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Arista Networks Inc (ANET) Q1 2019 Earnings Call Transcript

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Arista Networks Inc  (NYSE: ANET)
Q1 2019 Earnings Call
May. 02, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the First Quarter 2019 Arista Networks Financial Results Earnings Conference Call. (Operator Instructions). As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section at the Arista website following this call.

I will now turn the call over to Mr. Charles Yager, Director of Product and Investor Advocacy. Sir, you may begin.

Charles Yager -- Director, Product and Investor Advocacy

Thank you, operator. Good afternoon, everyone, and thank you for joining us. With me on today's call are Jayshree Ullal, Arista Networks President and Chief Executive Officer; and Ita Brennan, Arista's Chief Financial Officer. This afternoon, Arista Networks issued a press release announcing the results for its first quarter ended March 31st, 2019. If you would like to have a copy of the release, you can access it online at the Company's website.

During the course of this conference call, Arista Networks management will make forward-looking statements including those relating to our financial outlook for the second quarter of the 2019 fiscal year, industry innovation, our market opportunity, the benefits of recent acquisitions and the impact of litigation, which are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically in our most recent Form 10-Q and which could cause actual results to differ materially from those anticipated by these statements.

These forward-looking statements apply as of today and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. Also please note that certain financial measures we use on this call are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We have provided reconciliations of these non-GAAP financial measures to GAAP financial measures in our earnings press release.

With that, I'll turn the call over to Jayshree.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Charles. Thank you everyone for joining us this afternoon for our first quarter 2019 earnings call. Our profitability growth combination was once again demonstrated with a non-GAAP revenue of $595.4 million while non-GAAP earnings per share grew to a record $2.31. Services contributed approximately 15% of revenue. We delivered non-GAAP gross margins of 64.5%, influenced by a strong performance from both our enterprise vertical and services. We've registered a record number of million-dollar customers in Q1, just as we did in Q4 2018. And we continue to drive our new customer expansion at the rate of one to two per day.

In Q1 2019, the cloud titan segment was our largest vertical. The modern enterprise segment is now consistently our second largest, with financials in third place supported by a strong solid contribution from our Metamako acquisition. Tier two cloud specialty providers and service providers came in at fourth and fifth place.

In terms of geography in Q1 2019, the international contribution was 26% with the Americas coming in at 74%. We delivered two major new products announcements during Q1, with the 7368 spine that we developed in cross collaboration with Facebook, enabling both our flagship EOS as well as Facebook's OS to be supported on the platform. We also introduced the 7130, the first low latency high precision network application platform. We're pleased with the increased acceptance of our software subscriptions, with a record quarter for CloudVision having doubled our bookings from Q1 2018.

While 2019 is off to a decent start, we are experiencing somewhat of a speed bump in Q2 2019. We saw less than the normal order strength in late March and the month of April. We are therefore forecasting slower growth in Q2 2019 from our normal and historical patterns. Some of the contributing reasons for this are, one the massive cloud titan providers fulfilled in 2018 have led to a period of absorption in the first half of 2019. In particular, one cloud titan has placed most orders on hold for Q2 2019.

We note that last performance of the service provider vertical and this -- we forecast is to continue Q2 2019, consistent with the industry trends. To put the volatility of the cloud spend into perspective, as I have shared with you many times, cloud titans typically give us one to two quarters of forecast and this time we are seeing a decreased demand in the first half of 2019 compared to 2018. Meanwhile, our enterprise momentum is healthy and very much in its early innings. Our investments from prior years to the present are now paying off. These enterprises typically require contracts, training as well as a deployment of Arista's new programmable FTN technologies and can take typically a year or more in sales cycles. We do expect 2019 to be a crucial year for both the enterprise data center and campus in terms of customer acceptance.

As we look ahead, our new product introductions are slated to ramp in the second half of 2019 and we expect this to create uptick in demand. You will of course see more about our new product pipeline and customer momentum at our June Analyst Day. But in summary, we foresee a bright opportunity ahead in cloud area networking in the second half of 2019. Personally, I'm excited by our prospects here as customers migrate to a cloudlike strategy with their unwavering belief in Arista's superior quality and technology.

And with that, I'd like to turn it over to Ita for more financial metrics.

Ita Brennan -- Chief Financial Officer

Thanks, Jayshree, and good afternoon. This analysis of our Q1 results and our guidance for Q2 2019 is based on non-GAAP and excludes our non-cash stock-based compensation impacts, certain acquisition-related charges and other non-recurring items. A full reconciliation of our selected GAAP to non-GAAP results is provided in our earnings release.

Total revenues in Q1 were $595.4 million, up 26% year-over-year and above the midpoint of our guidance of $588 million to $598 million. Service revenues remained strong, represents approximately 15.1% of revenue, down from 15.5% last quarter, reflecting a healthy level of renewals for the period. International revenues for the quarter came in at $156 million or 26% of total revenue, up from 24% in the prior quarter.

Overall, gross margin in Q1 was 64.5%, above the midpoint of our guidance range of 63% to 65% and up from 64.1% last quarter. Gross margin in the period benefited from healthy enterprise and service contributions combined with the continued focus on cost optimization.

Operating expenses for the quarter were $160.7 million, essentially flat to last quarter on an absolute dollar and percentage of revenue basis. R&D spending came in at $106.5 million or 17.9% of revenue, up slightly from last quarter. We continue to see significant new product related NRE and prototype spending in the period. Sales and marketing expense was $43.6 million or 7.3% of revenue, again essentially flat to last quarter with increased headcount offset by reductions in other sales costs. Our G&A costs were $10.5 million or 1.8% of revenue, down slightly from last quarter.

Our operating income for the quarter was $223.6 million or 37.5% of revenue. Other income and expense for the quarter was a favorable $11. 2 million and our effective tax rate was lower at approximately 20%. The lower tax rate primarily reflected the finalization of certain tax reform positions based on updated IRS and a regulatory guidance. This resulted in net income for the quarter of $187.7 million or 31.5%. Our diluted share number for the quarter was 81.2 million shares, resulting in a diluted earnings per share number for the quarter of $2.31, up 39.2% from the prior year.

Now turning to the balance sheet, cash, cash equivalents and investments ended the quarter at approximately $2.2 billion. We generated $170 million of cash from operations in the quarter, reflecting strong net income performance offset by new product related working capital increases and a reduction in overall deferred revenue amounts. DSOs came in at 41 days, down from 51 days in Q4, reflecting strong collections activity and the timing of billings in the quarter.

