Arista Network, Inc. (ANET) Q4 2018 Earnings Conference Call Transcript

Arista Networks, Inc. (ANET -0.02%)
Q4 and Fiscal Year 2018 Earnings Conference Call
Feb. 14, 2019, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants
  
  See all our earnings call transcripts.

Prepared Remarks:

Operator

Welcome to the Fourth Quarter 2018 Arista Networks Financial Results Earnings Conference Call. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question and answer session. Instructions will be provided at that time. If at any time during the conference you need to reach an operator, please press *0. As a reminder, this conference is being recorded and will be available for replay from the investor relations sections at the Arista website following this call. I will now turn the call over to Mr. Chuck Elliott, Director of Business and Investor Development. Sir, you may begin.

Chuck Elliott -- Director of Business and Investor Development

Thank you, operator. Good afternoon, everyone, and thank you for joining us. With me on today's call are Jayshree Ullal, Arista Network's 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 fiscal fourth quarter and year ended December 31st, 2018. If you would like 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 first 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 Form 10-K 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 will turn the call over to Jayshree.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Chuck. Happy Valentine's Day, everyone, and welcome to our fourth quarter 2018 earnings call. In terms of Q4 specifics, our profitability growth combination was once again demonstrated with our non-GAAP revenue of $595.7 million, while our non-GAAP earnings per share grew to a record $2.25. Services contributed approximately 15.5% of revenue, consistent with it being typically higher as the percentage of overall revenue toward the Q4 end of the year. Our margins in a non-GAAP basis were 64.1%, influenced strongly by our performance from our Cloud Titan vertical. Overall, 2018 gross margins came in at 64.4%.

In terms of customer trends, we registered a record number of million-dollar customers in Q4, symptomatic of our enterprise vertical momentum. By the end of 2018, we had acquired a cumulative of approximately 5,600 customers with Microsoft at 27% of total revenue. The combination of an unprecedented year with multiple design wins coupled with a release of deferred revenue due to legal certifications made 2018 a unique, one-of-a-kind year at Microsoft.

Our use cases are very diverse there. They transcend classical data center use cases to regional Spine routing and DCI networking, so this often makes it difficult to directly correlate network spend to capex of server and storage spend. Without these collective one-time factors, Microsoft would've likely been more in the normal band of teams of revenue like they have been in prior years.

In terms of verticals Q4 2018, and in fact throughout 2018, Cloud Titans represented our largest and strongest vertical. They were represented by our top five Cloud Titan customers. The modern high-tech enterprise segment is now our second-fastest growing and our second-largest segment, followed by the Tier 2 specialized cloud providers in third place, and the financials and service providers tied for fourth place.

Consistent with industry's trends, service providers have been somewhat of a low point for us with negative annual growth after a very strong 2017. That said, we are pleased with our increased acceptance of our FlexRoute software licenses growing 50% from 200 customers in 2017 to 300 customers in 2018.

Looking at the 2018 year in entirety, the 2018 international contribution was 28%, with the Americas coming in at 72%, not too different from prior years. In terms of new products, Arista delivered a banner year of disruptive products, redefining networking with highly differentiated EOS facts, CloudVision management software, and flagship platforms. The 7280 and 7500 series have become the gold standard in 100 Gigabit Ethernet cloud networking.

In 2018, we also introduced substantial software innovations. These included containerization, tracers, and analyzers. In particular, we have doubled our CloudVision management customers and our Any Cloud segmentation security software with APIs for AWS, Azure, and GCP have indeed been transformational. Undoubtedly, 2018 has been a significant year for Arista with revenue of $2.15 billion and an annual growth of over 30% with substantial contribution from our cloud vertical.

At this time, I'd like to invite Anshul Sadana to recap our Cloud Titan strategy and really highlight our success here. Anshul?

Anshul Sadana -- Chief Operating Officer

Thank you, Jayshree. While we pioneered our cloud networking mission with 2-tier Leaf/Spine design, our customers are now using Arista products in a multitude of growth, both within and outside the traditional data center boundaries, which we know has our places in the cloud. We're now successfully deployed in many big roles: leaf, spine, bare-metal, cluster interconnect, regional spine, DCI, metro interconnect, tiering spine, private backbone, and extended long-haul use cases. Wire speed 256 bit MACsec encryption has secured all traffic that leaves the data center facility of our customers.

In addition to recent speeds, Arista EOS is strongly preferred for the cloud's mission-critical use cases due to superior quality, programmability, wire-robust APIs, and our EOS SDK. Our speed-based real-time telemetry delivers world-class analytics, monitoring, and traffic engineering of these networks. All of these compelling advantages have created a collaborative partnership with our cloud customers as a build for next generation architectures with ever-increasing workloads.

Back to you, Jayshree.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Anshul. Effective March 2019, I'm really pleased to announce the promotion of Anshul Sadana to Chief Operating Officer. In this expanded role, Anshul augments his present worldwide product management and customer-facing functions with platform engineering, manufacturing, and operations. Anshul, as many of you may know, has been a key pillar and contributor at Arista for over 11 years, demonstrating that keen and unique sense of product depth, driving our consistent differentiation in the typical Arista way. Please do join me in congratulating Anshul on his very well-deserved promotion.

Arista continues to drive cloud area networking, but the future of networking is not siloed to a switch or a router box alone, but, in fact, in software-driven places in the cloud. As we exit 2018, we believe we hold the No. 1 market spot in 100 Gigabit Ethernet switching share and ports for the high speed data center segment. As I had mentioned last year, scaling the company and the team was a stated goal. We accomplished this many ways including the addition of two senior officers to our executive leadership team, John McCool, our Chief Platform Officer, and Manny Rivelo, our newly appointed Chief Customer Officer.

We also successfully integrated our first two M&A transactions last year: Mojo Networks for cognitive Wi-Fi in the campus and Metamako for ultra-low latency networking. Our employee bench trends increased to 2,300 in 2018 from 1,700 in 2017 while maintaining our very high bar for top-notch talent. What is increasingly clear to me is that Arista's gaining strategic relevance and has a seat at the table with enterprises seeking next-generation cloud-area networking as a compelling alternative.

