent, Q1 was not our favorite call because we did have to talk about the supply chain environment, and I think that's what you're referring to. But we wanted to be honest and transparent. A lot of this pressure is coming from right at the top of the fab capacity, and I think anyone in the industry should be talking about there is tightness no matter where you sit in that hierarchy. But as we work through to the Q2 call coming into August, we did find some vendor arrangements with fab capacity, memory. So those things, I think, we've sorted through 2026 and 2027. But you have Whac-A-Mole on some of the other component parts, PCBs, capacitors, et cetera. So there's things that are more peripheral short term, and then there's structural things like fab capacity.

We feel very well positioned. When we talk about purchase commitments now, that's a year lead time for chips going into Q3 next year. We are already talking that $9.6 billion at the Q2 end purchase commitments is already going into second half next year. So well positioned, but I don't think anyone's out of the woods when it comes to the full supply chain for networking data centers generally.

We have grown. If you look three quarters ago, our purchase commitments was about $3.6 billion, and now we are at $9.6 billion at the end of Q2, so over three quarters, basically tripling it. That's leaning into demand we are seeing. So you should see it as a demand. It's getting some of these memory things sorted. Then there are some things that are a little bit longer than 12 months. From that perspective, we feel very good that the supply chain team learned a lot during COVID, learned a lot during the beginning of AI, got the contract manufacturing components sorted. I think it's a demand signal at this point, and we feel very confident about that.