Cisco Systems Q4 2014 Earnings Conference Call Transcript

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

Question: Brian Modoff - Deutsche Bank - Analyst : Hi, John. Let's talk a little bit about switching. It's 30% of your revenues. You're talking about this transition to the 9K, and then you've also got the 3850. From what we understand, you're bringing forward the 802.11ac Wave 2 APs later this year that because of the change in voltage requirements and higher data rates may create an uptick or a desired upgrade switches on the campus side in the back half of the year. Can you talk about how you see the switching markets doing in FY2015? In these two transitions, do you see growth in the market? Do you see better 2015 in that area than perhaps 2014? Thanks.

Question: Simona Jankowski - Goldman Sachs - Analyst : Hi, thank you. I wanted to put to your guidance in context a little bit. You're guiding for zero to 1%. First of all, that's a bit narrower than it has been in the past few quarter. I just wanted to understand if there's better visibility? What's driving that? Secondly, it's a lot lower than your product deferred has actually grown. I think you indicated something like 12% as a result of the transition to software, so can you just expand on that a little bit? It seems like that's something that's taking place at a relatively rapid pace.

Question: Mark Sue - RBC Capital Markets - Analyst : Hi, John. How are you? I want to have a larger discussion, John, on your stock price and the stock multiple. When we talk to investors, the worry is that, despite the consistent free cash flow, we might see a drop off in the future cash flow and that you will not be able to grow your dividends. Is there a way we can convince investors that Cisco can consistently generate $12 billion to $13 billion of free cash flow each and every year, and continue to grow their dividend? Subsequently, should M&A be more about cash flow contribution, so investors can worry less about that? Can you also maybe, Frank, if you want to chime in, explain why the weakness in emerging markets and service provider orders does not really impact annual free cash flows?

Question: Amitabh Passi - UBS - Analyst : Hi, John, and thanks for the question. Losing my voice here. John, I understand and realize the workforce restructuring decisions are always tough decisions to make. I just want to better understand the context of why now? If you can shed any light in terms of the areas where you might be deemphasizing? Should we think of the 6,000 employees as a net reduction, or is it simply a reallocation of resources into some of the other areas?

Question: James Faucette - Morgan Stanley - Analyst : Thanks very much. I just wanted to touch base quickly on the emerging markets. You suggested that they had slowed down in the most recent months, et cetera, and weren't willing to talk about when you might see a recovery. Can you talk a little bit about what you think contributed to that slowdown and clarify when you talk about not wanting to talk about a recovery, are you talking about you don't want to speculate as when they will stop declining? Should we expect a baseline, but you don't want to expect to talk about when they would expect to return to growth? 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.

Question: Jess Lubert - Wells Fargo Securities, LLC - Analyst : Hi, John. Thanks for taking my question. I was hoping you can provide some additional details on the US federal vertical? Orders picked up there, so I was hoping to understand if you're seeing signs of a fiscal year-end flush. How are you thinking about the federal market moving forward? Then could you also touch on the wireless business? How fast is the non-carrier segment is growing, what the impact of Meraki is on overall growth, perhaps comment on the competitive environment? It seems like some your competitors are growing a little faster there. Thanks.

Question: Subu Subrahmanyan - The Juda Group - Analyst : My question is on gross margin. Can you talk about some of the points you've made on some price pressures and mix, how those are impacting, especially as core products including switching and routing start to rebound? Should we expect an improvement from a gross margin perspective?

Question: Ben Reitzes - Barclays Capital - Analyst : Hi. Thanks a lot. A lot of good questions asked about margins and emerging markets. I want to ask about carriers. There's a lot of debate about what the spending patterns are and what consolidation is doing to the marketplace. What are you seeing? What's embedded in your guidance for carrier? I know you said you're assuming service provider doesn't get better, but what do you think is going on? How does it get better, and what's your thinking as we go throughout the year? Thanks a lot.

Question: Kulbinder Garcha - Credit Suisse - Analyst : Hi. Thanks for the question. My question is, hello, can you hear me?

Question: Kulbinder Garcha - Credit Suisse - Analyst : Sorry. My question is maybe for John. How do you actually see the year playing out from our revenue perspective? It sounded at the beginning of the call like you said don't extrapolate the near-term revenue visibility and strength that you have. On the other hand, you're very excited about some of your new products. I thought we were going to see, you're coming into a period of easier compares. I'm just trying to think as we get through this year, is this the year that Cisco will return to growth do you think, meaningfully at some point? How do you see that playing out? Then the other question I have is that with the Nexus 9000 being out for a while, and the APIC control now being out, why doesn't the share and [value of] that can drive your business? It does sound [meaningless] at some point. Isn't that a very positive driver six months out, or am I thinking the timing of this transition to be much longer?

Question: Paul Silverstein - Cowen and Company - Analyst : Thanks. John, two clarifications if I might, one, I think you touched on earlier on services, this was the first quarter in the past seven or eight where there was a turn-up in the growth rate. The obvious question being, is that a one-off or should we start to see that either stabilize or improve from here? Was it a meaningful improvement over the past trend? Then the clarification on your wireless LAN business if we exed out the small cell business, and we just focus on the Wi-Fi piece what would the growth rate look like?

Question: Jeff Kvaal - Northland Securities, Inc. - Analyst : Yes. Thank you all very much. I was hoping to get a little bit more color into the trajectory that the recurring revenue is on. Could you tell us a little bit about how much of a percentage of sales that is growing, and how quickly that's growing year-over-year? Then also to what extent that costs you on your top line growth? Thank you.