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

Ita Brennan -- Chief Financial Officer

Thanks, Jayshree, and good afternoon. This analysis of our Q4 and full year 2018 results and our guidance for Q1 '19 is based on non-GAAP and excludes all non-cash stock-based compensation impacts, lawsuits related to our private company investments, charges associated with our recent acquisitions, 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 Q4 were $595.7 million, up 27% year-over-year, and above our guidance of $582 million to $594 million. We experienced good overall demand in the quarter with ongoing strength across the business. Service revenues represented approximately 15.5% of revenue, up from 13.8% last quarter, reflecting a seasonally higher level of renewals in the period. International revenues for the quarter came in at $144.9 million, or 24% of total revenue, down from 28% in the prior quarter. Looking at the year, international mix remained consistent on a year-over-year basis at approximately 28% of total revenue. This reflected strong growth in our international in-region businesses, offset by a higher mix of U.S. deployments from our Cloud Titan vertical.

Overall gross margin in Q4 was 64.1%, just above the midpoint of our guidance of 63% to 65%, and down from 64.6% last quarter. This reflected a healthy mix of Cloud Titan revenues in the period, and as expected, some incremental costs related to the previously announced trade tariffs. While the operations team are making good progress toward mitigating these tariff-related costs, we expect to see some continued impact through the remainder of 2019. In the interim, we will continue to pass a portion of these costs to our customers, pending completion of the required supply chain changes.

Operating expenses for the quarter were $160.1 million, up from $155.1 million last quarter. R&D spending came in at $104.9 million, or 17.6% of revenue, mostly flat to last quarter on an absolute dollar basis. This reflected heavier NRE and prototype spending in the third quarter, offset by ongoing headcount growth in Q4. Sales and marketing expense was $43.8 million, or 7.4% of revenue, up from $41 million last quarter with increased headcount and related sales costs. Our G&A cost remained consistent at approximately 1.9% of revenue.

Our operating income for the quarter was $222.1 million, or 37.3% of revenue. Other income expense for the quarter was a favorable $9.5 million, and our effective tax rate was consistent at 21.4%. This resulted in net income for the quarter of $182.2 million, or 30.6%. Our diluted share number for the quarter was 80.93 million shares, resulting in a diluted earnings per share number for the quarter of $2.25, up 31.5% from last year.

Now turning to the balance sheet. Cash, cash equivalents, and investments end of the quarter had approximately $2 billion. We generated $296 million of cash and operations in the quarter, reflecting strong net income performance combined with improvements in supply chain related working capital and increased deferred revenue amounts.

Overall, we generated $503 million of cash and operations for the year, which included the payment of the Cisco settlement of $400 million in the third quarter. DSOs came in at 51 days, down from 53 days in Q3, reflecting the timing of billings in the quarter. Inventory turns were at 3.3 times, up slightly from 3.2 last quarter. Inventory increased to $264.6 million in the quarter, up from $216.3 million in the prior period. This primarily reflects increases in raw materials and finished goods as we ramped the supply chain for new products. In addition, consistent with last quarter, we maintained a further $14.6 million of inventory deposits recording in other assets at the end of the quarter.

Our total deferred revenue balance was $587.2 million, up from $529.9 million in Q3. Our product-deferred revenue balance increased by approximately $18 million in the quarter, reflecting customer acceptance requirements on new products. The 2018 closing product-deferred revenue bounds was again essentially flat to the prior year and not a meaningful contributor to revenue for the year. There was, however, a shift in the customer makeup of the product-deferred with Microsoft-redesigned qualifications representing a significant portion of the 2017 bounds as compared to a negligible amount of Microsoft product-deferred at the end of 2018.

Accounts payable were 40 days, up from 39 days in Q3, reflecting the timing of inventory receipts and payments. Capital expenditures for the quarter was $6.2 million.

Now, we're turning to our outlook for the first quarter and beyond. We are pleased with our strong 2018 financial performance with 31% revenue growth and 42% growth in earnings per share on a year-over-year basis. As we look forward, we believe we are well positioned with our key cloud customers and remain focused on expanding our presence across our other verticals.

Our revenue guidance for the first quarter of $588 million to $598 million represents 25% year-over-year growth at the midpoint. On the gross margin front, we would reiterate our gross margin outlook of 63% to 65% with customer mix being the key driver of where we operate within this range. While we remain cautious in relation to our spending allowance, you should expect to see us make the investments necessary to support the expansion of the business. We believe given some reasonable topline growth, this can be accomplished while maintaining operating margin in the previously discussed approximately 35% range.

With this as a backdrop, our guidance for the first quarter which is based on non-GAAP results and excludes any non-cash stock-based compensation impacts and other non-recurring items is as follows: revenues of approximately $588 million to $598 million, gross margins of approximately 63% to 65%, an operating margin of approximately 35%. Our effective tax rate is expected to be approximately 21.5% with diluted shares of approximately $81.4 million.

I will now turn the call back to Chuck. Chuck?

Chuck Elliott -- Director of Business and Investor Development

Thank you, Ita.

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

Questions and Answers:

Operator

We will now begin the Q&A portion of the Arista earnings call. In order to ask a question during this time, simply press *1 on your telephone keypad. If you'd like to withdraw your question, press #. We ask that you pick up your handset before asking questions in order to ensure optimal sound quality.

Your first question comes from the line of Jason Adler with William Blair. Your line is open.

Jason Ader -- William Blair -- Equity Research Analyst, Co-Head Technology Group

Thank you. Jayshree, I don't know if you guys-I'm sure you debate this, but have you thought at all about providing some full-year guidance for 2019 in terms of revenue?

Jayshree Ullal -- President and Chief Executive Officer

Yeah, Jason, you can well imagine not only have we debated it, I think you all have debated it. If you look back at our five-year short history since IPO, we have never provided annual guidance. I think we made an exception once when we felt that consensus was significantly different than our guidance, and therefore, we took exception to that and wanted to course-correct and let you know that it was way off our guidance. So, I think you can safely assume that since we're not doing that, that we wanna go back to our normal mode of quarterly guidance and we're comfortable with your current consensus estimates.

Jason Ader -- William Blair -- Equity Research Analyst, Co-Head Technology Group

Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Jason.

Operator

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

Alex Kurtz -- KeyBanc Capital Markets -- Managing Director

Thanks for taking the question, and happy Valentine's Day. Just to Jayshree and Ita here, on this Microsoft contribution for 2018, obviously, that's well above what a lot of us were thinking might happen, and maybe you could frame for us how Cloud Titans finished out for breaking? It seems like maybe it was pushing 40% of revenue? I'd love to have you comment on that and how should we think about Cloud Titan growth and contribution for the year. I know you're not giving guidance, but just help us frame that because that's a significant upside for Microsoft and our modeling of that.

