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What changed in Arista Networks's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Arista Networks's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+472 added−436 removedSource: 10-K (2025-02-19) vs 10-K (2024-02-13)

Top changes in Arista Networks's 2024 10-K

472 paragraphs added · 436 removed · 364 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

86 edited+24 added−23 removed66 unchanged
Biggest changeIn recent years, we have also entered into the Network Monitoring and Network Detection and Response (NDR) security markets through both acquisition and organic development. Our Customers Our customers span a range of industries and geographies, including large cloud customers or hyperscalers, other internet providers, service providers, financial services organizations, government agencies and a cross section of enterprise customers.
Biggest changeOur Customers Our customers include large cloud customers or Cloud and AI Titans, other internet and service providers, including specialty and AI Neoclouds, and a wide breadth of enterprise customers, including financial services organizations and government agencies.
Our Market Opportunity We sell our products through both a direct sales force and channel partners, competing primarily in the high-speed data center Ethernet switching markets for 10 Gigabit Ethernet ("GbE") and above, including the AI Ethernet switching market, the cloud-grade and enterprise routing markets, and the campus wired and wireless markets.
Our Market Opportunity We sell our products through both a direct sales force and channel partners, competing primarily in the high-speed data center Ethernet switching markets for 10 Gigabit Ethernet ("GbE") and above, including the Cloud and AI Ethernet switching markets, Enterprise Data Center switching/routing market, the cloud-grade and enterprise routing markets, and the campus wired and wireless markets.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge on the Investors portion of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), are available free of charge on the Investors portion of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission ("SEC").
We are focusing research and development efforts in (1) adapting EOS for new silicon architectures, especially to support the unique requirements of AI workloads; (2) adding or enhancing EOS control plane and management plane functionality; (3) expanding our CloudVision management stack with enhanced automation, provisioning, monitoring, and security capabilities; (4) building related services, such as NDR and Network Access Control (NAC); (5) improving the security and scalability of our software development infrastructure and software supply chain; and (6) maintaining high product quality throughout.
We are focusing research and development efforts in (1) adapting EOS for new and existing silicon architectures, especially to support the unique requirements of AI workloads; (2) adding or enhancing EOS control plane and management plane functionality; (3) expanding our CloudVision management stack with enhanced automation, provisioning, monitoring, and security capabilities; (4) building related services, such as NDR and Network Access Control (NAC); (5) improving the security and scalability of our software development infrastructure and software supply chain; and (6) maintaining high product quality throughout.
The expanded dependency of business operations on the network has increased the complexity of the network and heightened the importance of network availability, predictable performance, open programmability and operational simplicity. The public cloud leaders pioneered the development of large-scale cloud data centers to meet these growing demands from their users, including business customers.
The expanded dependency of business operations on the network has increased the complexity of the network and heightened the importance of network availability, predictable performance, open programmability, security, and operational simplicity. Public cloud leaders pioneered the development of large-scale cloud data centers to meet these growing demands from their users, including business customers.
In addition, in the United States, we offer our employees an employee stock purchase plan, healthcare and retirement benefits, paid time off and family leave, flexible time away, family planning benefits, backup resources for childcare and elder care, and other employee assistance programs including behavioral health and emotional support assistance.
In the United States, we offer our employees an employee stock purchase plan, healthcare and retirement benefits, paid time off and family leave, flexible time away, family planning benefits, backup resources for childcare and elder care, and other employee assistance programs including behavioral health and emotional support assistance.
Item 1. Business Arista Networks is an industry leader in data-driven, client to cloud networking for large data center, campus and routing environments. Arista’s platforms deliver availability, agility, automation, analytics and security through an advanced network operating stack.
Item 1. Business Arista Networks is an industry leader in data-driven, client-to-cloud networking for large AI, data center, campus and routing environments. Arista’s platforms deliver availability, agility, automation, analytics, and security through an advanced network operating stack.
Our tools provide visibility into complex network environments without the need for additional data collection equipment. Cognitive Campus Workspace Arista’s Cognitive campus is based on a data driven architecture and offers consistent, unified management across the campus edge for wired and wireless networks as well as integrated security & proactive network assurance.
Our tools provide visibility into complex network environments without the need for additional data collection equipment. Cognitive Campus Solutions Arista’s Cognitive Campus is based on a data driven architecture and offers consistent, unified management across the campus edge for wired and wireless networks as well as integrated security & proactive network assurance.
We affirm this principle of freedom from discrimination in all aspects of the employment relationship from recruitment and hiring, through performance evaluations, compensation and promotions. At Arista, we believe that all employees should be treated with dignity and respect. Health and Safety We are committed to protecting the health and safety of our employees, visitors, and the public.
We affirm this principle of freedom from discrimination in all aspects of the employment relationship from recruitment and hiring, through performance evaluations, compensation and promotions. At Arista, we believe that all employees should be treated with dignity and respect. Health and Safety Arista is committed to protecting the health and safety of our employees, visitors, and the public.
From time to time, third parties, including certain of these large companies and non-practicing entities, may assert patent, copyright, trademark and other intellectual property rights against us, our channel partners or our end customers, whom our standard license and other agreements obligate us to indemnify against such claims.
From time to time, third parties, including certain large companies and non-practicing entities, may assert patent, copyright, trademark and other intellectual property rights against us, our channel partners or our end customers, whom our standard license and other agreements obligate us to indemnify against such claims.
In addition, Arista provides extensive training and accreditation opportunities to employees in Sales, Customer Engineering and Software Research and Development roles including our Arista Certified Engineering (ACE) certification program as well as mentorship programs facilitated by our Women@Arista employee resource group.
In addition, Arista provides extensive training and accreditation opportunities to employees in Sales, Customer Engineering and Software Research and Development roles including our Arista Certified Engineering ("ACE") certification program as well as mentorship programs sponsored by our Women@Arista employee resource group.
The principal competitive factors applicable to our products include: • breadth of product offerings and features; • reliability and product quality; • ease of use; • pricing; • total cost of ownership, including automation, monitoring and integration costs; • performance and scale; • programmability and extensibility; • interoperability with other products; • ability to be bundled with other vendor offerings; • product availability and shipment lead times; and • quality of service, support and fulfillment.
The principal competitive factors applicable to our products include: • breadth of product offerings and features; • reliability and product quality; • ease of use; • pricing; 10 Table of Contents • total cost of ownership, including automation, monitoring and integration costs; • performance and scale; • programmability and extensibility; • interoperability with other products; • ability to be bundled with other vendor offerings; • product availability and shipment lead times; and • quality of service, support and fulfillment.
EOS established a new standard in networking for large-scale cloud operators, opened the door to the widespread adoption of merchant silicon hardware in 3 Table of Contents networks, and provided dramatic decreases in deployment and operating costs while delivering high reliability for cloud customers, service providers, enterprises, and more.
EOS established a new standard in networking for large-scale cloud operators, opened the door to the widespread adoption of merchant silicon hardware in networks, and provided dramatic decreases in deployment and operating costs while delivering high reliability for cloud customers, service providers, enterprises, and more.
To facilitate channel coordination and increase productivity, we have created a partner program, the Arista Partner Program, to engage partners who provide value-added services and extend our reach into the 8 Table of Contents marketplace. Authorized training partners perform technical training of our channel partners and end customers.
To facilitate channel coordination and increase productivity, we have created a partner program, the Arista Partner Program, to engage partners who provide value-added services and extend our reach into the marketplace. Authorized training partners perform technical training of our channel partners and end customers.
Enterprises and service 1 Table of Contents providers around the world are also now adopting cloud computing technologies and principles to their own non-cloud or hybrid operations in order to achieve similar performance, operational efficiencies and cost reductions. Arista addresses our customers' requirements through our approach to network architecture, our platforms and our software.
Enterprises and service providers around the world are also now adopting cloud computing technologies and principles to their own non-cloud or hybrid operations in order to achieve similar performance, operational efficiencies and cost reductions. Arista addresses our customers' requirements through our approach to network architecture, our platforms and our software.
Our comprehensive R-series and X-series switching and routing portfolios running the highly programmable EOS, transform networks with simplified and scalable architectures across multiple use-cases. Artificial Intelligence (AI) The expansion of generative AI computing and distributed applications is further pushing the boundary of predictable scale and performance in the network.
Our comprehensive R-series, X-series and Etherlink switching and routing portfolios running the highly programmable EOS, transform networks with simplified and scalable architectures across multiple use-cases. 1 Table of Contents Artificial Intelligence (AI) The expansion of generative AI computing and distributed applications is further pushing the boundary of predictable scale and performance in the network.
We entered the campus market with a diverse portfolio of modular and fixed form factor Campus spine switches, Power-over-Ethernet (PoE) switches, and WiFi access points based on 2 Table of Contents EOS and managed through CloudVision. We continue to expand our campus portfolio to offer the advantages of EOS across the entire enterprise network.
We entered the campus market with a diverse portfolio of modular and fixed form factor Campus spine switches, Power-over-Ethernet ("PoE") leaf switches based on EOS and Wi-Fi 2 Table of Contents access points managed through CloudVision. We continue to expand our campus portfolio to offer the advantages of EOS across the entire enterprise network.
One of our key principles is always doing the right thing for our employees. We are committed to maintaining the highest level of professional and ethical standards in the conduct of our business around the world. As of December 31, 2023, we employed approximately 4,023 full-time employees worldwide. None of our employees are represented by unions.
One of our key principles is always doing the right thing for our employees. We are committed to maintaining the highest level of professional and ethical standards in the conduct of our business around the world. As of December 31, 2024, we employed approximately 4,412 full-time employees worldwide. None of our employees are represented by unions.
Our software is protected by U.S. and international copyright, patent and trade secret laws. Despite our efforts to protect our software, 11 Table of Contents technology and other proprietary information, unauthorized parties may still copy or otherwise obtain and use our software, technology and other proprietary information.
Our software is protected by U.S. and international copyright, patent and trade secret laws. Despite our efforts to protect our software, technology and other proprietary information, unauthorized parties may still copy or otherwise obtain and use our software, technology and other proprietary information.
Based on Arista’s flagship CloudVision, the new AGNI platform brings scale, simplicity, and security across users, their associated endpoints, and IoT devices. AGNI integrates with Arista NDR and other third-party XDR and EDR solutions for post-admission control functionality. AGNI is sold as subscription licenses.
Based on Arista’s flagship CloudVision, the new AGNI platform brings scale, simplicity, and security across users, their associated endpoints, and IoT devices. AGNI integrates with Arista NDR and other third-party XDR and EDR solutions for post-admission control functionality.
Successful claims of infringement by a third-party, if any, could prevent us from distributing certain products or performing certain services, require us to expend time and money to develop non-infringing solutions or force us to pay substantial damages, royalties or other fees.
Successful claims of infringement by a third-party, if any, could prevent us from distributing certain products or performing certain services, require us to spend time and money to develop non-infringing solutions or force us to pay 11 Table of Contents substantial damages, royalties or other fees.
As part of the Arista way, we believe in treating peers with respect, mentoring individuals and developing teams for overall success. We are proud to be an S&P 500 company with both a female CEO and CFO.
As part of the Arista way, we believe in treating peers with respect, mentoring individuals and developing teams for overall success. We are proud to be one of a few S&P 500 companies with both a female CEO and CFO.
Compensation and Benefits 12 Table of Contents We provide competitive and comprehensive benefit packages that are designed to help and empower employees to make the best decisions for themselves, their family and their lifestyle.
Compensation and Benefits We provide competitive and comprehensive benefit packages that are designed to help and empower employees to make the best decisions for themselves, their family and their lifestyle.
Meta Platforms and Microsoft, two of our cloud end customers, each accounted for more than 10% of our total revenue for the years ended December 31, 2023, and December 31, 2022.
Meta Platforms and Microsoft, two of our Cloud and AI Titan end customers, each accounted for more than 10% of our total revenue for the years ended December 31, 2024, and December 31, 2023.
Deep hop-by-hop visibility, predictive analytics, contextual insights and scale-out packet capture, integrated through a single dashboard, enables simplified network performance monitoring (NPM) and SecMon workflows for real-time and historical context across production data centers, enterprise campus/branch and 4G/5G mobile networks. DMF switch licenses are sold as subscription licenses.
Deep hop-by-hop visibility, predictive analytics, contextual insights and scale-out packet capture, integrated through a single dashboard, enables simplified network performance monitoring ("NPM") and SecMon workflows for real-time and historical context across production data centers, enterprise campus/branch and 4G/5G mobile networks.
Looking ahead, we plan to continue to invest in resources to conduct our research and development efforts to evolving and extending our portfolio's capabilities, ensuring our products continue to address dynamic market needs and solidify our industry leadership. Manufacturing We subcontract the manufacturing of all our products to various contract manufacturers.
Looking ahead, we plan to continue to invest in resources to conduct our research and development efforts to evolve and extend our portfolio's capabilities, ensuring our products continue to address dynamic market needs and solidify our industry leadership. Manufacturing We subcontract the manufacturing of the majority of our products to various contract manufacturers.
Limitations of Traditional Enterprise Data Center and Campus Networks The introduction of large scale, highly complex, public cloud environments and the digital transformation of end customer business models meant that the traditional ways of building networks were no longer adequate to meet the needs of customers for the deployment and provision of cloud applications and more recently generative AI applications, and new innovations were needed to push network performance forward.
Limitations of Traditional Enterprise Data Center and Campus Networks The introduction of large scale, highly complex, public cloud environments and the digital transformation of customer business models meant that the traditional ways of building networks were no longer adequate to meet the needs of customers for the deployment and provision of cloud applications and more recently generative AI applications.
The data center and campus networking markets have been historically dominated by Cisco, with competition also coming from other large network equipment and system vendors, including Nvidia, Extreme Networks, Dell/EMC, Hewlett Packard Enterprise and Juniper Networks.
The data center and campus networking markets have been historically dominated by Cisco, with competition also coming from other large network equipment and system vendors, including Dell/EMC, Extreme Networks, Hewlett Packard Enterprise, Huawei, Juniper Networks, Nvidia, and white box networking vendors utilizing open-source operating systems.
Over the past five years, we have diversified the types of enterprise customers we sell to and have continued to expand our presence across a wide spectrum of industries including media and entertainment, healthcare, oil and gas, education, manufacturing, industrial, and more.
We continue to diversify the types of enterprise customers we sell to and have continued to expand our presence across a wide spectrum of industries including media and entertainment, healthcare, oil and gas, education, manufacturing, industrial, and more.
Arista offers a broad variety of physical and mental wellness offerings to our global employees in a virtual as well as on-demand format, including fitness classes, webinars on practical wellness takeaways, strategies for stress reduction, financial planning and education, career development and a variety of other topics.
Along with our traditional healthcare benefits, Arista offers a broad variety of physical and mental wellness offerings to our global employees in a virtual as well as on-demand format, including fitness classes, webinars on practical wellness takeaways, strategies for stress reduction, financial planning and education, career development and social activities.
Our contract manufacturing partners procure components and assemble our products based on our demand forecasts. These forecasts represent our estimates of future demand for our products based upon historical trends and analyses from our sales and product management functions as adjusted for overall market conditions.
These forecasts represent our estimates of future demand for our products based upon historical trends and analyses from our sales and product management functions as adjusted for overall market conditions.
In the network packet broker (NPB) market, Arista DANZ Monitoring Fabric (DMF) competes with Gigamon, Keysight, Cisco, Netscout, AVIZ networks and other network monitoring software providers. Our relationships with our strategic alliance partners or suppliers may also shift as industry dynamics change.
In the NDR market, our Arista NDR offerings compete with other network security vendors including Cisco, Darktrace, and ExtraHop. In the network packet broker ("NPB") market, Arista DANZ Monitoring Fabric ("DMF") competes with Cisco, Gigamon, Keysight, Netscout and other network monitoring software providers. Our relationships with our strategic alliance partners or suppliers may also shift as industry dynamics change.
Our Competitive Strengths 5 Table of Contents We believe the following strengths will allow us to maintain and extend our technology leadership position in data-driven cloud networking and next-generation data center and campus workspace Ethernet products: Purpose-Built Cloud Networking Platform - We have developed a highly scalable cloud networking platform that uses software to address the needs of large-scale cloud companies, cloud service providers, and large enterprises, including AI, virtualization, big data and low-latency applications.
Arista also provides identity-based micro segmentation ("Arista MSS") to ensure the zero trust posture extends to every critical asset within the organization. 5 Table of Contents Our Competitive Strengths We believe the following strengths will allow us to maintain and extend our technology leadership position in data-driven cloud networking and next-generation data center and campus workspace Ethernet products: Purpose-Built Cloud Networking Platform We have developed a highly scalable cloud networking platform that uses software to address the needs of large-scale cloud companies, cloud service providers, and large enterprises, including AI, virtualization, big data and low-latency applications.
Networking Software and Services CloudVision CloudVision is Arista’s modern, multi-domain management platform that leverages cloud networking principles to deliver a simplified end-to-end network operations experience for our Enterprise market.
Networking Software and Services Our software and services are based on subscription-based models and include the following offerings: CloudVision - CloudVision is Arista’s modern, multi-domain management platform that leverages cloud networking principles to deliver a simplified end-to-end network operations experience for our Enterprise market.
