ANET

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How ANET rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

Text kept

45%

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276

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−1,797

words, now 28,518

New in FY2025

These risks include, but are not limited to, the following: Risks Related to Our Business and Industry • some of the key components in our products come from sole or limited sour ces of supply and increases the risk of supply shortages, extended lead times or supply changes; • large purchases by a limited number of customers represent a substantial portion of our revenue; • escalated or escalating United States (the "U.S.") tariffs as well as countermeasures and retaliatory actions taken by other countries, may have a negative effect on global economic conditions, financial markets and our business; • adverse economic conditions, continuing uncertain economic conditions or reduced information technology and network infrastructure spending may adversely affect our business; • our revenue and revenue growth rates are volatile and may decline or not meet our or our investor's expectations; • we expect our gross margins to vary over time and may be adversely affected by numerous factors; • our results of operations may vary significantly from period to period and can be unpredictable; • the networking market is rapidly evolving; • failure to successfully carry out new product and service offerings and expand into adjacent markets could adversely impact our business; • we face intense competition and industry consolidation; • we are subject to risks associated with the expansion of our international sales and operations; • we face risks associated with the investments in and acquisitions of complementary companies, products or technologies; • industry cyclicality may cause fluctuations in our revenue; • fluctuations in currency exchange rates could adversely affect our business; • failure to raise additional capital on terms satisfactory to us.
Risks Related to Customers and Sales • inability to attract new large customers or sell additional products and services to our existing customers could adversely affect our revenue growth; • sales of our switching and routing platforms generate most of our product revenue; • inability to increase market awareness or acceptance of our new products and services may adversely affect our revenue; • sales prices of our products and services may decrease; • sales cycles can be long and unpredictable; • inability to offer high quality support and services offerings could adversely affect our business; • declines in maintenance renewals and support contracts by customers could harm our business; • indemnification provisions under our standard sales contracts could expose us to losses; • we rely on distributors, systems integrators and value-added resellers to sell our products; • sales to government entities are subject to a number of challenges and risks; • we are exposed to the credit risk of our channel partners and some of our end customers.
Risks Related to Supply Chain and Manufacturing • insufficient component supply and inventory management; • primarily reliant upon a predominant merchant silicon vendor; • we depend on third-party manufacturers to build our products; • future sales forecasts may materially change, which could result in incorrect levels of inventory and purchase commitments; • shipment interruptions or delays could cause our revenue to fall.
Risks Related to Cybersecurity and Data Privacy • defects, errors or vulnerabilities in our products, services and external facing or internal network systems, or the misuse of our products or services, or those of third parties on which we rely, could lead to cybersecurity incidents or a failure to detect cybersecurity incidents, or otherwise negatively impact our business; • we, or third parties on which we rely, could experience cybersecurity incidents, which could disrupt our operations, cause vulnerabilities in our products or services, compromise intellectual property or other sensitive data, or otherwise negatively impact our business.
Risks Related to Accounting, Compliance, Regulation and Tax • foreign investment laws and regulations, and other trade or regulatory barriers, may have a negative effect on global economic conditions, financial markets and our business; • enhanced import/export restrictions, such as enhanced export controls the U.S. has adopted targeting trade with China, as well as countermeasures taken by affected countries may negatively affect our business; • failure to maintain effective internal control over financial reporting could adversely affect the accuracy and timing of our financial reporting; • if our critical accounting policies are based on incorrect assumptions, our results of operations could fall below analyst and investor expectations and result in a decline in the market price of our common stock; • changes in our income taxes, effective tax rate or tax laws could adversely affect our results; • failure to comply with government laws and regulations, including privacy laws, environmental laws and export controls could harm our business; and • issues in the development and use of artificial intelligence, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations; Risks Related to Ownership of Our Common Stock • the trading price of our common stock has been and may continue to be volatile and the value of your investment could decline; • any future decisions to reduce or discontinue repurchasing our common stock pursuant to our stock repurchase programs could cause the market price of our common stock to decline; • insiders have substantial control over us; • our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment.
General Risks • we may become involved in litigation that may materially adversely affect us; • inability to hire, retain, train and motivate qualified personnel and senior management could cause our business to suffer; • natural disasters, social unrest, violent conflicts, systemic failures, and other catastrophic events could harm our business; and • we have not paid dividends in the past and do not intend to pay dividends for the foreseeable future.
Risks Related to Our Business and Industry Some of the key components in our products come from sole or limited sour ces of supply.
Our products rely on components that we purchase, or our contract manufacturers purchase on our behalf from a limited number of suppliers, including certain sole source providers.
Our reliance on component suppliers yields the potential for the infringement, misappropriation or other violation of third-party intellectual property rights due to the incorporation of such components into our products.
It is critical that w e work in tandem with these vendors to ensure that their silicon includes improved features, that our products take advantage of such improved features, and that such vendors are able to supply us with sufficient quantities on commercially reasonable terms to meet customer demand.
We expect large purchases by a limited number of customers to continue to represent a substantial p ortion of our revenue, and any loss, delay, decline or other change in expected purchases could result in material quarter-to-quarter fluctuations of our revenue or otherwise adversely affect our results of operations.
Large purchases by a relatively limited number of customers have accounted for a significant portion of our revenue.
