Cisco Systems Inc at Bank of America Merrill Lynch Global Technology Conference Transcript

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

Question: Tal Liani - BofA Merrill Lynch - Analyst : Thank you, Gary. So the first question is kind of a high level question about your priorities. What are you focusing on being the COO of the Company? What are you focusing on? What do you think needs to be done in your department in order to ensure that the objectives are achieved?

Question: Tal Liani - BofA Merrill Lynch - Analyst : And you touched on -- in the last part of your answer you touched on intercloud. And I want to take a broader question. One of the risks for Cisco is that the high end of the market goes to this SDN and a fee and the hardware is getting -- I'll use the term commoditized. But there is another risk and that you deal with -- you deal with it pretty effectively with technology, but there's another risk. And the other risk is that network will become a resource the same way or natural resource the same way that electricity is. And that means that smaller companies will just not build a network, but rather lease capacity from Amazon cloud services or whatever it is. How do you deal with that risk? Because these customers tend not to buy equipment from Cisco.

Question: Tal Liani - BofA Merrill Lynch - Analyst : And the question is in order to deliver this, does it mean that you have to build an operation like Microsoft du jour or Amazon? Does it mean that you have to put billions and billions in building a cloud? Or can you go another way about it?

Question: Tal Liani - BofA Merrill Lynch - Analyst : So switching to another topic, which is relevant to growth, services -- I asked this question on the conference call we had recently and services growth declined quite remarkably over the last three years and in consistent ways. Kind of in the teens or mid teens to 8% to 2.5% the last four quarters. Is there -- the question I ask is -- there are two parts to the question. Number one, is there anything structural that moves revenues from service to products and that's why service revenues grow? Which is counterintuitive to what they're trying to do. Or if not, if this is just because of declining product revenues, what can you do in order to accelerate it?

Question: Tal Liani - BofA Merrill Lynch - Analyst : And question's for Marilyn. Do you disclose the proportion of services that are between the three buckets?

Question: Tal Liani - BofA Merrill Lynch - Analyst : No we don't. Unidentified Participant (inaudible - microphone inaccessible)

Question: Tal Liani - BofA Merrill Lynch - Analyst : As you go -- last question on services. As you go into more cloud based services, more product to the services instead of product to the product sales, are services going up or is it more like Meraki that service revenues are not going to be impacted by it, we're going to see it on the product side, not on the service side. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2014 / 4:15PM, CSCO.OQ - Cisco Systems Inc at Bank of America Merrill Lynch Global Technology Conference

Question: Tal Liani - BofA Merrill Lynch - Analyst : Before we go to margins and expenses, I have a philosophical question for you about cloud. When I speak to the Bank of America technical guys, they say that SDN will enable us to reduce the costs, and they talk about certain types of costs, but as much as 50%. And they say that it's -- they do it for the flexibility it provides, but also the decline in costs. And I understand that you're trying to be better than others. And let's say that you have the best SDN portfolio for switches out there. Switches and software and application. How do you avoid this desire to decline or reduce spending by as much as 50%? And we can argue if it's 20% or 50%, it doesn't matter.

Question: Tal Liani - BofA Merrill Lynch - Analyst : You have over the next three quarters, you have tons of products coming out. Lots of products and there's going to be a great product cycle starting from routers to switches to even WebEx. And you go throughout the product lines, there are lots of new products. What happens to margins in our -- and I'm not asking to quantify the number, but I'm asking just conceptually, what happens to margins with all these new products? Are these new products launched at margins that are below average, above average or below the previous level of the same product or above? And how do we think about it? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2014 / 4:15PM, CSCO.OQ - Cisco Systems Inc at Bank of America Merrill Lynch Global Technology Conference

Question: Tal Liani - BofA Merrill Lynch - Analyst : What if things go wrong? And let's say margins go down because there's pricing pressure, or whatever. Things go wrong and you just don't get what you're trying to get. How much flexibility do you have with the organization to still maintain an operating margin at the levels that you have today, even if things go wrong?

Question: Tal Liani - BofA Merrill Lynch - Analyst : Cash. I get this question all the time, so I'm going to ask it in a different way. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2014 / 4:15PM, CSCO.OQ - Cisco Systems Inc at Bank of America Merrill Lynch Global Technology Conference

Question: Tal Liani - BofA Merrill Lynch - Analyst : Yes. Some companies started bringing back the cash and pay the taxes. I calculated that your US cash flow is roughly half of your cash flow. Maybe I'm wrong here or there, but it's about half of the cash flow. So that means about $5 billion. And if I look at what you've committed at the minimum to buy back stocks, which you've done way more than the minimum commitment. Buy back stocks and pay dividends, you're short by $1 billion a year. So that means you will need to take from your cash $1 billion a year unless you raise more debt. And your cash levels will end in five to six years if you do that without raising debt. So just calculation. The question is what are your plans? You obviously have a very strong financial position. A lot of the cash is trapped overseas and you said two years ago, not you personally, but John said that he will do something with it. He's not going to let it stay there without accumulating any return. So what are the possibilities that you have and is there any desire to bring the cash here? And let's say you bring the cash here, what do you do with it?

Question: Tal Liani - BofA Merrill Lynch - Analyst : And you have from memory, I didn't check it before, but if I'm wrong, I'm wrong, $20 billion of debt roughly. $16 billion before and new $4 billion debt that you issued. Maybe I'm wrong with the numbers. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2014 / 4:15PM, CSCO.OQ - Cisco Systems Inc at Bank of America Merrill Lynch Global Technology Conference Unidentified Participant (inaudible - microphone inaccessible)

Question: Tal Liani - BofA Merrill Lynch - Analyst : Any questions from the audience? No? Great. Thank you very much.

Question: Tal Liani - BofA Merrill Lynch - Analyst : Excellent. Thank you very much.