Since Arista’s inception, our founders have reimagined cloud networks for performance, scale and programmability with a focus on differentiating in three ways: uncompromising quality, advanced open and standards-based technology and a robust quality assurance capability built on a suite of automated diagnostics.
Since Arista’s inception, our founders have reimagined cloud networks for performance, scale and programmability with a focus on differentiating in three ways: uncompromising reliability built on the foundation of robust quality assurance capabilities with a suite of automated diagnostics, advanced open and standards-based technology and intelligent automation to decrease the manual workload on the operator.
Additional career development content including management training is available through our E-Learning portal to facilitate a culture of lifelong learning. Our engineering teams have the opportunity to further develop their technical skills through our internal Arista PREP Training Program, technical summits, and participation in industry conferences or associations.
Additional career development content including management and AI training is available through our E-Learning portal to facilitate a culture of lifelong learning and allow employees to personalize their development. Our Technical employees can further upskill through our internal Arista PREP Training Program, technical summits, and participation in industry conferences or associations.
The entrance of new competitors into our markets or the increased adoption of these new technology solutions or consumption models may cause downward pricing pressures, result in lost sales or otherwise have a material adverse effect on our business, prospects, financial condition and operating results. 10 Table of Contents In the NDR market, our Arista NDR offerings compete with other network security vendors including Cisco, DarkTrace, and ExtraHop.
The entrance of new competitors into our markets or the increased adoption of these new technology solutions or consumption models may cause downward pricing pressures, result in lost sales or otherwise have a material adverse effect on our business, prospects, financial condition and operating results.
Since we began shipping our products in 2008, we have experienced rapid growth, and, according to market research in 2023, we have achieved the leadership position in high-speed Ethernet port shipments of 100G and above and the second largest market share in overall data center Ethernet switch ports and revenue. We have been profitable and cash flow positive since 2010.
Since we began shipping our products in 2008, we have experienced rapid growth, and, according to market research in 2024, we have achieved the leadership position in overall data center Ethernet switch ports and revenue and continue to lead the market in higher speed Ethernet port shipments of 100G and above.
Our products rely on key components, including merchant silicon, integrated circuit components and power supplies purchased from a limited number of suppliers, including certain sole source providers. We may also see increased consolidation among our component suppliers.
Our products rely on key components, including merchant silicon, integrated circuit components and power supplies purchased from a limited number of suppliers, including certain sole source providers. We may also see increased consolidation among our component suppliers. In particular, we are primarily reliant upon our predominant merchant silicon vendor, 9 Table of Contents Broadcom, for our switching chips.
Training and Development Our employees receive periodic training on various topics, including our Code of Ethics and Business Conduct, information security, data privacy, intellectual property, anticorruption, and other topics.
Employee Training, Development and Upskilling Our employees receive regular periodic training on numerous subjects, including our Code of Ethics and Business Conduct, information security, data privacy, intellectual property, insider trading, and anticorruption.
We believe that diverse and inclusive teams enhance individual and company performance and help us attract and retain the best talent available. We strive to build an inclusive culture that encourages, supports and celebrates the diverse voices of our employees.
Inclusion, Diversity and Equal Employment We seek to maintain an environment that is open, diverse and inclusive, and where our employees feel valued. We believe that diverse and inclusive teams enhance individual and company performance and help us attract and retain talent. We strive to build an inclusive culture that encourages, supports and celebrates the diverse voices of our employees.
CloudVision eliminates burdensome manual tasks so organizations can become more agile in making changes to network infrastructure. Fewer manual configurations enable faster time to service and improved availability for our customers. Our open APIs enable standards-based integration with third-party tools as well, supporting additional automation capabilities.
Fewer manual configurations enable faster time to service and improved availability for our customers. Our open APIs enable standards-based integration with third-party tools as well, supporting additional automation capabilities.
Most recently, we have added incremental Enterprise WAN products as well as embedded NDR security sensors into our campus switches to address more of the security challenges that face campus administrators. Zero Trust Networking Security Today, a zero trust networking approach to security is paramount for organizations looking to build a robust cybersecurity program.
Most recently, we have added incremental Enterprise WAN products as well as embedded NDR security sensors into our campus switches to address more of the security challenges that face campus administrators.
This allows us to leverage the purchasing power of our contract 9 Table of Contents manufacturing partners. We retain complete control over the bill of materials, test procedures and quality assurance programs. Our personnel work closely with our partners and review on an ongoing basis the forecasts, inventory levels, processes, capacity, yields and overall quality.
We retain complete control over the bill of materials, qualified component suppliers, test procedures and quality assurance programs. Our personnel work closely with our partners and review on an ongoing basis forecasts, inventory levels, processes, capacity, yields and overall quality. Our contract manufacturing partners procure components and assemble our products based on our demand forecasts.
Visibility 4 Table of Contents Monitoring network performance in real time is a core need for current and next-generation architectures to run dependably. Arista EOS and CloudVision bring a modern approach to network telemetry and a replacement for legacy polling mechanisms.
EOS also natively supports Ansible, CFEngine, Chef, Puppet, virtual network orchestration applications and third-party management tools. Visibility Monitoring network performance in real time is a core need for current and next-generation architectures to run dependably. Arista EOS and CloudVision bring a modern approach to network telemetry and a replacement for legacy polling mechanisms.
Broad and Differentiated Portfolio - Using multiple merchant silicon architectures, we deliver switches, capable of routing, with industry-leading capacity, low latency, port density and power efficiency, and have innovated in areas such as deep packet buffers, highly available modular hardware, and reversible cooling options. Our broad portfolio has allowed us to offer customers products that best match their specific requirements.
As a result, our cloud networking platform does not have the inherent limitations of legacy network architectures. Broad and Differentiated Portfolio Using multiple merchant silicon architectures, we deliver switches, capable of routing, with industry-leading capacity, low latency, port density and power efficiency, and have innovated in areas such as deep packet buffers, highly available modular hardware, and reversible cooling options.
To provide a scalable and automated network experience, CloudEOS integrates with Arista CloudVision to simplify the operator's experience of interconnecting and managing multi-cloud, cloud-native and on-premises enterprise networks.
To provide a scalable and automated network experience, CloudEOS integrates with Arista CloudVision to simplify the operator's experience of interconnecting and managing multi-cloud, cloud-native and on-premises enterprise networks. CloudEOS is designed for consumption on Amazon AWS, Microsoft Azure, and Google public clouds via their marketplace and service catalogs.
Arista also provides network switching products intended to provide a robust interconnect that seamlessly links GPUs, compute and storage to deliver fast job completion time for training and generative AI workloads.
Arista provides network switching products intended to provide a robust interconnect that seamlessly links GPUs, compute and storage to deliver fast job completion time for training and generative AI workloads. Arista also offers customers the Arista Autonomous Virtual Assist ("AVA TM" ) which uses natural processing language to provide AI-assisted outcomes for network operations, security and observability.
Our policy is to maintain our facilities and run our business operations in a manner that does not jeopardize the occupational health and safety of employees. We work to provide safe working environments in our operations.
Our health and safety policy is to maintain our facilities and run our business operations in a manner that does not jeopardize the occupational health and safety of employees. We have implemented our injury and illness prevention program to protect employees from occupational risks of injury or illness.
DANZ Monitoring Fabric (DMF) DANZ Monitoring Fabric (DMF) is a next-generation network packet broker (NPB) architected for pervasive, organization-wide visibility and security, delivering multi-tenant monitoring-as-a-service. Leveraging Arista's high-performance and versatile Ethernet switch platforms with DMF, IT operators can pervasively monitor all user, device/IoT and application traffic (north-south and east-west) by gaining complete visibility into physical, virtual and container environments.
Leveraging Arista's high-performance and versatile Ethernet switch platforms with DMF, IT operators can pervasively monitor all user, device/IoT and application traffic (north-south and east-west) by gaining complete visibility into physical, virtual and container environments.
The Arista EOS network stack architecture provides a foundation for consolidation of streamed device state, telemetry, packet, flow, alert, sensor and third-party data into an aggregated Network Data Lake (Arista EOS NetDL™).
The Arista EOS network stack architecture provides a foundation for consolidation of streamed device state, telemetry, packet, flow, alert, sensor and third-party data into an aggregated Network Data Lake (Arista NetDL™). Arista NetDL consolidates diverse datasets required for effectively applying AI/Machine Learning (ML) methods by Arista AVA for Network Operations (NetOps) and Security Operations (SecOps) use cases.
We were also recognized by Comparably in 2023 amongst the Top 50 best large companies for diversity and Top 100 best large companies for happiness, work-life balances as well as compensation. 50% of our board of directors are women or underrepresented minorities. We are also continuing to make progress towards building diversity in the workspace.
We were also recognized by Comparably in 2024 amongst the best large companies for culture, happiness, leadership and career growth as well as compensation. 50% of our board of directors are women or underrepresented minorities.
We periodically host wellness weeks, whose purpose is to raise awareness on health issues, increase education on preventive medicine and available services and shift employee behavior through interactive activities and live presentations. We also maintain a community employee engagement program, which provides opportunities for our employees to engage in volunteering and community service.
We also 12 Table of Contents host periodic wellness weeks, whose purpose is to raise awareness on health issues, increase education on preventive medicine and available services and shift employee behavior through interactive activities and live presentations.
Our marketing activities consist primarily of technology conferences, webinars, web marketing, trade shows, product demonstrations, seminars and events, public relations, analyst relations, demand generation and direct marketing to build our brand, increase end-customer awareness, communicate our product advantages and generate qualified leads for our field sales force and channel partners.
Our marketing activities consist primarily of technology conferences, webinars, web marketing, trade shows, product demonstrations, seminars and events, public relations, analyst relations, demand generation and direct marketing to build our brand, increase end-customer awareness, communicate our product advantages and generate qualified leads for our field sales force and channel partners. 8 Table of Contents Seasonality We operate on a December 31st year end and typically have lower sequential quarter over quarter revenue growth in the first quarter of each fiscal year, often followed by stronger sequential revenue growth in the ensuing quarters.
Cognitive Adjacencies Cognitive Campus Switching Arista’s Cognitive Campus switching products, powered by EOS, offer consistent, unified management across the campus edge for wired and wireless networks as well as integrated security & proactive network assurance. Our campus products include the Arista 7300 Series spine/SplineTM, 720/750 Series POE switches, and a broad range of indoor and outdoor Cognitive Wi-Fi Access Points.
Cognitive Adjacencies Cognitive Campus Switching - Arista’s Cognitive Campus switching products, powered by EOS, offer consistent, unified management across the campus edge for wired and wireless networks as well as integrated security & proactive network assurance.
Competition The markets in which we compete are highly competitive and characterized by rapidly changing technology, changing end-customer needs, evolving industry standards, frequent introductions of new products and services and industry consolidation.
This enables us to focus our development resources on software core competencies and to leverage the investments made by merchant silicon vendors to achieve cost-effective solutions. Competition The markets in which we compete are highly competitive and characterized by rapidly changing technology, changing end-customer needs, evolving industry standards, frequent introductions of new products and services and industry consolidation.
In addition to base salary and benefits, Arista’s employees participate in incentive plans that support our organizational philosophy of allowing employees to share in our performance and success. Our executive compensation program is designed to attract, retain, and reward performance and align incentives with achievement of Arista’s strategic plan and both short- and long-term operating objectives.
Our executive compensation program is designed to attract, retain, and reward performance and align incentives with the achievement of Arista’s strategic plan and both short- and long-term operating objectives. Our compensation committee provides an oversight of our compensation policies, plans, benefit programs and overall compensation philosophy.
CloudVision is built on Arista’s NetDL architecture and leverages real-time network state to provide an abstraction of the physical network to a broader, network-wide perspective allowing for a more efficient approach for several operational and network telemetry capabilities. CloudVision’s cloud-native architecture gives customers a choice to consume CloudVision as a subscription service or an on-premise licensed appliance.
CloudVision is built on Arista’s NetDL architecture and leverages real-time network state to provide an abstraction of the physical network to a broader, network-wide perspective allowing for a more efficient approach for several operational and network telemetry capabilities. 7 Table of Contents Arista A-Care Services - We have designed our customer support offerings, Arista A-Care Services, to provide our customers with high levels of support.
After the products are shipped to our customers, our products are installed by the customers or by third-party service providers such as system integrators or value-added resellers on their behalf.
After distribution, our products are installed by the customers or by third-party service providers such as system integrators or value-added resellers on their behalf. Our contract manufacturing partners procure components needed to build our products and assemble our products according to our design specifications. This allows us to leverage the purchasing power of our contract manufacturing partners.
Historically, most common network designs were rigidly hierarchical, based on a 3-tiered model developed in the early days of the internet for sparse north/south traffic patterns. This model was limited in the number of devices that could be connected to a network and introduced many points of congestion as customers tried to scale the solution.
New innovations were needed to push network performance forward. Historically, most common network designs were rigidly hierarchical, based on a 3-tiered model developed in the early days of the internet for sparse north/south traffic patterns.
As more applications move to the cloud, network connections must scale, and the increased east/west traffic must be managed without congestion.
This model was limited in the number of devices that could be connected to a network and introduced many points of congestion as customers tried to scale the solution. As more applications move to the cloud, network connections must scale, and the increased east/west traffic must be managed without congestion.
Our EOS software is a key cloud networking software stack that is state-driven and a result of tremendous research and development efforts. Our Products and Technology Our portfolio of products and technology consists of Core Data Center/Cloud/AI Switching Products, Adjacent Campus and Routing Products and Network Software and Services.
Our EOS software is a key cloud networking software stack that is state-driven and a result of tremendous research and development efforts. Our Products and Services Our portfolio of products and services are grouped into the following three categories: Core Data center/Cloud/AI Arista offers one of the broadest product portfolios of data-driven, high-speed, cloud and data center Ethernet switches.
Some of these competitors are developing networking products based on off-the-shelf or commoditized hardware technology, or “white box” hardware, particularly where a customer’s network strategy seeks to emphasize deployment of such product offerings or adopt a disaggregated approach to the procurement of hardware and software.
Some of these competitors are developing "white box" networking products based on open-source network operating systems that may be provided for free and off-the-shelf or commoditized hardware technology, or “white box” hardware, while other competitors may adopt a disaggregated approach to the procurement of hardware and their proprietary software.
Arista EOS NetDL consolidates diverse datasets required for effectively applying AI/Machine Learning (ML) methods in Network Operations (NetOps) and Security Operations (SecOps) environments, and it presents a single application programming interface ("API") surface for access to network and network-related data for enhancing Arista and third-party applications.
NetDL also presents a single application programming interface ("API") surface for access to network and network-related data for enhancing Arista and third-party applications.
Security Arista focuses on building security into the networking layers through features native to EOS, such as segmentation and encryption, as well as NDR powered by AI. Arista’s zero trust networking principles, based on NIST 800-207, help customers address security challenges with three cornerstones: visibility, continuous diagnostics, and enforcement.
Security Arista focuses on building security into the networking layers through features native to EOS, such as segmentation and encryption, and network access control and NDR powered by AI.
We offer multiple service options that allow our customers to select the product replacement service level that best meets their needs. We stock spare parts in over 200 locations around the world through our third-party logistics suppliers. All our service options include unlimited access to bug-fixes, new-feature-releases, online case management and our community forums.
We stock spare parts in over 200 locations around the world through our third-party logistics suppliers. All our service options include unlimited access to bug-fixes, new-feature-releases, online case management and our community forums. DANZ Monitoring Fabric (DMF) - DANZ Monitoring Fabric ("DMF") is a next-generation network packet broker (NPB) architected for pervasive, organization-wide visibility and security, delivering multi-tenant monitoring-as-a-service.
We also continue to be innovative in areas concerning deep packet buffer architectures, virtual output queuing, non-disruptive upgrades, embedded optics and next-generation optics, reversible cooling and overall system power efficiency.
Arista also continues to be innovative in such areas as deep packet buffer architectures, virtual output queuing, non-disruptive upgrades, embedded optics and next-generation optics, reversible cooling and overall system power efficiency. The Arista 7800R AI Spine, 7060 AI Leaf and the Distributed Etherlink Switch ("DES") are designed to address the demanding scale and performance requirements driven by large-scale AI networks.
WAN Routing System Arista’s new 5000 Series of WAN Routing System, powered by EOS, offers high performance and scale to meet enterprise modern WAN edge and aggregation requirements. The 5000 Series supports 1/10/100GbE interfaces and flexible network modules while delivering from 5Gb to over 50Gb of bidirectional encrypted traffic with high VRF and tunnel scale.
WAN Routing - The Arista AWE-7200R Series of WAN Routing System, purpose built by Arista and powered by Arista EOS, offers high performance and scale to meet enterprise modern WAN edge and aggregation requirements. We believe the Arista AWE-7200R Series sets the standard for aggregation and critical site interconnect by supporting 1/10/100GbE interfaces and flexible network modules.
Arista A-Care Services 7 Table of Contents We have designed our customer support offerings, Arista A-Care Services, to provide our customers with high levels of support. Our global team of support engineers engages directly with client IT teams and is always available over e-mail, by phone or through our website.
Our global team of support engineers engages directly with client IT teams and is always available over e-mail, by phone or through our website. We offer multiple service options that allow our customers to select the product replacement service level that best meets their needs.