Inventory turns were 2.5 times, down from 3.3 times last quarter. Inventory increased to $347.2 million in the quarter, up from $264.6 million in the prior period. This primarily reflects increases in raw materials and finished goods, as we ramp the supply chain for new products. Our total deferred revenue balance was $536.6 million, down from $587.2 million in Q4. Our product deferred revenue balance decreased by approximately $80 million in the quarter, reflecting customer acceptances of new features. This trend is consistent with 2018 and we also had a significant reduction as part of deferred revenue in the first half of the year. Accounts payable days were 38 days, down from 40 days in Q4, reflecting the timing of inventory receipts and payments. Capital expenditures for the quarter were $5.2 million. In addition, we announced today that our Board of Directors has authorized a 3-year $1 billion stock repurchase program. This allows us to repurchase shares of our common stock opportunistically and will be funded from working capital.

Now turning to our outlook for the second quarter and beyond, as we look forward we believe that we remain well positioned with our key cloud customers and are focused on expanding our presence in the enterprise and other verticals, especially as we bring new products to market in the second half of the year. While we executed across -- well across all key financial metrics in the March quarter, we saw some shortfall in demand at the back end of the period, primarily from our service provider and cloud verticals.

Our second quarter guidance assume this trend continues through the June quarter and we are managing the business on the assumption of maybe some impact to the full year. On the gross margin front, we would reiterate our overall gross margin outlook of 63% to 65%, with customer mix being the key driver, and indicating toward the upper end of the range for Q2 2019.

We continue to invest in the expansion of the business, including the addition of sales headcount and resources. We believe that with reasonable topline growth, we can continue to maintain operating margins at or above the previously discussed 35% range. With this as a backdrop, our guidance for the second quarter, which is based on non-GAAP results and exclusively non-cash stock-based composition impacts and other non-recurring items, is as follows; revenues of approximately $600 million to $610 million, gross margin of approximately 64% to 65% and operating margin of approximately 36%. Our effective tax rate is expected to be approximately 21%, with diluted shares of approximately 81.7 million.

I'll now turn the call back to Charles. Charles?

Charles Yager -- Director, Product and Investor Advocacy

Thank you, Ita. We are now going to move to the Q&A portion of the Arista earnings call. Due to time constraint, I'd like to request that everyone should limit themselves to a single question.

Questions and Answers:

Operator

(Operator Instructions). Your first question comes from Jason Ader with William Blair. Your line is open.

Jayshree Ullal -- President and Chief Executive Officer

Jason, we don't hear you.

Charles Yager -- Director, Product and Investor Advocacy

Could we come back to Jason?

Operator

Alright, just one moment here. Okay, Jason Ader, your line is open.

Jayshree Ullal -- President and Chief Executive Officer

Let's go to the next.

Charles Yager -- Director, Product and Investor Advocacy

Let's go to the next one.

Jayshree Ullal -- President and Chief Executive Officer

Operator, we still don't hear anybody.

Operator

Sorry. I -- the readerview (ph) , actually I'm frozen here. Just give me one second, sorry. Your next question comes from Tejas Venkatesh. Your line is open.

Thejeswi Venkatesh -- UBS -- Analyst

Thanks for taking my question. I did want to dig in a little bit more into the 2Q guidance. Given that in 1Q cloud titans were still the top verticals, should we think that this is basically one cloud vendor and the others are pretty healthy? And then, I also noticed that the Q2 cloud in terms of ranking is a little bit below where it used to be. So, are you seeing weakness there as well? And service provider I think was weak in 2018 also, so coming off somewhat of week base, so perhaps you could talk about what's going on there as well. Thank you so much.

Ita Brennan -- Chief Financial Officer

Thanks, Tejas. I think you successfully combined three questions in one. I'll do my best to answer all three. I think in terms of cloud titans for Q2, one in specific is going to contribute greatly to our different guidance than was expected. But it isn't limited to one, there are multiple in there. Some are doing well and some are not. So if you add the puts and takes, it's overall a net negative. We still expect it to be the number one vertical in spite of everything. It's a strong vertical for us. We see a lot of demand. We see strength in products. We're competitively very strong and superior there.

In terms of the tier two cloud specialty providers, they continue to do OK. I think the message you should read there is that our enterprise and financials are stronger, not so much that the cloud specialty is weak. And that was to be expected as we start getting broader in the enterprise and as the Metamako acquisition came in. Service providers, nothing new. You're right, 2018 was a disappointment as we said so in the last call. And it's an industry trend. And Q1 was no different. And I'm not sure Q2 will be any different. I expect it to be the last vertical in the segment.

Charles Yager -- Director, Product and Investor Advocacy

Next question?

Operator

Your next question comes from Jim Suva with Citi. Your line is open.

Jim Suva -- Citi -- Analyst

Thank you very much. I believe, Jayshree, you mentioned that you typically get one to two quarters of visibility from your cloud titans. So at this point when we're talking here today in May, have they given you indications that the digestion will be completed as we kind of exit the June-July time period, or is it still a little bit of risk or uncertainty? We're just trying to understand your conviction for the second half of the year. Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Jim. I think we're still forming our conviction for the second half of the year. We don't have a direct answer. As you can tell, we have six weeks of data. Six weeks or even a quarter don't make a trend. We do believe the digestion will complete by the end of Q2. What we don't have clear visibility to is the new demand for second half of the year.

Jim Suva -- Citi -- Analyst

Thank you so much for the details. It's appreciated.

Jayshree Ullal -- President and Chief Executive Officer

Thank you.

Ita Brennan -- Chief Financial Officer

Thanks, Jim.

Operator

Your next question comes from Mitch Steves with RBC Capital Markets. Your line is open.

Mitch Steves -- RBC -- Analyst

Hi, guys, thanks for taking my question. I just want to follow-up on the revenue trajectory. Last quarter you guys made a public statement saying that you're comfortable at least with consensus as for the full year. At that time, it was kind of around 21% give or take. Is that still the case or should we assume that the numbers should come down from that?

Jayshree Ullal -- President and Chief Executive Officer

Mitch, first of all, I think the numbers should definitely come down for Q2 and for further detail, I think we would want to be -- we are watching this closely. We want to be vigilant and we really don't want to form an opinion until we have more data and can make one definitively. So things were fine when we talked to you at the last call on Valentine's Day and much of the change happened in the second half of March.

Mitch Steves -- RBC -- Analyst

Got it. And then just one quick one on the buyback, just sort of clarification there, it's opportunistic there. What's like the rough metric you guys are using to -- that would -- I guess internally in terms of what you believe opportunistic is in terms of buying the stock?

