Cisco Systems Inc Tech Talk at OFC Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : So great. So Bill. The trade show is just about to kick off. We attended the Executive Forum yesterday. So what do you think will be the hot topics at the show? And don't simply say AI. We want to get a little bit deeper than that. But what do you see as the hot topics? And what will Cisco be highlighting?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : So I definitely want to get into some of the more technical discussions. But -- let's start off with a little bit about what's going on maybe near term in the marketplace. There's been a lot of noise about the AI builds by the large hyperscalers being lumpy, some projects being deferred. What's being slowed down, accelerated? What is your take from somebody in the trenches as to the level of activity?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : And maybe this is a little bit out of scope for you. But just wondering if you've got thoughts on what's creating lumpiness. Is it a product transition where we know NVIDIA is going from Hopper to Blackwell? Or is it more sort of macroeconomic questions? Or is it simply managing large projects takes time?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : So interesting disclosure Cisco made on the last earnings call that about half of the 350 million of AI-related business were optics. I sort of feel like that's not been well appreciated. So maybe help folks understand how optics fit into that? What's the AI business and what's the optics in that?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : Now Cisco did a product press release last week that caught my attention. So I want a little bit of help kind of putting this in context and significance. It was a new three-nanometer, 1.6-terabit PAM4 DSP, 200-gig per lane. So I don't know that people typically associate Cisco with those kinds of products. Maybe give us a little bit of background on what's the strategy here?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : And just to clarify, I believe this is 200-gig per lane inside the data center, not (multiple speakers) REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 01, 2025 / 2:30PM, CSCO.OQ - Cisco Systems Inc Tech Talk at OFC

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : So let's pivot the discussion to the proverbial elephant in the room, co-package optics. I don't think you could swing a dead cat and not run into that conversation. Let's start off at a very high level. Just what's your take on the technology?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : Maybe step back a little bit for an audience as financial analysts, not technologists. What -- what's going away when we do CPO and how does that compare with the acronym soup LPO LRO? Walk us through some of the basics here.

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : And the LPO, LRO option?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : Great. And I guess one of the things that intrigued me out of NVIDIA's announcement a couple of weeks ago was that initially, their CPO would run on an InfiniBand switch. So in my circles and your circles, there's been this debate about AI clusters migrating from the InfiniBand protocol to the Ethernet protocol. So now that we consider the fact that CPO will initially run on an InfiniBand switch, what does that tell us about this evolution, transition, competitiveness?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : So maybe the partnership is intriguing what is sort of the rest of Cisco's play and whether it's LPO, LRO, co-packaging? What else are you doing in this context? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 01, 2025 / 2:30PM, CSCO.OQ - Cisco Systems Inc Tech Talk at OFC

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : So one of the topics I feel like has been glossed over in these announcements is -- how does one manufacture CPO. So maybe you can help folks understand what are the hurdles to bringing this kind of technology to market?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : How do you square that with NVIDIA's timeline of suggesting their InfiniBand switch will be out before the end of this calendar year?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : And maybe take this to sort of the implications of what does this mean for the laser. So there's sort of this argument of a laser is the most likely thing to fail. So you want to have your laser separate, how are they getting around that?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : And what's your take on the implications for your transceiver business then? So if -- we start doing co-packaging, we have fewer transceivers. Do transceivers go away? Do some transceivers go away?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : And I guess, maybe time undetermined, but what are the implications for your switches that would go into these AI fabrics?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : So it sounds to me that you've given, I think, a good argument for why LPO and LRO are good compromise for the industry. Where is the market? Because sitting at OFC, you wouldn't think that's the case, but it seems like a logical argument. What -- how would you make that argument? Where do you think the reality is?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : So I want to pivot to a different technology that I don't feel like gets much attention, but it's this concept of an optical switch. So I think Google has been public about building its own. We've seen a number of companies enter the space. So maybe just sort of -- first sort of set the foundation, what is an optical switch and how are they being used?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : I guess one of the things I've been struggling with is, I feel like it's maybe a misnomer to call it an optical switch rather than to call it a cross-connect or an automated patch panel. And I guess there's some nuance to that. My understanding is they're not switching every packet.

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : So are there use cases that either can flatten the network or could reduce the number of actual electronic switches, either based on Silicon One or Broadcom's Tomahawk? Can we reduce the number that somebody needs with the use of optical switches.

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : Another topic that's sort of been bandied about is the idea that coherent optics, sort of the classic Acacia wide area network technology is making a move to find applications inside data centers. A little bit of more talk about that. I've struggled with it on just the basic economics. The price points of coherent are much higher. For a good reason, they do more, send signals further -- can you help us understand, I guess, from the demand side, what makes us more interesting? And then from a technological side, how do you take a relatively expensive technology, make it cheaper.

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : Is there a way you could help us understand the relative price points. So 800-gig inside a data center PAM4 device compared to an 800-gig in a ZR pluggable. What's the relative price difference (multiple speakers)

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : And I guess one of the sort of classic arguments I hear, it's about volume. And so I'm struggling whether or not this will apply. I think of the analogy of the comparison to high-definition televisions. First high-definition television, $10,000 a piece, 10 people bought them. Now they're $200, everybody has it. We wouldn't buy it. So are we at this situation where coherent technology is expensive because it's a low volume relatively device -- is it a question of, well, if you ramp your volume, then it's price competitive and how do you cross that chasm?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : And what's your sort of best prediction of how or when that happens? What's the timeline?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : And do you see that as like two years away, three years away?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : So I want to pivot the discussion to -- to the wide area network. So we spent most of the time on the data center because that's what people care most about. But I think there's been this debate about, well, okay, we get the AI thing. We get the clusters. What are the implications for wide area network?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : So you've been a proponent of an alternative architecture or technology known as ZR. This is the idea of pluggable used in the wide area network. Maybe help us understand a little bit of the argument of the economics. I know we've been down this path before, but a little bit of a refresher and where does the industry stand today on the transition from platforms to pluggable?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : And I have the impression that this market had a pause during 2024 and it sounds like it's sort of restarted and it is getting moving. Was that supply chain-related event? Was that just customer concentration? What changed?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : So I got a couple of questions on e-mail that I just want to hit before we run out of time. One of which is how do you sort of -- how do you see that your position in optics helping to pull through sales of either switches or routers or your Silicon One? What's the sort of attach rate and the relationship between the businesses?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : And when we think about the evolution towards these enterprise opportunities. So I think it's really intriguing, -- you've got this partnership with NVIDIA, run NVIDIA on Silicon One. Do you see optics getting pulled in? Will enterprises be employing your optics in AI solutions?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : So you made a comment very early that I sort of glossed over that somebody who's coming back to me. You used the phrase, hyperscalers might be taking a breather. You know the world I live in -- was that intended to be sort of something that you're seeing right now? Can you elaborate on (multiple speakers)

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : And when we think about sort of the business, I think we've seen the power of the purse for the hyperscalers. How do you sort of think about the idea that they're crowding out telcos as customers?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : So we're just about out of time. I always like to close with a question like the following. What do you think is the least appreciated aspect of Cisco's Optical business?

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : Great. Bill, thank you very much.

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : Lot of fun as usual. Folks, thanks for joining us. This is Simon Leopold and Bill Gartner, signing off from OFC.