Arista Networks

$ANET

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Arista network Q3 2024 $ANET

Financial performance:

• Revenue: Arista Networks generated revenue of $1.811 billion in Q3 2024, an increase of 7.1% compared to Q2 2024 and growth of 20.0% compared to Q3 2023.
• Net income: GAAP net income was $747.9 million, or $2.33 per diluted share, compared to $545.3 million, or $1.72 per share, in the prior year.
• Non-GAAP net income: Non-GAAP net income was $769.1 million, or $2.40 per diluted share, compared to $581.4 million, or $1.83 per share, in the third quarter of 2023.

Balance Sheet Overview:

• Total Assets: Arista reported total assets of $12.85 billion as of September 30, 2024.
• Total liabilities: Liabilities amounted to USD 3.6 billion.
• Shareholders' equity: Shareholders' equity was $9.25 billion, signaling a strong capital structure.

Income structure:

• Gross margin: GAAP gross margin was 64.2%, while non-GAAP gross margin was 64.6%.
• Operating margin: Non-GAAP operating margin was a high 49.1%, indicating efficient cost structure and earnings power.

Cash flow overview:

• Cash flow from operating activities: Arista generated approximately $2.7 billion from operating activities in the first nine months of fiscal 2024.
• Net cash flow from investing activities: USD 1.15 billion was spent on investments.
• Net cash flow from financing activities: Financing activities had a negative impact of 291.8 million US dollars on cash.

Key figures and profitability metrics:

• EPS growth: Earnings per share (EPS) increased 31.1% year-over-year, indicating strong earnings performance.
• Inventory Turnover: Inventory turnover improved due to a reduction in raw material inventories.

Segment information:

• Geographical distribution of sales: The majority of sales (81.7%) were generated in the Americas, followed by EMEA (10.6%) and APAC (7.7%).

Competitive position:

Arista is a market leader in data-driven networks and has a strong position in the 100/400G technology segment. The strategic focus on high-performance network solutions and innovation in the area of cloud and AI networks strengthens Arista's position in the market.

Forecasts and management comments:

• Revenue forecast for Q4 2024: The company expects revenue to be between USD 1.85 billion and USD 1.90 billion.
• Non-GAAP gross margin guidance: Expected gross margin for Q4 2024 is between 63% and 64%.

Risks and opportunities:

• Opportunities: Arista sees potential in the area of artificial intelligence (AI) and cloud networks and benefits from strategic partnerships, such as with Meta, to develop AI centers.
• Risks: Risks include dependence on large customers as well as geopolitical and economic uncertainties that could impact the business.

Summary of results:

Positive aspects:

Strong sales growth: Annual revenue growth of 20% demonstrates the increasing market acceptance of Arista technologies.

High operating margin: With a non-GAAP operating margin of 49.1%, Arista demonstrates strong operating efficiency.

Significant cash flow generation: Cash flow from operations remains impressive at $2.7 billion.

Market leadership in network innovation: Arista is recognized as a leader in data-driven networking, benefiting from growing interest in cloud and AI networking solutions.

Strategic partnerships: Collaborations, such as with Meta for AI centers, underpin Arista's commitment to innovative technologies.

Negative aspects:

Slight declines in gross margin: GAAP gross margin saw a slight decline compared to the previous quarter, which could be due to market conditions or product costs.

Dependence on large customers: A high concentration on a few large customers poses the risk that a loss or decline in activity from these customers could significantly impact Arista's revenues.

Increased purchasing commitments: Due to the introduction of new products, Arista has higher purchasing commitments, which entail the risk of overcapacity.

Geopolitical and economic risks: The company is exposed to geopolitical and economic fluctuations, which could affect its performance in the long term.

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Hardware of data: Arista, Cisco, Juniper and HPE in the infrastructure race

Company portraits

Arista Networks, founded in 2004, specializes in cloud networking solutions for large data centers and is a leading provider of high-performance switching.

Cisco Systems, on the market since 1984, is the long-standing industry leader in the networking sector and offers a comprehensive portfolio of network solutions.

Juniper Networks, founded in 1996, focuses primarily on network infrastructure for service providers and large companies.