Ita Brennan -- Chief Financial Officer

Yeah, I mean we haven't disclosed those externally. Were not planning to disclose that externally. I mean again, we are putting this facility in place so that we have the freedom to buy back the stock when we feel it's the right time but we haven't set any hard limits on what that will be.

Jayshree Ullal -- President and Chief Executive Officer

I think it's important to look at this as a framework and then the specifics will happen as they happen.

Mitch Steves -- RBC -- Analyst

Got it, thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Mitch.

Operator

Your next question comes from Ittai Kidron with Oppenheimer. Your line is open.

Ittai Kidron -- Oppenheimer -- Analyst

Thank you, ladies. I guess going back to the cloud, Jayshree, I understand the pause. I guess maybe you can help me get some comfort that this is a pause and not something else. How do you -- what is it that gives you comfort that this is not a design loss? Can you potentially tie the pause to an architectural change that would explain such a pause? Historically, you've also mentioned that -- you always mentioned that you're very -- tied very closely. You have people actually working at your customers, that you have large cloud customers on premise. So they can see the builds, they can see when something runs perhaps a bit too hard, too cold, a bit too far from a build standpoint. So just again trying to understand, maybe can you give me some color that makes me feel that this is again a speed bump and not a loss of design or change in architecture or something else?

Jayshree Ullal -- President and Chief Executive Officer

Yeah, fair point Ittai. Things were fairly linear when we talked to you in February.Iin fact we were feeling quite confident. And we experienced a sudden change in mid-March and a sudden slowdown in orders, especially from the cloud titans. So while I would love to give you comfort, we are watching. We are not concluding. One quarter or for that matter six weeks don't conclude a trend. But we felt it was really prudent for us to reflect that the health of the cloud titan business suddenly shifted in six weeks, right.

In terms of answering your question on market dynamics, we don't believe they've changed. It's important to note that we are not experiencing any competitive dynamics that are different from the normal cycle. We continue to gain share and have a tremendous opportunity, both in the cloud data center and new markets at the campus. So, I wouldn't read anything into this six weeks except, as I said, especially one cloud titan specifically slowed down and paused most orders in Q2. And those kind of things have an impact on our guidance.

Ittai Kidron -- Oppenheimer -- Analyst

Very good. Good luck.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Ittai.

Operator

Your next question comes from Alex Kurtz with KeyBanc Capital Markets. Your line is open.

Alex Kurtz -- KeyBanc -- Analyst

Yes. Thanks for taking the question. Just to beat a dead horse here obviously, you guys have had cloud titans in your forecasting process for many years now. As Ittai just said, you're very close to the accounts. So I guess what caught you guys offguard as far as either rolling up the forecast from the sales organization and not seeing this coming because obviously there has been volatility in the past with these accounts and I think we're all just trying to understand what changed from kind of your prior process around pipeline management?

Jayshree Ullal -- President and Chief Executive Officer

Yeah, no, Alex, that's a good question. I'm going to ask Anshul who is the closest (technical difficulty) our newly appointed COO, but the one who lives and breathes this daily to give you color. Anshul, do you want to say more?

Anshul Sadana -- Chief Operating Officer

Sure. So Alex, we're continuing to win in various roles as cloud company, both within the data center as well as DCI. There's really no real change there. However, some of the cloud companies are spending in Q2 but some are just not spending. And that was a very hard shift that they made in late March, as we've mentioned. That's all that -- there is to it. We still work very closely with these companies. The joint R&D is great like you saw with our co-development with Facebook. So, the previous team, there's no real shift in designs on architecture. We're doing very well. We are still winning all the designs that we have been winning and more. But some of these companies simply pause absorbing their own inventory buildup and hence there are just not spending.

Alex Kurtz -- KeyBanc -- Analyst

Alright, thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Alex.

Operator

Your next question comes from Rod Hall with Goldman Sachs. Your line is open.

Rod Hall -- Goldman Sachs -- Analyst

Yes, thanks for the question guys. I guess I won't beat the dead horse anymore. I want to ask about the -- I do want to ask about -- I think the comment you've made before, Jayshree, suggested that maybe you're rethinking the full-year growth though. And then I just want to be clear that you -- at this point you guys may come back to us with an update on what you think that growth is.

And then the second question I have is on service providers. I kind of thought of service providers -- you felt that it bottomed out and you're calling it out as a little bit of a negative in the guide. I don't know, is it a small negative or if service providers continue to weaken out from under you in a way that you maybe didn't anticipate?

Jayshree Ullal -- President and Chief Executive Officer

Okay. Yeah, Rod, I think first of all thank you for not asking the same questions, at least we have some diversity and understanding we've answered it already as best we can. Specific to the full year, Ita, I don't know if you want to comment, but I think at this point this -- concluding the full year with six weeks of data would not be correct. We are concluding Q2 from a guide and we'd like your patience and we'd like our vigilance in deciding how it flows through the year. Ita, you want to comment on that?

Ita Brennan -- Chief Financial Officer

Yes, I think Rod the only thing I'd add is I think from spend perspective, from the terms of managing the business, I mean we are -- obviously, we see what we see for Q2, but we are managing that cautiously as we look to the back half of the year. Again, not because we necessarily have any clear visibility to plus or minus there. We just think that's prudent. So, you will see us kind of invest the sales side and drive some leverage on the R&D side and help kind of manage earnings and EPS until we know where we stand.

Jayshree Ullal -- President and Chief Executive Officer

Yehh. And regarding service providers, no I would say it contributed a little bit to Q1. We expect it to contribute a little bit to Q2 but the largest shortfall was due to the cloud titans.

Rod Hall -- Goldman Sachs -- Analyst

Could you get update on campus? I mean, I know you want a couple of people last time, any updates there?

Jayshree Ullal -- President and Chief Executive Officer

Well, I think -- I'd say two things. You'll hear more about this from our June Analyst Day. We want to get into more detail there. But the two things I generally say is the Mojo acquisition has been very successfully integrated and that is playing -- that they're seeing a lot more activity in campus from that. But we're also seeing a lot of fundamental cognitive architectural activity, customers are really liking our approach to two-tier campus design, much more focused on client steering, better service assurance, native OpenConfig support. Our X3 splines that our competitors are playing catch up to a year later has been very well received and deployed. And finally, CloudVision for the campus is really coming onto the zones. So more in June, but a very promising start.

