By Zaheer Kachwala
(Reuters) – Cloud networking solutions provider Arista Networks forecast current-quarter adjusted gross margin below market expectations on Monday, overshadowing its quarterly profit beat and sending its shares down around 6% in extended trading.
Higher operating costs and expansion have weighed on its margins, even as sales have remained strong due to resilient demand for its networking gear from clients including Microsoft and Meta Platforms, as they grow their cloud infrastructure to support artificial intelligence needs.
Operating expenses for Arista in the fourth quarter ended Dec. 31 widened to $359.3 million from $299.7 million a year earlier.
Last month, peer Juniper Networks reported downbeat revenue on lower client spending for its cloud computing and network security services.
Arista on Monday forecast first-quarter adjusted gross margin of about 62%, below analysts’ expectation of 62.7%, according to LSEG estimates. In comparison, it reported a margin of 65.4% in the fourth quarter.
“The knee-jerk after-market reaction is not favorable to a lower gross margin projection,” Michael Ashley Schulman, chief investment officer at Running Point Capital, said, adding “the profit beat doesn’t seem strong enough to push shares higher”.
Arista’s revenue for the fourth quarter rose 20.8% to $1.54 billion, above analysts’ average estimate of $1.53 billion.
On an adjusted basis, the company earned $2.08 per share, compared with estimates of a profit of $1.70.
It forecast first-quarter revenue in the range of $1.52 billion to $1.56 billion, largely above analysts’ estimate of $1.53 billion.
(Reporting by Zaheer Kachwala in Bengaluru; Editing by Shinjini Ganguli)
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