Cisco Systems Inc Q2 2017 Earnings Call Transcript

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

Question: Pierre Ferragu - Sanford C. Bernstein & Co. - Analyst : Hi. Thank you for taking my question. I was trying to understand where we stand in the weakness you saw when you talked about three months ago. If I look at your guide, it's very encouraging. It shows that you were getting back to a sequential growth that is better than slightly above what you have done on average in recent years. And then, if I hear your comments, Campus was very weak in the quarter. Routing as well. And, you see orders coming back in routing. My question would be whether you see something similar in Campus? Can we expect that part of the business to improve in coming months and coming quarters? And then, maybe just more broadly, what's your feeling about the macro today? The uncertainty and the weakness in orders you could see three months ago, is this something that is improving now, already?

Question: Unidentified Participant - - Analyst : This is Justin on for Jim Suva. Thanks, Chuck and Kelly, for taking the question. I was just wondering if you could comment a little bit on your partnership with Ericsson? I know recently you've had a couple of different rollouts and then some good press releases in terms of what you are doing. I'm just wondering if you could maybe provide any updates or any milestones now that it's been about a year since you've had the partnership going? Thanks.

Question: Paul Silverstein - Cowen and Company - Analyst : If I could ask for a quick clarification and then a question. Kelly, I think last quarter you quantified the impact of the shift in the business model is over 2 percentage points in terms of the hit to growth as you increase your future visibility on the shift. Can you update -- I don't think I heard you give an update this quarter? 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 15, 2017 / 9:30PM, CSCO.OQ - Q2 2017 Cisco Systems Inc Earnings Call

Question: Paul Silverstein - Cowen and Company - Analyst : Okay, and would that be your expectation on an ongoing basis?

Question: Mitch Steves - RBC Capital Markets - Analyst : Thanks for taking my question. I want to circle back on the security piece. You have given out advanced threat numbers in the past and the breakdown there. So, how does the margin structure change as you grow the advanced threat and the web security piece versus the legacy security portfolio that you've had?

Question: Mitch Steves - RBC Capital Markets - Analyst : Just one quick, small follow-up. Just on a repatriation potential, are you leaning more towards essentially M&A or buybacks or a dividend because you have raised it by 12% now. Just wondering how you think about that?

Question: Jeff Kvaal - Nomura Securities Intl - Analyst : Yes. Thank you very much for taking the question. One of the big themes with some of the other folks across the [com] landscape is web scale. That wasn't a major theme of the opening script. I am hoping that you could help us understand your positioning in web scale. Certainly in switching where the competition is heightened and also in routing and even DCI. Thank you.

Question: Ittai Kidron - Oppenheimer & Co. - Analyst : Thanks. Chuck, appreciate the opportunity. I guess I'm going to sound like a broken record and ask the same question I've asked over four or five quarters now which is your data center revenue. Your server business which has again continued to stay in range. Not showing much progress. How do you feel about the progress that you are making over there with hyperconverged? It just doesn't seem to be moving the dial [be it]? How do you resolve the issues in this business going forward?

Question: Vijay Bhagavath - Deutsche Bank - Analyst : Thanks. Hi Chuck, Kelly. I'd like to get bigger picture thoughts, Chuck and Kelly, on how you plan to broaden your senior management team? Any new areas or skill sets you will be looking for in the management team to drive profit and growth through the rest of this year and over the next few years? And, is the strategy focused primarily on doubling down on security, analytics, AI, automation?

Question: Vijay Bhagavath - Deutsche Bank - Analyst : Can you hear me now?

Question: Vijay Bhagavath - Deutsche Bank - Analyst : Okay. Is this better?

Question: Vijay Bhagavath - Deutsche Bank - Analyst : Okay. Chuck, my question was more on the senior management team. Any new skill sets, any new areas or avenues you will be looking for to round out the management team to drive top line growth? Or, will you primarily be doubling down on security, analytics, AI? Thank you. 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 15, 2017 / 9:30PM, CSCO.OQ - Q2 2017 Cisco Systems Inc Earnings Call

Question: Steve Milunovich - UBS - Analyst : Thank you. Kelly, you mentioned the percentage of recurrent revenues, 31%. If you exclude services, are we still around 9% to 10% of product revenue being recurring? And, is there any way to turn that core routing switching business into something more recurring? We've never seen a hardware Company do that, if you will. But, through ELAs or something else, is there any way to turn that into little more of a subscription -- consistent basis?

Question: Mark Moskowitz - Barclays Capital - Analyst : Thanks. Good afternoon. Just following up on the cash repatriation M&A question, Chuck. Just want to get a sense going forward, should we think about a continuation of more of the string of pearls approach similar to AppDynamics? Or, can you make more sizable acquisitions? And then, Kelly, I wanted to get a sense if you could help us understand how we should think about deferred revenue, clearly growing nicely. What is the feedback loop 1 year, 1.5 years out from now in terms of does gross margin start to trend higher because of the deferred revenue mix is becoming [richer] in configuration? Thank you.

Question: James Faucette - Morgan Stanley - Analyst : Thank you very much. I just wanted to ask about product gross margins. They were a bit weaker than we had at least modeled, and I think in the 8-K, there's some indication that there was some pricing. But, I would like some more color there. Particularly, one thing that we noticed that the APAC margins were look particularly weak. Is this related to customer, geography? Just a little help on understanding where the pressures are on [product gross] margin?

Question: Jess Lubert - Wells Fargo Securities, LLC - Analyst : Hi. Thanks for taking my question and congrats on a nice quarter. First, just had a clarification. There were a number of articles regarding a faulty clocking component over the last few weeks. Just wanted to see if you could comment to what degree that is or isn't impacting customer activities? And then, the question -- I was hoping you might be able to update us in a little greater detail regarding the trends you're seeing in the service provider vertical? You mentioned some encouraging order development? So, was hoping you could help us understand what you are seeing across geographies? What you are seeing from a product perspective? And, to what degree that improvement is coming from routing optical security or some other part of the service provider business? 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 15, 2017 / 9:30PM, CSCO.OQ - Q2 2017 Cisco Systems Inc Earnings Call

Question: Simon Leopold - Raymond James & Associates, Inc. - Analyst : Great. Thank you for taking my question here. I wanted a little bit of hand-holding and help with interpreting this deferred revenue growth. 51%, obviously, a very big number. Looking at the balance sheet, it looks like it rose year-over-year by about $1.9 billion, and you talked about the total of software and recurring revenue at $4 billion. Could you help us get a better understanding of what are the components? And, I'm presuming there are some elements that maybe are growing much slower, some growing faster. So, help us understand what are the big drivers for that 51% growth. Thank you.

Question: Jayson Noland - Robert W. Baird & Company, Inc. - Analyst : Not as of right now. Again, we're working very proactively with our customers in terms of how quickly and where they want to do their replacement. So, we're working very, very closely. But, as of right now, we have not seen and don't anticipate any massive revenue impact from this.