For example, sales to one end customer represented 16%, 15%, and 21% of our total revenue, and sales to the other end customer represented 26%, 20%, and 18% of our total revenue for the years ended December 31, 2025, 2024, and 2023, respectively.
We have experienced unpredictability in t he timing of orders from our large customers primarily due to the overall complexity of these large orders and changes in demand specific to these customers, including reductions in or changes in the mix of capital expenditures by these customers and the impact of cost reduction and other efficiency efforts by these customers.
In addition, the variability in customer concentration is linked to the timing of new product deployments, and spending cycles with these customers, as well as the time it takes these customers to evaluate, test, qualify and accept our products and services, and we expect continued variability in our customer concentration and timing of sales on a quarterly and annual basis.
In addition, we typically provide more favorable terms and conditions to large customers, than we typically do to other customers, including pricing discounts, bundled upgrades, extended warranties, acceptance terms, indemnification terms, and other rights, which may reduce gross margins for the period in which such sales occur.
Changes in the business requirements or focus, upgrade cycles, vendor selection, project prioritization, assignment of spending allocations among vendors based upon specific network roles or projects, financial prospects, lack of growth of our large customers, capital resources and expenditures or purchasing behavior and deceleration in spending of these customers could significantly decrease our sale s to such customers or could lead to delays, reductions or cancellations of planned purchases of our products or services.
This prioritization of AI related infrastructure investment has at times come in conjunction with the announcement of various cost reduction measures by such customers, including optimization and increased efficiency in non-AI related capital expenditures, which could negatively impact our revenue.
In addition, although the focus on deployment of AI-enabled solutions has driven increased demand for networking, the long-term trajectory remains unknown.
In some instances, such factors have had, and may continue to have, an impact on certain current or future projects and reduce our visibility to customer demand and may result in a reduction or uncertainty in the timing of orders from these large customers, which may negatively impact our revenue and increase the risk of excess and obsolete inventory charges on our products.
These customers may decide to delay or cancel such orders for any reason.
This limited visibility requires us to rely on estimated demand forecasts to determine how much material to purchase and product to manufacture.
Further, extended supplier lead times on some newer technologies can create greater pressure on our ability to forecast future demand, which can lead to excess inventory or product shortages and to delays in fulfilling current and future purchase orders that can impede production by our customers and harm our customer relationships.
If any of the factors discussed above drive some of our large customers to cancel all or portion of their business relationships with us, the growth in our business and the ability to meet our current and long-term financial forecasts may be materially impacted.
As a result, we may be unable to sustain or increase our revenue from our large customers, grow revenue with new or other existing customers at the rate we anticipate or at all, or offset a decline or discontinuation of concentrated purchases by our larger customers with purchases by new or existing customers.
The loss of such customers, or a significant delay or reduction in their purchases, including reductions or delays due to customer departures from recent buying patterns, or an unfavorable change in competitive or economic conditions could materially harm our business, financial condition, results of operations and prospects.
Escalated or escalating U.S. tariffs, as well as countermeasures and retaliatory actions taken by other countries, may have a negative effect on global economic conditions, financial markets and our business.
Our products are primarily manufactured in Malaysia, Vietnam, and Mexico, and we also procure a limited number of products originating from China, Taiwan, Thailand and the Philippines.
In addition, our contract manufacturing partners procure some components from China for use in the manufacturing of our products.
Because our products are primarily manufactured internationally, the import of our products into the U.S. may be affected by applicable tariff policies.
Over the last decade, and especially under the current administration, the U.S. government has enacted various new and increased tariffs affecting the import of various items from various countries.
For example, since 2018, the U.S. government has enacted various tariffs on products from China under Section 301 trade authorities, including on communications equipment products and components manufactured and imported from China.
Since February 2025, the U.S. has also imposed additional country-specific tariffs on most trading partners, including China, as well as additional commodity-specific tariffs on certain imported items, in both instances pursuant to executive orders issued under various trade authorities, including the International Emergency Economic Powers Act and Section 232 of the Trade Expansion Act of 1962.
In response to these and other U.S. measures, China, Mexico and other countries have taken or threatened to take a range of retaliatory measures.
These include the imposition of retaliatory tariffs on certain U.S.-origin goods; the implementation of new export controls by China on various critical minerals, including rare earths metals; the scheduling of further retaliatory tariff measures; and other actions that may affect us directly or indirectly.
The situation regarding these tariffs and trade policies has been and continues to be fluid, leading to significant uncertainty about the future relationship between the U.S., and other countries, with respect to tariffs and trade policies.
The U.S., China, Malaysia, Vietnam, Mexico, Taiwan, Thailand, the Philippines and other governments may place additional tariffs and trade barriers on communication equipment products, our products and services, our inputs, or other items, which could result in higher costs to us and negatively affect our gross margins.
An increase in trade-related costs associated with these tariff actions may affect our cost of production, impair the profitability of our international production, affect our ability to procure certain items, strain our suppliers’ ability to provide inputs necessary to produce certain items, and otherwise affect our manufacturing partners’ ability to provide our products at previously contracted prices.
We are adjusting our supply chain and manufacturing practices to minimize the impact of the tariffs and any impact on the supply chain of components sourced from affected countries, but our efforts may not be successful.
In addition, there can be no assurance that we will not experience a disruption in our business related to these or other changes in trade practices, and the process of changing suppliers in order to mitigate any such tariff costs could be complicated, time-consuming, and costly.