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Alex. Happy Valentine's Day to you as well. We love you all. And what I would say in general is this is truly an unprecedented once-in-a-lifetime or one-of-a-kind year with Microsoft. We don't expect that to repeat. We'd love for that to repeat, but we don't expect that. And we believe they will continue to be a 10% concentration customer in 2019, but we'll go back to a more normal percentage of our revenue. I think Cloud Titans as a category did extremely well for us. All five major Cloud Titans that typically contribute to Arista as part of the top 10 customers continued to make important contributions in 2018. We expect there to always be some shift in balance between the five, and 2019 will likely be different in the contribution off the Cloud Titan, but I think you're right in assuming that as a category, we still expect them to be about a third of our revenue in 2019, and they were higher due to the Microsoft concentration in 2018.

Alex Kurtz -- KeyBanc Capital Markets -- Managing Director

Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thank you.

Operator

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

Samik Chatterjee -- JPMorgan -- Vice President

Hi. Thanks for taking the question, and, Anshul, congrats on the promotion. I just had a question primarily on the prepared remarks that Anshul had about you seeing additional users of Arista's product in parts of the data center and outside the data center with cloud customers that obviously has driven some of the strength here. How broad-based is that? Do you see more room with how the Cloud Titans as well as the Tier 2 cloud providers see that expand more and probably that helps you outperform their all-out spend in reporting, even in 2019? Can you help us think about that?

Anshul Sadana -- Chief Operating Officer

Certainly. Samik, you're right. Many of the expanded use cases that we've been growing into, but as a result of us doing routing encryption, some of the DWDM products that we have just for [inaudible] agreement, we are now able to participate in an increasing term. And in the past, you always considered us just as a switch, but we are now able to take on these higher levels. But in addition to that, it's not just a one-for-one displacement. These are new architectures that's significantly more resilient. The goal many of the Cloud Titans have, and even the smaller cloud companies, just on a smaller scale, is to not focus on one network that is [inaudible] but build networks that are part of the architecture that's highly resilient and be able to do that with our leaf-spine architectures and some of the new use cases, whether it's pairing, or DCI, or regional fabric to regional spine, and pretty much the same approach but expanding to a much wider area other than a metro 100 kilometer-plus.

Samik Chatterjee -- JPMorgan -- Vice President

Got it. Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Samik.

Operator

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

James Suva -- Citi -- Director and Senior Analyst

Thanks very much. On the tariffs that you made comments on during your prepared comments and your outlook, did you mean to say that you're building in the tariffs for your revenue outlook, and was it the 10% rate or the potential 25% rate? And is that across all products or just those coming for China because I'm sure a lot of products that may be assembled in Guadalajara or Florida could actually contain China parts. So, can you just help us understand how you're navigating through the tariff situation?

Jayshree Ullal -- President and Chief Executive Officer

Let me clarify, and I'll pass it over to Ita, Jim. What we said in Q3 and we continue to reiterate in Q4 is the impact of tariffs is still very much there in our costs because many of these components come from China. So, even as you move to different contract manufacturers, you can have second-derivative effects, if you will. Arista's response to that was to absorb some of the cost but also have a 3.3% tariff fee assuming the 10% tariff increase. We have made no assumptions on the 25% increase since there's still a lot of speculation there. Ita, you wanna add to that on the impact of that?

Ita Brennan -- Chief Financial Officer

Yeah. I mean, I think it applies to products that have components that are actually tariffed. It doesn't apply obviously to software and optics and some other stuff. And again, we're making plans, we have the plans for how we start to remediate this with the supply chain. It just takes time to execute on those plans. It takes time to affect the supply chain movement, but we're working on that. We'll share more of that as we go.

James Suva -- Citi -- Director and Senior Analyst

So, 25% would be the same methodology as what you did in 10% I would assume?

Jayshree Ullal -- President and Chief Executive Officer

We haven't really thought it through or formulated a plan. We're hoping it never happens, but yes, we would apply something similar.

James Suva -- Citi -- Director and Senior Analyst

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

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Jim.

Ita Brennan -- Chief Financial Officer

You're welcome.

Operator

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

Ittai Kidron -- Oppenheimer -- Senior Equity Research Analyst

Congrats, ladies and Chuck. Thanks. A good quarter. I guess I wanna go back to where we started again, which is the cloud. I just wanna make sure I understand your comments because I mean, with Microsoft being 27% on the year, I think you made a comment to the effect that the more normal run rate was the percentage of Microsoft was last year, which was 16%, and so that implies that about 10% is through product-defers, and delayed certifications, and all of that. And since Microsoft is little-to-no presence in your product-deferred right here, right now, stripping that out, your core growth in '18 was only 20% really outside the deferred. I guess help me think about the Titan vertical in general. Is that a vertical that grows below corporate average do you think for the year? Are there big parts in your footprint that you feel would be more competitive on the year? And how do you feel about your ability to protect them when 400 comes along, there are a lot of vendors are making a lot of claims and you seem to be at the top of the hill, so clearly, you're right on the target?

Jayshree Ullal -- President and Chief Executive Officer

Wow, that was a loaded question. Ita, you wanna clarify --

Ittai Kidron -- Oppenheimer -- Senior Equity Research Analyst

Yes, I tried to put three in there.

Ita Brennan -- Chief Financial Officer

Yeah, you did.

Jayshree Ullal -- President and Chief Executive Officer

You succeeded. Thank you for the good wishes. Let me have Ita clarify some of the --

Ita Brennan -- Chief Financial Officer

Maybe let's just talk about the deferred piece just to make sure we're thinking about that the same way. I mean, at the end of the day, product-deferred revenue did not contribute to revenue for the year, so if the mix of Microsoft changed, and obviously that resulted in Microsoft having a higher percentage of revenue, but also the deferred was backfilled with some other activities, so when I think about it on an activity basis, Microsoft's activity in the period was significantly below the 27%, not back to the teens because we had some good use cases, etc., but significantly below that 27%, just to be clear. So, when you think about transactional activity in the period, the deferred kinda comes out of that, and we did backfill that deferred amount with some other customers.

