Cisco Systems, Inc. - Analyst-Investor Day - NasdaqGS:CSCO

NasdaqGS:CSCO

Marilyn Mora, the Director of Global Investor Relations at Cisco Systems, made several announcements and introductions during the Analyst/Investor Day on September 15, 2021. Here is a detailed summary of her statements:

1. Opening Remarks:

   • Greeted attendees and welcomed them to Cisco's Virtual Investor Day.
   • Mentioned that she is the Head of Investor Relations at Cisco.
   • Stated that Cisco is well-positioned to drive long-term growth through key market transitions by executing on its business transformation.
   • Noted that Cisco has delivered strong results over the past few years and plans to leverage best-in-class innovations to capitalize on future opportunities.

2. Forward-Looking Statements Disclaimer:

   • Reminded the audience that the discussions included forward-looking statements subject to risks and uncertainties detailed in Cisco’s SEC filings, including the most recently filed 10-K.
   • Advised that actual results could differ materially from those contained in the forward-looking statements due to various risk factors.

3. Non-GAAP Financial Measures:

   • Mentioned that the presentations would reference non-GAAP financial measures.
   • Noted that reconciliations of GAAP to non-GAAP financial measures would be provided on the Cisco Investor Relations website.

4. Introduction of Charles Robbins:

   • Passed the floor to Charles H. Robbins, the Chairman and CEO of Cisco, after his discussion with analyst Tal Liani.

5. Q&A Session Introduction:

   • Welcomed attendees to the Q&A session.
   • Announced that the entire executive leadership team was present for the Q&A.
   • Provided guidelines for participants asking questions:
     • Instructed attendees to unmute themselves when asking questions.
     • Advised against posing modeling questions until after the presentation by Richard Scott Herren, the Executive Vice President and CFO, and promised an opportunity for such questions during the second Q&A session.

6. Transition to Questions:

   • Invited the first question from analyst Tal Liani of Bank of America.

Throughout the event, Marilyn Mora played a crucial role in moderating the session, ensuring smooth transitions between presentations and Q&A segments, and providing important disclaimers and guidance to the attendees.

Here is a detailed summary of the key points made by Charles H. Robbins, Chairman & CEO of Cisco Systems, during the Analyst/Investor Day:

1. Introduction and Context:

   • Expressed excitement about sharing progress on Cisco's business transformation and innovation.
   • Acknowledged the importance of purpose and culture in attracting and retaining talent.

2. Business Transformation:

   • Highlighted the shift towards software and subscription models, noting that Cisco had set a target of 30% of revenue from software by the end of fiscal 2020, which was achieved.
   • Emphasized the growth in subscription software revenue from $3.4 billion to nearly $12 billion, representing a 23% compound annual growth rate (CAGR).

3. Market Position and Customer Base:

   • Mentioned serving over 1 million customers, including 98% of the Fortune 500.
   • Stressed the importance of innovation and the need for both organic and inorganic growth strategies.

4. Supply Chain Management:

   • Praised Cisco's supply chain team for being named the #1 supply chain team in the world by Gartner.
   • Discussed the challenges posed by component shortages and the complexity of the current supply chain environment.

5. Technological Innovations:

   • Discussed various innovations, including the Catalyst 9000, Silicon One, SecureX, and the WebEx suite.
   • Highlighted the importance of cloud technology and the transition to hybrid multi-cloud architectures.

6. Customer Priorities:

   • Noted that customers are focused on digital transformation, hybrid work, and security.
   • Emphasized the need for modernized infrastructure to support these transitions.

7. Sustainability Goals:

   • Announced Cisco's commitment to achieving net-zero emissions by 2040 and net-zero for Scope 1 and 2 emissions by 2025.
   • Discussed the intersection of technology and sustainability, emphasizing the role of digital technology in achieving sustainability goals.

8. Purpose and Social Responsibility:

   • Reiterated Cisco's purpose to "power an inclusive future for all" and the importance of connecting unconnected communities.
   • Highlighted the success of the Cisco Networking Academy program in providing education and job opportunities.

9. Future Outlook:

   • Expressed confidence in Cisco's ability to drive long-term growth through strategic investments and innovation.
   • Mentioned the importance of trust and partnerships with customers and the commitment to delivering value.

10. Closing Remarks:

    • Thanked attendees for their time and expressed optimism about Cisco's future and the execution of its strategy.

