Tariff uncertainties have networking vendors and their customers on edge. So far, networking vendors are reporting little financial impact, which is at least in part due to the exclusion of semiconductors and related goods from certain tariffs as well as the three-month pause on reciprocal tariffs. But fluctuating tariff rates could change conditions.
Some industry watchers suggested that enterprise organizations might try to get ahead of any potential price increases by ordering networking equipment in advance, but vendors such as Cisco (Nasdaq:CSCO), Arista Networks (NYSE: ANET) and Extreme Networks (Nasdaq:EXTR) are reporting little or none of that activity so far. Even if customers tried to stockpile equipment, it’s unlikely the vendors could meet large, sudden demands.
“We literally find ourselves in the middle of an ocean, trying to figure out which country to go to, because … as you know, the reciprocal tariffs are much higher in some of the Asia countries,” Arista CEO Jayshree Ullal told Wall Street analysts during the company’s quarterly conference call on May 6.
“We are grateful for the measured approach [which means] that we do not have to deal, mostly, with any of these tariffs until July 9,” Ullal said. “We are absorbing whatever tariffs we do have to deal with from China and other things.”
Tariff changes are expected to have some effect on Arista’s gross margins, and the vendor is taking that into consideration, she said. “Some we will absorb, and some we may potentially have to pass to our customers. But we don’t know what we don’t know. So, we can just go at this one quarter at a time.”
Cisco, too, has seen little tariff impact so far, but acknowledged there’s uncertainty about what happens after July.
“Our guide assumes current tariffs and exemptions remain in place through the quarter. These include the following: China at 30%, partially offset by an exemption for semiconductors and certain electronic components; Mexico and Canada at 25% for the components and products that are not eligible for the current exemptions,” Cisco CFO Scott Herron told Wall Street analysts in the company’s quarterly earnings report on May 14.
At this time, Cisco expects little impact from tariffs on steel and aluminum and retaliatory tariffs, Herron said. “We’ll continue to leverage our world-class supply chain team to help mitigate the impact,” he said, adding that “the flexibility and agility we have built into our operations over the last few years, the size and scale of our supply chain, provides us some unique advantages as we support our customers globally.”
“Once the tariff scenario stabilizes, there [are] steps that we can take to mitigate it, as you’ve seen us do with China from the first Trump administration. And only after that would we consider price [increases],” Herron said.
Similarly, Extreme Networks noted the changing tariff conditions during its earnings call on April 30.
“The tariff situation is very dynamic, I think, as everybody knows and can appreciate, and it’s kind of hard to call. Yes, there was concern initially given the magnitude of tariffs,” said Extreme Networks CEO Ed Meyercord on the earnings call. “The larger question is, will all of the changes globally in trade and tariff policy have an impact on demand? And that’s hard to call at this point. And we’re going to hold as far as providing guidance or judgment on that until we have finality come July.”
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Meanwhile, AI is fueling high expectations and influencing investments in enterprise campus and data center environments.
Arista reported its first $2 billion quarter, which comes just 11 quarters after its first $1 billion-dollar quarter. AI products, and particularly its Etherlink family, are driving tons of customer interest, and Ullal said the company is confident it will hit its $750 million AI back-end revenue goal for 2025.
Cisco, too, reported a strong quarter across the board.
“AI infrastructure orders we have received from web scale customers were exceptionally strong in the quarter, exceeding $600 million and bringing our year-to-date total to well over our $1 billion target for fiscal year ‘25. As expected, the product mix of these orders was more than two-thirds in systems, with the remainder in optics, demonstrating the growing importance of our technology to web scale customers for their AI training use cases,” Cisco CEO Chuck Robbins said.
“AI orders from enterprise customers continue to show momentum as this large, nascent market opportunity starts to unlock. Enterprises are seeking simple, seamless, scalable and secure solutions for their AI deployments, which we are ready to deliver through our expanding partnership with Nvidia,” Robbins said.
Extreme also had a solid quarter. Revenue reached $284.5 million, which represents a 35% increase in year-over-year growth, Meyercord said.
“We have strong confidence in sustained customer demand…Our competitive win rates are on the rise across a variety of verticals,” Meyercord said. “We’re displacing major players like Cisco, HP and Juniper, largely due to our highly differentiated Campus Fabric solution, the simplicity of our cloud solution, and our flexible licensing. We anticipate further market share gains and revenue growth for the full year and continued strength in Q4.”
Source:: Network World