Our primary manufacturing partners are Jabil Inc., Sanmina Corporation, Flex Ltd. and Foxconn Hon Hai. This approach allows us to reduce our costs, manufacturing overhead and inventory position and allows us to adjust more quickly to changing end-customer demand. We require all our manufacturing locations to be ISO-9001 certified.
Our primary manufacturing partners are Jabil Inc., Sanmina Corporation, Flex Ltd. and Foxconn Hon Hai. These partners manufacture our products internationally in Malaysia, Vietnam, Mexico and other countries. We require all our manufacturing locations to be ISO-9001 certified.
As a result, the operators of legacy networks have been essentially blinded when it comes to true network insight. Our Data-Driven Cloud Networking Solutions Our cloud networking innovations started with pioneering a modern software platform, Arista EOS, which provides switching, routing, state-streaming and telemetry functions across all Arista platforms.
As a result, the operators of legacy networks have been essentially blinded when it comes to true network insight. Our Data-Driven Cloud Networking Solutions 3 Table of Contents The core of our cloud networking platform is our data-driven operating system, EOS, which runs on top of standard Linux and offers programmability at all layers of the stack.
With the exponential growth of AI applications, the need for standardized transport like Ethernet becomes paramount, enabling a power-efficient interconnect while overcoming the complexities of traditional approaches. The 7800R AI spine and 7060X AI leaf switches, coupled with Arista's EOS innovations such as AI Analyzer along with optimal load balancing solutions offer compelling solutions for contemporary AI applications and deployment.
With the exponential growth of AI applications, the need for standardized transport like Ethernet becomes paramount, enabling a power-efficient interconnect while overcoming the complexities of traditional approaches. Arista's AI strategy is based on achieving two key objectives.
Arista’s modular EOS architecture and software testing innovations provide features and network designs that keep the network available even during maintenance and upgrades. EOS publish-subscribe architecture provides self-healing resiliency through live patching, upgrades, fault isolation and containment and graceful process restart to reduce maintenance windows and allow for intelligent insertion and removal of network elements.
EOS publish-subscribe architecture provides self-healing resiliency through live patching, upgrades, fault isolation and containment and graceful process restart to reduce maintenance windows and allow for intelligent insertion and removal of network elements. 4 Table of Contents Openness and Programmability Customers demand open, standards-based networking that avoids vendor lock-in and enables third-party integration to support best in-class technology ecosystems.
In 2023, the percentage of our employee population that were women or underrepresented minorities increased compared to 2022. We offer mentorship opportunities to our employees facilitated by our Women@Arista employee resource group. In addition, we support under-represented employee affinity organizations and actively recruit from historically black colleges and universities, women’s colleges and Hispanic/Latinx and African-American professional societies and job fairs.
Arista also supports inclusion through mentorship opportunities for our employees which are offered through Women@Arista, one of our employee resource groups; support of numerous under-represented employee affinity organizations; and active recruiting from historically black colleges and universities, women’s colleges and Hispanic/Latinx and African-American professional societies and job fairs.
Core Datacenter/Cloud/AI 6 Table of Contents Arista offers one of the broadest product portfolios of data-driven, high-speed, cloud and datacenter Ethernet switches. Built on top of the superior quality and openness of Arista EOS, we deliver high performance, industry-leading capacity, ultra-low latency, feature rich, and powerful efficient solutions for customers building and operating cloud networks.
Built on top of the superior quality and openness of Arista EOS, we deliver high performance, industry-leading capacity, ultra-low latency, rich features, and powerful efficient solutions to meet our customers’ demand for capacity and network speeds for both front-end and back-end storage, compute and AI zones.
Based on this deep understanding of the attack surface, the platform then detects threats to and from these entities, while providing the context necessary to respond rapidly. The analysis begins with AVA Sensors that span the network and perform deep packet inspection.
Based on this deep understanding of the attack surface, the platform then detects threats to and from these entities, while providing the context necessary to respond rapidly. CloudEOS ™ - CloudEOS is Arista’s multi-cloud and cloud-native networking solution supporting autonomic operation to deliver an enterprise-class, highly secure, and reliable networking experience for any cloud.
The Arista NDR platform delivers continuous diagnostics for the entire enterprise threat landscape, processes countless points of data, senses abnormalities or threats, and reacts if necessary. Operational Efficiency Automation is critical to delivering operational efficiency and Arista has taken the lessons learned from building large public clouds and engineered network automation into our CloudVision management platform.
Operational Efficiency Automation is critical to delivering operational efficiency and Arista has taken the lessons learned from building large public clouds and engineered network automation into our CloudVision management platform. CloudVision eliminates burdensome manual tasks so organizations can become more agile in making changes to network infrastructure.
NetDL TM aggregates data from systems, platforms, and services enabling smoother operations between NetOps, CloudOps, and DevOps operators. EOS is packaged as a perpetual license on Arista hardware platforms, virtualized EOS (vEOS) for production or simulations use cases or containerized EOS (cEOS) for flexible platform support including third-party hardware.
EOS is packaged as a perpetual license on Arista hardware platforms, virtualized EOS (vEOS) and CloudEOS for production or simulations use cases with flexible platform support including third-party hardware. Our cloud networking innovations started with pioneering Arista EOS, which provides switching, routing, state-streaming and telemetry functions across all Arista platforms.
Our well-structured set of APIs and EOS Software Development Kit ("SDK") as well as multiple DevOps integrations, enable enterprises to automate networking provisioning without manual intervention. EOS also natively supports Ansible, CFEngine, Chef, Puppet, virtual network orchestration applications and third party management tools.
Arista EOS, built on Linux, features open standard protocols, such as Border Gateway Protocol ("BGP") and Ethernet VPN ("EVPN"), offering interoperable solutions. Our well-structured set of APIs and EOS Software Development Kit ("SDK") as well as multiple DevOps integrations, enable enterprises to automate networking provisioning without manual intervention.
Our core switching portfolio contains both fixed and modular form factors, varying port configurations and densities, and options in power delivery all driven by customer requirements. Arista also provides solutions for compute, GPU and storage interconnects in driving AI/ML workloads, leveraging its IP/Ethernet switches to deliver unparalleled performance and scalability.
Our core switching portfolio contains both fixed and modular form factors, varying port configurations and densities, and options in power delivery all driven by customer requirements. 6 Table of Contents The Arista Etherlink AI portfolio of 800G switches, coupled with Arista's EOS innovations such as AI Analyzer along with optimal load balancing solutions, offer compelling solutions for contemporary AI applications and deployment.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur international sales and operations are subject to a number of risks, including the following: • ability to establish necessary business relationships and to comply with local business requirements, including distributor and reseller relationships; • greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods and non-standard terms with customers related to payment, warranties or performance obligations; • increased management complexity involved in, and expenses incurred in establishing and maintaining our international operations; • fluctuations in exchange rates between the U.S. dollar and foreign currencies where we do business; • general economic and political conditions in these foreign markets; • global macroeconomic conditions, including recessionary cycles; • risks associated with U.S. and foreign legal requirements, including those relating to anti-corruption, anti-bribery, privacy, data protection and the importation, certification and localization of our products in foreign countries; 23 • risks associated with government trade restrictions, including those which may impose restrictions, including prohibitions on the exportation, re-exportation, sale, shipment or other transfer of programming, technology, components, and/or services to foreign persons; • changes in trade controls, economic sanctions, or other international trade regulations, which have in general recently trended toward increasing breadth and complexity of controls, and which may affect our ability to import or export our products to and from various countries; • risks of unexpected changes in regulatory practices, tariffs and tax laws and treaties; • greater risk of unexpected changes in tariffs imposed by the U.S. and other countries; • deterioration of political relations between the U.S. and China, Russia, the United Kingdom and the EU as well as the Israel-Hamas conflict and Houthi attacks on marine vessels in the Red Sea, which could have a material adverse effect on our sales and operations as well as our supply chain in these countries; • possible deterioration in relations between Taiwan and China, and other factors affecting military, political, or economic conditions in Taiwan or elsewhere in Asia; • issues related to cloud-specific regulatory requirements in certain countries, including the UK, EU and Asia-Pacific countries; • the uncertainty of protection for intellectual property rights in some countries; and • heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements.
Biggest changeOur international sales and operations are subject to a number of risks, including the following: • ability to establish necessary business relationships and to comply with local business requirements, including distributor and reseller relationships; • greater difficulty in enforcing contracts and accounts receivable collection and longer collection periods and non-standard terms with customers related to payment, warranties or performance obligations; • increased management complexity involved in, and expenses incurred in establishing and maintaining our international operations; • deterioration of political relations between the U.S. and China, Canada, Mexico, Russia and EU including international trade wars and increased tariffs between the U.S. and such countries or regions, which could have a material adverse effect on our sales as well as our manufacturing operations and supply chain in these countries; • fluctuations in exchange rates between the U.S. dollar and foreign currencies where we do business; • general economic and political conditions in these foreign markets; • global macroeconomic conditions, including recessionary cycles; • risks associated with U.S. and foreign legal requirements, including those relating to anti-corruption, anti-bribery, telecommunications, cybersecurity, supply chain integrity, privacy, data protection and the importation, certification and localization of our products in foreign countries; • risks associated with government trade restrictions, including those which may impose restrictions, including prohibitions on the exportation, re-exportation, sale, shipment or other transfer of programming, technology, components, and/or services to foreign persons; • changes in trade controls, economic sanctions, or other international trade regulations, which have in general recently trended toward increasing breadth and complexity of controls, and which may affect our ability to import or export our products to and from various countries; • risks of unexpected changes in regulatory practices, tariffs and tax laws and treaties; • possible deterioration in relations between Taiwan and China, and other factors affecting military, political, or economic conditions in Taiwan or elsewhere in Asia; • issues related to cloud-specific and/or AI regulatory requirements in certain countries, including the UK, EU and Asia-Pacific countries; • the uncertainty of protection and enforcement for intellectual property rights in some countries; and • heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements. 24 These and other factors could harm our ability to gain future international revenue and, consequently, materially affect our business, financial condition, results of operations and prospects.
On July 1, 2022, the court stayed the case pending the resolution of an inter partes review of one of the patents-in-suit. On May 30, 2023, the US Patent Trial and Appeal Board (“PTAB”) ruled all challenged claims in the inter partes review unpatentable. The district court case remains pending appeal and/or final resolution of the PTAB ruling.
On July 1, 2022, the court stayed the case pending the resolution of an inter partes review of one of the patents-in-suit. On May 30, 2023, the US Patent Trial and Appeal Board (“PTAB”) ruled all challenged claims in the inter partes review unpatentable. The district court case remains stayed pending appeal and/or final resolution of the PTAB ruling.
Additionally, we could incur significant costs in order to upgrade our cybersecurity systems and other measures in an effort to prevent network and system disruptions and other security breaches and other incidents. Even the perception of inadequate security may damage our reputation and negatively impact our ability to win new customers and retain existing customers.
Additionally, we could incur significant costs in order to upgrade our cybersecurity systems and measures in an effort to prevent network and system disruptions and other security breaches and other incidents. Even the perception of inadequate security may damage our reputation and negatively impact our ability to win new customers and retain existing customers.
These risks include, but are not limited to, the following: Risks Related to Our Business and Industry • large purchases by a limited number of customers represent a substantial portion of our revenue; • adverse economic conditions, continuing uncertain economic conditions or reduced information technology and network infrastructure spending may adversely affect our business; • some key components in our products come from sole or limited sources of supply and increases the risk of supply shortages, extended lead times or supply changes; • our revenue and revenue growth rates are volatile and may decline or not meet our or our investor's expectations; • our results of operations may vary significantly from period to period and can be unpredictable; • the networking market is rapidly evolving; • failure to successfully carry out new products and service offerings and expand into adjacent markets could adversely impact our business; • we expect our gross margins to vary over time and may be adversely affected by numerous factors; • we face intense competition and industry consolidation; • we are subject to risks associated with the expansion of our international sales and operations; • we face risks associated with the investments in and acquisitions of complementary companies, products or technologies; • seasonality and industry cyclicality may cause fluctuations in our revenue; • fluctuations in currency exchange rates could adversely affect our business; • failure to raise additional capital on favorable terms could harm our business.
These risks include, but are not limited to, the following: Risks Related to Our Business and Industry • large purchases by a limited number of customers represent a substantial portion of our revenue; • adverse economic conditions, continuing uncertain economic conditions or reduced information technology and network infrastructure spending may adversely affect our business; • some key components in our products come from sole or limited sources of supply and increases the risk of supply shortages, extended lead times or supply changes; • our revenue and revenue growth rates are volatile and may decline or not meet our or our investor's expectations; • our results of operations may vary significantly from period to period and can be unpredictable; • the networking market is rapidly evolving; • failure to successfully carry out new product and service offerings and expand into adjacent markets could adversely impact our business; • we expect our gross margins to vary over time and may be adversely affected by numerous factors; • we face intense competition and industry consolidation; • we are subject to risks associated with the expansion of our international sales and operations; • we face risks associated with the investments in and acquisitions of complementary companies, products or technologies; • seasonality and industry cyclicality may cause fluctuations in our revenue; • fluctuations in currency exchange rates could adversely affect our business; • failure to raise additional capital on favorable terms could harm our business.
Risks Related to Accounting, Compliance, Regulation and Tax • failure to maintain effective internal control over financial reporting could adversely affect the accuracy and timing of our financial reporting; • if our critical accounting policies are based on incorrect assumptions, our results of operations could fall below analyst and investor expectations and result in a decline in the market price of our common stock; • enhanced U.S. tax, tariff, import/export restrictions, Chinese regulations or other trade barriers may negatively affect our business; • changes in our income taxes, effective tax rate or new tax laws could adversely affect our results; • failure to comply with government laws and regulations could harm our business; • issues in the development and use of artificial intelligence, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations; • we are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability for violations. • failure to comply with anti-bribery and anti-corruption laws and anti-money laundering laws, and similar laws, could subject us to penalties and other adverse consequences.
Risks Related to Accounting, Compliance, Regulation and Tax • failure to maintain effective internal control over financial reporting could adversely affect the accuracy and timing of our financial reporting; • if our critical accounting policies are based on incorrect assumptions, our results of operations could fall below analyst and investor expectations and result in a decline in the market price of our common stock; • enhanced U.S. tax, tariff, import/export restrictions, Chinese regulations or other trade barriers may negatively affect our business; • changes in our income taxes, effective tax rate or tax laws could adversely affect our results; • failure to comply with government laws and regulations could harm our business; • issues in the development and use of artificial intelligence, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations; • we are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability for violations. • failure to comply with anti-bribery and anti-corruption laws and anti-money laundering laws, and similar laws, could subject us to penalties and other adverse consequences.
The continued growth of this market will be dependent upon many factors including but not limited to the adoption of and demand for our customers’ products and services, the expansion, evolution and build out of our customers’ networks, the capacity utilization of existing network infrastructures, changes in the technological requirements for the products and services to be deployed in these networks, the amount and mix of capital spending by our customers, including any changing technology priorities such as the rapid deployment of AI and related technologies, the development of network switches and cloud service solutions by our large customers for internal use, the financial performance and prospects of our customers, the availability of capital resources to our customers, changes in government regulation that could impact networking business models including those regulations related to AI, cybersecurity, privacy, data protection and net neutrality, our ability to provide networking solutions that address the needs of our customers more effectively and economically than those of other competitors or existing technologies and general economic conditions.
The continued growth of this market will be dependent upon many factors including but not limited to the adoption of and demand for our customers’ products and services, the expansion, evolution and build out of our customers’ networks, the capacity utilization of existing network infrastructures, changes in the technological requirements for the products and services to be deployed in these networks, the amount and mix of capital spending by our customers, including any changing technology priorities such as the deployment of AI and related technologies, the development of network switches and cloud service solutions by our large customers for internal use, the financial performance and prospects of our customers, the availability of capital resources to our customers, changes in government regulation that could impact networking business models including those regulations related to AI, cybersecurity, privacy, data protection and net neutrality, our ability to provide networking solutions that address the needs of our customers more effectively and economically than those of other competitors or existing technologies and general economic conditions.
Breaches of our cybersecurity systems, or other security breaches or incidents with respect to our products, services, networks, systems, or data, could degrade our ability to conduct our business operations and deliver products and services to our customers, cause vulnerabilities in our products and services, and subject us to regulatory enforcement actions and or fines or liabilities for damages incurred by our customers or partners, delay our ability to recognize revenue, compromise the integrity of our software products and our networks, systems, and data, result in significant data losses and the theft of our intellectual property, damage our reputation, expose us to liability to third parties and require us to incur significant additional costs to maintain the security of our networks and data.
Breaches of our cybersecurity systems, or other security or privacy breaches or incidents with respect to our products, services, networks, systems, or data, could degrade our ability to conduct our business operations and deliver products and services to our customers, cause vulnerabilities in our products and services, and subject us to regulatory enforcement actions and or fines or liabilities for damages incurred by our customers or partners, delay our ability to recognize revenue, compromise the integrity of our software products and our networks, systems, and data, result in significant data losses and the theft of our intellectual property, damage our reputation, expose us to liability to third parties and require us to incur significant additional costs to maintain the security of our networks and data.
