Managing Director and Senior Research Analyst at Bank of America Corp. /de/
Tal Liani is a Managing Director and Senior Research Analyst at BofA Securities, specializing in data networking, networking security, and broader technology sector research. He covers leading companies such as Cisco Systems, Fortinet, Arista Networks, Palo Alto Networks, Zscaler, and CrowdStrike, with a two-decade history of top-3 rankings in the Institutional Investor All-America Research poll and a consistent track record of high-performing investment recommendations. Liani began his career in emerging markets research in London, moved to technology research in New York in 2000, and joined BofA Securities in 2019 after longstanding tenure at Merrill Lynch. He holds an MSc in finance from the University of Illinois at Urbana-Champaign, is a Certified Public Accountant, and has served as a part-time professor of finance at the Tel Aviv College of Management and Tel Aviv University.
Tal Liani asked about privileged access pricing coming down and identity becoming part of a platform, sold with cloud and security.
CEO Mark McClain disagreed that traditional PAM technologies are the right way to scale dynamic privilege and challenged the bundled approach.
Tal Liani asked about two claims from a competitor: first, that privileged access is becoming easier and cheaper, leading more customers to adopt it over regular employee identity, thus impacting traditional players; and second, that identity is moving from a standalone solution to being part of a broader platform (e.g., with cloud security).
CEO Mark McClain agreed that dynamic privileged controls are emerging but disagreed that traditional PAM technologies are suitable for scaling this across the enterprise, highlighting SailPoint's 125 million identities under management versus a competitor's 8 million. On the standalone point, he agreed companies seek tighter integration with the security ecosystem but questioned bundling into a single offering, advocating for SailPoint's complete identity and data picture to be exposed bidirectionally with multiple security vendors.
Tal Liani questioned competitor claims that privileged access is becoming cheaper and easier, leading more customers to adopt it over regular identity solutions, and that identity will increasingly be sold as part of a broader platform rather than standalone.
Mark McClain, Founder and CEO, SailPoint, agreed that companies desire dynamic privileged controls but contended that traditional PAM technologies, designed for static, deep controls, cannot scale for the broad identity landscape. He highlighted SailPoint's management of 125 million identities, significantly more than competitors. McClain also agreed that tighter integration of identity with the security ecosystem is sought, but challenged the idea of bundling into a single offering, advocating for an open platform that integrates bidirectionally with multiple security vendors (e.g., Palo Alto, Zscaler, CrowdStrike) to manage identity-targeted threats in real time.
Tal Liani asked about competitor claims regarding privileged access becoming more prevalent due to lower cost and easier deployment, potentially impacting traditional identity players, and the shift of identity from a standalone solution to part of a broader platform.
Mark McClain, SailPoint's CEO, agreed that dynamic privileged controls are emerging but disagreed that traditional PAM technologies are suitable for enterprise-wide scale. He highlighted SailPoint's management of 125 million identities compared to a competitor's 8 million. On the platform point, McClain agreed on tighter integration with the security ecosystem but challenged bundling into a single offering, advocating for bidirectional ties with multiple security vendors.
Questioned the full-year ARR guidance, noting that the raise was smaller than the combined Q1 beat and Q2 guidance raise, and asked if this was due to deal pull-forwards or conservatism.
There was no pull-forward of deals. The company encourages looking at ARR on an annual basis, where the guide was raised by over 200 basis points. The Q1 ARR beat is an annual metric, not a quarterly one, so it's not directly additive in the same way as revenue. The company feels good about its guidance as a starting point for the year.
Tal Liani of Bank of America questioned whether identity can be a standalone platform and how the SaaS model and new identity types like machine identity affect this dynamic.
CEO Mark McClain affirmed the platform concept, comparing their strategy to ServiceNow's model of a core set of shared services and data. He explained this allows SailPoint, partners, and customers to build capabilities and integrate with the broader security ecosystem. He believes customers want a single, integrated platform for all identity types, which plays to SailPoint's strength.
