• CEO tells analysts on call, “We are experiencing such significant wafer fab shortages that we're not getting the chips in time.”
• First quarter revenue came in at $2.70 billion, and adjusted earnings per share were $0.87, both ahead of estimates.
• For the second quarter, revenue is expected to be $2.8 billion, and adjusted earnings per share to be $0.88.

Shares of Arista Networks (ANET) are down 9% in premarket trading on Wednesday after the company’s chief executive warned of an industry-wide component shortage amid the aggressive buildout of artificial intelligence infrastructure, coupled with a tepid forecast that overshadowed its solid first-quarter results.

Speaking on a call with analysts, CEO Jayshree Ullal said the company was encouraged by the positive demand environment but flagged that material supply remained constrained due to AI-related demand.

“We are experiencing industry-wide shortages across the board, be it wafers, silicon chips, CPUs, optics, and, of course, memory ... coupled with elevated costs to procure these,” Ullal said on the call.

How Is Arista Tackling The Supply Shortage

Arista now hopes that supply chain constraints will ease in “the next year or two” as it engages with its vendors to have supply agreements in place for future needs. However, the company noted that the lead time for replenishing its inventory is hindering its ability to fulfill commitments.

“The real hole is lead times. We are experiencing such significant wafer fab shortages that we're not getting the chips in time,” Ullal said.

“We are experiencing 52-week lead times pretty reliably with reservation needs beyond that, and our customers certainly do not want to wait that long,” said President and CTO Kenneth Duda.

As a result of the challenging environment, the company anticipates near-term gross margin pressure as it incurs higher costs to meet customer demand.

“We see multiyear demand, and we are going to do everything, including hurt our gross margins, to supply to that demand this year and next year,” Ullal said.

Q1 Results At A Glance

For the first quarter (Q1), revenue increased 35% to $2.70 billion, ahead of the Fiscal AI estimate of $2.62 billion, and adjusted earnings per share of $0.87, topping the $0.81 estimate.

For the second quarter (Q2), revenue is expected to be $2.8 billion, slightly below the $2.81 billion estimate, and adjusted earnings per share of $0.88, only one cent above the 0.87 estimate.

For the full year, growth is expected to be 27.7%, translating to revenues of $11.5 billion, a touch below the $11.52 billion estimate.

What Retail Traders Think About ANET

On Stocktwits, retail sentiment about ANET turned ‘extremely bullish’ from ‘bullish’ while message volumes rose nearly 20x over the last 24 hours.

Some users on the platform see the current dip as a buying opportunity.

One user thinks the stock is seeing a “fake selloff” and cheered the report.

ANET stock is up 30% so far this year and has gained more than 88% over the past 12 months, outperforming the S&P 500.

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