While key network vendors continue to report good financial results, all of the players report continued supply-chain issues and increased order backlogs—challenges that show little sign of abating before the end 2023.
Arista supply issues
A good example is Arista Networks, which reported its first billion dollar quarter in its history despite the “challenges of an uncertain supply-chain environment,” Jayshree Ullal, Arista President and CEO said during the firm’s Q2 financial call this week.
Ullal said the company faced an additional challenge—ordered components becoming unavailable at the last minute. Inventory increased $852.8 million in the quarter, up from $694.2 million in the prior period, the vendor’s CFO said.
“We need all the components to come together and the component problem continues,” Ullal said “It was bad in Q1, it’s no better in Q2 ,and we’re not seeing it going forward with much improvement in Q3. So perhaps in 2023, we’ll get some relief. But again, to get relief, we have to have all the components come. If we’re missing one component, we cant build a system,” Ullal said.
He said that many components have 70-week lead times, which means the company has to plan multiple quarters and even years ahead of time.
Challenges for Juniper, Extreme
Other networking players such as Juniper Networks and Extreme Networks reported similar circumstances.
Juniper exceeded its revenue forecast for 2Q, which saw a second consecutive quarter of double-digit, year-over-year product-revenue growth, according to CEO Rami Rahim. But he said the company is still battling supply-chain and costs issues to keep the product pipeline full.
Juniper's backlog of orders has increased more than $250 million on consecutive quarters leading to a grand total of about $2 billion. “We also anticipate backlog to remain at elevated levels through the remainder of the year,” Ken Miller, CFO of Juniper said at its recent 2Q financial call.
“Every quarter seems to be a different challenge. But we seem to be doing a pretty good job, in my opinion, of navigating those challenges,” Rahim said.
Extreme's, Q4 and FY22 results reported double-digit growth in bookings and revenue, but also big backlogs. "While bookings grew 24%, and revenue exceeded $1.1 billion for the first time, we exited the year with a record product backlog of $513 million," said Extreme CEO Ed Meyercord. He did note that company did release nearly 20 million in backlog during the quarter.
“We expect to continue to build backlog for the next several quarters…Based on the lead times and commitments we expect backlog will begin to shrink by Q4 of fiscal 23, Meyercord said.
Gartner has reported that pre-pandemic, product lead times of four to six weeks were common. “Now, 200-300 days is common, and we’ve seen 430-plus days quoted in writing to customers. We expect lead times to remain high through early 2023, followed by slow incremental improvement over the course of months,” Gartner stated in a recent report.
F5, Cisco
“While supply-chain challenges continue to limit our ability to ship systems, our demand signals remain strong, and we remain ahead of our initial FY22 demand plan,” Francois Locoh-Donou, president and CEO of F5 told analysts in its most recent analysts call. “While we have not seen meaningful improvement in supply volumes in the last three months, we also have not seen further deterioration.”
Cisco reports earnings later this month but its product backlog was $15 billion with an additional $2 billion in software backlog in its last report in May. At that time Cisco said it saw constraints going into Q4 on roughly 250 critical components out of a total of 41,000 unique parts. “We’re working those shortages every day, and every day some of them get resolved, and then every day a couple more will come on to that list,” Cisco stated.