This summary encapsulates the main themes and messages conveyed by Charles H. Robbins during the event, reflecting his vision for Cisco's growth and transformation in the technology landscape.

Elizabeth Centoni, the Executive Vice President and Chief Customer Experience Officer at Cisco, discussed several key points during the Analyst/Investor Day on September 15, 2021. Here’s a detailed summary of her remarks:

Optimized Application Experiences

• Cloud-Native Platforms and Full Stack Observability:

  • Customers are shifting towards a cloud-native approach to meet developer and end-user needs.
  • Developers benefit from increased velocity, scalability, and flexibility.
  • Businesses can deliver optimal end-customer experiences.
  • Cisco focuses on enabling customers to build, secure, deploy, and observe applications across traditional and modern (cloud-native) environments.

• Market Opportunity:

  • The market for optimized application experiences is estimated at $36 billion and growing at double-digit rates.
  • Cisco leverages its strengths in networking and security to deliver unique value propositions to customers.

Total Addressable Market (TAM)

• Current Businesses:

  • Cisco's current businesses, in which it has significant market leadership, represent a TAM of approximately $260 billion.
  • These businesses include the areas discussed during the presentation.

• Expansion TAM:

  • Adjacent markets offer additional growth opportunities, totaling a TAM of around $400 billion.
  • Examples of these markets include:
    • Full-stack observability.
    • Application security.
    • Communications Platform as a Service (CPaaS).

• Confidence in Delivery:

  • Cisco is confident in its ability to innovate and deliver capabilities in these adjacent markets.
  • The company has a credible track record and customer relationships that support its expansion efforts.

Future Opportunities

• Future of Work:
  • Estimated at a $1.1 trillion opportunity.
  • Cisco plans to leverage its assets in collaboration, networking, and security to address this market.
  • Potential areas include events, automation, and orchestration.

Strategy and Growth Opportunities

• Digital Transformation:

  • Cisco focuses on helping customers with their digital transformation efforts, which have accelerated over the past 18 months.
  • Identified customer needs in a multi-cloud, hybrid work, app-centric world.

• Customer Needs:

  • Deliver a consistent cloud experience across hybrid multi-cloud environments.
  • Simplify and automate operations.
  • Reduce complexity and offer services as subscriptions.
  • Enable a hybrid workforce with secure and robust access to a safe and trusted workplace.
  • Provide inclusive collaboration experiences.
  • Mitigate risks across an expanding attack surface.

• Simplicity and Flexibility:

  • Customers seek simplicity and flexibility in their transition to the cloud and edge computing.

Common Themes

• TAM Expansion:
  • Cisco's TAM expansion is driven by flexible consumption models and strategic investments in its portfolio.
  • The expansion encompasses both existing investments and future ones over the next 3-4 years.

Overall, Elizabeth Centoni emphasized Cisco's commitment to addressing customer needs, leveraging its core strengths, and pursuing growth in adjacent markets.

Todd Nightingale, the Former Executive Vice President and General Manager of Enterprise Networking & Cloud at Cisco, provided insights during the Analyst/Investor Day on September 15, 2021. Here’s a detailed summary of his comments:

1. On the Catalyst 9000 (Cat 9K) Upgrade Cycle:

   • Todd addressed a question regarding the 70% of the Cat 9K portfolio that has yet to upgrade.
   • He explained that customers typically operate mission-critical networks in various sectors such as schools, government, healthcare, and retail, and these networks are refreshed according to the initial investment lifecycle, which can range from 5 to 7 years or more.
   • Despite this, the Cat 9K portfolio is the fastest-ramping product line in Cisco’s history, and they have not even reached the halfway point in the first-generation refresh cycle, indicating significant remaining opportunity.
   • The subscription revenue attached to the Cat 9K represents a substantial upside for Cisco, as 70% of the installed base is yet to transition to this model.

2. Secure Agile Networks:

   • Todd expressed excitement about his role overseeing the Enterprise Networking and Cloud business at Cisco.
   • He discussed the company’s focus on delivering an end-to-end enterprise infrastructure solution that provides unparalleled connected experiences.
   • He highlighted the importance of user and IT management experiences in driving innovation in the space.
   • Todd mentioned the transition to hybrid cloud, which is changing the way applications are delivered across industries, making them more reliable and resilient.