Jayshree Ullal -- President and Chief Executive Officer

And to answer your question on growth, we obviously don't expect Microsoft to have the same amazing growth in 2018 and 2019 that we had in 2018, but we fully expect the Cloud Titan category to grow well, if that makes sense. So, I think there will be puts-and-takes, and other contributors, and other customers be it Cloud Titans or even some of the Tier 2 cloud providers are gonna greatly contribute to our cloud growth.

Ittai Kidron -- Oppenheimer -- Senior Equity Research Analyst

Very good and good luck.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Ittai.

Operator

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

Jeff Kvaal -- Nomura Instinet -- Managing Director

Thank you very much. I'm hoping perhaps to ask the question that may be on many of our minds about webscale capex, and you've touched on it a little bit today and certainly in the past, but, look, the numbers do seem to be decelerating a decent amount, and I'm wondering if you could help us explain why there is a decent disparity between what the spenders are up to and your revenues?

Jayshree Ullal -- President and Chief Executive Officer

Sure, Jeff. I'll take a part of the question, and I'd like my expert here, our new COO to take the other half. As we tried to explain, we're not able to directly correlate service spend with Arista or networking capex spend, and the reason is obviously a service spend connects to the first point of a network attach, which is typically a leaf switch. But what we're finding is many tiers of leaves and many tiers of spines, and Anshul gave you some examples of a regional spine, a core routing spine, a WAN spine, a data center interconnect spine. All of those examples, especially the MACsec security and pairing, none of them have a direct correlation to the first use case we just talked about, which is a server and first top-of-rack switch spend. So, the one-to-one correlation is difficult. However, I think you can make a correlation if the overall spend is declining, then obviously, we'll also feel the impact of that, but it's hard to pinpoint and say if service spend is declining, network spend is declining. It's not one-to-one. Anshul?

Anshul Sadana -- Chief Operating Officer

Jeff, a lot of few things here. No. 1, last year or the last few quarters, there's been significant volatility in memory prices for servers, and that resulted in increased capex for many of the cloud items and also resulted in a reduction in cloud capex of so many of the items. That has no impact on networking. Those results are not correlated there. And second, when you look at very large buildouts of regions, data centers, facilities, all of that often gets counted as capex, but obviously, we are just focused on how much networking interconnects you need at different layers of different architectures, and hence you'll see less correlation in the short term, as Jayshree mentioned. In the way long run, a few things can tie it back, but they're not even associated within that one here, and hence the data. But otherwise, we've done well technically with the Cloud Titans, and we are happy to compete going forward as well. Thank you.

Jeff Kvaal -- Nomura Instinet -- Managing Director

Anshul, do you think that networking is gaining share inside of the overall webscale capex?

Anshul Sadana -- Chief Operating Officer

I would say networking from our standpoint, not so. I think it's very well similar to some previous years. However, optics is a different ballgame, and as you very well know, 400G optics are slightly more expensive on a per-gigabit basis compared to 100G. Not per-gigabit, per-port. And I think that will change some of the equation if it is being allocated to networking, but I don't think our correlation gets changed that way.

Jeff Kvaal -- Nomura Instinet -- Managing Director

Thank you, and congratulations on your appointment, Anshul.

Anshul Sadana -- Chief Operating Officer

Thank you.

Operator

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

James Faucette -- Morgan Stanley -- Executive Director

Great. Thank you very much. Anshul, I wanted to follow-up on your mention of 400G and that coming to market and implementation later this year and through 2020 and beyond. And as you're looking at that, what do you think the appetite is from your customers to mix and match 400G with existing 100G plan? I guess I'm wondering how much opportunity do you see for footprint share shift in your customers for that? And secondly, maybe as you're talking about that, maybe you can also talk through what the use cases are for 400G that you think will at least start things going?

Jayshree Ullal -- President and Chief Executive Officer

James, I'm gonna kick it off, and then Anshul will get into detail. I think one of the things we have said consistently is that 100G and 400G mix and match is going to happen frequently. And in fact, with the exception of the Cloud Titans that are gonna push us more on 400G, the mainstream use cases we see and in 2019 are still heavily favored by 100G. And even as you go into 2020 when the optics become more available, I think you're gonna see much more of a combination, and that's gonna favor Arista because of our incumbency and leadership position in 100G. Anshul?

Anshul Sadana -- Chief Operating Officer

Absolutely. Thanks, Jayshree. So, just adding onto what you just heard, in networking, you do not introduce a new speed that's not backwards compatible with the existing install base, otherwise you'll just never get it to work, which is how IPv5 died.

Jayshree Ullal -- President and Chief Executive Officer

What is IPv5?

Anshul Sadana -- Chief Operating Officer

But if you look at 400G in the cloud data centers and the way the optics are still going on, the hyperscalers are hyperactive with the next gen design, and they all have their own problems to solve for different use cases, whether it's public cloud, or storage, or video, or caching, and so on. You can't just touch one intermediate layer and say, "I'm done with my 400G upgrade." You have to upgrade end-to-end. So, it'll be a slow transition, and hence the interoute is important. I would say interoute of 400G optic back into a DR1 QSFP28 is gonna be very important even for cloud customers. That's the only way you connect back to the install base. But because now you have to touch multiple layers, it takes a long time, several quarters to several years to actually get that upgrade done.

Operator

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

Rod Hall -- Goldman Sachs -- Managing Director

Hi, guys. Thanks for the question. Congrats to Anshul as well. I wanted to start off I guess, and just since we've talked a lot about data center, just ask about Campus and see if there's any update on that, if you guys have any milestones that you might be able to give us in terms of trials, things like that, how it's going? And then secondly, Ita, I just wanted to clarify your comments on seasonality around services. That was quite a bit higher than we anticipated, and I'm wondering are you saying that that's more of a normal, seasonal progression of services looking forward, or is that an abnormal quarter that we're looking at here? Thanks.

Ita Brennan -- Chief Financial Officer

Let me take that one first. I think the 15.5% is probably high. Q4 tends to be a strong renewal quarter, and there's some recognition of revenue that comes along with that, so I think back in the 14%, maybe 14 and change, is kind of probably a better average for the year is how you should think about it.

Jayshree Ullal -- President and Chief Executive Officer

And Rod, to answer your Campus question, it's too early for revenue. I think it'll be more material in the second half, but we've seen an extremely strong desire to have a viable alternative to the incumbents in quality, and simplicity, and cognitive capabilities, and automation. And I'm gonna let our new Chief Customer Officer Manny Rivelo speak to it some. Manny?

