Enterprises struggling to corral massive amounts of data in the campus, edge and cloud are driving demand for network infrastructure, boosting the finances of suppliers Cisco and Arista Networks.
Last week, the two network providers reported strong quarterly results and upbeat forecasts as customers bought IT infrastructure to support applications distributed across public and private clouds and the edge.
Companies run edge computing systems that analyze and send users real-time data from IoT devices. IDC expects global spending on edge systems to increase more than 13% this year to $208 billion, reaching $317 billion by 2026.
Companies are also upgrading the wireless infrastructure on the campus to support the video conferencing and collaboration applications needed for people splitting their time working from home and the office. By the end of the year, companies will spend almost $1 billion on the hybrid workplace -- a nearly 19% increase from last year, according to IDC.
Put it all together, tech buyers can be sure of three things: "death, taxes and data growth," said Bob Laliberte, an analyst at Enterprise Strategy Group, a division of TechTarget.
"It's just sort of this inevitable thing where we're generating more and more data, whether at the edge, the cloud, or the data center," he said.
Public cloud providers
Hyperscalers are also buying gear. Arista reported that 46% of 2022 revenue came from companies using web-scale IT. Arista's annual revenue for 2022 rose 48.6%, to $4.4 billion.
Cisco reported that orders from two web-scale IT customers rose 40% in the quarter that ended on Jan. 28.
Arista and Cisco forecasted significant revenue growth in the current quarter. Arista expected revenue between $1.275 billion and $1.325 billion. Cisco raised its outlook to a revenue increase between 9% and 10.5%. It had forecast a rise between 4.5% and 6.5%.
Cisco expected the good times to continue into its 2024 fiscal year, starting July 31.
"We will continue to see growth into fiscal '24," said CFO Scott Herren during an earnings call with analysts last week.
Cisco CEO Chuck Robbins said he also expected buying trends to continue.
"No one is talking about cutting technology spending right now," he said. "Everybody, it seems, is very committed to it."
Backlog of orders
What isn't clear is how much of Cisco's and Arista's revenues are related to filling orders submitted when the pandemic disrupted component manufacturing in China, delaying product shipments. Many companies placed preorders months in advance knowing it would take vendors a much longer time than usual to fill them.
Chuck RobbinsCEO, Cisco
Arista declined to provide backlog numbers during its earnings call. However, Cisco was willing to tell part of the story.
In the fiscal quarter that ended Jan. 31, Cisco said it reduced its backlog by 6% from the previous quarter. By the end of the fiscal year on July 29, it expects to have roughly doubled its typical backlog of $4 billion to $5 billion.
"[The backlog] tells me that they haven't caught up to all the supply chain issues and the preordering that's gone on," Laliberte said.
Cisco didn't provide the amount of the current backlog, leaving it to analysts to estimate how much of its revenue growth is due to new business or filling back orders. That information provides insight into future revenue growth.
Antone Gonsalves is the networking news director for TechTarget Editorial. He has deep and wide experience in tech journalism. Since the mid-1990s, he has worked for UBM's InformationWeek, TechWeb and Computer Reseller News. He has also written for Ziff Davis' PC Week, IDG's CSOonline and IBTMedia's CruxialCIO, and rounded all of that out by covering startups for Bloomberg News. He started his journalism career at United Press International, working as a reporter and editor in California, Texas, Kansas and Florida. Have a news tip? Please drop him an email.