and 236 more.

Gone since FY2024

These risks include, but are not limited to, the following: Risks Related to Our Business and Industry • large purchases by a limited number of customers represent a substantial portion of our revenue; • adverse economic conditions, continuing uncertain economic conditions or reduced information technology and network infrastructure spending may adversely affect our business; • some key components in our products come from sole or limited sources of supply and increases the risk of supply shortages, extended lead times or supply changes; • our revenue and revenue growth rates are volatile and may decline or not meet our or our investor's expectations; • our results of operations may vary significantly from period to period and can be unpredictable; • the networking market is rapidly evolving; • failure to successfully carry out new product and service offerings and expand into adjacent markets could adversely impact our business; • we expect our gross margins to vary over time and may be adversely affected by numerous factors; • we face intense competition and industry consolidation; • we are subject to risks associated with the expansion of our international sales and operations; • we face risks associated with the investments in and acquisitions of complementary companies, products or technologies; • seasonality and industry cyclicality may cause fluctuations in our revenue; • fluctuations in currency exchange rates could adversely affect our business; • failure to raise additional capital on favorable terms could harm our business.
Risks Related to Customers and Sales • inability to attract new large customers or sell additional products and services to our existing customers could adversely affect our revenue growth; • sales of our switches generate most of our product revenue; • large customers require more favorable terms; • inability to increase market awareness or acceptance of our new products and services may adversely affect our revenue; • sales prices of our products and services may decrease; • sales cycles can be long and unpredictable; • inability to offer high quality support and services could adversely affect our business; • declines in maintenance renewals by customers could harm our business; • indemnification provisions under our standard sales contracts could expose us to losses; • we rely on distributors, systems integrators and value-added resellers to sell our products; • sales to government entities are subject to a number of challenges and risks; • we are exposed to the credit risk of our channel partners and some of our end customers.
Risks Related to Supply Chain and Manufacturing • managing the supply of our products and product components is complex; • primarily reliant upon a predominant merchant silicon vendor; • we depend on third-party manufacturers to build our products; • future sales forecasts may materially change, which could result in incorrect levels of inventory and purchase commitments; • shipment interruptions or delays could cause our revenue to fall.
Risks Related to Litigation We may become involved in litigation that may materially adversely affect us.
Risks Related to Cybersecurity and Data Privacy • defects, errors or vulnerabilities in our products, failure of our products to detect security breaches or incidents, misuse of our products or risks of product liability could harm our business; • breaches of our cybersecurity systems or other security breaches could degrade our ability to conduct our business operations and deliver products and services to our customers, cause vulnerabilities in our products and services or subject us to regulatory enforcement actions and or fines or liabilities for damages incurred by our customers or partners.
Risks Related to Accounting, Compliance, Regulation and Tax • failure to maintain effective internal control over financial reporting could adversely affect the accuracy and timing of our financial reporting; • if our critical accounting policies are based on incorrect assumptions, our results of operations could fall below analyst and investor expectations and result in a decline in the market price of our common stock; • enhanced U.S. tax, tariff, import/export restrictions, Chinese regulations or other trade barriers may negatively affect our business; • changes in our income taxes, effective tax rate or tax laws could adversely affect our results; • failure to comply with government laws and regulations could harm our business; • issues in the development and use of artificial intelligence, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business operations; • we are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability for violations. • failure to comply with anti-bribery and anti-corruption laws and anti-money laundering laws, and similar laws, could subject us to penalties and other adverse consequences.
Risks Related to Ownership of Our Common Stock • the trading price of our common stock has been and may continue to be volatile and the value of your investment could decline; • any future decisions to reduce or discontinue repurchasing our common stock pursuant to our stock repurchase program could cause the market price of our common stock to decline; • sales of substantial amounts of our common stock could reduce the market price of our common stock; • insiders have substantial control over us; • our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment.