Any allegations or violation of the FCPA or other applicable anti-bribery and anti-corruption laws and anti-money laundering laws could result in whistleblower complaints, sanctions, settlements, prosecution, enforcement actions, fines, damages, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from government contracts, all of which may have an adverse effect on our reputation, business, results of operations, and prospects.
Any allegations or violation of the FCPA or other applicable anti-bribery and anti-corruption laws and anti-money laundering laws could result in whistleblower complaints, sanctions, settlements, prosecution, enforcement actions, fines, damages, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or 46 debarment from government contracts, all of which may have an adverse effect on our reputation, business, results of operations, and prospects.
Should any of the above events occur, or be perceived to occur, we could be subject to significant claims for liability from our customers and others and regulatory investigations and actions from governmental agencies, and we could be required to expend significant capital and other resources to remediate and otherwise address any data security incident or breach, including to notify individuals, entities, or regulatory bodies and to implement measures in an effort to prevent further breaches or incidents.
Should any of the above events occur, or be perceived to occur, we could be subject to significant claims for liability from our customers and others and regulatory investigations and actions from governmental agencies, and we could be required to expend significant capital and other resources to remediate and otherwise address any security breach or incident, including to notify individuals, entities, or regulatory bodies and to implement measures in an effort to prevent further breaches or incidents.
If we fail to effectively manage our existing sales channels, or if our channel partners are unsuccessful in fulfilling the orders for our products, if we are unable 28 to enter into arrangements with, and retain a sufficient number of, high-quality channel partners in each of the regions in which we sell products and keep them motivated to sell our products, our ability to sell our products and our business, financial condition, results of operations and prospects will be harmed.
If we fail to effectively manage our existing sales channels, or if our channel partners are unsuccessful in fulfilling the orders for our products, if we are unable to enter into arrangements with, and retain a sufficient number of, high-quality channel partners in each of the regions in which we sell products and keep them motivated to sell our products, our ability to sell our products and our business, financial condition, results of operations and prospects will be harmed.
Continuing or worsening economic instability or the deterioration of the financial performance, condition or prospects of our customers could result in a cancellation of, or defaults in the payments for, such orders or otherwise adversely affect spending for IT, network infrastructure, systems and tools, and limit our ability to forecast future demand for our products, which could reduce expected revenue or result in a write-down of excess or obsolete inventory.
Continuing or 17 worsening economic instability or the deterioration of the financial performance, condition or prospects of our customers could result in a cancellation of, or defaults in the payments for, such orders or otherwise adversely affect spending for IT, network infrastructure, systems and tools, and limit our ability to forecast future demand for our products, which could reduce expected revenue or result in a write-down of excess or obsolete inventory.
In addition, any supply chain shortages and manufacturing disruptions that result in extended lead times may impact our ability to manufacture and ship products to our customers in a timely manner, which may disrupt typical seasonal trends. We are exposed to fluctuations in currency exchange rates, which could adversely affect our business, financial condition, results of operations and prospects.
In addition, any supply chain shortages and manufacturing 25 disruptions that result in extended lead times may impact our ability to manufacture and ship products to our customers in a timely manner, which may disrupt typical seasonal trends. We are exposed to fluctuations in currency exchange rates, which could adversely affect our business, financial condition, results of operations and prospects.
Although we have entered into significant purchase commitments to support long-term customer demand, if we are unable to obtain sufficient quantities of any of these components on commercially reasonable terms or in a timely manner, or if we are unable to obtain alternative sources for these components, shipments of our products could be delayed or halted entirely, or we may be required to redesign our products.
Although we have entered into significant purchase commitments to support long-term customer demand, if we are unable to obtain sufficient quantities of any of these components on commercially reasonable terms or in a timely manner, or if we are unable to obtain alternative sources for these components, shipments of our products could be delayed or halted entirely, 18 or we may be required to redesign our products.
It also is possible that the Chinese government will retaliate in ways that could impact our business. For example, China has announced controls on both the use of Micron products and export license requirements on certain materials used, 39 among other things, in the production of semiconductors, optical components, and other electronic devices including germanium and gallium.
It also is possible that the Chinese government will retaliate in ways that could impact our business. For example, China has announced controls on both the use of Micron products and export license requirements on certain materials used, among other things, in the production of semiconductors, optical components, and other electronic devices including germanium and gallium.
We cannot assure you that fluctuations in our provision for income taxes or our effective tax rate, the enactment of new tax laws or changes in the application or 41 interpretation of existing tax laws or adverse outcomes resulting from examination of our tax returns by tax authorities will not have an adverse effect on our business, financial condition, results of operations and prospects.
We cannot assure you that fluctuations in our provision for income taxes or our effective tax rate, the enactment of new tax laws or changes in the application or interpretation of existing tax laws or adverse outcomes resulting from examination of our tax returns by tax authorities will not have an adverse effect on our business, financial condition, results of operations and prospects.
Customers may also increase their adoption of 22 networking solutions based upon open-source network operating systems that may be provided for free and used either on “white box” or proprietary hardware. As new markets emerge like AI, we expect the field to remain intensely competitive.
Customers may also increase their adoption of networking solutions based upon open-source network operating systems that may be provided for free and used either on “white box” or proprietary hardware. As new markets emerge like AI, we expect the field to remain intensely competitive.
If we fail to keep up with technology changes or to convince our customers and potential customers of the value of our solutions even in light of new technologies, we may lose customers, decrease or delay market acceptance and sales 30 of our present and future products and services and materially and adversely affect our business, financial condition, results of operations and prospects.
If we fail to keep up with technology changes or to convince our customers and potential customers of the value of our solutions even in light of new technologies, we may lose customers, decrease or delay market acceptance and sales of our present and future products and services and materially and adversely affect our business, financial condition, results of operations and prospects.
We, our employees, agents, representatives, business partners and third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal 44 activities of these employees, agents, representatives, business partners or third-party intermediaries even if we do not explicitly authorize such activities.
We, our employees, agents, representatives, business partners and third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of these employees, agents, representatives, business partners or third-party intermediaries even if we do not explicitly authorize such activities.
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws (including new laws related to climate change), consumer protection laws, privacy, data protection, anti-bribery laws such as the U.S.
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, product safety, environmental laws (including new laws related to climate change), consumer protection laws, privacy, data protection, telecommunications, anti-bribery laws such as the U.S.
Foreign Corrupt Practices Act, import/export controls and sanctions, conflict minerals, federal securities laws and tax laws and regulations. In addition, emerging tools and technologies we utilize in providing our products, like AI and machine learning, may also become subject to regulation under new laws or new applications of existing laws.
Foreign Corrupt Practices Act, import/export controls and sanctions, conflict minerals, federal securities laws and tax laws and regulations. In addition, emerging tools and technologies we utilize in providing our products, like AI and machine learning, may also become subject to regulation under new laws or new applications of existing 43 laws.
If we are unable to pass component price increases along to our customers or maintain stable pricing, our gross margins could be adversely affected and our business, financial condition, results of operations and prospects could suffer. 18 Our revenue and our revenue growth rates are volatile and may decline or not meet our or our investors' expectations.
If we are unable to pass component price increases along to our customers or maintain stable pricing, our gross margins could be adversely affected and our business, financial condition, results of operations and prospects could suffer. Our revenue and our revenue growth rates are volatile and may decline or not meet our or our investors' expectations.
Our standard sales contracts contain indemnification provisions requiring us to defend our customers against third-party claims, including against infringement, misappropriation or other violation of certain intellectual property rights that could expose us to losses which could seriously harm our business, financial conditions, results of operations and prospects.
Our standard sales contracts contain indemnification provisions requiring us to defend our customers against third-party claims, including against infringement, misappropriation or other violation of certain intellectual property rights 28 that could expose us to losses which could seriously harm our business, financial conditions, results of operations and prospects.
Any claim of infringement, misappropriation or other violations of intellectual property rights by a third-party, even those without merit, could cause us to incur substantial costs defending against the claim, distract our management from our business and require us 33 to cease use or practice of such intellectual property.
Any claim of infringement, misappropriation or other violations of intellectual property rights by a third-party, even those without merit, could cause us to incur substantial costs defending against the claim, distract our management from our business and require us to cease use or practice of such intellectual property.
In some circumstances, we must obtain regulatory 40 approvals or certificates of compliance before we can offer or distribute our products in certain jurisdictions or to certain customers. In recent years, certain jurisdictions have tied these approvals to concerns about international relationships, including, e.g., concerns about entities with components sourced from China.
In some circumstances, we must obtain regulatory approvals or certificates of compliance before we can offer or distribute our products in certain jurisdictions or to certain customers. In recent years, certain jurisdictions have tied these approvals to concerns about international relationships, including, e.g., concerns about entities with components sourced from China.
For example, with our most recently introduced 800 GbE and AI focused Ethernet products, our ability to continue to maintain our competitive position with our customers will depend on our ability to deliver these new products in a timely manner, our customers' acceptance of these products and the growth of the markets that these products serve.
For example, with our most recently introduced 800 GbE and AI focused Ethernet 21 products, our ability to continue to maintain our competitive position with our customers will depend on our ability to deliver these new products in a timely manner, our customers' acceptance of these products and the growth of the markets that these products serve.
Moreover, we cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that we would not be exposed to unknown liabilities. We may not 24 be successful in retaining or expanding the customers and sales activities of any acquired business or in realizing the expected operational and cost efficiencies anticipated with the acquisition.
Moreover, we cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that we would not be exposed to unknown liabilities. We may not be successful in retaining or expanding the customers and sales activities of any acquired business or in realizing the expected operational and cost efficiencies anticipated with the acquisition.
In 2023, the U.S. government expanded the list of advanced integrated circuits subject to heightened export controls, including certain hardware containing these specified integrated circuits, expanded the list of destinations requiring export authorization for such items, and added new restrictions based on the headquarters location of the parties involved.
In 2023 and 2024, the U.S. government expanded the list of advanced integrated circuits subject to heightened export controls, including certain hardware containing these specified integrated circuits, expanded the list of destinations requiring export authorization for such items, and added new restrictions based on the headquarters location of the parties involved.
In addition, some claims for patent infringement may relate to subcomponents that we purchase from third parties. If these third parties are unable or unwilling to indemnify us for these claims, we could be substantially harmed. The patent portfolios of most of our competitors are larger than ours.
In addition, some claims for patent infringement may relate to subcomponents that we purchase from third parties. If these third parties are unable or unwilling to indemnify us for these claims, we could be substantially harmed. 34 The patent portfolios of most of our competitors are larger than ours.
Complying with new regulations or obtaining certifications, especially as standards evolve, may be costly and disruptive to our business and also may affect our ability to sell our products where these standards or regulations apply, which in turn may prevent us from sustaining our net revenues or achieving profitability.
Complying with new regulations or obtaining certifications, especially as standards evolve, may be costly and disruptive to our business and also may affect our ability to sell 42 our products where these standards or regulations apply, which in turn may prevent us from sustaining our net revenues or achieving profitability.
Any such disruption of our suppliers, our contract manufacturers or our service providers would likely impact our sales and operating results. In addition, a health epidemic could adversely affect the economies of many countries, resulting in an economic downturn that could affect demand for our products and likely impact our operating results.
Any such disruption of our suppliers, our contract manufacturers or our service providers would likely impact our sales and operating results. In addition, a health epidemic could adversely affect the economies of many countries, resulting in an economic downturn that could affect demand for our products 49 and likely impact our operating results.
This could also adversely affect our ability to meet our scheduled product deliveries to our customers, which could damage our customer relationships and cause the loss of sales to existing or potential customers, late delivery penalties, delayed revenue or an increase in our costs which could adversely affect our gross margins.
This could also adversely affect our ability to meet our scheduled product deliveries to our customers, which could damage our customer relationships 33 and cause the loss of sales to existing or potential customers, late delivery penalties, delayed revenue or an increase in our costs which could adversely affect our gross margins.
Further, there could be criminal penalties for knowing or willful violations, including incarceration for culpable employees and managers. Obtaining the necessary export license or other authorization for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities.
Further, there could be criminal penalties for knowing or willful violations, including incarceration for culpable employees and managers. Obtaining the 45 necessary export license or other authorization for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities.
Selling to government entities requires us to comply with various regulations that are not applicable to sales to non-government entities, including regulations that may relate to pricing, prohibitions against use of certain foreign components in our products and services, anti-corruption and other matters.
Selling to government entities requires us to comply with various regulations that are not applicable to sales to non-government 29 entities, including regulations that may relate to pricing, prohibitions against use of certain foreign components in our products and services, anti-corruption and other matters.
In any efforts to develop technical redesigns for these products or services, we (or our component suppliers) may be unable to do so in a manner that does not continue to infringe the third-party intellectual property or that is acceptable to our customers.
In any efforts to develop technical redesigns for these products or services, we (or our component suppliers) may be unable to do so in a manner that does not continue to infringe the third-party intellectual property right or that is acceptable to our customers.
We may choose not to seek patent 34 protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions. Further, we do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims.
We may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions. Further, we do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims.
In addition, geopolitical tensions, such as the Russia-Ukraine conflict, the Israel-Hamas hostilities and deteriorating relations with China, may create a greater risk of cyberattacks against our company and our manufacturers, suppliers, logistics providers, banks and other business partners.
In addition, geopolitical tensions and conflicts, such as the Russia-Ukraine conflict, the Israel-Hamas hostilities and deteriorating relations with China, may create a greater risk of cyberattacks against our company and our manufacturers, suppliers, logistics providers, banks and other business partners.
We and all of the aforementioned third parties also face the risk of ransomware and other malicious software, phishing schemes and oth er social engineering methods, fraud and other malfeasance, cybersecurity threats from state sponsors and other actors, and intentional or negligent acts or omissions of employees and contractors.
We and the aforementioned third parties also face the risk of ransomware and other malicious software, phishing schemes and oth er social engineering methods, fraud and other malfeasance, cybersecurity threats from state sponsors and other actors, and intentional or negligent acts or omissions of employees and contractors.
Global geopolitical and macroeconomic uncertainties have resulted in prolonged manufacturing and supply chain disruptions, including temporary closures of certain contract manufacturer and supplier facilities particularly within China and controls on certain supplies including China's restrictions in the use of Micron products and its controls on metals used in semiconductor manufacturing such as gallium and germanium which, in turn, have caused and may continue to cause shortages of, and extended lead times for, components used to manufacture our products, increases in the prices for such components, a reduction, unpredictability or interruption of supply, prioritization of component shipments to other vendors and decommitments of orders.
Global geopolitical and macroeconomic uncertainties have resulted in prolonged manufacturing and supply chain disruptions, including temporary closures of certain manufacturing and supplier facilities particularly within China and controls on certain supplies including China's restrictions in the use of Micron products and its controls on metals used in semiconductor manufacturing such as gallium and germanium which, in turn, have caused and may continue to cause shortages of, and extended lead times for, components used to manufacture our products, increases in the prices for such components, a reduction, unpredictability or interruption of supply, prioritization of component shipments to other vendors and decommitments of orders.
Accordingly, if our cybersecurity systems and measures or those of any of the aforementioned third parties fail to protect against sophisticated cyber-attacks, other means of effectuating security breaches or incidents, interruptions or other disruptions of our or our third-party service providers’ systems, networks, products, or services, the mishandling of data by employees and contractors, the corruption, loss, or mishandling or other unauthorized processing of data by unauthorized persons, or any other means of unauthorized access to, or use of, our manufacturing process, products, services, networks, systems, or data that we or such third parties maintain, operate, or process, our ability to conduct our business effectively could be damaged in a number of ways, including: • sensitive data regarding our business or our customers, including intellectual property and other proprietary data, could be stolen or lost, modified, rendered unavailable, or otherwise used or processed; • our electronic communications systems, including email and other methods, or other systems, and access to or availability of data, could be disrupted or harmed, and our ability to conduct our business operations could be seriously damaged until such systems or data access and availability can be restored, which we may be unable to achieve in a prompt manner or at all; • our ability to process customer orders and electronically deliver products and services could be degraded, and our distribution channels could be disrupted, resulting in delays in revenue recognition; • defects and security vulnerabilities could be introduced into our software, thereby damaging the reputation and perceived reliability and security of our products and potentially making the data systems of our customers vulnerable to further data loss and cyber incidents; • our manufacturing process, products, services, supply chain, network systems and data could be corrupted; and • personal data of our customers, employees, contractors, and business partners could be lost, accessed, obtained, modified, disclosed or used without authorization, corrupted or made unavailable, or otherwise compromised.
Accordingly, if our cybersecurity systems and measures or those of any of the aforementioned third parties fail to protect against sophisticated cyber-attacks, other means of effectuating security breaches or incidents, interruptions or other disruptions of our or our third-party service providers’ systems, networks, products, or services, the mishandling of data by employees and contractors, the corruption, loss, or mishandling or other unauthorized processing of data by unauthorized persons, or any other means of unauthorized access to, or use of, our manufacturing process, products, services, networks, systems, or data that we or such third parties maintain, operate, or process, our ability to conduct our business effectively could be damaged in a number of ways, including: • sensitive data regarding our business or our customers, including intellectual property and other proprietary data, could be stolen or lost, modified, rendered unavailable, or otherwise assessed, used, or processed in authorized manners; • our electronic communications systems, including email and other methods, or other systems, and access to or availability of data, could be disrupted or harmed, and our ability to conduct our business operations could be seriously damaged until such systems or data access and availability can be restored, which we may be unable to achieve in a prompt manner or at all; • our ability to process customer orders and electronically deliver products and services could be degraded, and our distribution channels could be disrupted, resulting in delays in revenue recognition; • defects and security vulnerabilities could be introduced into our software, thereby damaging the reputation and perceived reliability and security of our products and potentially making the data systems of our customers vulnerable to data loss and security breaches and incidents; • our manufacturing process, products, services, supply chain, network systems and data could be corrupted or otherwise disrupted; and • personal data of our customers, employees, contractors, and business partners could be lost, accessed, obtained, modified, disclosed or used without authorization, corrupted or made unavailable, or otherwise compromised.
