Shares of Arista Networks Inc. fell more than 6% in extended trading today after the company warned that some of its biggest customers might be about to cut back on spending.

The warning came as a surprise, as Arista had just delivered strong first-quarter earnings results that comfortably beat Wall Street’s expectations, sending its stock higher initially.

The company reported first-quarter net income jumped 60% from a year ago, to $436.5 million. Earnings before certain costs such as stock compensation came to $1.43 per share on revenue of $1.35 billion, up 54% from the same period last year. Analysts had been modeling earnings of $1.35 per share on sales of $1.31 billion.

Arista Networks is a rising star in the computer networking industry, selling premium equipment such as high-speed switches that accelerate communications between racks of computer servers in corporate data centers.

On a call with analysts, Chief Executive Jayshree Ullal (pictured) explained that Arista’s rapid growth over the last year has been thanks to an insatiable demand for these switches from “cloud titans” such as Google LLC, Microsoft Corp. and Meta Platforms Inc. Those companies are all known as hyperscale data center operators, and they typically purchase hundreds, if not thousands, of switches in bulk.

However, Arista warned that those customers may tighten their spending soon. “We expect some moderation in customer spending, especially with our cloud titan customers following a year of accelerated demand in 2022,” Chief Financial Officer Ita Brennan said on the call with analysts.

Arista’s executives said visibility into demand from these “titans” has foreshortened in recent weeks. According to Brennan, the company typically had visibility of around two quarters into future demand, only for that to stretch to as long as four quarters during the coronavirus pandemic, when the market was hit by supply chain challenges. Now that the supply situation has improved, lead times are shrinking, and visibility into demand has since contracted to around six months again, the executive said.

Holger Mueller of Constellation Research Inc. told SiliconANGLE that Arista is unable to hide its rapidly decelerating growth, which was above 50% year-over-year, but barely 5% quarter-to-quarter.

“The challenge for CEO Jayshree Ullal now is to try and maintain some growth at least and keep the company on its positive run,” Mueller said. “That will be tough with the current economic headwinds it’s facing and the expected slowdown in cloud revenue growth. But let’s see what Arista can do, it’s likely to be an interesting full year.”

For now at least, Arista still believes it can grow. It offered decent guidance, saying that it sees second-quarter revenue of between $1.35 billion and $1.4 billion. The midpoint of that range is above Wall Street’s forecast of $1.35 billion.

Arista may be helped by other aspects of its business. Besides selling high-end switches, it also supplies enterprise campus switches to smaller companies that run their own on-premises data centers, competing more directly with Cisco Systems Inc. In addition, Arista also sells network management and security software that companies use to keep their networks running smoothly.

Photo: SiliconANGLE