Tal Liani from Bank of America questioned the full-year ARR guidance, noting the raise was smaller than the Q1 beat and Q2 guidance upside combined, and asked if this implied deal pull-forwards or conservatism.
CFO Brian Carolan denied any deal pull-forwards and advised focusing on the annual ARR picture, highlighting the full-year guidance was raised by over 200 basis points. He stated this reflects their standard guidance philosophy and that they feel good about the Q2 starting point.
Tal Liani questioned the growth rate of Cisco's core business, excluding AI backend revenues, noting that a 3.6% growth for the majority of the business seems low despite strength in Wi-Fi, campus, and security.
Chairman and CEO Chuck Robbins clarified that if Hyperscaler growth is normalized out, the rest of the business grew 9% from an orders perspective in Q1. CFO Mark Patterson added that while Q1 was a strong start, the company faces much tougher year-over-year comparisons in the second half of the fiscal year, with Q3 and Q4 comps at +11% and +8% respectively.
Tal Liani questioned why the majority of Cisco's business, excluding AI backend revenues, is only growing at 3.6%, despite strengths in Wi-Fi, campus, and security, asking for reasons behind this slower growth.
Chuck Robbins, Chairman and CEO, clarified that if Hyperscaler growth is normalized, the rest of the business grew 9% from an orders perspective in Q1. Mark Patterson, CFO, added that while the year started strong, the second half faces much tougher year-over-year comparisons, with Q3 and Q4 of the prior fiscal year showing +11% and +8% top-line growth, respectively.
Tal Liani of Bank of America Corporation asked about the drivers behind the deceleration in services revenue growth to 0% and questioned the sustainability of high networking growth driven by cloud provider spending.
CFO Mark Patterson explained that prior-year services revenue was elevated by professional services for implementing backlogged gear, and he expects services growth to resume following strong product sales. CEO Chuck Robbins expressed confidence in the durability of cloud spending, citing strong CapEx signals from customers and his belief that AI is not a 'fleeting trend'.
Tal Liani from Bank of America questioned whether 2025 could be a peak year for cloud capital expenditures and asked about the potential impact on Cisco if cloud CapEx were to slow down.
CEO Chuck Robbins disagreed that 2025 would be a peak year, pointing to global sovereign cloud initiatives and sustained customer demand. CFO Scott Herren added that the enterprise AI inference opportunity is a significantly larger, multi-year cycle that will follow the current training build-out, suggesting long-term demand.
Tal Liani from Bank of America questioned whether 2025 would represent a peak year for cloud capital expenditures and asked about the potential impact on Cisco if cloud CapEx were to slow down.
CEO Chuck Robbins disagreed that 2025 would be a peak year, citing the global expansion of sovereign cloud strategies and sustained customer demand, suggesting the cycle has many years to run. CFO Scott Herren added that beyond the current cloud training build-out, there is a significantly larger, multi-year opportunity in enterprise AI for inferencing.
Tal Liani from Bank of America inquired about the significant acceleration in cloud and service provider orders, asking for the key drivers and specifics on Cisco's participation across switching, routing, and optical. He also questioned the sustainability of the record-high gross and operating margins reported in the quarter.
CEO Chuck Robbins attributed the order growth to strong performance in telco and a more than 100% increase in web-scale orders from four of the six largest players, driven by both AI infrastructure (over $300M in orders) and traditional cloud needs. CFO Scott Herren explained the 20-year high gross margin was driven by the inclusion of Splunk, favorable product mix, productivity improvements, and a substantial one-time benefit from a duty drawback project. He expects margins to remain in the 68-69% range for the full year.
Tal Liani inquired about the seasonality of product launches in China around the Chinese New Year, asking if the first fiscal quarter is typically the strongest and what happens in subsequent quarters historically.
CEO Cristiano Amon confirmed that the first and second fiscal quarters are typically the stronger quarters, with the June quarter (third fiscal quarter) usually being lower, consistent with historical handset business seasonality.