In addition, we have provided, and plan to continue to in the future provide, pricing discounts to large customers, which may result 26 in lower margins for the period in which such sales occur. Our gross margins may also fluctuate as a result of the timing of such sales to large customers.
In addition, we have provided, and plan to continue to in the future provide, pricing discounts to large customers, which may result in lower margins for the period in which such sales occur. Our gross margins may also fluctuate as a result of the timing of such sales to large customers.
Additionally, price volatility of our common stock over a given period may cause the average price at which we repurchase our common stock to exceed the stock’s market price at a given point in time. 45 We may further increase or decrease the amount of repurchases of our common stock in the future.
Additionally, price volatility of our common stock over a given period may cause the average price at which we repurchase our common stock to exceed the stock’s market price at a given point in time. We may further increase or decrease the amount of repurchases of our common stock in the future.
Additionally, certain customers have and may continue to engage in cost reduction measures including 31 reductions in capital expenditures and other efficiency efforts which may result in a cancellation of orders or reduce demand for our products.
Additionally, certain customers have and may continue to engage in cost reduction measures including reductions in capital expenditures and other efficiency efforts which may result in a cancellation of orders or reduce demand for our products.
In addition, we are expanding internationally and into adjacent markets including the enterprise market, which requires a significant investment of time, effort and financial resources into hiring and training our sales force to address these markets.
In addition, we are expanding internationally and into adjacent markets including the enterprise and AI market, which requires a significant investment of time, effort and financial resources into hiring and training our sales force to address these markets.
We expect that such concentrated purchases will continue to contribute materially to our revenue for the foreseeable 16 future and that our results of operations may fluctuate materially as a result of such larger customers’ buying patterns.
We expect that such concentrated purchases will continue to contribute materially to our revenue for the foreseeable future and that our results of operations may fluctuate materially as a result of such larger customers’ buying patterns.
Risks Related to Intellectual Property and Other Proprietary Rights • assertions by third parties of intellectual property rights infringement, misappropriation or other violation could harm our business; • failure to protect or assert our intellectual property rights could harm our competitive position; • we rely on the availability of licenses to third-party software and other intellectual property; • failure to comply with licenses to software and other technology could restrict our ability to sell our products; • risk that our competitors could develop products that are similar to or better than ours because we provide access to our software and selected source code to certain partners.
Risks Related to Intellectual Property and Other Proprietary Rights • assertions by third parties of intellectual property rights infringement, misappropriation or other violation could harm our business; • failure or inability to protect or assert our intellectual property rights could harm our competitive position; • we rely on the availability of licenses to third-party software and other intellectual property; • failure to comply with licenses to software and other technology could restrict our ability to sell our products; • our competitors could develop products that are similar to or better than ours because we provide access to our software and selected source code to certain partners.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
We are also subject to environmental laws and regulations governing the management and disposal of hazardous materials and wastes, including the hazardous material content of our products and laws relating to the collection, recycling and disposal of electrical and electronic equipment.
We are also subject to environmental laws and regulations governing the management and disposal of hazardous materials and wastes, including the hazardous material content of our products and laws relating to the collection, recycling and 44 disposal of electrical and electronic equipment.
Risks Related to Ownership of Our Common Stock • the trading price of our common stock has been and may continue to be volatile and the value of your investment could decline; • any future decisions to reduce or discontinue repurchasing our common stock pursuant to our stock repurchase programs could cause the market price of our common stock to decline; • sales of substantial amounts of our common stock could reduce the market price of our common stock; • insiders have substantial control over us; • our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment.
Risks Related to Ownership of Our Common Stock • the trading price of our common stock has been and may continue to be volatile and the value of your investment could decline; • any future decisions to reduce or discontinue repurchasing our common stock pursuant to our stock repurchase program could cause the market price of our common stock to decline; • sales of substantial amounts of our common stock could reduce the market price of our common stock; • insiders have substantial control over us; • our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment.
A substantial portion of our business and revenue depends on the growth and evolution of the networking market, including the evolution of the market for AI networks and the future deployment of Ethernet networking solutions in these AI 20 networks.
A substantial portion of our business and revenue depends on the growth and evolution of the networking market, including the evolution of the market for AI networks and the future deployment of Ethernet networking solutions in these AI networks.
To the extent that additional patents are issued from our patent applications, which is not certain, they may be contested, circumvented or invalidated in the future.
To the extent that additional patents are issued from our patent applications, which is not 35 certain, they may be contested, circumvented or invalidated in the future.
A sales cycle is the period between initial contact with a prospective customer and any sale of our products. End-customer orders often involve the purchase of multiple products.
A sales cycle is the period between initial contact with a prospective customer and any sale of our 27 products. End-customer orders often involve the purchase of multiple products.
Patent and other intellectual property disputes are common in the network infrastructure, network security and Wi-Fi industries and have resulted in protracted and expensive litigation for many companies.
Patent and other intellectual property rights disputes are common in the network infrastructure, network security and Wi-Fi industries and have resulted in protracted and expensive litigation for many companies.
If we combine our software with open source software in a certain manner, we could, under certain open source licenses, be required to release portions of the source code of our software to our customers or the public more generally. 35 This would allow our competitors to create similar products with lower development effort and time and ultimately could result in a loss of product sales for us.
If we combine our software with open source software in a certain manner, we could, under certain open source licenses, be required to release portions of the source code of our software to our customers or the public more generally. 36 This would allow our competitors to create similar products with lower development effort and time and ultimately could result in a loss of product sales for us.
In addition, acts of terrorism and war could cause disruptions in our business or the 47 business of our manufacturers, logistics providers, partners or customers or the economy as a whole.
In addition, acts of terrorism and war could cause disruptions in our business or the business of our manufacturers, logistics providers, partners or customers or the economy as a whole.
Despite testing prior to their release, our products may contain undetected defects or errors, especially when first 29 introduced or when new versions are released.
Despite testing prior to their release, our products may contain undetected defects or errors, especially when first introduced or when new versions are released.
As we seek to sell more products to these large customers, an increased mix of our shipments may be subject to such terms and conditions, which may reduce our margins or affect the timing of our revenue recognition and thus may have an adverse effect on our business, financial condition, results of operations and prospects.
As we seek to sell more products to these large customers, an increased mix of our shipments may be subject to such terms and conditions, which may reduce our margins or affect the timing and amount of revenue, and thus may have an adverse effect on our business, financial condition, results of operations and prospects.
The larger magnitude of these balances, combined with a reduction in customer demand-planning horizons and shifting product priorities, has resulted in increased risk that we may not be able to sell all of this inventory, which in turn has resulted, and may in the future result, in additional excess and obsolete inventory-related charges.
The magnitude of these balances, combined with a reduction in customer demand-planning horizons and shifting product priorities, has resulted in increased risk that we may not be able to sell all of this inventory, which in turn has resulted, and may in the future result, in additional excess 32 and obsolete inventory-related charges.
In addition, business were subject to sustained economic stress or recession, many of the risk factors identified in this risk factors section could be heightened. We determine our operating expenses largely on the basis of anticipated revenue and a high percentage of our expenses are fixed in the short and medium term.
In addition, if business were subject to sustained economic 22 stress or recession, many of the risk factors identified in this risk factors section could be heightened. We determine our operating expenses largely on the basis of anticipated revenue and a high percentage of our expenses are fixed in the short and medium term.
Risks Related to Supply Chain and Manufacturing Managing the supply of our products and product components is complex. Insufficient component supply and inventory may result in los t sales opportunities or delayed revenue, while excess inventory may harm our gross margins.
Risks Related to Supply Chain and Manufacturing Managing the supply of our products and product components is complex. Insufficient component supply and inventory and the time to manufacture our products may result in los t sales opportunities or delayed revenue, while excess inventory may harm our gross margins.
Our income taxes are subject to volatility and could be adversely affected by several factors, some of which are outside of our control, including earnings that are lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates; our ability to generate and use tax attributes; changes in the valuation of our deferred tax assets and liabilities; transfer pricing adjustments from tax authorities challenging our methods for valuing developed technology or intercompany arrangements; tax effects of nondeductible compensation, including certain stock-based compensation; tax costs related to inter-company restructuring; changes in accounting principles; imposition of withholding or other taxes on payments by subsidiaries or customers; or a change in our decision to indefinitely reinvest certain foreign earnings.
Our income taxes are subject to volatility and could be adversely affected by several factors, some of which are outside of our control, including earnings that are lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates; our ability to generate and use tax attributes; changes in the valuation of our deferred tax assets and liabilities; transfer pricing adjustments from tax authorities challenging our methods for valuing developed technology or intercompany arrangements; tax effects of nondeductible compensation, including certain stock-based compensation; tax costs related to inter-company restructuring; changes in accounting principles; changes in tax law and regulations, treaties, or interpretation thereof; imposition of withholding or other taxes on payments by subsidiaries or customers; or a change in our decision to indefinitely reinvest certain foreign earnings.
Complying with these regulations may also require us to put in place controls and procedures to monitor compliance with applicable regulations that may be costly or not possible. Governments also routinely investigate and audit government contractors’ administrative processes and contract compliance.
Complying with these regulations also requires us to put in place controls and procedures to monitor compliance with applicable regulations that may be costly or not possible. Governments also routinely investigate and audit government contractors’ administrative processes and contract compliance.
Our product development efforts are also dependent upon the success of our continued collaboration with our key merchant silicon vendors such as Broadcom and Intel. As we develop our product roadmap, we select specific merchant silicon from these vendors for each new product.
Our product development efforts are also dependent upon the success of our continued collaboration with our key merchant silicon vendors such as Broadcom. As we develop our product roadmap, we select specific merchant silicon from these vendors for each new product.
Risks Related to Cybersecurity and Data Privacy 36 Defects, errors or vulnerabilities in our products, the failure of our products to detect security breaches or incidents, the misuse of our products or the risks of product liability could harm our reputation and adversely impact our operating results.
Risks Related to Cybersecurity and Data Privacy 37 Defects, errors or vulnerabilities in our products, the failure of our products to detect security breaches or incidents, the misuse of our products or the risks of product liability could harm our reputation and adversely impact our operating results.
Managing our manufacturing capacity and extended supply chain is complex, and our inventory management systems and related supply-chain visibility tools may not enable us to forecast accurately and effectively manage the supply of our products and product components.
Managing our manufacturing capacity and extended supply chain is complex, and our inventory management systems and related supply-chain visibility tools may not enable us to effectively manage the supply of our products and product components.
Computer programmers or other persons or organizations may attempt to penetrate our network security, or that of our website or systems, and access, use, or obtain confidential, personal, or otherwise sensitive or proprietary information about us or our customers, or via these or other methods, including denial of service attacks and other cyberattacks, disrupt or cause interruptions of our service.
Computer programmers or other persons or organizations may attempt to penetrate our network security, or that of our website or systems, and access, use, or obtain confidential, personal, or otherwise sensitive or proprietary information about us or our customers, or via these or other methods, including denial of service attacks and other cyberattacks, disrupt or cause interruptions of our systems, products, services and networks.
We cannot assure you that all of our employees, agents, representatives, business partners or third-party intermediaries will not take actions in violation of applicable law for which we may be ultimately held responsible. As we increase our international sales and business, our risks under these laws may increase.
We cannot assure you that all of our employees, agents, representatives, business partners or third-party intermediaries will not take actions in violation of applicable law for which we may be ultimately held responsible. As we have increased our international sales and business, our risks under these laws have increased.
Weak domestic or global economic conditions and continuing economic uncertainty, fear or anticipation of such conditions, a recession, international trade disputes, global pandemics such as the COVID-19 pandemic, or a reduction in information technology and network infrastructure spending or a deterioration of the financial performance, condition or prospects of our customers even if economic conditions improve, could adversely affect our business, financial condition, results of operations and prospects in a number of ways, including longer sales cycles, reduced demand or lower prices for our products and services, higher default rates among our channel partners, reduced unit sales and lower or no growth.
Weak domestic or global economic conditions and continuing economic uncertainty, fear or anticipation of such conditions, a recession, geopolitical pressures, including international trade disputes, global pandemics such as the COVID-19 pandemic, or a reduction in information technology and network infrastructure spending or a deterioration of the financial performance, condition or prospects of our customers, could adversely affect our business, financial condition, results of operations and prospects in a number of ways, including longer sales cycles, reduced demand or lower prices for our products and services, higher default rates among our channel partners, reduced unit sales and lower or no growth.
We have been and could continue to be subject to manufacturing disruptions and supply chain delays. This places significant pressure on supply chain management, manufacturing, inventory and quality control management, shipping and trade compliance. Consequently, this has hindered and may continue to hinder our ability to forecast component supply, manufacturing capacity and timing of inventory receipts.
We have been and could be subject to manufacturing disruptions and supply chain delays in the future. This places significant pressure on supply chain management, manufacturing, inventory and quality control management, shipping and trade compliance. Consequently, this has hindered and may continue to hinder our ability to forecast component supply, manufacturing capacity and timing of inventory receipts.
For all of these reasons, it is difficult to predict whether a sale will be completed, the particular period in which a sale will be completed or the period in which revenue from a sale will be recognized.
For all of these reasons, it is difficult to predict whether a sale will be completed, the particular period in which a sale will be completed or the period in which revenue from a sale will be recognized, if at all.
Similarly, we rely upon distributors, resellers and system integrators to sell our products and our 37 sales operations depend, in part, on the reliability of their cybersecurity measures.
Similarly, we rely upon distributors, resellers and system integrators to sell our products and our sales 38 operations depend, in part, on the reliability of their cybersecurity measures.
Seasonality and industry cyclicality may cause fluctuations in our revenue and results of operations. We operate on a December 31st year end and typically have lower sequential quarter over quarter revenue growth in the first quarter of each fiscal year, often followed by stronger sequential revenue growth in subsequent quarters.
Seasonality and industry cyclicality may cause fluctuations in our revenue and results of operations. We operate on December 31st year end and typically have lower sequential quarter over quarter revenue growth in the first quarter of each fiscal year, often followed by stronger sequential revenue growth in the ensuing quarters.
If our forecasts are materially inaccurate or change, customers' orders are cancelled or if we otherwise do not need such inventory, we may under- or over-procure inventory, which could materially adversely affect our business, financial condition and results of operations. Interruptions or delays in shipments could cause our revenue for the applicable period to fall below expected levels.
If our forecasts materially change from our initial projections, customers' orders are cancelled or if we otherwise do not need such inventory, we may under- or over-procure inventory, which could materially adversely affect our business, financial condition and results of operations. Interruptions or delays in shipments could cause our revenue for the applicable period to fall below expected levels.
We are exposed to the credit risk of our channel partners and some of our customers, which could result in material losses. Most of our contracts with customers are on an open credit basis, with standard payment term s payment terms of 30 days and the remainder generally between 30 to 90 days .
We are exposed to the credit risk of our channel partners and some of our customers, which could result in material losses. Most of our contracts with customers are on an open credit basis, with standard payment term s payment terms of 30 to 90 days .
AI technologies also present emerging ethical and social issues, including with respect to potential or actual bias reflected in, or flawed outputs of, 43 models.
AI technologies also present emerging legal, ethical and social issues, including with respect to potential or actual bias reflected in, or flawed outputs of, models.
The regulatory environment applicable to the handling of EEA residents’ personal data, and our actions taken in response, may cause us to assume additional liabilities or incur additional costs and could result in our business, operating results and financial condition being harmed.
The regulatory environment applicable to the handling of personal data of EEA and UK residents, and our actions taken in response, may cause us to assume additional liabilities or incur additional costs and could result in our business, operating results and financial condition being harmed.
Uncertainty around new and emerging AI technologies may require additional investment in the development and maintenance of proprietary datasets and machine learning models, development of new approaches and processes to provide attribution or remuneration to creators of training data, and development of appropriate protections, safeguards, and policies for handling the processing of data with AI technologies, which may be costly and could impact our expenses.
Uncertainty around new and emerging AI technologies may require additional investment in the obtaining, developing and maintaining of proprietary datasets and machine learning models, development of new approaches and processes to provide attribution or remuneration to creators of training data, and development of appropriate protections, safeguards, and policies for handling the processing of data with AI technologies, which may be costly and could impact our expenses.
Moreover, even if the market for AI applications does develop, the successful adoption of AI Ethernet products will be dependent upon their ability to compete against more established InfiniBand products to address AI networking clusters.
Moreover, even if the market for AI applications does develop, the successful adoption of AI Ethernet products will be dependent upon their ability to compete against more established InfiniBand products or against the AI Ethernet products of other competitors to address AI networking clusters.
