Cisco Systems, Inc. - Special Call - NasdaqGS:CSCO

NasdaqGS:CSCO

Umesh Mahajan provided extensive insights during the special call transcript on Cisco's data center strategies and products. Below is a detailed summary of his comments:

Overview of Cisco's Data Center Portfolio

• Catalyst Portfolio: Traditionally successful in campus and data center environments.
• Nexus Portfolio: Developed to address changing data center requirements, including virtualization, cloud trends, and evolving traffic patterns. This includes:
  • Nexus 7000: High-end 15-terabyte switch, modular platform with Layer 2 and Layer 3 features.
  • Nexus 5000 and 3000: Top-of-rack switches.
  • Nexus 2000: Fabric Extender (FEX) switch.
  • Nexus 1000V: Software switch running on top of hypervisors.

10-Gigabit Ethernet Adoption

• Drivers:
  • Increasing multi-core CPU capabilities and virtualization, leading to higher network connectivity demands.
  • Unified fabric approach collapsing multiple networks onto one common network, necessitating higher bandwidth.
  • Transition from 1-gigabit Ethernet to 10-gigabit Ethernet on server motherboards.
  • Big data and high-performance computing applications requiring high-speed connectivity.

Competitive Landscape

• Advantages:
  • Architectural continuity and operational efficiency with the Nexus end-to-end architecture.
  • Support and technical expertise globally.
  • Strong go-to-market channels and customer relationships.
• Competitors:
  • HP and IBM have some networking capabilities within their server offerings, but Cisco's offerings are more comprehensive and widely adopted.
  • Arista Networks is a startup competitor with limited breadth and reach compared to Cisco.

Network Architecture Changes

• Old Architecture:
  • 3-tier architecture with limited east-west traffic.
• New Architecture:
  • Flattened network (leaf-spine architecture) to accommodate increased east-west traffic.
  • Plus Network with leaf switches connected to servers and spine switches interconnecting leaf switches.
  • Layered with intelligent services and unified network services.

Types of Data Center Customers

• General Purpose Enterprise:
  • Traditional enterprise with Layer 2 and Layer 3 requirements.
  • Focus on operational continuity and gradual migration to new technologies.
• Cloud and Service Providers:
  • Larger Layer 2 and Layer 3 fabrics, multi-tenancy, simplified management, and security.
• Web 2.0/MPEG Data Centers:
  • Large-scale Layer 3 fabrics with 10,000+ servers.
  • Emphasis on flat networks, rapid deployment, and open APIs.
• High-Frequency Trading and High-Performance Computing:
  • Smaller networks with low latency and multi-tasking scale.

OpenFlow

• Overview:
  • OpenFlow is a research paradigm originating from Stanford.
  • Moves the control plane software from switches to a central controller.
• Opportunities and Risks:
  • Cisco is committed to providing open APIs but views the full implementation of OpenFlow as challenging.
  • Participating in the open-source community to shape the evolution of OpenFlow.

Market Opportunities

• Demand Trends:
  • Centralization of data due to the need for constant connectivity and availability.
  • Growth in data centers driven by the need for massive compute and storage.
• Continued Investment:
  • Despite potential macroeconomic constraints, data center investment is expected to continue due to the growing demand for data and services.

Market Share and Target Market

• Current Market Share:
  • 75% market share in the data center.
• Opportunity Size:
  • Total data center switching market size is approximately $20 billion.
• Growth Expectations:
  • Maintaining current market share in a growing market represents a substantial opportunity for Cisco.

Competition

• Juniper QFabric:
  • Proprietary architecture with potential for large failure domains and high software complexity.
  • Cisco's offerings are more open, scalable, and competitive in terms of price and performance.
• HP:
  • Not known for its software strength in the data center.
  • Limited competition in the networking space, particularly in the data center.

Semiconductor Strategy

• Custom Silicon Advantages:
  • Enables rapid innovation and integration of new features.
  • Cost-effective and competitive due to internal development.
  • Ability to leverage advances in silicon technology every 18 months.

Customer Participation

• Examples:
  • For customers like Apple rolling out iCloud, Cisco provides a comprehensive solution including servers, network, and storage.
  • Cisco works with customers to prove the concept and ensure requirements are met.

Brocade and VDX Offering

• Brocade's Position:
  • Historically a SAN vendor, struggled to integrate Ethernet capabilities post-acquisition of Foundry.
  • Losing market share in the Ethernet space.
  • Weird protocols and lack of innovation hinder competitiveness.

Hardware Commoditization

• Strategy:
  • Aggressive roadmap for silicon development and release cycles.
  • Leverages advancements in silicon technology to maintain competitiveness and cost-effectiveness.

Umesh Mahajan provided deep insights into Cisco's data center strategies, highlighting the company's strengths, competitive landscape, and future directions.

Marilyn Mersereau, the Former Senior Vice President of Corporate Marketing at Cisco Systems, Inc., provided the following statements during the special call:

1. Legal Disclaimer: She reminded the audience that the call would pertain strictly to Cisco's datacenter strategy and that no new financial information regarding Cisco's overall performance was intended or implied. She emphasized that the call should not be viewed as an update of the quarter. She also noted that forward-looking statements made during the call were subject to risks and uncertainties outlined in detail in Cisco's filings with the SEC, specifically in the most recent forms 10-K and 10-Q.

2. Market Size: Marilyn provided information on the approximate size of the datacenter market, stating that it is "approximately 20 billion plus."

3. Closing Remarks: At the end of the call, she thanked Umesh Mahajan and the attendees for their participation.