Manuel Rivelo -- Chief Customer Officer

Thanks, Jayshree. Rod, good to talk to you. So, I think Jayshree classified it correctly. It is early days, and we see this being material in the second half of 2019. But the initial acceptance has been really well received by the customers, and I think there's two categories you can put customers in. The first is our existing install base, and that install base is looking to extend EOS across their infrastructure into the Campus, driving one management plane, cognitive management plane, one set of telemetry, one EOS. And they're really looking for simplicity, they're looking for agility, they're looking for scale, and they're looking for quality.

The second type of customer we're running into are customers we haven't done business with that know we're approaching the Campus base, and those customers are really looking at us as an alternative because of fatigue. They're seeing in the market segment basically 30 years of lack of innovation, 30 years of stagnant architectures, and more and more boxes being pushed out instead of unified architecture. So, we're seeing great traction with those customers, early days, but like I said, it's early days. We gotta round up the portfolio and bring that to the customer base, but there's a lot of excitement there also.

And then just to give you examples of wins, I mean, we had various wins throughout the quarter in the Campus. One was a million-dollar account, which is a multinational beverage company where we basically were driving our Campus solutions into that and drove great success into that, and we expect to see expansion going on there. And we've also had lots of wins where we began to integrate our spline architecture inside those use cases, and again, for the same reasons, scale, quality, fatigue, etc.

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Manny.

Rod Hall -- Goldman Sachs -- Managing Director

Great. Appreciate it.

Operator

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

Paul Silverstein -- Cowen & Company -- Managing Director

Great. Thank you. Jayshree, I know how much you love to be pinned down, so with that big windup --

Jayshree Ullal -- President and Chief Executive Officer

Depends by who. Thanks, Paul. Happy Valentine's Day to you as well.

Paul Silverstein -- Cowen & Company -- Managing Director

Right back at you. I'm serious now. So, for the first quarter in the 25% or thereabout year-over-year guidance that you gave, how do you get there? Could you help break it down by customer? I'm not asking about individual customers, but in terms of customer verticals, what drives that growth? And then I have a follow-up question. Appreciate it.

Jayshree Ullal -- President and Chief Executive Officer

I expect to see a more normal concentration of customer verticals. I think all five will be represented in double digits. Cloud Titans will, I think, continue to be one. If I had to guess, I would say enterprise will continue to be too again, and then it's hard to forecast between three, four, and five. Does that make you happy?

Paul Silverstein -- Cowen & Company -- Managing Director

No, not exactly. What I'm trying to get at is I trust it goes without saying, or maybe it doesn't, that the customer verticals 2-5, your cloud specialists, especially your enterprise, through-spiners, etc., that collectively, you're expecting the growth rate from that group of customers, i.e. the customers other than Cloud Titans, to increase, and you're expecting growth from Cloud Titans to moderate. Is that a fair assumption?

Jayshree Ullal -- President and Chief Executive Officer

Yes and no. I'm expecting growth from Microsoft to moderate, but I haven't said I'm expecting growth from the Cloud Titan vertical to moderate.

Paul Silverstein -- Cowen & Company -- Managing Director

So, you're not expecting growth from your other Cloud Titans to moderate and from the Cloud Titan vertical collectively?

Jayshree Ullal -- President and Chief Executive Officer

I didn't say that, no. But I think it's fair to say it will moderate with Microsoft given the once-in-a-lifetime unique year we had here in 2018. So, with the exception of --

Paul Silverstein -- Cowen & Company -- Managing Director

All right, my follow-up question -- go ahead.

Jayshree Ullal -- President and Chief Executive Officer

With the exception of Microsoft, we feel very comfortable about growth in all five verticals. We can chat about this more, but we should probably allow the next question.

Paul Silverstein -- Cowen & Company -- Managing Director

Can I just quickly ask you as a follow-up, is there anything unique about the first quarter relative to the rest of the year?

Jayshree Ullal -- President and Chief Executive Officer

No more than the normal seasonality. I think it's always a quarter that tends to be flattish off of Q4. I don't know of anything else particularly unique about Q1.

Paul Silverstein -- Cowen & Company -- Managing Director

I appreciate that. Thank you.

Jayshree Ullal -- President and Chief Executive Officer

I think there's more similarities to Q1 with prior Q1s than uniquenesses.

Paul Silverstein -- Cowen & Company -- Managing Director

That's all I need. Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Paul.

Operator

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

Sami Badri -- Credit Suisse -- Senior Equity Analyst

Hi, thank you. Could we just take a few moments maybe just to discuss what you're seeing with service provider because the one thing the entire sector seems to be very hyped up about is 5G, and you're seeing it on the RAN side, but there seems to be a big disconnect when we get into the equipment side of the spectrum. Can you just kind of walk us through when you think SP spending toward equipment will start to ramp back up, and is this a back-half '19 event or is this a 2020 event based on your purview at this juncture?

Jayshree Ullal -- President and Chief Executive Officer

Sami, I'll take a crack at it, and I think Manny and Anshul may help me as well. Look, I think given our very small presence in a service provider, we don't believe we are affected by macrotrends. In our view at least, the influence of Arista gear is not 5G dependent because we're really a backup for IP routing, and bringing switching and routing together, and providing the scale of routes, and IP tables, and ACLs that no one does. That said, I don't think we think 5G is really a mover. If 400G is 2020, I think we think 5G is 2021. So, from our perspective, we've got upside in service provider because we had a very strong 2017. We were disappointed in 2018, and that gives us a chance to grow faster in 2019. Seeing tremendous activity both in the U.S. and we have put more emphasis in international theaters. Manny, maybe you wanna speak to that?

Manuel Rivelo -- Chief Customer Officer

No, I think just to add to that, in the use cases that we play in service provider, whether it be Telco Cloud, and SVI, or pairing, we're doing quite well in executing across the globe in various Tier 1 and Tier 2 operators. In other use cases, the portfolio continues to round itself out with additional features to cover those use cases. But as Jayshree pointed out, we've also made investments in 2018 for better coverage, both on the account manager side and on the SC side to represent those Tier 1 operators. We're getting more at-bats as it pertains to RPs and proof-of-concept, so we think that that'll go well as we enter 2019 and beyond.

Sami Badri -- Credit Suisse -- Senior Equity Analyst

Got it. Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Sami.