Rod Hall -- Goldman Sachs -- Analyst

Okay, thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Rod.

Operator

Your next question comes from Paul Silverstein with Cowen & Company. Your line is open.

Paul Silverstein -- Cowen & Company -- Analyst

Jayshree, I'm going to ask knowing what the answer is, but any -- can you give us any sense for how much revenue you can generate in campus, either in a range or a point number, what you're thinking for the year?

Jayshree Ullal -- President and Chief Executive Officer

Paul, I do -- actually I do want to answer that question, but can I do so at the Analyst Day?

Paul Silverstein -- Cowen & Company -- Analyst

That's what I figured.

Jayshree Ullal -- President and Chief Executive Officer

It's better than saying never, right?

Paul Silverstein -- Cowen & Company -- Analyst

I appreciate that.

Jayshree Ullal -- President and Chief Executive Officer

Thank you.

Paul Silverstein -- Cowen & Company -- Analyst

Then I'll apologize if I may. I'm going to go back to the question that has been asked again and again. My simple question is, you referenced one particular cloud titan is going cold Turkey and the others, I don't know if you were referencing all the others or most of the others as having "pause". The material difference...

Jayshree Ullal -- President and Chief Executive Officer

Sorry, let me just correct you Paul. We said one particular cloud titan put most of the orders on hold in Q2. But we also said, some of the cloud titans are doing well in Q2. And then I think one or two others are -- they haven't put their orders on hold, but are not doing as well as we'd expect them to. So if you sort of balance the pluses and minuses, out of the five cloud titans we had two doing well, two not doing well and one neutral, something like that.

Paul Silverstein -- Cowen & Company -- Analyst

Alright. And the difference between the two that were somewhat soft to the one that was -- it sounds like just stopped, with the other two you think there's also digestion of previous deployments as they catch up to demand or there's something different going on there?

Jayshree Ullal -- President and Chief Executive Officer

No, we don't think it's all related to digestion. We think it's a combination of digestion and their own decisions on how to spend CapEx.

Paul Silverstein -- Cowen & Company -- Analyst

And you think the CapEx decisions are just timing decisions or something else?

Jayshree Ullal -- President and Chief Executive Officer

Yes. When did they put their new data centers? When did they spend? When did they have leases and etcetera. And as -- generally, we don't correlate exactly to a quarter, but eventually we correlate, meaning you can see a significant shift from all the earnings calls you've seen on the cloud titan and the CapEx spend reducing from 2018 to 2019. So absorption -- the completion of absorption will affect us some, but we will also -- we'd also like to see them spend more in 2019 and currently they're spending less, some of them.

Paul Silverstein -- Cowen & Company -- Analyst

Okay. And just one quick final question for me. On the service provider case, I'm a little bit surprised to hear you call it out in the sense that service provider has been -- if I'm not mistaken has proven to be more challenging than you all thoughts from the get-go. That doesn't sound like it's new and different. So when you talk about softness in service provider, you are talking about softness versus your expectations. And I assume that in turn at least implies that it softened even further than the previous challenge you found in terms of how far, how fast your penetration, I mean you're a new player in the market when you first came in. So you should obviously gain the total -- the nature of the demand should be relatively less important in terms of your progression. I recognize it's not immaterial.

Jayshree Ullal -- President and Chief Executive Officer

Yes.

Paul Silverstein -- Cowen & Company -- Analyst

But again, the simple question would be, did it soften further?

Jayshree Ullal -- President and Chief Executive Officer

Yes.

Paul Silverstein -- Cowen & Company -- Analyst

One word answer.

Jayshree Ullal -- President and Chief Executive Officer

Simple answer in one word is, yes.

Paul Silverstein -- Cowen & Company -- Analyst

Okay. I appreciate it. I'll pass it on. Thank you

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Paul.

Operator

Your next question comes from Simon Leopold with Raymond James. Your line is open.

Simon Leopold -- Raymond James -- Analyst

Thank you very much for taking the question. So I wanted to rather than talk about revenue trends maybe see if you could shed some light on your expense trends and specifically where I'm going with this line of questioning is to get a better sense of really what you need to do to expand market. So to get beyond the cloud for things like success in campus. I noted it's relatively high sales and marketing back in the December quarter, a little bit lighter this quarter, but the trend is higher. Help us understand what you need to do to broaden your marketplace and be successful in areas like campus from an expense perspective? Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Sure. Simon, I think Manny covered this, and Anshul, maybe you want to add to it. But I think there are three things we are doing and we need to continue to do in the campus to get stronger. The first is, we just have to invest more in enterprise coverage across the world. We're stronger in the US and internationally, but the global footprint, every single major company has a campus. So we've got tremendous TAM there and tremendous opportunity and we've got to put more feet on the street. So, you watch us continue to invest there. And I think canvas will be actually more of a horizontal opportunity for us more than just a vertical opportunity. So, that's one.

The second and important thing we have to also do is win quickly with the customers who are most familiar with us, the 5,000 customers who know and love and appreciate EOS and the quality and the single binary image and the CloudVision, state oriented management and change control, this will be an important march (ph) for us to have customer wins there because they obviously have already worked with us.

And the final is, not everything can be a direct customer touch, you will see Manny and Anshul and the team investing heavily in a very razor sharp focus on channels. Not all channels are equal, but a combination of the lead channels as well as regional channels, different geographies and perhaps even some systems integrators will be important. Anshul, do you want to add to that?

Anshul Sadana -- Chief Operating Officer

No, that's pretty much it. We'll talk more about this on the Analyst Day as well when we talk about campus overall.

Simon Leopold -- Raymond James -- Analyst

Any chance we could maybe get a little bit of quantification around the rate of hiring or rate of expense growth we should expect for the year what you're budgeting for?

Jayshree Ullal -- President and Chief Executive Officer

I think from a budget perspective it's going to be double what we did last year in people.

Ita Brennan -- Chief Financial Officer

Yeah, and I think what you should expect Simon is we'll -- at least for the foreseeable future we will look to kind of leverage -- drive some leverage in R&D to kind of offset that incremental spending on sales and marketing and then we'll see as the topline kind of -- we'll see what happens at on the topline. We can -- we'll revisit that. But I think sales and marketing and go-to-market investments are the priority from our perspective at this point.

Simon Leopold -- Raymond James -- Analyst

Great. Thank you for taking the question.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Simon.

Operator

Your next question comes from James Faucette with Morgan Stanley. Your line is open.