Hewlett Packard Enterprise (HPE) was created in 2015 through the split-up of HP and offers a broad spectrum of IT solutions ranging from network technologies to cloud and data center infrastructures.

Historical development

Since its foundation, Arista Networks has experienced an impressive rise and established itself in the field of high-performance Ethernet switches, resulting in steadily growing market shares.

Cisco has dominated the networking market for decades, but has faced increasing competition from more agile rivals such as Arista.

Juniper Networks has been particularly successful in the telecommunications infrastructure sector and in large corporate environments.

HPE has significantly expanded its portfolio in the networking sector, particularly in the area of wireless networks and edge computing, through strategic acquisitions such as that of Aruba Networks.

Business models and core competencies

Arista Networks specializes in high-performance Ethernet switches and the EOS operating system. Arista's strength lies in providing solutions that are optimized for cloud environments and data centers with high latency and scalability requirements.

Cisco Systems offers a wide range of networking hardware, software and services, ranging from small and medium-sized enterprises to global corporations. Cisco's strength lies in the diversity of its portfolio and its extensive distribution network, which gives it a dominant position in the market.

Juniper Networks is particularly known for its high-performance routers and security solutions. The company specializes in providing robust network infrastructures for large enterprises and telecommunications providers, with a focus on highly scalable, secure networks.

HPE offers a comprehensive range of IT solutions, from servers and storage systems to network technology. The acquisition of Aruba Networks has strengthened HPE's position in wireless LAN and edge computing, positioning the company as a leader in these areas.

Future prospects and strategic initiatives

All four companies are increasingly focusing on artificial intelligence (AI) and cloud solutions in their strategic initiatives to meet the growing demands of modern networks:

- Arista Networks is positioning itself as a leading provider of network infrastructures that are specifically geared towards AI applications and cloud environments.

- Cisco is investing more heavily in AI-supported network management tools and is expanding its range of cloud solutions.

- Juniper Networks is relying on its Mist AI platform, which enables automated network management and AIOps, to consolidate its position in network automation.

- HPE plans to significantly expand its AI and cloud expertise through the acquisition of Juniper Networks and to challenge Cisco's market leadership.

Market position and competition

Cisco remains the undisputed market leader, but is continuously losing market share to competitors such as Arista, particularly in the high-end segment. HPE hopes that the acquisition of Juniper Networks will significantly strengthen its position in the network market.

Total Addressable Market (TAM)

The global market for networking equipment is estimated to exceed USD 200 billion by 2027, driven by the increasing expansion of cloud infrastructures, 5G technologies and the Internet of Things (IoT). This growing market offers great opportunities for companies, particularly in the areas of cloud networking, automation and edge computing.

Share performance

- Arista Networks: TR over 5 years 534%

- Cisco Systems:TR over 5 years 26%

- Juniper Networks:TR on 5 years 83%

- HPE:TR on 5 years 59%

For the development (company figures), better view and more check out the free blog. https://topicswithhead.beehiiv.com/p/hardware-der-daten-arista-cisco-juniper-und-hpe-im-infrastruktur-wettrennen

Conclusion

It remains to be seen how HPE and Juniper will develop. But given the current situation, it seems to take a lot to remain internationally competitive or attractive as an investor. It is becoming increasingly difficult between Cisco and Arista. Although Cisco is losing market share, it is also increasingly losing revenue streams, for example through acquisitions such as Splunk. Although these are costly and the company manages them only halfway well, capital efficiency and profitability are high enough to remain attractive. So overall the situation is not that bad, but the cloud infrastructure market seems to be weakening more and more for them.

Arista, the newcomer with a German founder, is proving to be extremely innovative, both in terms of the company itself and in terms of its management style and further development. The key figures speak for themselves, and especially now Arista clearly stands out from the market. For me, Arista is a clear buy candidate, but one should wait for a more favorable valuation, ideally when the share returns to the mean.

With Cisco, it depends on how the data business is driven forward. Depending on this, Cisco could also be an interesting investment. Just because the name no longer stands for innovation does not mean that the company is not doing well internally. Wait and see.

HPE is a difficult topic. Margins are poor, as is growth. Maybe things will change after the takeover, but it doesn't seem to be a sensible investment in itself.

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