Tal Liani inquired about the seasonality of product launches in China, particularly around the Chinese New Year, asking if the first fiscal quarter is typically the strongest and what historical patterns suggest for the subsequent quarters.
CEO Cristiano Amon confirmed that the first and second fiscal quarters are typically the stronger quarters in the year, with the third fiscal quarter (June) usually being lower, consistent with historical seasonality in the handset business.
Tal Liani of Bank of America asked about the growth trends and competitive risks in the China handset market, given its rising proportion of revenue. He also questioned the margin implications of the decline in Apple revenue.
CFO & COO Akash Palkhiwala cited the new multi-year Xiaomi agreement as evidence of a strong, sustained position in China. President & CEO Cristiano Amon added that Qualcomm has learned to compete effectively in China over 30 years. On margins, Akash Palkhiwala stated the company is happy with its ~30% EBT margin profile and that growth in auto and IoT will offset the Apple impact, with no change to long-term targets.
Tal Liani of Bank of America questioned the sustainability of the strong growth in QCT smartphones, asking if it can continue without overall market growth, and requested an update on China demand.
CFO Akash Palkhiwala explained that growth is sustainable due to rising content-driven ASPs and a structural mix-shift where the premium tier, Qualcomm's stronghold, is growing faster than the overall market. He noted that China's premium tier remains strong, with Qualcomm's customers gaining share and potential upside from new subsidies.
Tal Liani asked for an explanation of Qualcomm's strong results, particularly in China, when other vendors have reported weakness, and questioned if the strength could be attributed to inventory build-up rather than true end-market demand.
CEO Cristiano Amon pointed to specific company data, including over 40% sequential handset revenue growth with Chinese OEMs in the Q1 guide and 20% year-over-year Android revenue growth in fiscal '24. He attributed this outperformance to a strong product roadmap, increasing content per device, an expanding premium tier, and a normalized inventory environment.
Tal Liani inquired about the drivers behind the 18% product revenue growth, specifically asking about the impact of product refresh and end-of-service upgrades. He also questioned why the revenue guidance for the next quarter, at less than 12% growth, seemed uninspiring.
Ken Xie, Founder, Chairman, and CEO, and John Whittle, COO, explained that strong demand from unified SaaS, SecOps, and OT, along with new functions, better hardware (including upcoming ASICs), and new market opportunities, were the primary growth drivers, not end-of-service. They expect product revenue to consistently grow in the 10-15% range. Christiane Ohlgart, CFO, added that the next quarter's revenue guidance is influenced by service revenue, which is a lagging indicator. Negative product revenue growth from the previous year impacts service revenue for 20-30 months, but current strong product growth is expected to improve future service revenue.
Tal Liani inquired about the drivers behind the 18% product revenue growth, specifically asking about the impact of product refresh and end-of-service upgrades, and followed up on the Q4 guidance being below street expectations.
Ken Xie, Founder, Chairman, and CEO, and John Whittle, COO, explained that growth was driven by strong demand in unified SaaS, SecOps, and OT, downplaying end-of-service as a primary driver. They emphasized new functions, hardware, and market expansion, expecting product revenue to grow 10-15%. Christiane Ohlgart, CFO, added that last year's negative product revenue impacted service revenue, which in turn affects total revenue guidance, with service revenue expected to improve in the second half of 2026.
Tal Liani from Bank of America inquired about the profile of SASE customers, asking if they are competitive displacements or existing customers, and also asked about the balance between investment and margin upside.
CEO Ken Xie responded that SASE adoption comes from both existing customers enabling the capability and new competitive wins, driven by the value of an integrated "SASE firewall." CFO Christiane Ohlgart confirmed that over 90% of SASE customers come from the existing firewall base. On margins, Xie emphasized their long-term strategy of investing in their own infrastructure to gain a cost and security advantage, which will benefit the company and customers over time.