James Faucette -- Morgan Stanley -- Analyst

Thank you very much. I wanted to try to avoid killing a different horse but I'm going to change topics. So, the question I have is like when you look at your non-camp or your non-cloud titan non-service provider customers and that group, you have indicated that those continue to do well. I'm wondering if you can give some color in terms of makeup of the customers, if that's changing at all, and what's going on from a geographic basis? And where you're maybe seeing strength or kind of how that's evolving on a geography by geography basis?

And then just a quick other question for Ita is that, versus our model at least your tax rate was a lot lower this quarter than we had modeled. And I just wondered if something was happening there and how we should think about that going forward? Thank you.

Ita Brennan -- Chief Financial Officer

Yes, maybe I'll take that one first. So we did finalize some tax positions around (inaudible) and some other stuff that came out of the tax reform this quarter and with that saw a reduction. So it was actually a 20% in Q1. I think structurally over time it's probably higher than that. We guided 21% for Q2. I think that's probably a good place to be until we see how it settles in. But it's come down off of -- we were in a 61.5% type range, so we've come down from that. So, I think 21% is probably a good place to be now.

James Faucette -- Morgan Stanley -- Analyst

Okay. Thanks.

Jayshree Ullal -- President and Chief Executive Officer

Thanks James. To answer the question, I didn't have all the information at my fingertips, but what we're seeing is a very healthy uptick in logos, both in the United States as well as in EMEA. So, new logos are trending well in Q1 and we expect that to continue through 2019. In terms of new verticals, we don't see a trend but we're definitely seeing strength in media, entertainment, financials, healthcare, these tend to be a top three verticals I think at the moment. And no reason we wouldn't start seeing more in education and some of the other places as well. High-tech enterprise generally is a strong vertical for us. So, I think we're continuing to make our verticals horizontal, if you will, by participating in more customers and more mid-to-large enterprises.

Anshul, you had a good statistic on how many Fortune 5000 and Global 2000 were in this. That would be a good data point.

Anshul Sadana -- Chief Operating Officer

Sure, at this time roughly 25% of the Fortune 500 are Arista customers and just under 20% of the global 2 000 are Arista customers. And these statistics have been improving every quarter. So, we are winning in the broader enterprise as well, not just our initial verticals.

Jayshree Ullal -- President and Chief Executive Officer

Yes, that's very promising.

James Faucette -- Morgan Stanley -- Analyst

Thanks, guys.

Jayshree Ullal -- President and Chief Executive Officer

Thank you,

Operator

Your next question comes from Tal Liani with Bank of America. Your line is open.

Tal Liani -- Bank of America -- Analyst

Hi, guys. First, I always thought that making us work on Valentine's Day evening is a bad karma and now I got my confirmation for that.

Jayshree Ullal -- President and Chief Executive Officer

Alright, Tal.

Tal Liani -- Bank of America -- Analyst

I want to ask -- yes, next time don't do it that night. Next, I want to ask a question on your routers. You said before that the service providers have still difficulties to accept or to take your vision for the routers, that you're seeing more difficulties to sell routers to service providers than you had anticipated. Can you give us an update on what's their vision and if there's any change in the willingness of providers to take your 75R (ph) ? Thanks.

Jayshree Ullal -- President and Chief Executive Officer

Yes, that's a good question Tal. So I think there is really a fundamental difference between routers and routing. Routers were built at the time where you had different kind of LAN and VAN interfaces, generally low port density, generally 10 to 100 X the price per port and generally, custom A6. And what Arista has done is to shift that to a modern merchant silicon, whether it's Jericho or Jericho Plus or Jericho NextGen in the future and cut down the number of layers. And that service providers unlike the cloud providers have needed more time to operationalize it. They believe the strategy. They can't go as fast on the implementation. However, we have had a success for the couple of used cases.

Anshul, you want to comment on that?

Anshul Sadana -- Chief Operating Officer

Yeah, absolutely. Look, the RFP cycles and the contract cycles are fairly long for the service provider. So we do have lots of international activity but the sales cycles are longer. In the US, the MSOs are steady state with us. So we do well over there. We do well in the Telco cloud which is the data center part of the Telco cloud (ph) , but the rest of the Telco is what's been slow.

Jayshree Ullal -- President and Chief Executive Officer

Yes, because they have an old RFP and we have a new RFP, so they haven't jived.

Tal Liani -- Bank of America -- Analyst

Got it. I -- can I ask a follow-up question on something everyone asked, but I have it -- I wanted to look at it differently. There is one big customer that grew a 100-plus percent for you and it will -- we will understand if that customer is pausing because it's abnormal to see this kind of growth. The question is, what is the growth in cloud in aggregate, if you remove that specific customer, in aggregate this group grow or grow not grow this quarter, or the guidance I mean?

Jayshree Ullal -- President and Chief Executive Officer

Yes, I don't know that we are going to break that out at this point, Tal. I think the concentration on a single customer is probably appropriate but I don't know that we're going to try to start breaking out the vertical inside of the vertical.

Tal Liani -- Bank of America -- Analyst

Got it. Okay. Thank you.

Operator

Your next question comes from Samik Chatterjee with JPMorgan. Your line is open.

Samik Chatterjee -- JPMorgan -- Analyst

Hi, thanks for taking the question. Hi Jayshree, hi Ita, hi Anshul. So, much easier question for me. I'm just trying to kind of think about the switch product that you co-developed with Facebook and kind of the implications around that, given that at OCP, Facebook sounded like very enthusiastic about going through with the implementation quickly as well as kind of -- I mean it sounds like a preferred position with the customers. So can you just help me think about kind of what the implications here in terms of what you're thinking in terms of market share opportunity and kind of what does this imply in terms of your position with the other cloud providers as well? Thank you.

Anshul Sadana -- Chief Operating Officer

Sure. Samik this is Anshul. I'll take that one. We have often talked about joint development with our cloud titan customers and the announcement that -- at OCP was a perfect example of that. The world is no longer about build versus buy. The cloud companies have too many projects to do and very few people to do those. So they do want to do build and buy and they look for the right partners to do these joint developments and as you saw we do have preferred position there.

This is one of the examples of things we work on. We do work on similar projects for other cloud customers as well. Some of those are never talked about publicly but we feel very good with our position there as well. So to the earlier comment, we do very well with these companies. So this is not to avoid -- mean that we are losing designs like (ph) that. I think we are doing very well technology-wise. It's a matter of spend that, that did not align. But you're right, it's a great opportunity for us and I think we have the best position in the overall market to capitalize on that.

