Cisco Systems Inc at UBS Global TMT Conference (Virtual) Transcript

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

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. Now I think that's an incredibly helpful overview. So what I wanted to do is maybe take a step back and go back a number of years ago and kind of talk about where Cisco was in some of these key end markets, I think Chuck and team have sort of noted that there were some either engineering missteps or just go-to-market missteps and the company spent a lot of time, energy and intellectual capital kind of to rectify and sort of address these markets. So would love to get your perspective on sort of where Cisco was 3, 4, 5 years ago, today in some of these key end markets that fall under your purview and maybe where we are today and how you see the business positioned competitively right now in this particular market.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : No, that's great. So maybe just digging in a little bit deeper on the hyperscaler market and the web scale market. You mentioned changes in sort of go-to-market strategy, changes in product, IP. When you kind of think about the business today versus 5 or 6 years ago, what do you think has been sort of the key driver in terms of creating sort of that traction with customers. Is it the disaggregation strategy? Is it a different go-to-market strategy instead of just selling the entire complete solution, letting customers have a little bit of an input in terms of what they exactly want from Cisco and maybe from some other vendors. And just maybe we could start there.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. So it sounds like, obviously, over the last 5 to 6 years, the model has sort of -- your model has evolved a little bit, where investors might have thought of win, let's say, in the 100-gig market as sort of a market share gain versus today there's a suite of offerings, a suite of products and may not necessarily be the same sort of metrics that we looked at 3, 4, 5 years ago that would define success for Cisco or 1 of your competitors. So when you look at the portfolio today with a longer-term lens, help investors understand how you define success. You mentioned the deal recently with Meta displacing some of the silicon at the top of the rack, I think it. As an outsider looking in, I think investors have been accustomed to just looking at market share, right, it wins with particular hyperscaler. So in addition to sort of the web scale or commentary that you guys provided, what else should we be looking at to sort of judge the success and monitor sort of the traction that you're getting over the longer term?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Well, you just brought up a great point. Can you maybe share with us without getting into specific numbers, in those use cases, when there's sort of a bake-off or there is a competitive dynamic in the marketplace, how you fare today, maybe how you fared a couple of years ago, given the portfolio significantly deeper with greater breadth right now. And when you think about, you mentioned sort of the use case wins could take 12 to 18 months before there's some sort of tangible recognition of revenue where it's going to show up in the numbers. Maybe can you use that REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 06, 2021 / 3:00PM, CSCO.OQ - Cisco Systems Inc at UBS Global TMT Conference (Virtual) Meta win as an example of when you started talking to Meta or Facebook and how that plays into incremental conversations you may have with them or currently having with them to sort of broaden your relationship with that particular company?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Well, I mean, I think you mentioned I think on the last call or maybe Chuck might have mentioned or you at the Investor Day, optics are a big part of entering into a new customer with showing what you can bring to the table. Did optics have any play or any role in sort of the Meta conversation? Because I would imagine, obviously, there is an entrenched incumbent from silicon perspective, I would imagine. So what sort of -- can you kind of walk us through what was sort of the deciding factor in your view that led them to make this particular switch? Was it diversity of silicon? Is it cost, performance? How would you sort of characterize that win?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Got it. And since you mentioned sort of technological infrastructure evolution and trends. Maybe just maybe staying on optics for a second. Obviously, you mentioned it's a pretty important critical component of what the hyperscalers are looking for. You've rolled out new silicon, you've got Acacia under the hood right now. And so when we think about the longer-term sort of technological trends, whether it's 400-gig market, which has been primarily, I guess, money has been spent by sort of the white box vendor hyperscalers right now. You've got 51.2 terabits coming down (inaudible). When you think of all of these technological evolutions and sort of potentially step functions, how do you think about sort of prioritizing your sort of focus and resources at these end markets? Or are they all to sort of kind of work together and it's sort of an integrated sort of strategic solution effectively, for lack of a better phrase and how this company think about allocating capital to those markets.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Yes.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. Now I want to come back to routed optical networks in a second, but maybe just to take a step back, with another multiparter. But obviously, the TAM that you guys have laid out at the investor briefing went from and your original estimate is $36 billion to upwards of $50 billion. There's both public and private 5G. Maybe we could stay with the 5G opportunity near term. How do you frame that opportunity in terms of timing and what we should look for from an investor base perspective in terms of. Is that going to be one of the bigger drivers in addition to, say, hyperscaler spend over the next 1, 2, 3 years? And to your point earlier about time -- from time to win to time to market to revenue recognition, are those sort of the more near-term opportunities? Or is there something else in sort of that growth TAM that you talked about a number of weeks ago that you will see a little bit sooner potentially earlier in the revenue line?