Tal Liani asked why the guidance for the upcoming quarter appeared light compared to consensus, especially given expectations for demand pull-forward from end-of-service products and potential tariff impacts.
Founder, Chairman, and CEO Ken Xie stated that Fortinet does not plan to change prices due to tariffs and is exercising caution amid geopolitical uncertainty. CAO and incoming CFO Christiane Ohlgart added that while Q2 started with good momentum and close rates, the guidance reflects a cautious stance based on sales team forecasts in the current macro environment.
Tal Liani asked for clarification on the weakness in the billings guidance for Q1 and why the strong Q4 product revenue outperformance is not expected to continue.
An unnamed executive noted that Q4 billings upside came from better-than-expected performance in deals between $5 million and $10 million and early enterprise purchasing for the refresh cycle. They explained the Q1 caution is due to potential disruption from recently announced tariffs impacting customer buying habits in Latin America and Canada, as well as potential U.S. government disruption. CEO Ken Xie added that a strategic focus on RPO and ARR can defer some billings to future periods.
Tal Liani asked about the underlying drivers for the sequential growth deceleration observed in Arista Networks' guidance, particularly comparing the consistent growth of the previous year to the current year's trend, and whether this indicates a concern for future growth.
Jayshree Ullal, Arista Networks' CEO and Chairperson, clarified that there is no concern regarding demand, attributing the variability to shipment capabilities rather than demand. Chantelle Breithaupt, Arista Networks' CFO and SVP, added that this is a normal part of their mixed conversation and does not imply a new model for the upcoming year.
Tal Liani inquired about the sequential growth deceleration observed in recent quarters, asking for underlying drivers and whether this trend indicates future concerns for Arista's growth trajectory.
Jayshree Ullal, CEO and Chairperson, clarified that there are no concerns regarding demand, attributing the variability to supply chain constraints rather than a slowdown in underlying business. She reaffirmed Arista's commitment to 20% revenue growth.
Tal Liani from Bank of America questioned the sustainability of both Arista's growth, linking it to Tomahawk 6, and its high operating margins, suggesting they might alienate customers who have cheaper white box alternatives.
Chairperson & CEO Jayshree Ullal refuted the premise, stating the high operating margin is a result of operational efficiency, not just pricing. She argued that customers pay a premium for Arista's value-add (EOS, support, quality), which reduces their own OpEx. She also clarified that Tomahawk 6 is not delayed and is currently in Arista's labs for future products.
Tal Liani asked if the current market strength could be the result of customers buying ahead of anticipated tariffs, and whether Arista has the visibility to detect such pull-in behavior.
CEO Jayshree Ullal acknowledged past instances but stated that Arista is now too large to fulfill a massive, market-wide pull-in. She confirmed she is not seeing material pull-ins, only minor order adjustments. Furthermore, she noted a lack of inventory buildup at customers, which would be an indicator of large-scale advance purchasing.
Tal Liani asked about the drivers behind the 16% growth in the enterprise segment, questioning if it was AI-related, and also requested elaboration on Arista's routing opportunity and differentiation.
CFO Chantelle Breithaupt attributed enterprise growth to increased sales coverage, partner programs, and new logo acquisition, noting that enterprise AI adoption is still in early stages. CEO Jayshree Ullal explained that Arista's routing offering has matured from a software feature to a complete solution with dedicated hardware and a full feature set (MPLS, etc.), enabling it to win deals in large enterprise WANs and with service providers.
Tal Liani asked about the competitive threat from NVIDIA, particularly following the launch of its Spectrum-X platform and its reported market share gains in data center switching.
CEO Jayshree Ullal positioned NVIDIA as a valuable partner for its GPUs but a competitor in networking. She stated that Arista rarely encounters NVIDIA's Ethernet offerings directly, as NVIDIA's stack is often bundled with InfiniBand. Ullal asserted that Arista is considered the expert in scale-out Ethernet for AI, with a superior portfolio and software, but welcomes the competition.