We have also outsourced a number of our business functions to third parties, including our manufacturers, logistics providers, and cloud service providers, and our business operations also depend, in part, on the success of these third parties’ own cybersecurity measures.
We have also outsourced some business functions to third parties, including our manufacturers, logistics providers, and cloud service providers, and our business operations also depend, in part, on the success of these third parties’ own cybersecurity measures.
Accordingly, we cannot predict the full impact of the CCPA, the CPRA or other evolving privacy and data protection obligations on our business or operations.
Accordingly, we cannot predict the full impact of other evolving privacy and data protection obligations on our business or operations.
Such shortages, increased component lead times, reduced allocations of components and decommitments of orders have resulted in and may continue to result in increased component prices, fewer sourcing options, unpredictability of supply, prolonged manufacturing disruptions and increased product lead times, which has impacted and may continue to adversely impact our revenue and gross margins.
Such shortages, increased component lead times, reduced allocations of components and rejections or decommitments of orders have resulted in and may continue to result in increased component prices, fewer sourcing options, unpredictability of supply, prolonged manufacturing disruptions and increased product lead times, which has impacted and may in the future adversely impact our revenue and gross margins.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe Committee receives quarterly reports from our Vice President and Chief Information Security Officer (CISO), in conjunction with other senior managers, on cybersecurity risks. In 49 addition, these managers update the Committee, as necessary, regarding any material cybersecurity incidents, as well as incidents with lesser impact potential.
Biggest changeThe Committee receives quarterly reports from our Vice 51 President and Chief Information Security Officer (CISO), in conjunction with other senior managers, on cybersecurity risks. In addition, these managers update the Committee, as necessary, regarding any material cybersecurity incidents, as well as incidents with lesser impact potential.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our corporate headquarters are located in Santa Clara, California where we lease approximately 180,000 square feet of space under a lease agreement that expires in September 2026. During the year ended December 31, 2021, we purchased land and the improvements thereon in Santa Clara, California to construct a building for office and lab space .
Biggest changeItem 2. Properties Our corporate headquarters are located in Santa Clara, California where we lease approximately 180,000 square feet of space under a lease agreement that expires in September 2026. During the year ended December 31, 2021, we purchased land and the improvements thereon in Santa Clara, California to construct a building for office, lab and data center space .

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings The information set forth under the “Legal Proceedings” in Note 5. Commitments and Contingencies of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. 50 PART II
Biggest changeItem 3. Legal Proceedings The information set forth under the “Legal Proceedings” in Note 5. Commitments and Contingencies of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. 52 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe Repurchase Program does not obligate us to acquire any of our common stock and may be suspended or discontinued by us at any time without prior notice. We did not repurchase any shares during the three months ended December 31, 2023. For our repurchase activities made during the year ended December 31, 2023, please refer to Note 6.
Biggest changeThe Repurchase Programs do not obligate us to acquire any of our common stock, and may be suspended or discontinued by the company at any time without prior notice.
Dividend Policy We have never declared nor paid any dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.
Dividend Policy We have never declared nor paid any cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.
Stockholders' Equity and Stock-Based Compensation of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K. Recent Sales of Unregistered Equity Securities There were no sales of unregistered securities during fiscal year 2023.
Stockholders' Equity and Stock-Based Compensation of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K. Recent Sales of Unregistered Equity Securities There were no sales of unregistered securities during fiscal year 2024.
The graph assumes $1 00 was invested at the market close on December 31, 2018 in the Company’s common stock and in each of the aforementioned indices with the re-investment of dividends, if any.
The graph assumes $1 00 was invested at the market close on December 31, 2019 in the Company’s common stock and in each of the aforementioned indices with the re-investment of dividends, if any.
The stock price performance on the following graph is not necessarily indicative of future stock price performance. 51 Securities Authorized for Issuance Under Equity Compensation Plans Information about securities authorized for issuance under our equity compensation plans is provided in Note 6.
The stock price performance on the following graph is not necessarily indicative of future stock price performance. 53 Securities Authorized for Issuance Under Equity Compensation Plans Information about securities authorized for issuance under our equity compensation plans is provided in Note 6.
The following graph compares the cumulative total return of our common stock with the total return for the NYSE Composite Index and the Standard & Poor’s 500 Index (the “S&P 500”) from December 31, 2018 (the last trading day of the year) to December 31, 2023.
The following graph compares the cumulative total return of our common stock with the total return for the NYSE Composite Index and the Standard & Poor’s 500 Index (the “S&P 500”) from December 31, 2019 (the last trading day of the year) to December 31, 2024.
Stockholders' Equity and Stock-Based Compensation of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K. 52 Item 6. [Reserved] 53
Stockholders' Equity and Stock-Based Compensation of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the NYSE under the symbol “ANET”. As of February 7, 2024, there were 52 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the NYSE under the symbol “ANET”. As of February 12, 2025, there were 44 holders of record of our common stock.
During the fourth quarter of 2023, there were no repurchases of unvested shares of our common stock made pursuant to our equity incentive plans as a result of us exercising our rights nor pursuant to any publicly-announced plan or program. Stock Repurchase Program In October 2021, our board of directors authorized a $1.0 billion stock repurchase program (the “Repurchase Program”).
During the fourth quarter of 2024, there were no repurchases of unvested shares of our common stock made pursuant to our equity incentive plans as a result of us exercising our rights nor pursuant to any publicly-announced plan or program.
This authorization allows us to repurchase shares of our common stock funded from working capital. The Repurchase Program expires in the fourth quarter of 2024.
Stock Repurchase Program From time to time, we repurchase shares of our common stock pursuant to the Repurchase Programs (as defined below) that are funded from working capital. In April 2024, we completed repurchases under our previous $1.0 billion stock repurchase program (the “Prior Repurchase Program”).
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Repurchases may be made at management's discretion from time to time on the open market, through privately negotiated transactions, transactions structured through investment banking institutions, block purchase techniques, 10b5-1 trading plans, or a combination of the foregoing.
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In May 2024, our board of directors authorized and announced a new $1.2 billion stock repurchase program (the “New Repurchase Program” and together with the Prior Repurchase Program, the "Repurchase Programs"), which expires in May 2027.
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During the year ended December 31, 2024, we repurchased a total of $279.0 million of our common stock under our New Repurchase Program and $144.6 million of our common stock under our Prior Repurchase Program. As of December 31, 2024, the remaining authorized amount for stock repurchases under the New Repurchase Program was approximately $921.0 million.
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Our repurchases for the three months ended December 31, 2024 are disclosed as below (in thousands, except per share amounts). For our repurchase activities made for the year ended December 31, 2024, please refer to Note 6.
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Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Plans or Programs October 1, 2024 - October 31, 2024 — $ — — $ 1,044,650 November 1, 2024 - November 30, 2024 (1) 1,306 94.80 1,306 920,854 December 1, 2024 - December 31, 2024 — — — 920,854 1,306 1,306 (1) November results have been adjusted to reflect the four-for-one stock split effected in December, 2024.
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See Note 1,Organization and Summary of Accounting Policies, included in Part II, Item 8, of this Annual Report on Form 10-K for details. 54 Item 6. [Reserved] 55

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeNet non-cash adjustments primarily consisted of $230.9 million of stock-based compensation expenses and $62.7 million of depreciation, amortization and other expenses, which were largely offset by an increase in deferred income taxes of $244.4 million primarily resulting from increased deferred tax assets associated with the capitalization of research and development costs under IRC Section 174.
Biggest changeNet non-cash adjustments primarily consisted of an increase in deferred income taxes of $492.9 million primarily resulting from increased deferred tax assets associated with the increase in deferred revenue and capitalization of research and development costs under IRC Section 174, which were largely offset by $355.4 million of stock-based compensation expenses. 63 During the year ended December 31, 2023, cash provided by operating activities was $2.0 billion, primarily from net income of $2.1 billion, offset by net non-cash adjustments to net income of $37.4 million, and a net change of $15.9 million in working capital requirements.
The change in working capital requirements primarily 61 consisted of a $655.5 million increase in inventory in response to a significant increase in business volume, a $101.5 million increase in accounts receivable due to the larger business volume and timing of shipments in the fourth quarter of 2023, as well as a $66.4 million increase in other assets primarily driven by increased deferred cost of sales associated with higher product revenue deferrals.
The change in working capital requirements primarily consisted of a $655.5 million increase in inventory in response to a significant increase in business volume, a $101.5 million increase in accounts receivable due to the larger business volume and timing of shipments in the fourth quarter of 2023, as well as a $66.4 million increase in other assets primarily driven by increased deferred cost of sales associated with higher product revenue deferrals.
We record a liability and a corresponding charge for non-cancellable, non-returnable purchase commitments with our contract manufacturers or suppliers for quantities in excess of our demand forecasts or that are considered obsolete due to manufacturing and engineering change orders resulting from design changes. 64 We use significant judgment in establishing our forecasts of future demand and obsolete material exposures.
We record a liability and a corresponding charge for non-cancellable, non-returnable purchase commitments with our contract manufacturers and suppliers for quantities in excess of our demand forecasts or that are considered obsolete due to manufacturing and engineering change orders resulting from design changes. We use significant judgment in establishing our forecasts of future demand and obsolete material exposures.
The extent of the impact of these factors on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, the impact on our customers, partners, employees, contract manufacturers and supply 55 chain, all of which continue to evolve and are unpredictable.
The extent of the impact of these factors on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, the impact on our customers, partners, employees, contract manufacturers and supply chain, all of which continue to evolve and are unpredictable.
We base our estimates, assumptions and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements, which, in turn, could change the results from those reported.
We base our estimates, assumptions and judgments on 65 historical experience and on various other factors that we believe to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements, which, in turn, could change the results from those reported.
Overview Arista Networks is an industry leader in data-driven, client to cloud networking for large data center, campus and routing environments. Arista's platforms deliver availability, agility, automation, analytics and security through an advanced network operating stack.
Overview Arista Networks is an industry leader in data-driven, client to cloud networking for large AI, data center, campus and routing environments. Arista's platforms deliver availability, agility, automation, analytics and security through an advanced network operating stack.
We generally use a range of amounts to estimate SSP for individual products and services based on multiple factors including, but not limited to, product category, actual and expected volume, discounting policies, and end customer vertical and size.
We generally use a range of amounts to estimate SSP for individual products and services based on multiple factors including, but not limited to, product category, actual and expected volume, discounting policies, and customer vertical and size.
The preparation of these consolidated financial statements requires our management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during 63 the applicable periods.
The preparation of these consolidated financial statements requires our management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the applicable periods.
In addition, any prolonged economic disruptions or further deterioration in the global economy could have a negative impact on demand from our customers in future periods, particularly in the enterprise market where we are continuing to expand our penetration. Accordingly, current results and financial conditions discussed herein may not be indicative of future operating results and trends.
Furthermore, any prolonged economic disruptions or further deterioration in the global economy could have a negative impact on demand from our customers in future periods, particularly in the enterprise market where we are continuing to expand our penetration. Accordingly, current results and financial conditions discussed herein may not be indicative of future operating results and trends.
We have experienced unpredictability in the timing of orders from these large customers primarily due to the time it takes these customers to evaluate, test, qualify and accept our newer products, the overall complexity of these large orders and changes in demand patterns specific to these customers, including reductions in capital expenditures by these customers and the impact of cost reduction and other efficiency efforts by these customers.
We have experienced unpredictability in the timing of orders from these large customers primarily due to the time it takes these customers to evaluate, test, qualify and accept our newer products, the overall complexity of these large orders and changes in demand patterns specific to these customers, including reductions in or changes in mix of capital expenditures by these customers and the impact of cost reduction and other efficiency efforts by these customers.
Off-balance sheet arrangements As of December 31, 2023, we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Off-balance Sheet Arrangements As of December 31, 2024, we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Recent Accounting Pronouncements Refer to the subheading titled “ Recently Adopted Accounting Pronouncements” in Note 1. Organization and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K. 65
Recent Accounting Pronouncements Refer to the subheading titled “ Recently Adopted Accounting Pronouncements” in Note 1. Organization and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K. 67
Sales and marketing expenses increased by $72.1 million, or 22.0%, for the year ended December 31, 2023 compared to 2022. The increase was primarily caused by increased personnel costs driven by headcount growth, in addition to increased sales and marketing events and field demonstration costs. General and administrative.
Sales and marketing Sales and marketing expenses increased by $72.1 million, or 22.0%, for the year ended December 31, 2023 compared to 2022. The increase was primarily caused by increased personnel costs driven by headcount growth, in addition to increased sales and marketing events and field demonstration costs.
The increase in our income taxes was largely due to an increase in pre-tax income, partly offset by an increase in tax benefits attributable to stock-based compensation. The decrease in our effective tax rate was primarily due to a 58 reduction of unrecognized tax benefits on uncertain tax positions due to the expiration of the statute of limitations.
The increase in our income taxes was largely due to an increase in pre-tax income, partly offset by an 62 increase in tax benefits attributable to stock-based compensation. The decrease in our effective tax rate was primarily due to a reduction of unrecognized tax benefits on uncertain tax positions due to the expiration of the statute of limitations.
The larger magnitude of these balances, combined with a reduction in customer demand-planning horizons and shifting customer product priorities, has resulted in increased risk that we may not be able to sell all of this inventory, which in turn has resulted, and may in the future result, in additional excess and obsolete inventory and supplier liability charges.
The magnitude of these balances, combined with a reduction in customer demand-planning horizons and shifting customer product priorities, has resulted in increased risk that we may not be able to sell all of this inventory, which in turn has resulted in additional excess and obsolete inventory and supplier liability charges.
Property project During the year ended December 31, 2021, we purchased land and the improvements thereon in Santa Clara, California to construct a building for office and lab space.
Property project During the year ended December 31, 2021, we purchased land and the improvements thereon in Santa Clara, California to construct a building for office, lab and data center space.
Year Ended December 31, 2023 2022 Change in $ % of Revenue $ % of Revenue $ % Provision for income taxes $ 334,705 5.7 % $ 229,350 5.2 % $ 105,355 45.9 % Effective tax rate 13.8 % 14.5 % Our provision for income taxes increased in 2023, as compared to 2022, and our effective tax rate decreased in 2023, as compared to 2022.
Provision for Income Taxes (in thousands, except percentages) Year Ended December 31, 2023 2022 Change in $ % of Revenue $ % of Revenue $ % Provision for income taxes $ 334,705 5.7 % $ 229,350 5.2 % $ 105,355 45.9 % Effective tax rate 13.8 % 14.5 % Our provision for income taxes increased in 2023, as compared to 2022, and our effective tax rate decreased in 2023 as compared to 2022.
The increase was primarily due to a $84.1 million increase in personnel costs driven by an increase in headcount, and a $40.7 million increase in new product introduction costs, including non-recurring engineering costs and prototype expenses as we expand our product portfolio. 57 Sales and marketing.
The increase was primarily due to a $84.1 million increase in personnel costs driven by an increase in headcount, and a $40.7 million increase in new product introduction costs, including non-recurring engineering costs and prototype expenses as we expand our product portfolio.
Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the introduction of new and enhanced product and service offerings, our costs associated with supply chain activities, including access to outsourced manufacturing, our costs related to investing in or acquiring complementary or strategic businesses and technologies, the continued market acceptance of our products, capital expenditures and stock repurchases.
Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the introduction of new and enhanced product and service offerings, our costs associated with supply chain activities, including access to outsourced manufacturing, our costs related to investing in or acquiring complementary or strategic businesses and technologies, the continued market acceptance of our products, stock repurchases, and capital expenditures, including the construction of a new building in Santa Clara, California.
We expect our gross margin to fluctuate over time, depending on the factors described above. Gross margin increased from 61.1% for the year ended December 31, 2022 to 61.9% for the year ended December 31, 2023.
We expect our gross margin to fluctuate over time, depending on the factors described above. Gross margin increased from 61.9% for the year ended December 31, 2023 to 64.1% for the year ended December 31, 2024.
These estimates depend on our assessment of current and expected orders from our customers, product development plans and current sales levels. In addition, industry-wide supply chain shortages have resulted in extended lead times for components, and we were required to extend the time horizon of our demand forecasts.
These estimates depend on our assessment of current and expected orders from our customers, product development plans and current sales levels. In addition, industry-wide supply chain shortages in prior years have resulted in extended lead times for some 66 components, and consequently we were required to extend the time horizon of our demand forecasts.
Other Income, Net (in thousands, except percentages) Other income (expense), net consists primarily of interest income from our cash, cash equivalents and marketable securities, gains and losses on our marketable securities and strategic investments, and foreign currency transaction gains and losses.
Other Income, Net (in thousands, except percentages) Other income (expense), net consists primarily of interest income from our cash, cash equivalents and marketable securities, and gains and losses on our strategic investments.
As of December 31, 2023, the incremental cash tax impact resulting from the regulation was approximately $191.7 million for the year, of which substantially all the liability has been paid. It is anticipated that IRC Section 174 will result in cash tax outlays exceeding our income tax expense over the next three years unless the current legislation is changed.
As of December 31, 2024, the incremental cash tax impact resulting from the regulation was approximately $210.2 million for the year, of which substantially all the liability has been paid. It is anticipated that IRC Section 174 will result in cash tax outlays exceeding our income tax expense over the next three years unless the current legislation is changed.
