Cisco Systems Inc and Cowen and Company to Host Transforming SP Landscape Conference Call Transcript

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

Question: Paul Silverstein - Cowen and Company - Analyst : Great. Thank you, Kelly. I appreciate the overview. And I apologize we're going to ask you some more pedestrian questions in terms of the business model and hopefully get down a little bit into the weeds. So why don't we start out -- if you could start out by talking about the realignment within your organization, your new role, and what you see as the key drivers for returning the service provider businesses at Cisco back to sustainable, profitable growth? As part of that, if you could touch upon the competitive environment including price and dynamics.

Question: Paul Silverstein - Cowen and Company - Analyst : Okay. And kind of a critical question of pricing as it relates to margins, service provider about 30% of Cisco's overall revenue. And I know there are different piece parts within service provider, but as a general proposition, given that price erosion is a fact of life in networking, is the rate of erosion ?- is it relatively stable across the service provider organization? And related to that, can you maintain the margin structure of the service provider organization?

Question: Paul Silverstein - Cowen and Company - Analyst : I'm not talking about -- there's no erosion, I'm talking rate of erosion being relative (multiple speakers).

Question: Paul Silverstein - Cowen and Company - Analyst : Okay. Let me play devil's advocate. Over the past five years, if I use Infonetics' numbers, the edge routing market has increased at an over 5% CAGR while Cisco's edge routing revenues actually declined by about 2%. You've recently cited product transition, emerging market weakness as drivers of some of the routing weakness, but the weakness appears to have started well before the product transition. What explains the weakness over the past couple years? Is it just a function of your competition with Alcatel Lucent ? Alcatel Lucent Huawei which obviously have taken some share or are there other issues as well? More importantly, what changes in the future? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 03, 2014 / 2:45PM, CSCO.OQ - Cisco Systems Inc and Cowen and Company to Host Transforming

Question: Paul Silverstein - Cowen and Company - Analyst : Great. That's a perfect segue to the NCS and the CRSX platforms. You've been undergoing this product transition, you mentioned again the $100 million order rate. From some your comments I trust NCS extends from a competitive standpoint your position in core routing by giving greater capacity. Does it also expand the market in terms of the revenue implications down the road? How should we think about NCS plus CRSX?

Question: Paul Silverstein - Cowen and Company - Analyst : All right, I'm going to ask one last question. Then I'm going to open it up to the audience. Cisco struggled in emerging markets for several quarters now, including with service provider customers. Can you talk about what you've seen with those customers in emerging markets? To what extent do you think the weakness is related to the NSA spying if at all?

Question: Paul Silverstein - Cowen and Company - Analyst : Before we turn it over to the audience, I just want to respectfully point out, we published our CapEx update yesterday. It's a very robust database, and I was actually surprised to see relative to I think It's aa well-known geopolitical and macroeconomic issues that have been plaguing so many countries in Emerging Markets as Cisco and Chambers pointed out. I was actually surprised to see that the outlook for the balance of the year for second half of calendar 2014 looks like emerging markets excluding China will be up on a year-over-year basis 10% based upon the projections of the carriers in those various market themselves backing out what they spent in the first half of the year. So it does -- people are scratching their head a little bit. I know those numbers, certainly they surprised me, but they wouldn't suggest quite the amount of pain that we've heard from you all. With that why don't we open it up to the audience? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 03, 2014 / 2:45PM, CSCO.OQ - Cisco Systems Inc and Cowen and Company to Host Transforming

Question: Paul Silverstein - Cowen and Company - Analyst : That's a very fair observation. And I should point out that the wireless numbers, as you would expect, are far more robust than the wireline numbers. And with that, why don't we turn it to the audience?

Question: Paul Silverstein - Cowen and Company - Analyst : It's also on the CapEx but from a global perspective, and I think you touched on this in the previous questions, but I want to ask you explicitly. When you look at global CapEx all in, once again it looks like the outlook is much better than one would expect. We've been looking at 10% growth for the back half of 2014 over the back half of 2013. That's the best it's been in six, seven years, it's 2X the growth from last year. Maybe the response is the same, that it's -- and you see it in the numbers, wireless (inaudible) and wireline. But nonetheless, a meaningful wireline improvement from negative to positive. What -- is that simply the disconnect that most of the dollars are going to wireless and you're not seeing the benefit and your product market is above and beyond the product transition and other issues you've got?

Question: Paul Silverstein - Cowen and Company - Analyst : Fair enough. Operator, any questions?

Question: Paul Silverstein - Cowen and Company - Analyst : We recently had a conversation with an operator ?- I should say one individual with an operator who said that SDN stands for still does nothing. Now -- and I know obviously it's a very [pregnant] ?- it's the most pregnant concern on the Street. And it also touches on the operator space, all the operators are looking for more agile business models consistent with the pressure on their own businesses. And this [crying] need to bridge the disconnect between growth in bandwidth, growth in consumption, a lack of corresponding growth in services. And you've spoken about a big focus of Cisco is that orchestration automation and the endpoint carriers to bridge that disconnect. Where -- from a timing standpoint, where do you see carriers in that evolution to network functions, virtualization, SDN? How far away are we seeing from -- let me back up. I know Deutsche Telekom and TeraStream over in Croatia, we can find examples of deployments of that nature. But I think that's actually a good example where yes, DT has done a deployment, but it's in Croatia. Where are we in terms of seeing robust really production deployment of SDN and NFV?

Question: Paul Silverstein - Cowen and Company - Analyst : I think we've got time for one last question. I want to again allow an opportunity for anybody out there if someone wants to ask. If not, I have got another question. Operator?

Question: Brian Koontz - - Analyst : Wonder if you could comment on the statements around open multivendor approach that you're talking about here and how extensible is this and what's your approach to open networking here from a customer perspective? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 03, 2014 / 2:45PM, CSCO.OQ - Cisco Systems Inc and Cowen and Company to Host Transforming

Question: Brian Koontz - - Analyst : I think so. Do you have any announcements along the multivendor line of thought?

Question: Paul Silverstein - Cowen and Company - Analyst : Great.

Question: Paul Silverstein - Cowen and Company - Analyst : With that, I want to thank Kelly and I want to thank all of you. I hope that's been helpful and Kelly, thank you for coming in this morning.