Tal Liani asked about the growth trajectory for systems revenue, specifically if the current $180M/quarter level reflects a steady state or if further growth is expected. He also inquired about the drivers for software revenue growth beyond temporary impacts, given the relatively flat quarterly revenue around $210M despite renewals and accounting treatments.
Cooper Werner (EVP and CFO, F5) explained that FY2025 systems growth was a catch-up from deferred investment, and F5 is still early in the refresh cycle with new growth vectors from data center capacity expansion tied to AI readiness. François Locoh-Donou (President and CEO, F5) emphasized strong belief in healthy software growth driven by multi-year software agreements (up 20% YoY), flexible consumption agreements, and SaaS adoption (57% growth in F5 Distributed Cloud customers, 26% of top 1,000 customers using it). He noted that the SaaS and managed services transition is largely complete, expecting it to contribute to future growth. He also highlighted increased consumption of multiple product families (70% of top 1,000 customers now use multiple F5 product families, up from 30% four years ago). Cooper Werner clarified that the FY2026 software growth rate is impacted by lower growth in the FY2023 subscription business coming up for renewal, but expects reacceleration in FY2027 as the SaaS headwind is behind them.
Tal Liani questioned the growth trajectory for F5's systems revenue, asking if it can grow further from the current $180 million per quarter or if it will stabilize. He also asked what drives software revenue growth from here, given its current stabilization around $210 million per quarter, and why the growth rate isn't faster despite positive underlying trends.
Cooper Werner, EVP and CFO, explained that systems growth is driven by a catch-up period from deferred investment, the early stages of the refresh cycle, and new data center capacity expansion tied to AI readiness. François Locoh-Donou, President and CEO, highlighted catalysts for software growth including 20% year-over-year growth in multi-year software agreements, increasing flexible consumption agreements, 57% customer growth for F5 Distributed Cloud Services, and 70% of top 1,000 customers consuming multiple product families. Cooper added that FY26 software growth is impacted by lower growth rates of subscriptions sold three years ago (FY23) coming up for renewal, with reacceleration expected in FY27 as SaaS transitions are completed.
Tal Liani of Bank of America asked why new software products didn't drive growth in a quarter with a weak renewal base, questioning if growth is solely dependent on renewal accounting. He also asked for the expected timing of when AI will become a notable growth driver for F5.
EVP and CFO Cooper Werner clarified that the subscription model is designed for the growing renewal base to be the primary long-term growth driver, fueled by new sales and expansions. President and CEO François Locoh-Donou asserted that AI is already driving revenue today, particularly in data delivery, and that the opportunity is durable and growing, supported by new innovations like the AI Gateway.
Tal Liani from Bank of America questioned the software business drivers, asking why growth from new products isn't more visible in quarters with weak renewals, and if this implies growth is solely dependent on the renewal cycle. He also asked about the timing for when AI will become a notable growth driver for F5.
CFO Cooper Werner explained that the subscription model's maturity means the growing renewal base is the primary long-term growth driver, with new business adding to that future base. CEO François Locoh-Donou stated that F5 is already driving revenue from AI today, particularly in data delivery, and that some hardware strength is likely driven by customers preparing for AI. He emphasized that with new innovations like the AI Gateway, the opportunity is current and will grow durably over time.
Tal Liani of Bank of America questioned the sustainability of the guided 40% year-over-year net new ARR growth for the second half, noting that recent sequential growth of around 5% implies deceleration, and asked what is driving the expected acceleration.
CFO Burt Podbere attributed the confidence to several factors, including CrowdStrike's role as a consolidator, the impact of AI, and the strength of the Falcon platform. He specifically highlighted the Falcon Flex model as a key driver, noting it is easy for customers to procure and implement, leading to rapid consumption of licenses. Founder & CEO George Kurtz added that direct customer feedback confirms they are solving complex problems and stopping breaches, which drives consolidation and gives him confidence in the back-half forecast.