These points summarize Todd Nightingale’s contributions to the discussion during the Analyst/Investor Day.

Jeetendra I. Patel, Executive Vice President and General Manager of Security & Collaboration at Cisco, discussed several key points during the Analyst/Investor Day presentation:

1. Hybrid Work Opportunity:

   • He expressed excitement about the opportunity presented by hybrid work and highlighted how it aligns with Cisco’s corporate purpose of powering an inclusive future for all.
   • Hybrid work enables empowering 3 billion digital workers globally to participate equally in the economy, regardless of location, language, personality type, or technical proficiency.

2. Security Business Opportunity:

   • Cybersecurity is a top concern for organizations worldwide due to the increasing frequency of ransomware attacks.
   • The cost of cybercrime is enormous, equivalent to the third-largest economy globally, behind only the U.S. and China, with over $6 trillion in global damages.
   • Recent attacks have disrupted critical services and infrastructure such as pipelines, utilities, food processing, transportation, and hospitals.

3. Security Customer Base:

   • On average, Cisco’s overall security customer base consumes about 1.4 security products.
   • Customers consuming security under an Enterprise Agreement (EA) use around 4.1 products on average.
   • The progression from 1.4 to 4.1 products typically happens over a 3- to 4-year period.

4. Q&A Session:

   • During a Q&A session, he provided additional insights into the security product adoption timeline and the advantages of Cisco's platform approach, which allows for expansion into different areas after initially landing in one domain.

These points highlight Patel's perspective on the strategic importance of cybersecurity for Cisco and the opportunities it presents for both current and future growth.

Jonathan Davidson, the Executive Vice President and General Manager of Enterprise Networking, Cloud & Mass-Scale Infrastructure Group at Cisco, presented during the Analyst/Investor Day on September 15, 2021. Here is a detailed summary of his statements:

Key Points by Jonathan Davidson

Introduction

• Importance of the Internet: Jonathan emphasized the significance of the Internet as the backbone for economies, industries, and daily life.
• Impact of the Pandemic: He highlighted how the pandemic led to a significant increase in Internet usage, with businesses going virtual and over 1.2 billion children beginning online learning.
• Traffic Spike: Traffic spiked by 25% to 45% globally and continues to grow annually at over 35%.

Digital Divide

• Unconnected Populations: Over 3 billion people remain unconnected or underserved.
• Example: Mentioned a viral image of two students using WiFi in a fast-food restaurant parking lot to attend school online.
• Inclusive Future: Cisco aims to empower an inclusive future for all, noting that bringing the Internet to the offline population could add $6.7 trillion to the global economy and lift 500 million people out of poverty.

New Architecture

• Optical Networking: Jonathan advocated for a new architecture in optical networking, stating that it is less expensive and can lead to significant cost savings (35% to 50%) in building infrastructure.
• Affordability: He mentioned that an Internet connection is affordable in only 29 countries.

Q&A Session

• IoT Opportunities: In response to a question about IoT and other incremental revenue opportunities, Jonathan discussed the growth of connected cars and partnerships with companies like AT&T, T-Mobile, and Telstra.
• IoT Control Center: He noted that Cisco is operating 185 million devices as a SaaS service in partnership with over 50 Communication Service Providers (CSPs) worldwide, with IoT control center growth rates returning to pre-COVID levels.

Future Trends

• Cloud Experience: Customers are seeking a cloud experience across a hybrid multi-cloud world, simplifying and automating operations, reducing complexity, and managing as a service.
• Hybrid Workforce: There is a need for secure and robust access to a safe and trusted workplace and inclusive collaboration experiences for employees working from anywhere.
• Security Solutions: Customers require integrated high-efficacy end-to-end security solutions across user devices, networks, clouds, data, and applications.
• Application Experience: Optimizing for the best application experience is crucial, with a focus on achieving application development velocity and scale while gaining observability across the full stack.
• Traffic Requirements: With the explosion in data-intensive applications, including streaming video, customers are rethinking the economics of operating a cloud-scale network as they plan for high bandwidth and low latency use cases.

Corporate Social Responsibility

• Inclusivity: Improving inclusivity in the hybrid world is a priority.

• Ethical AI: There is a focus on ethical AI in algorithms.

• Carbon Neutrality: Achieving carbon neutrality in supply chains.

• Responsible Consumption: Embracing responsible consumption across operations.