Operator

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

Alex Henderson -- Needham & Company -- Managing Director

Hello, guys. Thanks for the sweetheart print. We appreciate it. I wanted to ask a question relative to two dynamics and see if you can play them off against each other. So, we're definitely hearing a lot of conversations about slow down in server investments based on product cycles at Intel as well as some of the other cycles that are going on that suggest a slow down in cloud in the first half of the year and reacceleration in the back half of the year. So, part of the question is are you seeing that kind of dynamic as well? And then the other side of it, there's a countervailing course which we're hearing that spending on a 100G is expected to double year-over-year in terms of port sales. So, to the extent that we're seeing a doubling of 100G, are you gaining enough share in 100G as a result of your dominance in that space, which I think is 2X the share of your overall market share, and does that offset the dividend demand in the first half and Web 2.0 due to those product cycles?

Anshul Sadana -- Chief Operating Officer

Absolutely. Alex, great questions. And in terms of capex for the large cloud items, we certainly don't have visibility yet into second half. We would love for them to forecast accurately, as you very well know. In the first half, because we are in so many diverse use cases, we are getting a little bit decoupled in the short term from their exact service spend. They might be buying fewer racks or not, but they're still doing DCI, but also other things and so on. But at the same time, obviously, if they spend more in the long-run, we could benefit. Now, to your point on 100G spending or 100G ports are doubling, and I would emphasize it's actually 100G ports that are doubling, not the spend, is because some of the next generation technology is now starting to show up in the market, including some of our products, which are really being used not as 400G but more cost-effective 4x100G, and that allows customers to get many more ports than what they used to get in the past. But that doesn't change the revenue dynamics significantly. It just lowers the ASP and increases the port count.

Alex Henderson -- Needham & Company -- Managing Director

But does it change shares is the question.

Jayshree Ullal -- President and Chief Executive Officer

That'll depend on our execution, Alex. We've held onto the No. 1 position for two years in a row. Hopefully, this year will be our third.

Alex Henderson -- Needham & Company -- Managing Director

Thank you very much.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Alex.

Operator

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

Aaron Rakers -- Wells Fargo -- Managing Director

Thanks for taking the questions, and also, congratulations on the print. I wanna go back to the router market. You mentioned in the prepared remarks you've gone from 200 to 300 FlexRoute customers. It sounds like one of your major silicon providers has a major relief starting to ship in volume Jericho 2, looking forward to mid-part of the year, which is very focused on the service provider market, so I'm curious if we look out over the next 12-plus months, is there a natural expansion story in the router functionality that expands your opportunity set in that incremental growth driver going forward?

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Aaron. I think it's a really good question. I believe we have a natural expansion even before Jericho 2, which has had to do with a lot of our FlexRoute features and the 50% growth of our customers from 200 to 300. So, at least in 2019, I see that the more immediate success will be not necessarily waiting for the next generation of silicon, but really going into these 200 to 300 customers and enabling greater success, many of who are service providers. Now, after that, the Jericho 2 cycle which really hits in the second half of the year, Anshul is confirming, I think we can have a multiyear success in routing in 2020 and beyond with Jericho 2.

Aaron Rakers -- Wells Fargo -- Managing Director

And I'm just curious, how big do you view that total addressable router market today, and how much do you think that that can expand?

Jayshree Ullal -- President and Chief Executive Officer

It's a tough one to answer. The total market is $8 billion, but I think our TAM is more like $2-3 billion. It's a good guess, but some of them end up being very specific, traditional, legacy, MPLS traffic engineering boxes. Arista doesn't play in that. But as they look to come in, as Manny was describing, into the spline pairing, and interconnect, and NFV, and Telco Cloud, Arista's a natural player to combine the universal spine switching and routing.

Aaron Rakers -- Wells Fargo -- Managing Director

Great. Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Aaron.

Operator

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

Simon Leopold -- Raymond James -- Managing Director

Great. Thanks for taking the question. I wanted to see if we could maybe take a look at getting some thoughts on 2020 in particular. If I characterize your base business as put to the side and thinking about three growth engines, Campus switching, routing, and 400G switching as the incremental parts, how do you see those three in terms of rank order contributors in 2020? Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Wow. You get the prize for the tough question so far. Right up there with Paul.

Simon Leopold -- Raymond James -- Managing Director

I'm honored.

Jayshree Ullal -- President and Chief Executive Officer

We'll give it our best, but this is purely a forecast. I think if you look at TAM, the largest TAM of these three, Campus, routing, and 400G, is Campus. And it's also the most underserved by any alternative competitor because it's so deeply embedded by incumbency. So, we believe our largest strength and opportunity is Campus, and our largest pressure to execute is also Campus, if I put that in that way. And then I think if I had to split the two, I would say routing second and 400G third because I think 400G doesn't really come into play in a huge way until 2020.

Simon Leopold -- Raymond James -- Managing Director

That's very much what I was looking for. Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Simon.

Operator

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

Michael Berg -- JMP Securities -- Equity Research Associate

Hey, this is Michael Berg on for Erik Suppiger. Congrats on a great print. I just wanted to do a quick question on international. Could you provide any color around what may have caused a weakness there? I mean, was it around international cloud spending or enterprise spending? What are you thinking around international in the quarter?

Ita Brennan -- Chief Financial Officer

The mix between international and U.S. in any given quarter is gonna be pretty volatile. If you look at it for the year, which I think is kinda more interesting, and you peel it back, you've got good growth in the in-region businesses, and then just a heavier deployment of cloud in the U.S. than what we saw last year. We had seen some pretty heavy international cloud activity last year. This year, it's been more U.S. focused. So, I think that's probably the biggest driver. If I had to strip all that out and look at the growth in the region, both businesses are growing faster than the corporate average. I think, Manny, if you wanna chime in as well, that would help.

Manuel Rivelo -- Chief Customer Officer

I think what I'll add on top of that, and I think Ita said it well is we're making significant investment in our international markets from a headcount perspective. We're balancing that out fairly nicely. Approximately 40% is going to international headcount. That's a little higher than what you're seeing from a percentage of a business. But what's more interesting is the net new logos where we are seeing a lot of new wins there, approximately half of our net new logos are coming out of the international market, so we're having great traction there, great acceptance of the technology. You could argue in some of the international markets, they're a little behind in the adoption of spine-leaf architectures, but they're coming along quite nicely, and we think that that's a growth engine also for the future.

Michael Berg -- JMP Securities -- Equity Research Associate

Great. And then a quick follow-up on the Microsoft piece, I know you mentioned that if you normalize it, it's closer to the 16%, but if I'm thinking about the deferred revenue piece being a big contributor, wouldn't that lead it to be closer to 18%-20%? Or how can I think about how deferred contributed to Microsoft in the year?