Our future success is dependent upon our ability to continue to evolve and adapt to our rapidly changing environment. We must also continue to develop 54 market-leading products and features that address the needs of our existing and new customers, and increase sales in the enterprise data center switching, and campus workspace markets.
Our future success is dependent upon our ability to continue to evolve and adapt to our rapidly changing environment. We must also continue to develop market-leading products and software features that address the changing needs of our existing and new customers, and increase sales in the cloud, AI and enterprise data center ethernet switching/routing markets, and campus workspace markets.
Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including pricing pressure on our products and services due to competition, the mix of sales to large customers who generally receive lower pricing, the mix of products sold, manufacturing-related costs, including costs associated with supply chain sourcing activities, merchant silicon costs, and excess/obsolete inventory charges, including charges for excess/obsolete component inventory held by our contract manufacturers and suppliers.
Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including pricing pressure on our products and services due to competition, the mix of sales to large customers who generally receive lower pricing, the mix of products sold, manufacturing-related costs, including costs associated with supply chain sourcing activities, merchant silicon costs, and excess/obsolete inventory and supplier liability charges.
In connection with the TCJA, effective from January 1st, 2022, the TCJA eliminates the option to deduct research and development expenditures currently and requires taxpayers to capitalize and amortize them over five or fifteen years pursuant to IRC Section 174.
In connection with the TCJA, effective from January 1st, 2022, the TCJA eliminates the option to deduct research and development expenditures currently and requires taxpayers to capitalize and amortize them over five or fifteen years pursuant to Internal Revenue Code (“IRC”) Section 174.
Results of Operations Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Revenue, Cost of Revenue and Gross Margin (in thousands, except percentages) Year Ended December 31, 2023 2022 Change in $ % of Revenue $ % of Revenue $ % Revenue Product $ 5,029,493 85.8 % $ 3,716,079 84.8 % $ 1,313,414 35.3 % Service 830,675 14.2 665,231 15.2 165,444 24.9 Total revenue 5,860,168 100.0 4,381,310 100.0 1,478,858 33.8 Cost of revenue Product 2,061,167 35.2 1,573,629 35.9 487,538 31.0 Service 168,720 2.9 131,985 3.0 36,735 27.8 Total cost of revenue 2,229,887 38.1 1,705,614 38.9 524,273 30.7 Gross profit $ 3,630,281 61.9 % $ 2,675,696 61.1 % $ 954,585 35.7 % Gross margin 61.9 % 61.1 % Revenue by Geography (in thousands, except percentages) Year Ended December 31, 2023 % of Total 2022 % of Total Americas $ 4,651,193 79.4 % $ 3,462,621 79.0 % Europe, Middle East and Africa 670,960 11.4 529,800 12.1 Asia-Pacific 538,015 9.2 388,889 8.9 Total revenue $ 5,860,168 100.0 % $ 4,381,310 100.0 % Revenue Product revenue primarily consists of sales of our switching and routing products, and related network applications.
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Revenue, Cost of Revenue and Gross Margin (in thousands, except percentages) 60 Year Ended December 31, 2023 2022 Change in $ % of Revenue $ % of Revenue $ % Revenue Product $ 5,029,493 85.8 % $ 3,716,079 84.8 % $ 1,313,414 35.3 % Service 830,675 14.2 665,231 15.2 165,444 24.9 Total revenue 5,860,168 100.0 4,381,310 100.0 1,478,858 33.8 Cost of revenue Product 2,061,167 35.2 1,573,629 35.9 487,538 31.0 Service 168,720 2.9 131,985 3.0 36,735 27.8 Total cost of revenue 2,229,887 38.1 1,705,614 38.9 524,273 30.7 Gross profit $ 3,630,281 61.9 % $ 2,675,696 61.1 % $ 954,585 35.7 % Gross margin 61.9 % 61.1 % Revenue by Geography (in thousands, except percentages) Year Ended December 31, 2023 % of Total 2022 % of Total Americas $ 4,651,193 79.4 % $ 3,462,621 79.0 % Europe, Middle East and Africa 670,960 11.4 529,800 12.1 Asia-Pacific 538,015 9.2 388,889 8.9 Total revenue $ 5,860,168 100.0 % $ 4,381,310 100.0 % Revenue Product revenue increased by $1.3 billion, or 35.3%, for the year ended December 31, 2023 compared to 2022.
Accrued Income Taxes As of December 31, 2023, we have recorded long-term tax liabilities of $95.8 million related to uncertain tax positions; however, we are unable to make a reasonably reliable estimate of the timing of settlement, if any, of these future payments.
Accrued Income Taxes As of December 31, 2024, we have recorded long-term tax liabilities of $110.0 million related to uncertain tax positions; however, we are unable to make a reasonably reliable estimate of the timing of settlement, if any, of these future payments.
Leases We have operating lease arrangements for office space, data center, equipment and other corporate assets. As of December 31, 2023, we had lease payment obligations, net of immaterial sublease income, of $72.0 million, with $24.0 million payable within 12 months.
Leases We have operating lease arrangements for office space, data center, equipment and other corporate assets. As of December 31, 2024, we had lease payment obligations, net of immaterial sublease income, of $65.3 million, with $24.7 million payable within 12 months.
We expect other income (expense), net may fluctuate in the future as a result of the re-measurement of our equity investments upon the occurrence of either observable price changes or impairments, changes in interest rates or returns on our cash and cash equivalents and marketable securities, and foreign currency exchange rate fluctuations.
We expect other income (expense), net may fluctuate in the future as a result of changes in interest rates, changes in our cash, cash equivalents and marketable securities balances, and the re-measurement of our equity investments upon the occurrence of either observable price changes or impairments.
General and administrative expenses consist primarily of personnel costs and professional services costs for our finance, human resources, legal and certain executive functions. Our professional services costs are primarily related to external legal, accounting, and tax services. General and administrative expenses increased by $25.8 million, or 27.7%, for the year ended December 31, 2023 compared to 2022.
General and administrative expenses consist primarily of personnel costs and professional services costs for our finance, human resources, legal and certain executive functions. Our professional services costs are primarily related to external legal, accounting, and tax services. General and administrative expenses increased by $3.6 million, or 3.0%, for the year ended December 31, 2024 compared to 2023.
Liquidity and Capital Resources Our principal sources of liquidity are cash, cash equivalents, marketable securities, and cash generated from operations. As of December 31, 2023, our total balance of cash, cash equivalents and marketable securities was $5.0 billion, of which approximately $770.3 million was held outside the U.S. in our foreign subsidiaries.
Liquidity and Capital Resources Our principal sources of liquidity are cash, cash equivalents, marketable securities, and cash generated from operations. As of December 31, 2024, our total balance of cash, cash equivalents and marketable securities was $8.3 billion, of which approximately $1.4 billion was held outside the U.S. in our foreign subsidiaries.
Operating Expenses (in thousands, except percentages) Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. The largest component of our operating expenses is personnel costs. Personnel costs consist of wages, benefits, bonuses and, with respect to sales and marketing expenses, sales commissions. Personnel costs also include stock-based compensation and travel-related expenses.
The largest component of our operating expenses is personnel costs. Personnel costs consist of wages, benefits, bonuses and, with respect to sales and marketing expenses, sales commissions. Personnel costs also include stock-based compensation and travel-related expenses.
Cost of service revenue primarily consists of personnel and other costs associated with our global customer support and services organizations. Cost of revenue increased by $524.3 million, or 30.7% for the year ended December 31, 2023 compared to 2022.
Cost of service revenue primarily consists of 58 personnel and other costs associated with our global customer support and services organizations. Cost of revenue increased by $282.0 million, or 12.6% for the year ended December 31, 2024 compared to 2023.
Year Ended December 31, 2023 2022 Change in $ % of Revenue $ % of Revenue $ % Other income (expense), net: Interest income $ 152,421 2.6 % $ 27,556 0.6 % $ 124,865 453.1 % Gain (loss) on strategic investments 18,699 0.3 27,479 0.6 (8,780) (32.0) Other income (expense), net (6,343) (0.1) (345) — (5,998) 1,738.6 Total other income, net $ 164,777 2.8 % $ 54,690 1.2 % $ 110,087 201.3 % The favorable movement in other income (expense), net, during the year ended December 31, 2023 as compared to 2022 was driven by an increase in interest income of $124.9 million due to an increase in our cash and investments balances and higher interest rates.
Other Income, Net (in thousands, except percentages) Year Ended December 31, 2023 2022 Change in $ % of Revenue $ % of Revenue $ % Other income, net: Interest income $ 152,421 2.6 % $ 27,556 0.6 % $ 124,865 453.1 % Other income (expense), net 12,356 0.2 27,134 0.6 (14,778) (54.5) Total other income, net $ 164,777 2.8 % $ 54,690 1.2 % $ 110,087 201.3 % The favorable movement in other income (expense), net, during the year ended December 31, 2023 as compared to 2022 was driven by an increase in interest income of $124.9 million due to an increase in our cash and investments balances and higher interest rates.
Cash Flows Year Ended December 31, 2023 2022 2021 (in thousands) Cash provided by operating activities $ 2,034,014 $ 492,813 $ 1,015,856 Cash provided by (used in) investing activities (687,454) 216,327 (925,562) Cash (used in) financing activities (83,749) (654,601) (360,882) Effect of exchange rate changes 675 (3,611) (1,816) Net increase (decrease) in cash, cash equivalents and restricted cash $ 1,263,486 $ 50,928 $ (272,404) Cash Flows from Operating Activities Our operating activities consist of net income, adjusted for certain non-cash items, and changes in assets and liabilities.
Cash Flows Year Ended December 31, 2024 2023 2022 (in thousands) Cash provided by operating activities $ 3,708,235 $ 2,034,014 $ 492,813 Cash provided by (used in) investing activities (2,457,354) (687,454) 216,327 Cash (used in) financing activities (421,810) (83,749) (654,601) Effect of exchange rate changes (4,767) 675 (3,611) Net increase in cash, cash equivalents and restricted cash $ 824,304 $ 1,263,486 $ 50,928 Cash Flows from Operating Activities Our operating activities consist of net income, adjusted for certain non-cash items, and changes in operating assets and liabilities.
Inventory Valuation and Contract Manufacturer/Supplier Liabilities Inventories primarily consist of finished goods and strategic components, primarily integrated circuits. Inventories are stated at the lower of cost (computed using the first-in, first-out method) and net realizable value. Manufacturing overhead costs and inbound shipping costs are included in the cost of inventory.
Inventory Valuation and Contract Manufacturer/Supplier Liabilities Inventories primarily consist of finished goods, including evaluation inventory held at customers or partners, and strategic components, primarily integrated circuits. Inventories are stated at the lower of cost (computed using the first-in, first-out method) and net realizable value.
As the global supply chain has experienced some improvements and as customer lead times have been reduced from their peak, we have seen and expect to continue to see a commensurate reduction in visibility to customer demand and a gradual return to shorter demand-planning horizons resulting in lower demand levels.
As a result, some shipments against these previously committed demand/deployment plans have extended into 2025. As the global supply chain has experienced some improvements and as customer lead times have been reduced from their peak, we have seen and expect to continue to see a commensurate reduction in visibility to customer demand and a gradual return to shorter demand-planning horizons.
As customer lead times reduce more broadly, we have seen and expect to continue to see a commensurate reduction in visibility to customer demand and a gradual return to shorter demand-planning horizons resulting in lower demand levels.
We have experienced some improvements in the supply chain throughout the year, and as customer lead times reduce more broadly, we have seen and expect to continue to see a commensurate reduction in visibility to customer demand and a gradual return to shorter demand-planning horizons.
Arista EOS, combined with a set of network applications and our Ethernet switching and routing platforms using best of breed merchant silicon, provides customers with a highly competitive and diversified portfolio of products with improved price/performance and time to market.
At the core of Arista’s platform is Arista EOS, a modernized publish-subscribe state-sharing networking operating system. Arista EOS, combined with a set of network applications and our Ethernet switching and routing platforms using best of breed merchant silicon, provides customers with a highly competitive and diversified portfolio of products with improved price/performance and time to market.
Year Ended December 31, 2023 2022 Change in $ % of Revenue $ % of Revenue $ % Operating expenses: Research and development $ 854,918 14.6 % $ 728,394 16.6 % $ 126,524 17.4 % Sales and marketing 399,034 6.8 326,955 7.5 72,079 22.0 General and administrative 119,080 2.0 93,241 2.1 25,839 27.7 Total operating expenses $ 1,373,032 23.4 % $ 1,148,590 26.2 % $ 224,442 19.5 % Research and development.
In addition, our gross margin benefited in 2023 from the leverage of relatively fixed overhead costs on a higher revenue base. 61 Operating Expenses (in thousands, except percentages) Year Ended December 31, 2023 2022 Change in $ % of Revenue $ % of Revenue $ % Operating expenses: Research and development $ 854,918 14.6 % $ 728,394 16.6 % $ 126,524 17.4 % Sales and marketing 399,034 6.8 326,955 7.5 72,079 22.0 General and administrative 119,080 2.0 93,241 2.1 25,839 27.7 Total operating expenses $ 1,373,032 23.4 % $ 1,148,590 26.2 % $ 224,442 19.5 % Research and development Research and development expenses increased by $126.5 million, or 17.4%, for the year ended December 31, 2023 compared to 2022.
As of December 31, 2023, we had $1,586.7 million of such purchase obligations, of which $1,547.2 million are expected to be received within 12 months, and $39.5 million are e xpected to be received after one year.
As of December 31, 2024, we had $3.1 billion of such purchase obligations, of which $2.8 billion are expected to be received within 12 months, and $0.3 billion are e xpected to be received after one year.
During the year ended December 31, 2023, cash provided by operating activities was $2.0 billion, primarily from net income of $2.1 billion, offset by net non-cash adjustments to net income of $37.4 million, and a net change of $15.9 million in working capital requirements.
During the year ended December 31, 2024, cash provided by operating activities was $3.7 billion, primarily from net income of $2.9 billion along with a net decrease in working capital requirements of $985.2 million, offset by net non-cash adjustments to net income of $129.0 million.
These changes reflect an improvement in product margins driven by a lower mix of revenue from our larger customers, partly offset by an increase in excess/obsolete inventory-related charges. In addition, our gross margin benefited in 2023 from the leverage of relatively fixed overhead costs on a higher revenue base.
These changes reflect an improvement in product margins driven by a lower mix of revenue from our larger customers, partly offset by an increase in excess/obsolete inventory-related charges.
In addition, service revenue increased by $94.9 million, or 16.6%, in the year ended December 31, 2022 compared to 2021, as a result of continued growth in initial and renewal PCS contracts as our customer installed base continued to expand.
In addition, service revenue increased by $288.5 million, or 34.7%, for the year ended December 31, 2024 compared to 2023, as a result of continued growth in initial and renewal support contracts as our customer installed base has continued to expand.
For further information regarding income taxes and the impact on our results of operations and financial position, refer to Note 8. Income Taxes of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K.
Income Taxes of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K.
During the year ended December 31, 2022, cash used in financing activities was $654.6 million, consisting primarily of common stock repurchases of $670.3 million and taxes paid of $32.7 million upon vesting of restricted stock units, offset partially by proceeds from the issuance of common stock under employee equity incentive plans of $48.4 million.
During the year ended December 31, 2024, cash used in financing activities was $421.8 million, consisting of payments for repurchases of our common stock from the open market of $423.6 million and employee taxes withheld and paid of $58.4 million upon vesting of restricted stock units, partially offset by proceeds from the issuance of common stock under employee equity incentive plans of $60.2 million.
This prioritization of AI related infrastructure investment has come in conjunction with the announcement of various cost reduction measures, including optimization and increased efficiency in non-AI related capital expenditures.
This prioritization and acceleration of AI related infrastructure investment has at times come in conjunction with a reduction or changes in the mix of previously planned purchases and various cost reduction measures by these customers, including optimization and increased efficiency in non-AI related capital expenditures.
In addition, any continued or renewed disruption in manufacturing and supply resulting from these factors could negatively impact our business.
In addition, any continued or renewed disruption in manufacturing and supply and new or enhanced tariffs imposed by the U.S. and other countries resulting from these factors could negatively 57 impact our business.
Research and development expenses increased by $126.5 million, or 17.4%, for the year ended December 31, 2023 compared to 2022.
Research and development expenses increased by $141.8 million, or 16.6%, for the year ended December 31, 2024 compared to 2023.
For example, sales to our end customers Microsoft and Meta Platforms represented 18% and 21% of our total revenue, respectively, in fiscal 2023, 16% and 26% of our total revenue, respectively, in fiscal 2022 and, 15% and less than 10% of our total revenue, respectively in fiscal 2021.
For example, sales to our end customer Microsoft represented 20%, 18% and 16% of our total revenue for the years ended 2024, 2023 and 2022 respectively. And sales to our end customer Meta Platforms represented 15%, 21% and 26% of our total revenue, respectively for the years ended 2024, 2023 and 2022.
In addition, inflation pressure in our supply chain, scarcity of some materials needed to build our products and disruptions to our manufacturing process have increased our cost of revenue and have impacted, and may continue to negatively impact our gross margin.
In addition, inflation pressure in our supply chain and scarcity of some materials needed to build our products have increased our cost of revenue and have impacted, and may continue to negatively impact our gross margin. These cost pressures may be increased if escalating tariff and non-tariff international trade measures continue to proliferate in or affect our supply chain.