Tal Liani inquired about the divergence between revenue and ARR growth, asking why the CCP program impacts revenue but not ARR, and what factors drive the expected ARR acceleration in the second half.
CFO Burt Podbere explained that the revenue impact stems from the amortization of a limited partner program related to CCP success, an accounting treatment under ASC 606. He attributed the confidence in back-half ARR reacceleration to strong momentum in key products like Next-Gen SIEM, identity, and cloud, the success of the Falcon Flex model, and CrowdStrike's overall position as a platform consolidator.
Tal Liani pointed out that growth from existing customers appeared to decline during the year, impacting the Net Retention Rate (NRR), and asked about the company's ability to drive NRR higher again.
CFO Burt Podbere responded that the Customer Commitment Program (CCP) had an impact and that dollar-based net retention (DBNR) is a 'noisy metric' the company does not manage to. He explained that large, long-term deals facilitated by Falcon Flex can pressure DBNR in the short term but are beneficial for the business overall. He also highlighted the expanding base of new logos as another key growth dynamic.
Tal Liani questioned the cautious Q4 outlook, suggesting that since the July incident is further in the past, Q4 performance should logically be better than Q3.
CFO Burt Podbere reiterated several headwinds impacting Q4 visibility. These include the delayed pipeline generation from the weeks following the incident, continued extended sales cycles, and the ongoing deployment of Customer Commitment Packages (CCPs), which can mute upsell rates. He also noted uncertainty around whether customers will continue to favor product add-ons over extended contract time, maintaining the estimated $30 million impact for Q4.
Tal Liani questioned the platform consolidation thesis, citing a competitor's view that customers might now prefer vendor diversification, and asked for evidence of customers' continued appetite for more modules. He also requested clarification on the full-year EPS guidance.
CEO George Kurtz countered that customers do not want to revert to a patchwork of products, as adversaries exploit the gaps between them, and they remain focused on consolidation. CFO Burt Podbere added that the full-year EPS guidance was calculated consistently with Q3, factoring in revenue headwinds from customer commitment packages.
Tal Liani from Bank of America asked for a breakdown of the recurring revenue line, specifically Samsung's contribution in Q2, and sought clarity on the expected trend for recurring revenues based on existing contracts, including the typical impact of renewals.
CFO Richard J. Brezski clarified that Samsung's recurring revenue contribution increased from approximately $20 million to $33 million per quarter. For future trends, he pointed to the Q3 guidance of $136-$140 million as the baseline from existing contracts. CEO Liren Chen added that renewals often result in growth, citing the 67% increase with Samsung and a 15% average increase with Apple as key examples.
Tal Liani from Bank of America questioned the potential deviation between total revenue growth and Annualized Recurring Revenue (ARR) growth. He also asked about the process for renewing expired contracts, including the $91 million expiring in 2025, and the potential impact of US-China geopolitical tensions.
CFO Rich Brezski clarified that both total revenue and ARR have seen double-digit CAGRs over the past four years, highlighting ARR as a better measure of ongoing earnings power. President and CEO Liren Chen explained that contract expirations are normal and the company aims to renew them ahead of time, often at higher values. He noted the $91 million in 2025 expirations is primarily the Xiaomi contract. On geopolitics, Chen stated that the global, open nature of standards and proactive policy engagement mitigate risks.
Tal Liani asked about the longer-term outlook for 2025, focusing on potential litigation and significant contract renegotiations on the horizon.
President and CEO Liren Chen stated that the record recurring revenue achieved in 2024 provides a strong starting point for 2025. He identified the Xiaomi contract, which is up for renewal at the end of 2025, as the next major negotiation. CFO Rich Brezski clarified that for the immediate transition into 2025, contract expirations are minimal, with agreements contributing only $17 million of revenue in 2023 set to expire at the end of 2024.
Tal Liani of Bank of America questioned why growth has not accelerated despite new initiatives, asking about the primary challenges preventing it and where the company's focus lies to drive future acceleration.
