Arista Says 'Cloud Titan' Cut Orders, Causing Big Revenue Miss

Ian King (Bloomberg) -- Arista Networks Inc. gave a sales forecast for the current period that missed the lowest analysts’ projections, wiping out a quarter of its market value in late trading.

One large “cloud titan” customer is cutting orders, causing the shortfall, the company said.

Microsoft Corp. and Facebook Inc. will each account for more than 10% of Arista revenue this year, Chief Executive Officer Jayshree Ullal said on a conference call with analysts. Microsoft isn’t the source of the decline in orders, she said, indicating that the customer in question is Facebook, and saying the issue will persist.

“We were recently informed of a shift in procurement strategy with a material reduction in demand,” she said on the call. That shortfall will continue into 2020, she said.

Sales in the fourth quarter will be $540 million to $560 million, the Santa Clara, California-based company said in a statement. That’s more than $100 million below the average of analysts’ estimates, which was $686.3 million, even at the high end of the range, based on a survey by Bloomberg.

The stock dropped as much as 26% in extended trading following the news, touching a low of $182.20. It had earlier closed down less than 1% at $244.57. Through regular trading on Thursday, the stock had gained 16% this year.

Related:OCP Switches Steadily Making Inroads into Enterprise Data Center Networks

Arista has been a big participant in a major change in the networking industry away from high-priced, fixed-function hardware toward cheaper gear and open-source software that lets customers do more programming on their systems. The major cloud service providers -- companies such as Microsoft, Amazon.com Inc.’s AWS and Google -- have gone one step further, and started to build their own data-center networking gear.

Facebook said Wednesday that capital spending will come in at $16 billion for 2019, the low end of what it had anticipated. It is budgeting $17 billion to $19 billion next year. The company didn’t immediately respond to a request for comment.