Ita Brennan -- Chief Financial Officer

I don't know that I'm gonna put specific numbers on it, but I mean, I think it was a good, strong Microsoft year just from an organic business perspective, and it would've ahead of the 16% in any case. But again, a chunk of the 27% came from the deferred.

Jayshree Ullal -- President and Chief Executive Officer

And I think the other way to think of this is that in many ways, we did get six quarters of business in four quarters because of the deferred and because of the legal certifications, so it was unusual in every manner, not just the deferred but the legal certifications, the new roles, and the time at which we could recognize it, even though the activity began much before.

Michael Berg -- JMP Securities -- Equity Research Associate

And then I think someone asked this before, but is it fair to assume that the Cloud Titans vertical was closer to 40% or even higher percentage of total revenue for the year given the high Microsoft contribution?

Jayshree Ullal -- President and Chief Executive Officer

I think around there is a fair guess.

Michael Berg -- JMP Securities -- Equity Research Associate

Awesome. Well, hey, congrats on a great quarter again, and thank you for the time.

Jayshree Ullal -- President and Chief Executive Officer

Thank you, Erik.

Operator

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

Steve Milunovich -- Wolfe Research -- Managing Director

Great. Thank you very much. Could you comment a bit about expenses going forward? You had a year-over-year acceleration in marketing, a deceleration in R&D, which you talked about a little bit. What sorts of growth rates or percentages of revenue can we look forward to? And your longer-term target of 32% operating margin, what's a time frame for that? Is that gonna be within my lifetime?

Jayshree Ullal -- President and Chief Executive Officer

Depends how long it is.

Steve Milunovich -- Wolfe Research -- Managing Director

I'm getting up there.

Ita Brennan -- Chief Financial Officer

Clearly, it's been a while since we've updated the long-term model, and we'll take the opportunity to do that at some point here. I think what we're seeing is in the near-term time frame, the plus or minus 35% operating margin is a good way to think about it, and that allows us to see some movement of gross margin, quarter of a quarter, and make the investments that we wanna make. I mean, we're still in a situation where when we're growing the topline at the rate that we're growing the topline at, it's letting us do and make the investments that we need to make. It's letting Manny do what he needs to do on the sales and marketing side. And I think you will see that be maybe more of a percentage of revenue that it has been, and maybe we get a little bit of leverage on the R&D, but that's not going to be the same every quarter, and it's not significant. I think think about the 35% plus or minus.

Steve Milunovich -- Wolfe Research -- Managing Director

Thanks.

Operator

Your next question comes from Srini Pajjuri with Macquarie Securities. Your line is open.

Srini Pajjuri -- Macquarie Research -- SVP and Senior Analyst

Thank you for taking my question, and congrats, Anshul. Congrats on the great quarter as well. Just one clarification maybe for Ita. Would it be possible to give us what Microsoft was in Q4 or even second half versus first half as a percent of sales?

Ita Brennan -- Chief Financial Officer

I don't think we're gonna do that. It moves around. It's not really helpful to start to try and do that on a quarterly basis. I think the annual number is really the way to think about it, and then take some off the top for the deferred, for the release of the legal-related certification stuff at the beginning of last year. So, think about 16% was our norm for the last couple years, and it was a good, strong year for Microsoft on top of that just from a transactional business perspective.

Srini Pajjuri -- Macquarie Research -- SVP and Senior Analyst

Then maybe a follow-up I guess on 400G, Jayshree, I think Cisco yesterday said they're expecting volume deployment sometime middle of this year, and you seem to think it's more likely in 2020. I just wanna understand why you think it's a little later than Cisco. I know Juniper said it's also 2020, but I'm wondering why there would be a difference between their timing and your timing?

Jayshree Ullal -- President and Chief Executive Officer

Well, I think we actually, Srini, sell to some of the world's leading early adopters of 400G, and where Anshul and the team are seeing traction is in the Cloud Titan vertical. We work with a multitude of optics vendors, and we see that as the longest pole in the tent. So, while we absolutely expect to see early trials in second half, we would be irresponsible to tell you we're gonna see a large market in the second half, so I guess you could chalk it down to our responsibility.

Anshul Sadana -- Chief Operating Officer

And if I could add something here, we should not confuse product availability versus high volume deployment. These are two different things.

Jayshree Ullal -- President and Chief Executive Officer

Very good point. And our products have been available since the beginning of the year.

Srini Pajjuri -- Macquarie Research -- SVP and Senior Analyst

Got it. Thank you.

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Srini.

Operator

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

James Fish -- Piper Jaffray -- Assistant Vice President

Hey, ladies. Congrats on a great quarter.

Jayshree Ullal -- President and Chief Executive Officer

Thanks, James.

James Fish -- Piper Jaffray -- Assistant Vice President

I guess a lot of questions have been asked already, but maybe asking it a different way, what are you hearing from hyperscalers on the 400G optics and potential mix between the OSFP and the QSFP? And secondly, on 400G, competitively, do you fear the White Box offering more, or do you fear the Ciscos and Junipers of the world? Thanks.

Jayshree Ullal -- President and Chief Executive Officer

Wow. That is two unique questions.

Anshul Sadana -- Chief Operating Officer

So, James, in terms of first optics on 400G OSFP versus DD, in the Cloud Titans, there's a lot of interest in moving the world forward and planning it out many, many years in advance so that you can actually move to the next generation. In fact, it's the hyperscalers where there's a lot of interest in OSFP. At the same time, we are cognizant that some of the customers need DD-based products, so we'll build those as well, but as you may recognize, DD has a short life cycle because after the 50G 30 cycle, it can't really work for you, so then the world has to move forward. So, we'll do both. We believe there will be a very healthy mix and a good [inaudible] of OSFP here. With respect to the White Boxes, we've touched on this many, many times. We are very competitive in this market, and as we mentioned before, customers are not looking to just buy a cheap White Box and then do something cool with it. They wanna solve real-world problems, so they are codeveloping with us and partnering with us to solve these problems, taking part or all of EOS and building on top of that. And as you can see, our business is very healthy with them, and despite all the noise, we feel good about our position there.

Jayshree Ullal -- President and Chief Executive Officer

And I think the noise in general has reduced a lot. We don't hear White Box from our customers very much anymore, so to answer your question more directly, it's usually a competitive position against a specific vendor like Cisco rather than the description or discussion of a White Box.