CEO Nadav Zafrir acknowledged that the shift is not an overnight process and requires investment. He identified three key focus areas to drive growth: improving go-to-market execution for the short term, making heavy investments in AI for the medium term, and fostering a culture of execution and urgency for the long term.
Tal Liani posed a high-level question about the strategy and timeline to achieve sustainable double-digit growth, noting that the current firewall refresh cycle is temporary.
CEO Nadav Zafrir agreed, identifying the newly formed Workforce division (built on Avanan) as a key vector for non-firewall growth. He outlined a multi-pronged strategy including reinvigorating go-to-market, being more vocal, focusing on the Hybrid Mesh platform, and pursuing strategic M&A to reach the goal of sustainable double-digit growth.
Tal Liani of Bank of America inquired about Check Point's position on vendor financing and questioned what strategic elements are needed for the company to break out of mid-single-digit growth and achieve a sustainable double-digit growth rate.
CFO Roei Golan and CEO Gil Shwed explained that while they don't offer formal financing, the Infinity platform provides customers with flexible billing terms, leveraging the company's strong cash position. They identified key growth drivers as continued investment, the Infinity platform's adoption, and the expansion of SASE offerings, which they believe position the company for future growth acceleration.
Tal Liani from Bank of America requested a breakdown of the quarter's strength between scheduled billings and new products, citing the decline in the dollar-based net retention rate (NRR) and asking about the underlying trends in core versus emerging products.
CFO Remo Canessa reported strong unscheduled billings growth of 28% YoY, with scheduled billings growth in the low 20% range, as expected. He described the 114% NRR as "outstanding" and reiterated that selling larger initial bundles can lower the metric. CEO Jay Chaudhry added that other metrics like the 40% growth in new logo ARR are exceptionally strong, making NRR a less critical focus for them.
Tal Liani requested a practical breakdown of the 'Zero Trust' concept into products sold for branch and cloud, and asked how this focus alters the competitive landscape compared to SASE.
CEO Jay Chaudhry sharply distinguished Zero Trust from SASE, defining Zero Trust as the elimination of lateral threat movement. For branches, this means replacing firewalls and SD-WANs with a direct, secure connection to the Zscaler exchange. For cloud, it means workloads communicate via the exchange, not a network, removing the need for cloud firewalls. He identified the competition as legacy vendors of firewalls, NAC, and VLANs.
Tal Liani of Bank of America posed a strategic question about why SentinelOne is growing at a similar rate to its much larger competitor and what is needed for the company to accelerate its growth.
CEO Tomer Weingarten responded by highlighting the company's high rate of new logo acquisition compared to incumbents. He expressed confidence that future cybersecurity requirements will favor SentinelOne's AI-led platform, emphasizing that the company is focused on its own path in a large market.
Tal Liani inquired about the drivers for the below-consensus guidance, asking for a quantification of the revenue impact from the deception product retirement.
Fatima Boolani (Investor Relations) quantified the impact as a ~$10 million churn headwind to net new ARR for FY26 (with about half in Q1) and a roughly one-percentage-point headwind to full-year revenue growth. Tomer Weingarten (CEO) added that the guidance is a prudent starting point that factors in market unknowns and strategic shifts, with the goal being to overachieve.
Tal Liani asked about the importance of vendor financing in the current market and requested clarification on the expected magnitude of net new ARR for Q4.
CEO Tomer Weingarten stated that there is no significant demand for vendor financing, as it's typically handled by channel partners. He noted SentinelOne's focus is on delivering current capabilities, not financing future consumption. Regarding Q4, he reiterated the expectation for positive year-over-year net new ARR growth in the second half of the year, maintaining the current momentum.
Tal Liani from Bank of America asked about the specific applications driving WaveLogic growth, details on the pluggables business including the 400G vs. 800G mix, and the recent trends in the services business.
