Cisco Systems Inc Q2 2016 Earnings Call Transcript

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

Question: Pierre Ferragu - Sanford C. Bernstein & Co. - Analyst : Chuck, what I would like to understand is your perspective on the macro environment? So, first of all -- you, of course see Bloomberg TV and read the Financial Times as we all do. But, what can you see through Cisco if you get feedback from your channel? From your sales force? Your country managers? What do they really tell you about and what color can you bring us that we do not necessarily see from where we are? And also, on the same front on the macro environments, your guide for next quarter -- what kind of macro scenario have you baked in? Would you qualify that as prudent -- very prudent? And, if you can take us through the thought process of how you came up with that guidance that would be very helpful?

Question: Vijay Bhagavath - Deutsche Bank - Analyst : My question is around is Cisco a tale of two cities here? We're seeing enterprise products turning light versus consensus while your service provider product -- routing, video et cetera -- are beating expectations. I would like to get your view on this enterprise versus service provider dichotomy, if any? And then, you have a bigger picture strategy around software and your cutting services fully believing that strategy and model. My question is really around do you see IT spending queuing quickly toward OpEx versus the traditional CapEx model of spending? How would Cisco [deliver] to this higher than usual OpEx IT spending moving forward?

Question: Simona Jankowski - Goldman Sachs - Analyst : I just wanted to clarify first, Kelly, in terms of the 2-percentage-point bump that you've embedded into the guidance for the extra week that compares to 4 to 5 points that you saw last time you had this kind of pattern back in 2010. I just wanted to understand if there's anything different this time? Or, if that is just an extra measure of conservatism? And then, just more for the substantive question, Chuck. I heard your comments on the pause on the campus-switching side of the business. I wanted to also ask what is happening on the data center side of your switching business? Is that returning to growth in the first half of this calendar year as you had expected it to? Any update there would be helpful.

Question: Jim Suva - Citigroup - Analyst : My question is now that it has been a few months with the new partnership in Ericsson, can you let us know if you've actually had any concrete wins or anything you can [point to] showing up in the NGN segment of reporting? Or, is it too early to see? Or, any anecdotes about that new partnership? 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 10, 2016 / 9:30PM, CSCO.OQ - Q2 2016 Cisco Systems Inc Earnings Call

Question: Mark Moskowitz - Barclays Capital - Analyst : Just wanted to see if you can give us a little more context about how we should think about the routing glide path going forward in the next few quarters given the nice growth you generated this past quarter. How much of it is related to the CRS cycle continuing? Does it have to do with more vertical penetration or service provider penetration? Any color you can give us? I'm trying to understand, can you still be in the 3% to 4% or 5% bogey for that business for the next couple quarters from a growth perspective?

Question: Brent Bracelin - Pacific Crest Securities - Analyst : One clarification and one question, Chuck. Could you clarify, was the pause you saw with customers the last couple weeks. Was that global, or was that concentrated in the Americas? And, my question is really around APJC, the recovery you are seeing there? The recovery you are seeing in China? What is driving that? Is that sustainable? Is that easy compares? Walk us through what you are seeing in APJC that drove the rebound this quarter? And, I guess -- A, is it sustainable?

Question: James Faucette - Morgan Stanley - Analyst : A couple of quick questions. First on acquisitions. You have been fairly active in the last few quarters. Should we expect this type of pace to persist, both in terms of tuck-in acquisitions and maybe more detailed acquisitions? And then, the second question I had was security -- it seemed like there was some acceleration in that business this quarter. Is that just the result of the SaaS model starting to accrue to the P&L? Or, was there underlying improvement in the billings and activity in that business?

Question: Jess Lubert - Wells Fargo Securities, LLC - Analyst : Two quick ones. First, for Chuck. I was hoping you could provide some additional details regarding the weakness in the data center business? What changed there? How you expect that to progress moving forward? And then, for Kelly, with respect to capital allocation. It seems like you have a little bit less than $4 billion in US cash yet you materially raised the dividend and the buyback. I was hoping to understand if we should be expecting a debt raise? And, to what degree this means any acquisitions we may see are likely to be on the smaller side? Thanks.

Question: Jeff Kvaal - Nomura Securities Intl - Analyst : I have a few margin questions, Kelly, for you perhaps. Can you talk a little bit about the drivers inside of the gross margin structure? It was a little bit ahead of plan this quarter. It seems to be going back to the norm next quarter. What are the moving parts there? The second part of that is on the operating margins. I know 30% is the target. When should we be thinking about that? How much progress are you making in that regard?

Question: Ittai Kidron - Oppenheimer & Co. - Analyst : I wanted to think a little bit ahead, Kelly, just given this extra week that you had in the guidance. Historically as you move into your fourth quarter, you typically post a solid sequential increase quarter over quarter. As we lose this week, should we assume a little bit more of a flattish performance then into July versus April? And then, regarding the software in SaaS, clearly you're making very good progress over there. Is there a way to quantify from your standpoint how much of growth are you giving up right now as you transition businesses, more and more of your products into those type of purchasing model? How much of a growth headwind this transition is impacting you near-term? 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 10, 2016 / 9:30PM, CSCO.OQ - Q2 2016 Cisco Systems Inc Earnings Call

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : Quick clarification. Strength in service provider video, I think you highlighted China. If you could just talk to what you think the duration is? And then, in terms of market verticals, I was interested if you could talk a little bit more about your exposure to what we have often called Web 2.0 or web-scale operators? Certainly, there is the idea that they buy white box, but we know you sell to them. I would like to get a sense of your exposure and the trends from that group of customers if we might?

Question: Tim Long - BMO Capital Markets - Analyst : Chuck, maybe just to go back to the data center, if we could. I get the macro and the tough compares there. Just looking more broadly at that market, I think though the share gains are starting to normalize a little bit at least in the server market. So, when you think about the continued growth on the hardware side of the data center, do you think we need to broaden the server offering? Maybe get more involved in storage or ADC or some other products that are important to the data center that Cisco might not fully be participating 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. FEBRUARY 10, 2016 / 9:30PM, CSCO.OQ - Q2 2016 Cisco Systems Inc Earnings Call