Cisco Systems Inc at JPMorgan Global Technology, Media & Communications Conference Transcript

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

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Thank you to the audience as well for being here in-person. What we'll do is I'll start off with a few questions here. Again, for everyone on the webcast as well as in the room, please feel free to jump in with your questions. What we'll do is open it up so that we can run the mic to you and you can ask your questions. But since you know the drill, Todd, or at least I've given you the good warning here, 3 standard questions we're polling every company for. First one, what's the probability you would assign to a recession or a potential recession, however you want to phrase it because that's the top concern that investors have, based on whatever you're seeing in relation to customer demand, what probability if you had to foresee would you assign to a recession?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Moving to the second one here. The China COVID situation and the impact it's having on supply, how much worse is it making things? Is it materially worse? I mean you obviously gave an update on the last earnings call, so somewhat an unfair question, but like how much worse does it get from the already strained environment we were in? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 23, 2022 / 7:10PM, CSCO.OQ - Cisco Systems Inc at JPMorgan Global Technology, Media & Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. The last one in that sort of question lineup. Coming into this year, if I had done a similar poll, every company would have said supply normalizes second half of the calendar year. And I'm starting to see that sort of affirmation start to fade quite quickly here. So what's the updated expectation now of when does supply normalize in your view?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Great. So let's dive into more company-specific stuff, and thank you for tolerating me for the first 3.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : So the last quarter you have reported, which was last week, you saw diverging order trends between large enterprises and commercial customers. And obviously, that's a definition that's unique to Cisco. Not everyone uses it. But any insights on what's driving the divergence between those 2 verticals?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Yes. Got it. Again, sort of not going back, but if I think of a potential recession or a scenario analysis of that sort of outcome, how would you expect the different customer verticals, particularly these 2, to respond? I mean it does sound like you expect commercial to be the bellwether rather than the large enterprises, but how have you seen them respond in the past to economic slowdown?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. I'll follow up to that. I mean you answered somewhat what I was going to ask you about the growth in the orders from hereon. But I mean, I think putting the large enterprise sort of order trend that we saw, if I combine large enterprise and commercial, you still had double-digit order growth. So how are you thinking about sustaining that sort of double-digit number that you just had in the recent quarter? Or how are you thinking about that sustaining even sort of in this current economic environment?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : I have to say, me and my team both have personal experiences, where coming into the office fixes a lot of things in pre-pandemic...

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Moving on. IT distributors and VARs that we talk to pretty regularly, post-pandemic, they are saying that customers are showing increasing willingness to use software solutions, in some cases, sort of to try and mimic the same capabilities that they got from hardware appliances. What are you seeing in terms of customer-buying behavior on your side? Like is it pretty consistent? How are you thinking about this sort of carrying forward?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : That's actually a good segue. I mean we've -- we're definitely trying to sort of -- are looking at the industry moving towards software. But if you just, I think, dial back or step back sort of 4, 5 years, there was this bigger debate about is it all public cloud or is it hybrid cloud that's going to be sort of the preferred architecture approach. In your discussions with customers, where is it today in terms of that debate? Are customers now sort of have made up their mind what they want to do? Whether it's all public cloud, whether it's a hybrid cloud architecture, how are they thinking about what they want to sort of have longer-term?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : I know you addressed this, but maybe I'll just ask a follow-up on this still, which is, for a long time, investor perception was that Cisco is going to be the one that benefits if enterprises stay mostly on-prem and adopt a hybrid cloud architecture. As architectures move more towards a public cloud or a multi-cloud architecture, it gets a bit less beneficial for Cisco in that longer -- in that road map, right? Like how would you sort of respond to that investor concern, that as enterprises move closer to the public cloud or multiple public clouds, there's still a leverage that Cisco has in terms of those workloads or where the -- how the customer IT architecture gets built out?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Let's move to quantifying a few things here, and I'm going to go back to your 2021 Investor Day. You outlined an addressable market of $72 billion in 2025, which included switching, enterprise routing, wireless networking and servers. You also announced a $26 billion TAM expansion directed toward Hardware as a Service, IoT expansion, automation and insights and hybrid cloud. The first part to that is, let's take the core addressable market of $72 billion, and can you sort of outline what is the growth expectation that you have for that addressable market? And what are the drivers there...

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : And then we would get to the expansion part.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Yes. I mean my specific question on the expansion would be -- I mean, you outlined IoT. Obviously, that's a big piece here. But I mean, regarding all of these expansion opportunities, what have you done on the portfolio to tap into these expansion opportunities? And as a piece of that, I definitely want to delve into Hardware as a Service and what you are seeing there from your customers as well.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Hardware as a Service, we're still relatively early on in terms of the whole industry...

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Sort of rolling out these consumption models. I mean is there a way that we should think about which end market verticals will adopt it first, where is it sort of the most appropriate for which customers, and then sort of the long -- obviously, the larger enterprise maybe would take longer. I don't know if they have longer sales cycles as well.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Let's open it up to the audience here. If anyone has a question, please raise your hand. And I think we'll get a mic over to you, give us 30 seconds there.

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Any other questions? Okay. Todd, let me move to Cat 9000. And I feel like given all the supply volatility, we haven't talked in detail about Cat 9000 for a while on the earnings calls. It was one of your strongest ramping products and probably still is. How do you think about sort of headroom for upgrades now that customers are coming out of the pandemic, planning their spend? And how critical is sort of that Campus architecture and the Cat 9000 in terms of their spending decisions?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Cat 9000, the subscription on top of it had a tiered approach to it and includes premium subscriptions, in addition to sort of basic ones. How do you sort of still think about the differentiation that you can offer customers at those premium levels, subscriptions versus the basic ones?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Okay. Got it. Just sort of closing out this discussion about subscriptions itself, can you give us an update on where you are in relation to subscription with enterprise customers? We get, obviously, the company-wide numbers from time to time, but where are you, particularly if I focus on sort of large enterprise plus commercial sort of bucket, where are we in terms of subscriptions? Where are there more opportunities? Is it more renewal that you're now banking on? Or are there more products that can sort of drive those? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 23, 2022 / 7:10PM, CSCO.OQ - Cisco Systems Inc at JPMorgan Global Technology, Media & Communications Conference

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Got it. Before we end, I wanted to hit 2, really, topics or technologies here. So WiFi 6 refresh. I think there was a, generally, a perception that as the WiFi 6 refresh starts going, that will have a pull-forward effect on the Switching portfolio as well. So maybe touch on that and give us an update. And then the last one I'll -- in the interest of time, I'll leave you with that, which is SD-WAN technology that really gained prominence heading into the pandemic. Where do we stand today in terms of growth trends and sort of where that SD-WAN portfolio goes and enabling customers from here on?

Question: Samik Chatterjee - JPMorgan Chase & Co, Research Division - Analyst : Great. We're close to the end on time here. So thank you for making it to the conference. And thank you for everyone for joining the session here. Thank you.