Executive Adviser Scott McFeely detailed that WaveLogic demand is driven by cloud and AI traffic across long-haul, metro DCI, and soon, campus networks. CFO Jim Moylan noted that the services business grows roughly in line with the optical business, with recent strength from helping cloud providers with network builds. CEO Gary Smith added that an uptick in installation services is a positive indicator of network build-outs.
Tal Liani inquired about the margin impact of a potentially higher mix of pluggables in cloud orders and asked what is driving network deployments for cash-constrained carriers.
CFO Jim Moylan acknowledged that current pluggable margins are slightly below average but expects them to improve with higher volumes and the introduction of next-gen WaveLogic 6 Nano products. Executive Adviser Scott McFeely added that the primary margin headwind from cloud builds is the high volume of initial line system deployments. CEO Gary Smith explained that carrier spending is not expected to accelerate dramatically but rather to recover to a balanced state after underinvestment, with growth driven by specific cloud-related opportunities like MOFN and multi-cloud connectivity.
Tal Liani asked for a long-term view on the cloud opportunity, questioning if growth will accelerate and if Ciena will expand into new parts of the network. He also asked for the strategic rationale behind entering the competitive broadband access market.
CFO Jim Moylan affirmed that webscalers will likely grow as a percentage of Ciena's business and that the company will expand into new areas like short-reach metro with its pluggables. Executive Adviser Scott McFeely justified the broadband entry by explaining that network evolution is playing to Ciena's strengths, with coherent optics becoming necessary. He noted Ciena's vertical integration, innovative architecture, and existing customer base make it a strong challenger, with current margins in line with the corporate average.
Tal Liani asked for an explanation of the pressure on gross and operating margins during the quarter and the outlook for the remainder of the year.
CFO Dipak Golechha explained the pressure was primarily on gross margin, resulting from the rapid growth of newer, less mature SaaS offerings and a one-time inventory write-off that will not recur. CEO Nikesh Arora added that despite this 40 basis point one-time impact, the company still outperformed both internal and external operating margin expectations.
Tal Liani from Bank of America asked for a breakdown of the 1.7% pro forma growth to understand its components and what could drive sustainable, higher growth in the future. He also requested details on trends within Amdocs' largest customers, including project cycles.
CFO & COO Tamar Rapaport-Dagim pointed to leading indicators like the 3.5% constant currency backlog growth and sequential revenue guidance as signs of accelerating growth. She stated the pickup is driven by new deal ramp-ups, double-digit cloud growth, and emerging GenAI activities. For large customers, she highlighted diversification across buying centers (e.g., AT&T), geographic expansion (e.g., NTT in Japan), and growth with other key clients like Bell Canada, emphasizing a broad base beyond the top two names.
Tal Liani from Bank of America questioned the telco spending environment for 2025, given that core growth remains steady after divestitures. He also asked if cloud growth is merely substituting legacy revenue and requested a clearer definition of Amdocs' cloud activities and its partnerships with cloud providers.
CEO Shuky Sheffer stated the demand environment is expected to be similar to 2024—not deteriorating but not yet recovering. He clarified that while some cloud activity replaces on-premise services, it's not entirely substitutional and often expands scope. He defined cloud activities as ranging from full modernizations on AWS or Azure to gradual migrations. CFO Tamar Rapaport-Dagim added that strong managed services renewals position Amdocs well for an eventual demand acceleration.
Asked for the primary reasons behind the 28% decline in the Cloud vertical. He also asked about the drivers of the strong Enterprise growth and the outlook for that growth rate against tougher comparisons next year.
The Cloud vertical's decline is primarily driven by the normalization of supply chain lead times, which has eliminated the need for customers to order far in advance. Secondary factors include project pushouts and budget shifts to AI. The strong Enterprise growth is driven by both the Mist AI-driven portfolio and the Apstra data center automation solution. While year-over-year comparisons will be more difficult in 2024, continued robust order growth provides a clear path to revenue growth for the Enterprise segment.
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