These increases were primarily driven by a corresponding increase in product and service revenues, combined with an increase in provisions for excess/obsolete inventory and supplier liability charges.
These increases were primarily driven by a corresponding increase in product and service revenues, combined with an increase in provisions for excess/obsolete inventory and supplier liability charges. Gross margin increased from 61.1% for the year ended December 31, 2022 to 61.9% for the year ended December 31, 2023.
The Repurchase Program does not obligate us to acquire any of our common stock and may be suspended or discontinued by the company at any time without prior notice. During the three months ended December 31, 62 2023, we did not repurchase any shares.
The Repurchase Programs do not obligate us to acquire any of our common stock, and may be suspended or discontinued by the company at any time without prior notice.
Material cash requirements Our material cash requirements will have an impact on our future liquidity. Our material cash requirements represent material expected or contractually committed future payment obligations. We believe that we will be able to fund these obligations through cash generated from operations and from our existing balances of cash, cash equivalents and marketable securities.
We believe that we will be able to fund these obligations through cash generated from operations and from our existing balances of cash, cash equivalents and marketable securities.
We limit the amount of revenue recognition for contracts containing forms of variable consideration, such as future performance obligations, customer-specific returns, and acceptance or refund obligations.
We limit the amount of revenue recognition for contracts containing forms of variable consideration, such as future performance obligations, customer-specific returns, and acceptance or refund obligations. We defer revenue recognition on customer contracts for new products or use cases, which contain customer-specified requirements that must be met prior to acceptance.
Since Arista’s inception, our founders have reimagined cloud networks for performance, scale and programmability with a focus on differentiating in three ways: uncompromising quality, advanced open and standards-based technology and a robust quality assurance capability built on a suite of automated diagnostics. At the core of Arista’s platform is Arista’s EOS, a modernized publish-subscribe state-sharing networking operating system.
Since Arista’s inception, our founders have reimagined cloud networks for performance, scale and programmability with a focus on differentiating in three ways: uncompromising reliability built on the foundation of robust quality assurance capabilities with a suite of automated diagnostics, advanced open and standards-based technology and intelligent automation to decrease the manual workload on the operator.
During the year ended December 31, 2023, cash used in investing activities was $687.5 million, consisting of purchases of available-for-sale securities of $2.6 billion, and purchases of property, equipment and intangible assets of $34.4 million, partially offset by proceeds of $1.9 billion from maturities of marketable securities, and proceeds from the sale of marketable securities of $67.3 million, During the year ended December 31, 2022, cash provided by investing activities was $216.3 million, consisting of proceeds of $1.6 billion from maturities of marketable securities, proceeds from the sale of marketable securities of $193.8 million, partially offset by purchases of available-for-sale securities of $1.4 billion, $145.1 million for business acquisitions, purchases of property, equipment and intangible assets of $44.6 million, and investments and notes receivable in private companies of $12.7 million.
During the year ended December 31, 2023, cash used in investing activities was $687.5 million, consisting of purchases of available-for-sale securities of $2.6 billion, and purchases of property, equipment and intangible assets of $34.4 million, partially offset by proceeds of $1.9 billion from maturities of marketable securities, and proceeds from the sale of marketable securities of $67.3 million, Cash Flows from Financing Activities Our financing activities consist of proceeds from the issuance of our common stock under employee equity incentive plans, offset by repurchases of our common stock.
Sales and marketing expenses consist primarily of personnel costs, marketing, trade shows, and other promotional activities, and an allocated portion of facility and IT costs. We expect our sales and marketing expenses to increase in absolute dollars as we continue to expand our sales and marketing efforts worldwide.
Sales and marketing expenses consist primarily of personnel costs, marketing, trade shows, and other promotional activities, and an allocated portion of facility and IT costs.
While inventory and working capital levels may remain elevated in the near term, we expect that purchase commitments will continue to decline as supplier lead times shorten. There is however no guarantee that all suppliers will meet their commitments in the time frame committed or that actual customer demand will directly match our demand forecasts.
In addition, w e expect that our inventory and purchase commitments will remain volatile as we ramp new product introductions. There is however no guarantee that all suppliers will meet their commitments in the time frame committed or that actual customer demand will directly match our demand forecasts.
As we exit 2023, the business is emerging from a period of unprecedented global supply chain disruptions. Throughout this period, we made significant supply chain investments, including funding additional working capital and incremental purchase commitments in response to extended visibility to deployment plans from our customers.
Throughout this period, we made significant supply chain investments, including funding additional working capital and incremental purchase commitments in response to extended visibility to deployment plans from our customers. We have worked closely with our contract manufacturers and supply chain partners to ramp production following a period of delayed component sourcing and workforce disruptions.
I n addition, an increased focus on the deployment of AI enabled solutions by these customers has accelerated the need for advanced technology offerings including some offerings from potential new market entrants.
In addition, we typically provide pricing discounts to large customers, which reduces gross margins for the period in which such sales occur. We believe an increased focus on the deployment of AI enabled solutions by our large customers has accelerated the need for advanced technology offerings including some offerings from potential new market entrants.
Product revenue increased by $1.3 billion, or 35.3%, for the year ended December 31, 2023 compared to 2022. These increases reflect increased shipments of our switching and routing products across our customer base, including improved supply availability for our enterprise customers.
These increases reflect increased shipments of our switching and routing products across our customer base, including improved supply availability for our enterprise customers.
The increase was primarily caused by increased personnel costs driven by headcount growth. General and administrative General and administrative expenses increased by $10.1 million, or 12.2%, for the year ended December 31, 2022 compared to 2021.
General and administrative General and administrative expenses increased by $25.8 million, or 27.7%, for the year ended December 31, 2023 compared to 2022. The increase was primarily caused by an increase in personnel costs driven by increased stock-based compensation, and increased legal and professional fees.
In some instances, such measures have had, and may continue to have, an impact on certain current or future projects and have reduced our visibility to customer demand, increased our risk of excess and obsolescence charges on existing products, and may result in reductions in future demand and negatively impact our revenue, financial condition, business or prospects.
In some instances, such measures have had, and may continue to have, an impact on certain current or future projects and have reduced our visibility to customer demand and may result in a reduction or uncertainty in the timing of orders from these large customers and increase the risk of charges for excess and obsolete inventory.
We record a provision when inventory is determined to be in excess of anticipated demand, or obsolete, to adjust inventory to its estimated realizable value. Our contract manufacturers procure components and assemble products on our behalf based on our forecasts.
Manufacturing overhead costs and inbound shipping costs are included in the cost of inventory. We record a provision when inventory is determined to be in excess of anticipated demand, or obsolete, to adjust inventory to its estimated realizable value.
International revenu es as a percentage of our total revenues decreased fro m 21.0% in 2 022 to 20.6% in 2023, which was primarily driven by changes in the geographic mix of sales to our large global customers. 56 Cost of Revenue and Gross Margin Cost of product revenue primarily consists of amounts paid for inventory to our third-party contract manufacturers and merchant silicon vendors, overhead costs of our manufacturing operations, including freight, and other costs associated with manufacturing our products and managing our inventory and supply chain.
Cost of Revenue and Gross Margin Cost of product revenue primarily consists of amounts paid for inventory to our third-party contract manufacturers and merchant silicon vendors, overhead costs of our manufacturing operations, including freight, and other costs associated with manufacturing our products and managing our inventory and supply chain.
Our operating cash-flows have also been and may continue to be negatively impacted by significant component inventories on hand or at our contract manufacturers. While we have seen improvements in our supply chain and manufacturing operations, any remaining or new supply chain and manufacturing related constraints could negatively impact our business in future periods.
We also may not be able to pass on the full burden of the increase in trade-related costs to our customers, which could further negatively impact our gross margin. While we have seen improvements in our supply chain and manufacturing operations, any remaining or new supply chain and manufacturing related constraints could negatively impact our business in future periods.
The increase in our income taxes was due to an increase in pre-tax income. The increase in our effective tax rate was largely attributable to a decrease in the proportion of tax benefits attributable to stock-based compensation versus total pre-tax income.
The increase in our income taxes was largely due to an increase in pre-tax income, partly offset by a decrease in our effective tax rate due to favorable changes in state taxes and tax benefits attributable to stock-based compensation. For further information regarding income taxes and the impact on our results of operations and financial position, refer to Note 8.
This increased capacity has allowed us to ship products against previously committed demand/deployment plans and accelerate some deployments where needed, while trying to limit building customer inventory, and to some extent balancing customer lead times with those currently experienced from our key suppliers. As a result, some shipments against these previously committed demand/deployment plans have extended into 2024.
Increased capacity has allowed us to ship products against previously committed demand/deployment plans and accelerate some deployments where needed, while trying to balance our customers' requirements and lead times with the availability of key components and products and lead times of our key suppliers and contract manufacturers.
The estimated capital expenditures related to this project is expected to be approximately $80.0 to $100.0 million for the year ending 2024, with construction expected to commence in the second half of 2024.
The estimated capital expenditures related to this project is expected to be approximately $235.0 million to $260.0 million for the next two years, with construction expected to be completed by the end of fiscal 2026.
Historically, large purchases by a relatively limited number of customers have accounted for a significant portion of our revenue.
The percentage of revenue derived from these customers during the current fiscal year was approximately 48% from Cloud and AI Titans, 35% from Enterprise and 17% from Providers. Historically, large purchases by a relatively limited number of customers have accounted for a significant portion of our revenue.
International revenu es as a percentage of our total revenues decreased fro m 26.8% in 2 021 to 21.0% in 2022, w hich was primarily driven by increased purchases from large cloud customers in our Americas region.
International revenu es as a percentage of our total revenues decreased fro m 20.6% in 2023 to 18.2% in 2024, which was primarily driven by changes in the geographic mix of sales to our large global customers.
Macroeconomic Update Global economic and business activities continue to face widespread macroeconomic uncertainties, including inflation, monetary policy shifts, recession risks, and potential supply chain and other disruptions such as the Russia-Ukraine and Israel-Hamas conflicts, the Houthi attacks on marine vessels in the Red Sea, and the U.S. trade war with China.
Macroeconomic Update Global economic and business activities continue to face widespread macroeconomic uncertainties, including the effects of, among other things, inflation, monetary policy shifts, recession risks, potential supply chain disruptions, changes in the U.S. administration, geopolitical pressures and escalating international trade measures. Our business is emerging from a period of unprecedented global supply chain disruptions.
Given these shipment and order patterns, near term revenue trends may not be solely reflective of current demand levels, but as discussed above will benefit from demand/deployment plans that had been previously committed. While inventory and working capital levels may remain elevated in the near term, we expect that purchase commitments will continue to decline as supplier lead times shorten.
Given the timing and prioritization of customer orders and shipment patterns, as well as the timing and outcome of customer trials and contracts with acceptance periods, near term revenue trends may not be reflective of current demand levels, and as discussed above will also benefit from demand/deployment plans that have been previously committed.
As of December 31, 2023, the remaining authorized amount for repurchases under the Repurchase Program was $144.5 million. Refer to Note 6. Stockholders' Equity and Stock-Based Compensation of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K for further discussion.
Stockholders' Equity and Stock-Based Compensation of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K for further discussion. 64 Material Cash Requirements Our material cash requirements will have an impact on our future liquidity. Our material cash requirements represent material expected or contractually committed future payment obligations.
The increase was primarily due to a $68.6 million increase in personnel costs driven by an increase in headcount, and a $57.5 million increase in new product introduction costs, including third-party engineering and other product development costs. Sales and marketing Sales and marketing expenses increased by $40.8 million, or 14.3%, for the year ended December 31, 2022 compared to 2021.
The increase was primarily due to a $64.9 million increase in personnel costs driven by an increase in headcount, and a $52.3 million increase in new product introduction costs, including non-recurring engineering costs and prototype expenses as we expand our product portfolio. Sales and marketing.
Stock Repurchase Programs In October 2021, our board of directors authorized a $1.0 billion stock repurchase program (the “Repurchase Program”). This authorization allows us to repurchase shares of our common stock funded from working capital and expires in the fourth quarter of 2024.
Stock Repurchase Programs From time to time, we repurchase shares of our common stock pursuant to the Repurchase Programs that are funded from working capital. In April 2024, we completed repurchases under our previous $1.0 billion stock repurchase program (“Prior Repurchase Program”).
Cash Flows from Investing Activities Our investing activities consist of our marketable securities investments, business combinations, investments in privately-held companies, and capital expenditures.
Cash Flows from Investing Activities Our investing activities primarily consist of our marketable securities investments, business combinations, and capital expenditures. During the year ended December 31, 2024, cash used in investing activities was $2.5 billion, consisting of purchases of available-for-sale securities of $4.5 billion, partially offset by proceeds of $2.1 billion from maturities and sales of marketable securities.
In addition, we had unrealized gains of $27.5 million in the year ended December 31, 2022 related to our equity investments. 60 Provision for Income Taxes (in thousands, except percentages) Year Ended December 31, 2022 2021 Change in $ % of Revenue $ % of Revenue $ % Provision for income taxes $ 229,350 5.2 % $ 90,025 3.1 % $ 139,325 154.8 % Effective tax rate 14.5 % 9.7 % Our provision for income taxes and effective tax rate increased in 2022 as compared to 2021.
Year Ended December 31, 2024 2023 Change in $ % of Revenue $ % of Revenue $ % Provision for income taxes $ 412,980 5.9 % $ 334,705 5.7 % $ 78,275 23.4 % Effective tax rate 12.6 % 13.8 % Our provision for income taxes increased for the year ended December 31, 2024, as compared to 2023, while our effective tax rate decreased for the year ended December 31, 2024, as compared to 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+1 added−4 removed11 unchanged
Biggest changeMacroeconomic uncertainties, including inflation, monetary policy shifts, uncertainty in the global banking and financial services markets, recession risks, potential disruptions from the Russia-Ukraine and Israel-Hamas conflicts, the Houthi movement in the Red Sea and the U.S. trade war with China have increased the volatility of global financial markets, which may increase our foreign currency exchange risk and interest rate risk.
Biggest changeGlobal economic and business activities continue to face widespread macroeconomic uncertainties, including the effects of, among other things, inflation, monetary policy shifts, recession risks, potential supply chain disruptions, geopolitical pressures, and escalating international trade measures, which may increase our foreign currency exchange risk and interest rate risk.
Fair Value Measurements of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K for details. 66 The privately-held companies in which we invested are in the startup or development stages.
Fair Value Measurements of the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K for details. The privately-held companies in which we invested are in the startup or development stages.
Interest Rate Sensitivity As of December 31, 2023, and 2022, we had cash, cash equivalents and available-for-sale marketable securities totaling $5.0 billion and $3.0 billion, respectively. Cash equivalents and marketable securities were invested primarily in money market funds, corporate bonds, U.S. agency mortgage-backed securities, U.S. treasury securities and commercial paper.
Interest Rate Sensitivity As of December 31, 2024, and 2023, we had cash, cash equivalents and available-for-sale marketable securities totaling $8.3 billion and $5.0 billion, respectively. Cash equivalents and marketable securities were invested primarily in money market funds, corporate bonds, U.S. agency mortgage-backed securities, U.S. treasury securities and commercial paper.
Strategic Equity Investments Our non-marketable equity investments in privately-held companies are recorded in “other assets” in our consolidated balance sheets. As of December 31, 2023 and 2022, the total carrying amount of our investments in privately-held companies was $62.3 million and $39.5 million, respectively.
Strategic Equity Investments Our non-marketable equity investments in privately-held companies are recorded in “other assets” in our consolidated balance sheets. As of December 31, 2024 and 2023, the total carrying amount of our investments in privately-held companies was $81.3 million and $62.3 million, respectively. See Note 2.
Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates.
Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, foreign currency transaction gains and losses and exchange rate fluctuations have not been material to our financial statements.
Our evaluation of investments in privately-held companies is based on the fundamentals of the businesses invested in, including among other factors, the nature of their technologies and potential for financial return. One of our equity investments in a privately-held company completed an initial public offering at the beginning of 2022 and subsequently our investment converted to a marketable equity security.
Our evaluation of investments in 68 privately-held companies is based on the fundamentals of the businesses invested in, including among other factors, the nature of their technologies and potential for financial return. 69
Removed
A hypothetical 10% change in foreign currency exchange rates on our monetary assets and liabilities would not be material to our financial condition or results of operations. To date, foreign currency transaction gains and losses and exchange rate fluctuations have not been material to our financial statements.
Added
A hypothetical 100 basis point increase in market interest rates would have resulted in a decrease approximately $70.0 million and $39.0 million in the market value of our available-for-sale debt securities and cash equivalents as of December 31, 2024 and 2023.
Removed
For the years ended December 31, 2023, 2022 and 2021, the effect of an immediate 10% change in interest rates would not have been material to our operating results and the total value of the portfolio assuming consistent investment levels.
Removed
For the years ended December 31, 2023, 2022 and 2021, we recorded a net gain of $13.9 million, $15.8 million and $0, respectively, with respect to these investments. See Note 2.
Removed
During the year ended December 31, 2023, the Company sold all its shares of this security for $23.9 million. The cost of this investment was $3.0 million and the cumulative gain since inception was $20.9 million, the majority of which has been reflected in prior periods as mark-to-market net gains in Other income, net. 67

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