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Shares of Arista Networks Inc., once high-profile, fell on Thursday afternoon, after the software-based network company announced a big pause in spending on its "cloud titan," which analysts have qualified from Microsoft Corp.
Arista
A NET, + 0.13%
, which saw its shares rise 47.5% this year, tumbled more than 15% after normal business hours after a forecast of $ 30-40 million lower than the Wall Street consensus. The company said it expects a "slowdown" in the second quarter, with the recent strong build-up of large cloud service providers leading to much slower growth in the second quarter, led by an unidentified company.
"In particular, a titan cloud has placed most of the orders on hold for the second quarter of 2019," analyst Jayshree Ullal, managing director said.
This titan cloud is most likely the Microsoft product
MSFT, -1.31%
The Azure activity, specified by Arista in its last 10K, accounted for more than 10% of its revenue. When Erik Suppiger, an analyst at JMP Securities, simply said, "So you have not changed your expectations regarding Microsoft's contribution," said Ullal for the whole year, "we have to see the second half, then we ". You will know better. "
An investor relations spokesman told Arista "that he did not disclose the client's name and that it was intentional," when asked about it. 39 it would confirm that the cloud's titan is Microsoft. "The question that Jayshree answered for JMP was not related to this topic," said a separate spokesperson in an email. "We advise you not to link the two discussions. We do not comment on customers who saw the vagueness in the second quarter. A spokesman for Microsoft was not able to comment immediately.
Suppiger said in an email that he was assuming that Arista was referring to Microsoft as the leading cloud titan who had put his purchases on hold.
"Arista's orders were lower than normal in March (and April), particularly from Microsoft, as well as weak service providers," said Andrew Nowinski, Piper Jaffray analyst, in a note written by to customers Thursday night.
A slowdown in spending by fast-growing cloud computing companies has been observed elsewhere this quarter, including by the chip giant Intel Corp.
INTC, -0.41%
, which now derives a large portion of its revenue from sales at data centers.
All major changes or a general slowdown in cloud spending, which has boosted technology, are worrying investors.
Other analysts have tried to determine if other cloud computing companies were having problems or if the main "cloud titan" was the only problem of the quarter. The sudden suspension of orders came in mid-March, said Ullal. And she said that other cloud computing companies also seem to put a little pause on the drive.
"We said that a particular cloud titan had put most orders on hold in the second quarter, but we also said that some cloud titans were doing well in the second quarter," Ullal said. . "I think one or two more … are not going as well as we ask them, so if you balance the pros and cons … we had two that are fine, two that are not doing well and a neutral, something like this. "
Analysts have also been trying to determine if the blockage of purchases was related to new products from Arista, but Ullal said it had no indication that this was related to the new product cycle.
Arista's sudden change was a shock to some investors and analysts, and the term "cloud titans" was repeated nearly 20 times during the call. In February, after its fourth-quarter results and optimistic forecasts, Arista was upgraded by several companies. According to Factset, 20 analysts have the equivalent of a purchase note, 10 have a hold and one has a sale. While price targets are averaging around $ 311, some analysts have noted, including Stifel Nicolaus, which raised its price target on Arista to $ 290.
Arista is one of many hardware companies that have complained about a sudden slowdown in cloud spending, which has sparked fears of an end to the cloud boom. Most of the others promise a return to form in the second half and Arista must now be added to this watch list.
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