General Risks • inability to hire, retain, train and motivate qualified personnel and senior management could cause our business to suffer; • earthquakes, fire, power outages, floods, health epidemics and other catastrophic events could harm our business; • we have not paid dividends in the past and do not intend to pay dividends for the foreseeable future.
Risks Related to Our Business and Industry We expect large purchases by a limited number of customers to continue to represent a substantial p ortion of our revenue, and any loss, delay, decline or other change in expected purchases could result in material quarter-to-quarter fluctuations of our revenue or otherwise adversely affect our results of operations.
Historically, large purchases by a relatively limited number of customers have accounted for a significant portion of our revenue.
We have experienced unpredictability in t he timing of orders from these large customers primarily due to the time it takes these customers to evaluate, test, qualify and accept our products, the overall complexity of these large orders and changes in demand patterns specific to these customers, including reductions in or changes in mix of capital expenditures by these customers and the impact of cost reduction and other efficiency efforts by these customers.
For example, sales to our end customer Microsoft represented 20%, 18% and 16% of our total revenue for the years ended 2024, 2023 and 2022 respectively.
And sales to our end customer Meta Platforms represented 15%, 21% and 26% of our total revenue, respectively for the years ended 2024, 2023 and 2022.
This variability in customer concentration has been linked to the timing of new product deployments, and spending cycles with these customers, and we expect continued variability in our customer concentration and timing of sales on a quarterly and annual basis.
In addition , we typically provide pricing discounts to large customers, which reduces gross margins for the period in which such sales occur.
As a consequence of the concentrated nature of our customer base and their purchasing behavior, our quarterly revenue and results of operations have fluctuated from quarter to quarter and are difficult to estimate and we expect the fluctuations to continue.
Changes in the business requirements or focus, upgrade cycles, vendor selection, project prioritization, manner in which spending allocations are assigned among multiple vendors based upon specific network roles or projects, financial prospects, lack of growth of our large customers, capital resources and expenditures or purchasing behavior and deceleration in spending of these customers could significantly decrease our sale s to such customers or could lead to delays, reductions or cancellations of planned purchases of our products or services.
This prioritization of AI related infrastructure investment has at times come in conjunction with the announcement of various cost reduction measures by such customers, including optimization and increased efficiency in non-AI related capital expenditures.
In addition, although the focus on deployment of AI enabled solutions has driven increased demand for networking, the long-term trajectory is unknown.
In some instances, such measures have had, and may continue to have, an impact on certain current or future projects and have reduced our visibility to customer demand and may result in a reduction or uncertainty in the timing of orders from these large customers, which may negatively impact our revenue and increase the risk of excess and obsolescence charges on our products.
In addition, fiscal 2024 was marked by a year of new product introductions and expanded use cases, particularly in the AI Ethernet market, and we expect this to continue into fiscal 2025.
For example, due to manufacturing and supply chain disruptions resulting in increased lead times, customers have, and may continue to place orders based on longer planning horizons.
These customers may decide to delay or cancel such orders for any reason, including changes in their IT investment priorities, if economic conditions worsen or their financial performance, condition or prospects deteriorate.
This limited visibility regarding our customers’ product needs or changes in those needs, the timing and quantity of which could vary significantly, requires us to rely on estimated demand forecasts to determine how much material to purchase and product to manufacture.
Extended supplier lead times on some newer technologies can create greater pressure on our ability to forecast future demand, which can lead to excess inventory or product shortages and to delays in fulfilling current and future purchase orders that can impede production by our customers and harm our customer relationships.
Further, if we are unable to reduce our lead times, customers may also cancel existing orders or reduce future orders.
