UBS: Under the shadow of tariffs, American network equipment companies have suddenly become cautious from optimistic

UBS Group AG pointed out that by 2025, the surge in demand for data center infrastructure is driving a strong start for US enterprise hardware and networking equipment companies. However, the uncertainty surrounding tariff policies has cast a shadow over the next few quarters. Similar to the predictions for the first quarter earnings season, UBS Group AG believes that industry companies including Arista Networks, Celestica Inc., Lumentum Holdings, Juniper Networks, Inc., and Extreme Networks are expected to have strong performance in the first quarter. UBS Group AG analyst David Vogt wrote in a report to investors, "However, given the uncertainty of tariff impacts, market focus has quickly shifted to the second quarter and beyond. According to our discussions with industry insiders, in the two-plus weeks after the tariff proposals were announced, companies have shown a clear wavering in confidence about future demand. Therefore, if companies issue guidance for the second quarter and the full year, it is expected to be more conservative than before, and revenue and earnings expectations may also be widened to better reflect the uncertainty." UBS Group AG predicts that driven by data center investments led by Meta Platforms, Arista Networks' revenue in the March quarter is expected to reach $2 billion, higher than the midpoint of their guidance of $1.95 billion. Thanks to infrastructure spending from clients such as Alphabet Inc. Class C, Amazon.com, Inc., and Meta, Celestica Inc.'s revenue is also expected to exceed the midpoint of their guidance of $2.55 billion. Juniper Networks, Inc. is also expected to exceed first-quarter performance expectations. However, higher tariffs may weaken demand for its networking equipment in the second half of the year. Vogt pointed out, "Additionally, the uncertainty surrounding the proposal for HP Inc. remains a key factor. Currently, the evidence disclosure and witness deposition has begun, with the trial scheduled to start on July 9." Extreme Networks and Lumentum Holdings are also expected to exceed their performance expectations in the March quarter but due to concerns about tariffs, their guidance for future performance may be more conservative. It is worth noting that Lumentum typically only provides guidance for one quarter. Vogt also mentioned, "In our view, what was surprising to the market about this tariff proposal is its potential impact on imports from Southeast Asian countries such as Thailand, Malaysia, the Philippines, and Vietnam, affecting a wider range of companies and causing more financial impact. For example, prior to the 'Independence Day' policy announcement, we believed that Extreme Networks would be less affected, as its contract manufacturing operations are mainly concentrated in Taiwan, Vietnam, the Philippines, and Thailand; Lumentum's contract manufacturing partners are also mainly located in Thailand, Taiwan, Malaysia, and the Philippines, regions that were not previously within our estimated impact range."