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : We'll come back to that 1 second. Just 1 quick follow-up on SP. So obviously, prior to the most recent uptick that we've seen from a spend perspective, driven largely by carry upgrades in 5G. The SP market, and I know you don't break it out this way from a routing perspective and struggled for a number of years industry-wide, given the spend and sort of the need to upgrade networks, whether it's in the edge that you mentioned or in the core, I mean, is it a reasonable assumption to think that the SP market or the traditional routing market as a whole is going to be a little bit more stable and potentially grow for the next several years as opposed to being historically a drag on performance.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great So we'll come back to supply chain in a little bit, but let's maybe just turn to routed optical networks. So obviously, I think you did a pretty thorough job at the investor briefing, kind of discussing how Cisco is thinking about this opportunity. And maybe just to kind of level set where people might not have been sort of privy to that presentation due to some conflicts. Effectively, your -- the Cisco theory here or Cisco thesis under working thesis is collapsing of effectively multiple different layers into a more cost-effective, capital-efficient routed optical network. And I apologize if I butchered it, but maybe kind of just kind of share with the audience how you're thinking about that particular market over the intermediate term in the longer term? And what are sort of the initial feedback that you're getting from potential customers and current customers in terms of what your strategy entails actually over the next couple of years?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : So maybe just following up and to frame sort of the opportunity. I know at the investor briefing, you talked about sort of the current TAM from an optical perspective, whether it's transponders, ROADM and the OTN was what, I think, $17 billion, I think, is the data that you laid out and that obviously shrinks to, let's call it, $10 billion as part of this new sort of optical -- routed optical networking technology. How do you define or how do you think about sort of the TAM for Cisco today, what they can address within that $10 billion, right, whether it's what's the TAM for pluggables and sort of the other parts of the solutions that you're going to bring to the table?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Got it. That's helpful. In the interest of time, I guess no conversation would be complete without a discussion of supply chain. I've gotten a question prior to you joining us about supply chain. A couple of questions are very generic. So I'm going to ask you a very generic question with some maybe specificity at the end. One, obviously, things are dynamic. It's fluid. Is there anything on the margin that you've seen over the last 4 to 6 weeks that changed either for the better or for the worse? And when you think about calendar 2022, can you kind of just help us understand sort of the working assumption that Cisco is using in terms of the impact in terms of the timing? And maybe, I know Scott has talked about the margin impact, I think it's pretty clear. But just in terms of any sort of relief that you might be expecting? Is it in the second half of calendar 2022? I know it's largely probably conjecture at this point, but anything to help investors out, I think, would be great.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Got it. And I just want to pause and just remind anyone listening, we're taking questions. I think you can do it on the web -- on the web portal or the channel that you're watching this and I've got a couple coming in. But before I jump to those, I just want to have a quick follow-up on the supply chain, Jonathan, if you don't mind. So when you think about the supply chain and what it maybe forced some of your customers to think about their business, to your point, co-planning multiple years out. Do you think that's a sustainable way of working with your customers, meaning if I think about companies over the last 3, 5, 10 years even, they've gotten accustomed to having sort of just-in-time inventory. If you need something, it gets shipped relatively easily. There's never been a bottleneck to this degree. Do you think there's a potentially permanent change in terms of how you and your customers do business, which improves your visibility on the product side, as we go forward, even as supply chain headwinds abate a bit or old habits are really difficult to break and customers will come back into that 30- to 90-day window again. And we're just kind of back to where we were pre-COVID.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Got it. And then I've gotten this question in a couple of different ways. And let's see if you can -- I mean it may not be possible to answer. I guess the question is around orders. Orders have been really strong in the industry. You guys boosted incredibly strong orders. Some of your peers have posted incredibly strong orders. Any sense for the linearity of those orders as we go into the next several fiscal quarters right? So we've seen -- I think Cisco put up north of 30% orders, 2 quarters in a row. Obviously, to your point earlier, 100% plus is not sustainable. But is there any change in sort of diminution in demand that you guys are seeing post the quarter?

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : No, I appreciate that. Just in the interest of time, I always like to let my participants kind of have the floor and just risk about anything that they want to leave investors with as we wrap up, anything that we didn't cover that you think is incredibly burning right now that highlights kind of what you guys are trying to do and something that you want to leave investors with at this point.

Question: David Vogt - UBS Investment Bank, Research Division - Analyst : Great. Jonathan, thank you, Marilyn. Thank you for participating as well, and thank you for everyone for joining. And if anyone has any other questions, please reach out to me or Marilyn. And Jonathan, thank you again for your time today, and happy holidays, and we'll talk soon.