Jayshree Ullal -- President and Chief Executive Officer

I think this is a very exciting example of joint collaboration which serves Facebook well, but also serves all of our enterprise customers well. We've turned around and seen a lot of activity with enterprise customers with this product. So, it has been very good.

Samik Chatterjee -- JPMorgan -- Analyst

Great. Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Samik.

Operator

Your next question comes from Jeff Kvaal with Nomura Instinet. Your line is open.

Jeff Kvaal -- Nomura -- Analyst

Thanks very much. Id' like to stick with the cloud type, let's go a little bit further out. I think one of the things that we have talked about as a group in prior calls is rising complexity of some of the cloud titan networks. Can you talk a little bit about to what extent that is helping you now? Are there future sort of design topologies that are in the works that should be helpful in the future? Or conversely, is that a risk if other rival vendors are able to use those topologies as an insertion point? That'd be helpful. Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Hey, Jeff, this is Jayshree. I think the -- one of the biggest virtues of the cloud titans is they remove the complexity and make it elegant and simple. But having said that, one of the virtues or one of the challenges they have is scale and they always need the uptime and availability. So, when you look at what they've done, they've built this tremendously flat fat leaf spine network, except there is many tiers of leaves and many tiers of spine for different used cases. I don't view that as complexity. I view that as removing the complexity to address many more used cases, which Arista and especially Anshul and the team done very, very well.

So when you look at spine, there is regional spine, there's DCI, there is security options, there's different types of routing used cases, and obviously they are also at the very low end different types of leafs including integration with Facebook, or Sonic in the case of Microsoft. Another area of great elegance is OpenConfig and the models we develop there. So, I would say what's happened is the diversity of our used cases has led to many more examples of how we can work with the cloud providers. And it's not just one design, but the word complexity doesn't come to mind. The word elegance comes to mind. Anshul, I don't know if you want to add some more to that.

Anshul Sadana -- Chief Operating Officer

It's really the scale, right. The scale is getting larger and larger and they have to design systems to manage that. But we do very well with these customers. So, we are not worried about that.

Jayshree Ullal -- President and Chief Executive Officer

I think it's simply that we've now gone from the first innings of all of this through the second or third finally, so there is many more left but it's no more early days.

Jeff Kvaal -- Nomura -- Analyst

Well, maybe let me rephrase it a little bit and say, as these used cases grow, is there like a -- should we be expecting the pace of your ability to do inserts into these used cases to pick up, and I'm thinking particularly of routing used cases for example?

Jayshree Ullal -- President and Chief Executive Officer

Yes, no, I think you can expect that and you should have seen that already in the last year when we did -- when we moved to 100-gig with many of our cloud titans. We also mowed tremendously fast to routing in those used cases with Flex Drive. And the same thing is likely to happen as our customers move form just 100-gig alone to a hybrid combination of 100 and 400. You can expect the faimiliarity in routing and the pickup to -- and the qualification time to compress.

Jeff Kvaal -- Nomura -- Analyst

Okay. Thank you all very much.

Jayshree Ullal -- President and Chief Executive Officer

Thanks Jeff.

Operator

Your next question comes from Erik Suppiger with JMP Securities. Your line is open.

Erik Suppiger -- JMP Securities -- Analyst

Yes, thanks for the question. So on Microsoft, I think last year was 27%. That was up from 16%, I think you had said that you thought it would probably go back to 16% -- mid-teens type percent contribution. Would you anticipate that it will still be in the mid-teen contribution in 2019?

Jayshree Ullal -- President and Chief Executive Officer

I don't know if we can guess that without knowing the second half but I think it's safe to say, it's around there for now. It's a good an answer that we gave you in February.

Erik Suppiger -- JMP Securities -- Analyst

Okay. So you haven't changed your expectation in terms of the contribution from Microsoft, is that correct?

Jayshree Ullal -- President and Chief Executive Officer

Based on one quarter -- Q2 guide, no, we'll have to see the second half and then we'll know better. Does that make sense?

Erik Suppiger -- JMP Securities -- Analyst

Yes, that makes sense. One quick one ,your deferred revenue came down some. Was -- the change in the deferred revenue, was that what you would have expected as you entered the March quarter or did the deferred revenue -- your recognition of deferred revenue, did that change at all during the course of the quarter from your expectation?

Ita Brennan -- Chief Financial Officer

No, I think we knew that we had -- and we talked a lot about this on the last call, right. We knew that we had some products that were waiting for customer acceptance and I think there wasn't anything particularly unusual around that. And it's also kind of very similar to what we saw in Q1. So, I think the impact of that is pretty much as you'd expect.

Jayshree Ullal -- President and Chief Executive Officer

The real big change, Erik, again just to be is completely transparent and direct was the change in demand for our product in late March and April.

Erik Suppiger -- JMP Securities -- Analyst

All right, very good. Thank you.

Ita Brennan -- Chief Financial Officer

Thanks, Eric.

Operator

Your next question comes from Sami Badri with Credit Suisse. Your line is open.

Sami Badri -- Credit Suisse -- Analyst

Hi, thank you. Even though I'd love to ask a cloud question, I'm not. So more specifically...

Jayshree Ullal -- President and Chief Executive Officer

Okay, thank you for sparing us.

Sami Badri -- Credit Suisse -- Analyst

Yes. Actually it has to do with your margin guidance, both on gross margin and OpEx. So if we look at sequential moves and it's interesting that your revenue guide in 2Q 2019 is coming down, which even like -- I guess it's a -- further emphasize why I'm asking this question. Should we be expecting to see your operating margins start to level off below your historical record rate that you saw in that back half of 2018, given your incoming investments to specifically the channel? Or do you think you're going to still see a similar comparable type of operating margin profile as you booked in the back half of 2018, in the back half of 2019, in the back of a slower channel build out? That would be great just to get an idea on how we should be modeling margins in the back half of the year.

Jayshree Ullal -- President and Chief Executive Officer

I mean, it all comes back to customer mix from a gross margin perspective, right. I mean you're seeing an uptick in Q2 because we are seeing less cloud activity and it's weighting toward enterprise and toward some of the others, right. And that's going to drive a higher gross margin. And obviously, that would flow through to operating margin, right. So that's -- it's kind of a counterbalance to some of the topline slowness that we're seeing.

In terms of spending, our goal is to continue to drive sales and marketing investments that we need to make. And then we'll leverage our -- we'll leverage engineering, right. And we've been investing in the engineering side at a really fast clip over the last -- number of years, I think we've had (technical difficulty) the topline. So there is some room there for us to really -- to drive some leverage there and then use that to fund the sales and marketing. And I think that's the strategy. Where that comes out exactly on operating margin, we'll have to see. I mean you saw a tickup in the guide for Q2 off of the improved gross margin and then just the focus that we're going to put on OpEx.