I n the event of any cancellations or reductions of orders, or any reductions in future demand, we may not have enough time to reduce operating expenses to mitigate the effect of the lost revenue on our business, and in addition, could incur increased excess and obsolete inventory-related charges, all of which could materially affect our operating results.
We may be unable to sustain or increase our revenue from our large customers, grow revenue with new or other existing customers at the rate we anticipate or at all, or offset a decline or discontinuation of concentrated purchases by our larger customers with purchases by new or existing customers.
These customers could reduce their spending levels or otherwise could choose to divert all or a portion of their business with us to one of our competitors, re-assign spending allocations, increase their adoption of "white box" solutions and open-source network operating systems, demand pricing concessions for our services, or require us to provide enhanced services that increase our costs.
Moreover, the AI market is new and customers continue to evaluate their opportunity in this market, recent advances in network architecture may result in increased efficiencies and lowering of infrastructure spending and the potential demand for our AI Ethernet switches may not develop as anticipated or at all.
If these factors drive some of our large customers to cancel all or a portion of their business relationships with us, the growth in our business and the ability to meet our current and long-term financial forecasts may be materially impacted.
The loss of such customers, or a significant delay or reduction in their purchases, including reductions or delays due to customer departures from recent buying patterns, or an unfavorable change in competitive conditions could materially harm our business, financial condition, results of operations and prospects.
Weak domestic or global economic conditions and continuing economic uncertainty, fear or anticipation of such conditions, a recession, geopolitical pressures, including international trade disputes, global pandemics such as the COVID-19 pandemic, or a reduction in information technology and network infrastructure spending or a deterioration of the financial performance, condition or prospects of our customers, could adversely affect our business, financial condition, results of operations and prospects in a number of ways, including longer sales cycles, reduced demand or lower prices for our products and services, higher default rates among our channel partners, reduced unit sales and lower or no growth.
In addition, the global macroeconomic environment has been negatively affected by, among other things, the uncertainty in the global banking and financial services markets, epidemics, instability in global economic markets, the new U.S. presidential administration, increased uncertainty associated with recent and scheduled increases in U.S. trade tariffs in the context of escalated and unresolved trade disputes and tensions between the U.S., China, Mexico, Canada and other countries, inflationary pressures, higher interest rates, instability in the global credit markets, the impact and uncertainty regarding global central bank monetary policy, instability in the geopolitical environment, the Russia-Ukraine and Israel-Hamas conflicts, political tensions between Taiwan and China, political demonstrations, and foreign governmental debt concerns which have caused, and are likely to continue to cause, uncertainty and instability in local economies and in global financial markets.
While some of our customers may be adversely affected by negative macroeconomic conditions, the impact may be particularly significant in our enterprise market where we are seeking to increase our penetration into this market.
A government shutdown or a default by the U.S. government on its debt obligations, or related credit-rating downgrades could also have adverse effects on the broader global economy and contribute to, or worsen, an economic recession.
For example, if banks or other financial institutions with whom we have banking relationships or whose corporate bonds are held in our marketable securities investment portfolio, enter receivership or become insolvent in the future, we may be unable to access, and we may lose some of our existing cash, cash equivalents and investments to the extent those funds are not insured or otherwise protected by the FDIC.
Customers may also be placing orders based on longer planning horizons to ensure supply.
We also believe that our customers continue to assess the impact of these macroeconomic factors on their businesses and future investment plans, resulting in business uncertainty and a more constrained approach to forecasts and orders.
A downturn or a recession may also significantly affect financing markets, the availability of capital and the terms and conditions of any financing arrangements, including the overall cost of financing as well as the financial health or creditworthiness of our customers.

and 276 more.

Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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