Cisco Systems Inc at UBS Global Technology and AI Conference Transcript

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

Question: David Vogt - UBS - Analyst : So we were just making a joke that optics and optical is kind of the hot sector and kind of back in vogue. So maybe we can kind of just level set, obviously, you were here last year, you do a ton of presentations at OFC. You're sort of the go-to guru at Cisco. So maybe just to lay down for everyone kind of what your role is, what's under your purview and kind of kind of your day-to-day strategic responsibilities?

Question: David Vogt - UBS - Analyst : That's a great overview. So maybe if we could start with ZR. If we had this conversation a year ago, has the market developed in a way that you had anticipated? It really feels like it's moving much quicker than a year ago than when we had this conversation. And so how are you thinking about ZR and Cisco's positioning within that market? And broadly define how the industry is migrating towards ZR given the needs and sort of the, I guess, the bandwidth capacity issues out there in the marketplace?

Question: David Vogt - UBS - Analyst : To your point about the distances and sort of the applications you mentioned metro nets. What kind of traction are you seeing in the metro portion of the market for pluggables at this point?

Question: David Vogt - UBS - Analyst : So in Tier 1 SP, what does it mean for their existing infrastructure footprint? Right, so it's a different operational model, but does that mean there is a ton of stranded capital?

Question: David Vogt - UBS - Analyst : Can I ask about interoperability. So I think this plug should be interoperable with your systems as well as competitor systems. Do you have enough evidence or enough data to suggest that the interoperability is not an issue, meaning a Cisco ZR plug will work well with XYZ system? So there's no -- from a carrier perspective, from an SP perspective, there's no limitation in terms of them, mixing and matching (inaudible) technological.

Question: David Vogt - UBS - Analyst : Got it. Then maybe just pivoting back to the hyperscalers. Obviously, the use case is a little bit different. DCI-centric. It seems to be somewhat of a standard sort of operating go to market here for pluggables. You mentioned earlier that you're willing to cannibalize your old business. So how has that played out from an ASP perspective in the market today? And what does that mean for the DCI market holistically going forward as pluggables obviously are kind of the driving form factor going forward? 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 03, 2024 / 5:55PM, CSCO.OQ - Cisco Systems Inc at UBS Global Technology and AI Conference

Question: David Vogt - UBS - Analyst : Great. So I mean, I guess, maybe to paraphrase, if I look at the industry data, whether it's Signal AI or other third-party vendors, it generally looks like the metro market is not growing.

Question: David Vogt - UBS - Analyst : And so -- but if you disaggregate and peel back the onion, effectively, it's a substitute of product dynamic where you made the conscious decision 3 years ago through the Acacia acquisition to kind of target that market and effectively have a longer-term perspective on where you're positioned.

Question: David Vogt - UBS - Analyst : Got it. And maybe just can you remind us about on the Acacia deal? I remember at the time, I think -- was it -- what percentage of their business was at Cisco? And where does that stand today?

Question: David Vogt - UBS - Analyst : And you need that volume though to maintain margin effectively?

Question: David Vogt - UBS - Analyst : Got it. So when you think about the hyperscaler appetite for these products how is your -- how about this? Is there a rule of thumb to think about how these deployments happen -- the data center deployments happened at hyperscalers? And then what that would mean for your business within that hyperscaler environment? I know there's lots of ratios out there for different parts of the data center work. Just trying to get a sense for how we should think about -- how it affects your underlying business, if so possible?

Question: David Vogt - UBS - Analyst : Just a distributed environment -- obviously, a distributed environment would help you immensely. Given maybe some of the power constraints in the marketplace today, have you thought about what that might mean for the DCI opportunity given sort of a distributed data center footprint?

Question: David Vogt - UBS - Analyst : You mentioned earlier the business limitations. We've moved from short-haul to medium haul to potentially long haul. So as these data centers become more geographically dispersed, the current portfolio can handle that sort of dynamics today or?

Question: David Vogt - UBS - Analyst : That can work for the hyperscalers though, right?

Question: David Vogt - UBS - Analyst : Since you're guru on this, I'm going to ask you about sort of the competitive landscape in the broadly defined optical transceiver market between U.S. and Asian participants. How do you see that market playing out? It seems to be there's like 2.5 players here in the states, I don't know, 5, 6, 7 players overseas. It seems like you mentioned there's insatiable demand for capacity. How do you -- from your seat, think about...

Question: David Vogt - UBS - Analyst : You mentioned they want the U.S. manufacturing capability, but with the margin or the price structure from China. So how do you think about the sustainability with hyperscalers being the big driver here of those margin structures? InnoLight has relatively good gross margins for basically being assembler effectively, right? So is that sustainable? Or do you think the margin structure of the industry, that particular industry needs to come down?

Question: David Vogt - UBS - Analyst : Got it. But is it fair to say that for you -- I mean, if the margin structure of the industry is low, I mean, I would imagine these are below corporate Cisco gross margin...

Question: David Vogt - UBS - Analyst : Got it. Final question. Any gating factors, if we have a conversation a year from now, whether it's tariffs, power, cost curve, foundry capacity, laser capacity, chip capacity. What are the gating factors over the next 12 months as you see it for your business and the industry at large?

Question: David Vogt - UBS - Analyst : The garnet issue? 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 03, 2024 / 5:55PM, CSCO.OQ - Cisco Systems Inc at UBS Global Technology and AI Conference

Question: David Vogt - UBS - Analyst : Got it. I'd like to give the executive a chance to kind of discuss what is not understood about your business, particularly given the complexity of your business vis-a-vis other parts of the Cisco portfolio. Today, as we sit here, what do you think is misunderstood about Optics, Optical Systems, ZR, Acacia versus the business that you've kind of put together? I don't think people understand the size of the business from a revenue perspective start?

Question: David Vogt - UBS - Analyst : Got it. So I think we're out of time. Bill, thank you for your time.

Question: David Vogt - UBS - Analyst : Informative. And if anyone has any questions, please feel free to reach out to Sami and Ryan. Thank you again, everyone, and we'll see you soon.