Sami Badri -- Credit Suisse -- Analyst

Got it. And then just a very quick question on Mojo, what percentage of sales were direct and what percentage of sales went through the channel?

Jayshree Ullal -- President and Chief Executive Officer

The Mojo business model was extremely channeled. As it becomes more and more part of Arista, it would become more direct although fulfilled by the channel still. So I would say today, given our Q1 is still predominantly influenced by Mojo sales itself, it's 80% through the channel, but if I had to forecast how it will look by the end of this year it would be probably 50-50.

Sami Badri -- Credit Suisse -- Analyst

Got it. Thank you.

Operator

Your next question comes from Aaron Rakers with Wells Fargo. Your line is open.

Aaron Rakers -- Wells Fargo -- Analyst

Yes, thanks for taking the question. I'll try and slip in two here as well. First of all, as you kind of speak to your customers, particularly as we move through March, I'm just curious, I know that there's a pause dynamic but have you seen any customers kind of allude to a pause related to maybe new product cycle dynamics going into the back half of the year, or is it truly just the digestion, or could we think about product cycle really being a kicker in the back half? And then with that also, I'm curious if a software-only selling motion within the Company, how should we think about that potentially evolving over the next couple of years? Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Those are two very different but important questions. In terms of the dynamics we saw, it was pretty much -- we didn't see anything different, but it was just as we indicated, it was a pause, right. It isn't like we are waiting on new products. Most of our customers are aware of our road map, not just for the year but often multi-year. And -- but they still got a business to run and so they don't pause, they always mix and match the products with the new products.

So we know how to drive that. We are very open and transparent about the products. We are also very open and transparent about the migration. So, we don't believe we saw any indication of that. However we do feel that the excitement and enthusiasm of our new products is only going to help us, particularly in the campus and data center in second half of the year.

In terms of software selling, we started off CloudVision demos, I want to say 2016, right? Three years into it, it's the first time we are really seeing the excitement in our customer base. Many, many of our enterprise customers are choosing Arista because of CloudVision in the US. And as you know, our products are great too but they are just blown away by the manageability, the change control, the analytics, the automation, the macro segmentation features, the telemetry. So, the software sales and more probably the software expertise in Anshul's systems engineering team, driven by Ashwin, couldn't be higher. He's putting a tremendous emphasis.

I think we started this about a year ago. And so, I think everyone of our leaders as well as our systems engineers customer down to the support engineer is, I would say, a software expert first and then obviously all of the networking attributes. It's something that's been happening gradually but particularly gratifying to see the results of it over this quarter with CloudVision being double the bookings from Q1 2018.

Aaron Rakers -- Wells Fargo -- Analyst

Okay, thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Aaron.

Operator

Your next question comes from Alex Henderson with Needham. Your line is open.

Alex Henderson -- Needham -- Analyst

Thank you very much. I was hoping you could talk a little bit about where we are on the 400-gig transition. I assume that most of the transactions, probably 90% plus this year, will be driven by 100-gig, but could you give us an update on what you're seeing between you and your competition in terms of the timing of acceptance of those products? And does that have any role in the timing of demand out of Web 2.0 cloud type?

Jayshree Ullal -- President and Chief Executive Officer

So Alex, as you know, we are very excited about our market leadership in 100-gig and we hope we will transform that into market leadership in 400-gig through our technology as well. We introduced the Broadcom Tomahawk products. And I'm going to turn it to Anshul to talk about some of the acceptance we have had there. And we are not stopping, we've got many more in the pipeline.

Anshul Sadana -- Chief Operating Officer

All right, thanks, Jayshree. Alex, the core developing with the Facebook was actually with Tomahawk 3 as well, but the form factor Express was 100-gig. 400-gig is exciting to cloud companies, but as we've talked about in the past, without a few (ph) 400-gig deployments in the cloud are not feasible for many architectures without the availability of ZR optics. Those come to the market mid next year, most likely. So as a result of it, the cloud companies would continue to deploy 100-gig, they qualify the new products and over time they will transition. They're not waiting for this sudden migration to 400-gig. They either don't need it or they need the optics before they can migrate to a 400-gig architecture.

Jayshree Ullal -- President and Chief Executive Officer

And I think the key that Anshul and I are really trying to communicate is, don't confuse 400-gig ready with 400-gig being deployed. So Arista is really focused on 400-gig ready architectures already we have now, but when they will get deployed will be a continuum in time. It may be this year much of it will be in the next year and the year beyond.

Alex Henderson -- Needham -- Analyst

So just to be clear, there are a number of product cycles around 400-gig, around servers, around some other key components, and most of the other companies in the broader macro arena that you are competing in have indicated that they expected weakness in the first half of the year from cloud. You were bucking that trend. Now you seem to be more in line with the prior commentary from the other companies that are in this space. To the extent that they were expecting a resurgence in the back half of the year, is that something that we should expect from you as well?

Jayshree Ullal -- President and Chief Executive Officer

I think we will refrain from what you should expect from us. We don't want to conclude that for the second half. We want to wait, watch and see. Stay tuned for more. I mean I think we were very optimistic about Q2 in cloud spend as well and it didn't quite turn out that way. So before we get optimistic on Q3 and Q4, we'd want to be more sure.

Anshul Sadana -- Chief Operating Officer

Alex, to complete that, we are ready with the products, but as I mentioned, the 400-gig transition is longer than what many of you expect and we just have to go along with that rather than...

Jayshree Ullal -- President and Chief Executive Officer

Can't change the fact that there's no optics to connect to it.

Anshul Sadana -- Chief Operating Officer

Right.

Jayshree Ullal -- President and Chief Executive Officer

Right, so...

Alex Henderson -- Needham -- Analyst

Okay, I understand that.

Jayshree Ullal -- President and Chief Executive Officer

A 400-gig electrical only solution would be a weak solution. But Alex, to answer your question, yes, I think that there's a lot of promise and this is going to be a mix and match of 100 and 400-gig for a long time to come.

Alex Henderson -- Needham -- Analyst

Super. Thank you very much.

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Alex.

Operator

Your next question comes from James Fish with Piper Jaffray. Your line is open.

Jayshree Ullal -- President and Chief Executive Officer

James? We can't hear James?

Operator

James Fish, your line is open.

