Cisco Systems Inc Q2 2015 Earnings Call Transcript

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

Question: Amitabh Passi - UBS - Analyst : I had maybe two half questions. John, I guess the first one for you, Services gross margin probably came in at the lowest level that we've seen in a few quarters. I was hoping you could maybe elaborate on what's happening there? Secondarily, on your Security business, I know you've sounded very bullish on Security and the momentum. 6% seemed a little disappointing -- would love to get some clarity there.

Question: Brian Modoff - Deutsche Bank - Analyst : I'd like to talk about Meraki. You had, obviously, good numbers $400 million annual run rate. At Cisco Live, you announced that you were expanding it out to a broader range of customers. Can you talk a little bit about that and what that might do to the growth there and how this might affect your overall margin mix as you continue to say you're comfortable with where that's headed?

Question: Simona Jankowski - Goldman Sachs - Analyst : You had, obviously, a good quarter and good guidance but John, your tone seems even more bullish than kind of the numbers would suggest. I mean I couldn't count how many times you said that you've never been better positioned and I just wanted to see if you can just provide another layer of detail behind that to just let us understand better what's behind that tone? I think you referenced some large deals in the US with enterprises, service providers, public sector and I noticed your deferred was up 6%, the long-term deferred, even though short-term was flat. So, are there large multi-year deals in there that are giving you that kind of bullish outlook?

Question: James Faucette - Morgan Stanley - Analyst : Thanks very much. Just a quick question, you said that you're expecting a turn in service provider and emerging markets, not for at least several more quarters. Others have indicated that they thought we could see a rebound in service provider spending and maybe in the next couple of quarters. Just wondering what's making you a bit more cautious than that? I guess trying to gauge your level of confidence that you can really see your service provider and emerging market business rebounding I guess this year and going into 2016?

Question: Rod Hall - JPMorgan - Analyst : Hello, guys, thanks for taking my question. So the quarter-on-quarter trajectory is switching seasonality a little bit more than normal, about down 6% quarter-on-quarter if our math is right and the average a little bit below 3% over the last five years. I know that last year there was some Osborne effect ahead of the 9000, just wondering if you guys could comment on color there? I mean what light of driven that seasonality? Did we see some FX impact, just normal seasonality from your point of view, et cetera? Also John, I know you're lifting weights and running doing all this stuff, could you just give us an update on your tenure at Cisco? It doesn't sound like you're in the mood to retire, but could you just give us some kind of an update on what your plan there is?

Question: Mark Sue - RBC Capital Markets - Analyst : The gross margin improvement and the cash returns was a major driver in your stocks outperformance last year. I'm trying to understand the opportunities ahead on top of the ongoing improvements you've made to date. For example, I know that it's a multi-year progress but the progress in terms of becoming a software company, maybe if you could give us an update there in your go to market? As it relates to your financials, maybe thoughts on future cash flow returns to investors considering free cash flow is now on parity with net income? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 11, 2015 / 9:30PM, CSCO.OQ - Q2 2015 Cisco Systems Inc Earnings Call

Question: Ittai Kidron - Oppenheimer & Co. - Analyst : Thanks and congrats, guys, on great execution on the quarter. Following up on this last point of gross margin, John, looking at the regional gross margin, it seemed like Europe was certainly a standout. We haven't seen a gross margin that poor since -- I had to go all the way back to 2011. Was that just a function of FX, meaning with the move and that depressing in dollars you had to do a little more active discounting in order to get the volumes that you need? How do we think about that?

Question: Tal Liani - BofA Merrill Lynch - Analyst : I have a question on Switching. Great growth, the question is, can you distinguish between plain vanilla upgrades just because you have a new platforms and between really changes to the architecture of Data Centers? One has a short cycle, one has a longer cycle, longer impact on the company. Is there any way we can look at it, think about our side, is there any way we can have evidence that the cycle is longer rather than shorter when it comes to Switching?

Question: Benjamin Reitzes - Barclays Capital - Analyst : Can you talk about the new relationship you have with the VCE? Is there any change? The Data Center numbers were very good, but I was wondering if there's any impact on Switching in the quarter? Do you see yourself partner strategy changing and getting more robust perhaps with some other partners with what's going on with that, that could be material to revenue 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. FEBRUARY 11, 2015 / 9:30PM, CSCO.OQ - Q2 2015 Cisco Systems Inc Earnings Call

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : I wanted to follow up on the VCE relationship in terms of how it affects your business from a modeling perspective. As I understand it, you do sell a significant amount of the UCS products and maybe some Switching products through that channel. If you could help us put that into perspective as to how significant that is as a source of revenue for the UCS? Then in terms of below the sales levels, I understand that you have some benefits exiting the VCE that you're not incurring the expenses you had been in the partnership. Can you help us understand the implications of this from a both revenue, as well as operating expense 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. FEBRUARY 11, 2015 / 9:30PM, CSCO.OQ - Q2 2015 Cisco Systems Inc Earnings Call

Question: Paul Silverstein - Cowen and Company - Analyst : Good evening. One clarification, I think it's obvious from your previous comments, but I just want to make sure I understood. The traditional breakout you gave us between pricing and productivity improvement volume, et cetera, it appears and again, I just want to confirm, that the rate of price erosion did not change from the trend we've seen recently and same thing with your rate of productivity improvement. Can you give us the numbers if you have them?