Cisco Systems Inc Q4 2016 Earnings Call Transcript

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

Question: Vijay Bhagavath - Deutsche Bank Securities - Analyst : Hi, thanks, Chuck. Kelly, Marilyn. My question is around demand trends. A lot of clients are asking me this since the press release came out. Help us with any color you can in terms of end markets, product categories, product cycles -- anything and everything on demand trends looking into the rest of the year? Thanks.

Question: Ittai Kidron - Oppenheimer & Company - Analyst : Hi, guys. Thanks for the question. Couple things from me. And Chuck, this is the same question I asked last quarter. Your UCS, your data center business, has now been stuck in range for seven quarters in a row. And I understand that HyperFlex has seen some traction, but how do we get that business back to growth again? What is the time line by which you think that could happen? And will you consider going after parts of the market that are maybe more margin-sensitive? And then just another small question there. The Tetration solution you introduced, can you just remind us in what product category in the future that will be included, and maybe some color on first comments from customers?

Question: Simona Jankowski - Goldman Sachs - Analyst : Hi, thank you. I just had a clarification first, which is, what percent of the business right now is recurring software and subscription revenue? And then as far as my question, gross margins and operating margins were ahead of your target ranges, and that's in a quarter when gross margins are typically seasonally down. So just curious, Kelly and Chuck, about raising your target margin ranges over time? And just more broadly, how are you thinking about the tradeoff between margins and revenue growth?

Question: Tal Liani - BofA Merrill Lynch - Analyst : Hi, guys. My questions are about the restructuring program. Two things. First, are you -- you say that you're doing it in order to increase investments in growth areas versus areas that are not growing. Are you anticipating further declining growth rates, or any issues beyond what we're seeing now in the legacy areas, that prompt this kind of program? And second, when we talk about less lower-growth areas, these are your largest areas, so switches and routers. And the question is, how do you deal with -- how do you balance between the need to compete and the need to invest? And maybe you can give us some color on the restructuring and what you plan on doing? Thank you.

Question: Steve Milunovich - UBS - Analyst : Thank you very much. Could you talk a bit more about the factors behind your first-quarter guidance? Revenue being flat is clearly below the recent growth rate, and the gross margin is also down a fair amount sequentially. So what do you attribute that to?

Question: James Faucette - Morgan Stanley - Analyst : Thank you very much. I just wanted a quick question. I think this ties into Service Provider. Routing was surprising to us, that it wasn't a little bit better, and I think that's probably attributable to Service Provider, and I want to make sure that's the case. And I guess I'd like kind of your view -- it seems like with new products in that category, that maybe that, that category at some point becomes pretty spring-loaded, as at least we would expect the valuation units to be shipped in and pent-up demand to develop. But I want to know if we're thinking about that correctly, and kind of how we should think about the router segment going forward? Thanks.

Question: James Suva - Citigroup Global Markets - Analyst : Thanks very much, I appreciate the opportunity. And congratulations, Chuck and Kelly, to your good results. My question is just one part and pretty simple. Regarding Brexit, you're one of the first major tech companies to report that have a full-month post of the Brexit event happening. Can you talk about, did that influence your visibility, your spending patterns or demand orders, or book-to-bill, or anything like that? Any push-outs, any hesitations? Chuck, you talked many times about uncertain economic times we're in. I was wondering, has it been compounded by Brexit, or was that kind of built in and you actually didn't see much of an impact? Thank you very much.

Question: Mark Moskowitz - Barclays Capital - Analyst : Yes, thank you, good afternoon. I wanted to ask a follow-up around the restructuring. Can you give us any sense, Chuck or Kelly, is there any benefit here from the early stages of the Ericsson relationship, allowing you to leverage that JV so that you can actually drive some of this restructuring? And does that imply there could be incremental restructuring down the road? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 17, 2016 / 8:30PM, CSCO.OQ - Q4 2016 Cisco Systems Inc Earnings Call And then my question is around the cloud. We keep getting a lot of questions around what is Cisco's exposure to the cloud in terms of, can you give us any sense around the percentage of revenue, at least to private cloud or public cloud deployments that you're serving, from an infrastructure perspective? Thank you.

Question: Mitch Steves - RBC Capital Markets - Analyst : Hi, guys, thanks for taking my question. So my first part is kind of on the product gross margin. So it looks like it was actually down sequentially in July, and I think that's primarily due to selling more switching and routing. So does that mean in October quarter, you think that the mix is going to shift more to legacy kind of routing and switching, versus the remaining, I guess, call it, advanced portfolio? And then just one small one. What was the total acquisition revenue you guys got from all the acquisitions this quarter?

Question: Mitch Steves - RBC Capital Markets - Analyst : Thank you very much.

Question: Jess Lubert - Wells Fargo Securities - Analyst : Hi, guys. I was hoping you could touch upon the activity you saw from some of your top cloud customers, to what degree you're continuing to see strength in that vertical? And then on the switching business, which saw a return to growth following several soft quarters, I was hoping you could help us understand to what extent ACI revenues are now greater than some of the legacy data center offerings? And presuming the mix of legacy in the data center is now smaller than ACI, would you expect the switching business overall to grow moving forward? Or are there offsets that could cause that to vacillate going forward?

Question: Jayson Noland - Robert W. Baird & Company - Analyst : Okay, great. I wanted to ask about long-term revenue growth. I think, Kelly, 3% to 6% has been discussed in the past, but with the shift to software and subscription, and service provider uncertainty, that seems like a stretch. And I'm not asking for specific guidance, but is there some direction that you would suggest for our long-term models?

Question: Simon Leopold - Raymond James & Associates - Analyst : Great, thank you very much. I wanted to see if we could talk a little bit about longer term on the routing business, specifically. What you laid out sounds like very much the cyclical challenges facing your peers, as well as weak carrier CapEx. But if you could help us understand some of the longer-term themes around what's going on in routing, and how that sector may grow and your business may grow. And I'm pondering the implications around sort of SDN, as well as some of the architectural shifts of putting more of the burden into the optical space. 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. AUGUST 17, 2016 / 8:30PM, CSCO.OQ - Q4 2016 Cisco Systems Inc Earnings Call