James Fish -- Piper Jaffray -- Analyst

Can you guys hear me now?

Jayshree Ullal -- President and Chief Executive Officer

Yes, now we can.

James Fish -- Piper Jaffray -- Analyst

Okay, great. Sorry about that. Just actually going off to the last question, it sounds -- I appreciate that color. Maybe you could go into what optic forms those customers are actually taking on, because I know there's debate out there as to which of the two optic form the factors? Thanks.

Jayshree Ullal -- President and Chief Executive Officer

Andy Bechtolsheim has been a very strong proponent of OSFP --I feel like saying PF all the time, given it's a protocol. But there's just as many customers who want QSFP-DD. Arista will support both and does support both.

James Fish -- Piper Jaffray -- Analyst

Got it, thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thank you. Thanks, James.

Operator

Your next question comes from Steve Milunovich with Wolfe Research. Your line is open.

Steve Milunovich -- Wolfe research -- Analyst

I wanted to follow-up on Alex's question. Last quarter you guys were a real exception to the digestion that other companies were seeing with the cloud and one of the reasons I think you gave was that you were finding new places in the cloud to sell to. I don't know if that met new tiers at current customers or new types of customers, and I'm just wondering is that not happening, is that what's going on here, or did you just basically underestimate Microsoft? It was obviously a huge year last year, so a pause wouldn't be shocking at Microsoft?

Jayshree Ullal -- President and Chief Executive Officer

Yes, so -- no. I think our used cases including the regional spine and DCI live and well. They're intact, and we're continuing to make great progress with many cloud titans there. I think we underestimated the customer who paused in Q2. And even the customer who paused in Q2 didn't intend to pause in Q2. So, we found that -- we kind of found on that out together and when we are letting you know .

Steve Milunovich -- Wolfe research -- Analyst

So you would -- in a sense, didn't have the three months to six months visibility that you normally would if even the customer kind of surprised themselves with this?

Jayshree Ullal -- President and Chief Executive Officer

Yes, in this particular case that would be true.

Ita Brennan -- Chief Financial Officer

And I think it's important to go back and remember that we've always said we have wanted to kind of have project visibility. Order book has always been shorter, right.

Jayshree Ullal -- President and Chief Executive Officer

That's really good to distinguish. There's a big difference between orders taken and projects understood.

Steve Milunovich -- Wolfe research -- Analyst

Got it, thank you.

Jayshree Ullal -- President and Chief Executive Officer

By the way, just to add to that, there have been many times we've been positively surprised by order in the last few years and didn't forecast that either. So, this is one of the rare times where the forecast came in the negative direction.

Operator

Your next question comes from Hendi Susanto with Gabelli. Your line is open.

Hendi Susanto -- Gabelli -- Analyst

Good evening and thank you for taking my questions. I want to ask about the forward-looking question on the current cloud titan situation. How fast can a cloud titan resume a project that is on hold and how much lag between that and the resumption of sales of Arista Networks' products?

Jayshree Ullal -- President and Chief Executive Officer

I'll take an answer to that and I'm sure Anshul can add more color. I think they can resume a product as fast they put it on hold. They can put things on hold in weeks and they can resume it in weeks to months.

Anshul Sadana -- Chief Operating Officer

Yes, Hendi, look, as we've said, the cloud customers' CapEx spending is not correlated with us in a quarter-by-quarter basis. There's many things they spend money on, including building the data centers, buying service and so on. But in the end -- in the long run, if they are adding racks and they're adding data centers across the region and they're appearing, then they will need our products. So it's fairly easy for them to turn it back on as well, simply a matter of when the rate of spend money on these projects.

Hendi Susanto -- Gabelli -- Analyst

Good for you. Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Hendi.

Operator

Your next question comes from John Marchetti with Stifel. Your line is open.

John Marchetti -- Stifel -- Analyst

Thanks very much. I think I may get in the last question here tonight again. Just wanted to follow-up, Jayshree, you talked a little bit about the second half recovery or certainly the hopes for that in the second half, a big piece of that obviously being some of the new products that you tend to launch there. How much of this -- I guess what's new, should we expect maybe to be focused on the cloud? Is it much broader than that? Just trying to get a sense of maybe the outlook for the second half, how much that relies on some of these new products versus maybe just some of the demand coming back a little bit for you?

Jayshree Ullal -- President and Chief Executive Officer

Yes, thanks John. We saved the best for last of the question I guess. I think we have always been an engineering company. We are proud of our R&D and new products fuel our customers to enhance the networks while existing products also carry the way for us in specific used cases. So I think the new products, especially in the campus, will definitely help. The new products in the data center and cloud will be a continuation and a continuum what we have always done. So I think if there is any uptick in the second half that we didn't project yet, it would come more from new products in the campus, whereas new products in the data center and cloud have already been factored in.

John Marchetti -- Stifel -- Analyst

Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, John.

Charles Yager -- Director, Product and Investor Advocacy

Okay. Thank you all for your (technical difficulty) questions. This concludes the Arista Q1 2019 earnings call. For additional information on Arista and our quarterly results, please visit our Investor Relations website.

Operator

Thank you for joining, ladies and gentlemen. This concludes today's call. You may now disconnect.

Duration: 61 minutes

Call participants:

Charles Yager -- Director, Product and Investor Advocacy

Jayshree Ullal -- President and Chief Executive Officer

Ita Brennan -- Chief Financial Officer

Thejeswi Venkatesh -- UBS -- Analyst

Jim Suva -- Citi -- Analyst

Mitch Steves -- RBC -- Analyst

Ittai Kidron -- Oppenheimer -- Analyst

Alex Kurtz -- KeyBanc -- Analyst

Anshul Sadana -- Chief Operating Officer

Rod Hall -- Goldman Sachs -- Analyst

Paul Silverstein -- Cowen & Company -- Analyst

Simon Leopold -- Raymond James -- Analyst

James Faucette -- Morgan Stanley -- Analyst

Tal Liani -- Bank of America -- Analyst

Samik Chatterjee -- JPMorgan -- Analyst

Jeff Kvaal -- Nomura -- Analyst

Erik Suppiger -- JMP Securities -- Analyst

Sami Badri -- Credit Suisse -- Analyst

Aaron Rakers -- Wells Fargo -- Analyst

Alex Henderson -- Needham -- Analyst

James Fish -- Piper Jaffray -- Analyst

Steve Milunovich -- Wolfe research -- Analyst

Hendi Susanto -- Gabelli -- Analyst

John Marchetti -- Stifel -- Analyst

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