James Fish -- Piper Jaffray -- Assistant Vice President

That's great comments. Thanks.

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Jim.

Operator

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

Hendi Susanto -- Gabelli & Company -- Vice President

Thank you for taking my question, and congrats, Anshul and Manny. Jayshree and Anshul, how should we think about market opportunity and dynamics in 2019, first specifically about microeconomic uncertainties? Cisco stated there was no change in demand and no impact from micro-uncertainties in the last quarter. I'm wondering how similar your experience was in Q4. And then second, how do you characterize market opportunity in 2019 versus 2018? Are there more similarities or are there more opportunities versus 2018 that [audio cuts out] I at least should think about?

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Hendi. I would say Arista has not seen any macroeconomic uncertainty either in Q4. I think obviously we're not [inaudible], but as far as our customers have been signaling to us, our enterprise momentum hasn't been stronger, and we continue to see strength there in Q4, and we look forward to that strength continuing in 2019. I'm gonna let Anshul answer the 2019 trends.

Anshul Sadana -- Chief Operating Officer

Sure, absolutely. Thanks, Hendi. We haven't seen much of a big change in terms of perception. I think people are certainly worried that after the slowdown, there will be a correction. Our customers do talk about it, but nothing material has happened so far. I think everyone's watching these trends very carefully. Beyond that, the actual opportunity hasn't changed for us. It's a very large TAM we are catering to, and when you look at enterprise, there's still a very, very healthy opportunity. The same is true in the Tier 2 and the specialty cloud providers as well as financials, and there are even more expansion possible for us in future NSPs. So, we still feel very good about the opportunity. We believe the market has multiple players, but we are a very, very strong competitor in this space, and hence the opportunity to grow.

Hendi Susanto -- Gabelli & Company -- Vice President

Thank you and great performance.

Jayshree Ullal -- President and Chief Executive Officer

Thanks, Hendi.

Operator

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

John Marchetti -- Stifel -- Managing Director

Thanks very much. Jayshree, I was wondering if you could just spend a little bit of time here on the enterprise market. We spent a lot of time on where the Cloud Titans are in terms of their 100G adoption and maybe their shift to 400G. I was wondering if maybe you could spend just a minute or two discussing how you're expecting that enterprise market to follow suit and where you think that market is overall with its adoption of 100G?

Jayshree Ullal -- President and Chief Executive Officer

Thanks, John. I'm actually glad you asked this question because, yeah, we tend to focus on the Cloud Titans a lot, but one of the things we're seeing, it is one of our second-largest and fastest-growing vertical, and there's a very strong interest in bringing those same cloud principles into the data center in the enterprise. And it really comes in three flavors. First, how to build a private cloud with leaf-spine architectures and scale out the same way, albeit in smaller scale. The second is to mimic some of the cloud management principles with CloudVision bringing change, control, automation, networkwide analytics, etc. And the third is the hybrid cloud. No company has a better position than Arista as we have deployed in both the public and the enterprise in bringing those two together from a workload point of view. So, the combination of our VEUS router with the right APIs to multiple public cloud vendors has been very transformational and well received. And finally, of course, the fourth, which I don't wanna over talk but will really come to play in the second half of this year is the Campus. So, when you look at our whole [inaudible] transformation, there's at least four different use cases in the enterprise that are exciting.

John Marchetti -- Stifel -- Managing Director

Thanks. And maybe just as a quick follow-up there, given that they're looking at a lot of these different applications or use cases for the first time, does that lend itself to maybe some additional service sales or almost from a consulting type of standpoint as you look to help them migrate to these types of solutions?

Jayshree Ullal -- President and Chief Executive Officer

I think definitely Arista's looked at it to be more of a consultative approach, provide the right training, and the professional services varies. We often partner with someone or they look for us to come in. Manny, I don't know if you have more to add to that. We don't see a pattern yet.

Manuel Rivelo -- Chief Customer Officer

No, I mean, in general, it's an education for the customer base. As they transform their infrastructures into a much more digital framework, they're gonna need these modern data centers, no different than the cloud providers, so those solutions are proven and tested, and we can deliver those. Then the delivery of that solution to the customer either comes through development effort, education, training that we can provide and/or through our professional services and/or our partner network that could offer those services. So, we have a lot of flexibility there, and we're seeing that being pretty well accepted across all three of those spectrums.

John Marchetti -- Stifel -- Managing Director

Thanks very much.

Chuck Elliott -- Director of Business and Investor Development

This concludes the Arista Q4 2018 earnings call. Thank you for all the good questions and for the opportunity to highlight our financial results and corporate achievements for you. I also want to mention that we have posted a presentation which provides additional information on our fiscal results, which you can access on the investor section of our website. We look forward to continuing the conversation with you during the quarter.

...

Operator

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

Duration: 62 minutes

Call participants:

Chuck Elliott -- Director of Business and Investor Development

Jayshree Ullal -- President and Chief Executive Officer

Anshul Sadana -- Chief Operating Officer

Ita Brennan -- Chief Financial Officer

Manuel Rivelo -- Chief Customer Officer

Jason Ader -- William Blair -- Equity Research Analyst, Co-Head Technology Group

Alex Kurtz -- KeyBanc Capital Markets -- Managing Director

Samik Chatterjee -- JPMorgan -- Vice President

James Suva -- Citi -- Director and Senior Analyst

Ittai Kidron -- Oppenheimer -- Senior Equity Research Analyst

Jeff Kvaal -- Nomura Instinet -- Managing Director

James Faucette -- Morgan Stanley -- Executive Director

Rod Hall -- Goldman Sachs -- Managing Director

Paul Silverstein -- Cowen & Company -- Managing Director

Sami Badri -- Credit Suisse -- Senior Equity Analyst

Alex Henderson -- Needham & Company -- Managing Director

Aaron Rakers -- Wells Fargo -- Managing Director

Simon Leopold -- Raymond James -- Managing Director

Michael Berg -- JMP Securities -- Equity Research Associate

Steve Milunovich -- Wolfe Research -- Managing Director

Srini Pajjuri -- Macquarie Research -- SVP and Senior Analyst

James Fish -- Piper Jaffray -- Assistant Vice President

Hendi Susanto -- Gabelli & Company -- Vice President

John Marchetti -- Stifel -- Managing Director

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