PWW

Portfolio AI Insights

pww.comCisco Systems, Inc. Presents at The Goldman Sachs Technology & Internet Conference, Feb-12-2015 11:50 AM - SEHK:4333

SEHK:4333

John T. Chambers [Former Chairman Emeritus] 💬

John T. Chambers provided insights on various aspects of Cisco's performance and strategy during the presentation and Q&A session:

  1. Q1: Overview of Cisco's Recent Performance

    • Response: Chambers highlighted that Cisco is managing well in a tough environment, with growth returning to healthy levels.
    • Geographic Highlights:
      • U.S.: Up 7%
      • Latin America: Up 12%
      • Europe: Up 7%, surprising many. Without Russia, it was up 9%.
      • U.K.: Up 17%
      • Germany: Up 12%
      • Southern Europe: Grew at 20%
      • Asia-Pacific: Soft due to issues in China.
    • Product Portfolio Balance:
      • Switching: Up 11% in terms of revenues.
      • Data Center Servers: Up 40%
      • Wireless: Up 18%
      • Routing: Up 2%
      • Security: Up 6%
    • Customer Segments:
      • Enterprise: Globally, up 10%.
      • Commercial: Up 12% in the U.S., and 4% globally.
      • Public Sector: Solid at 7%
      • Service Provider: Down 1%

  2. Q2: Explanation of Digitization

    • Response: Chambers explained that digitization refers to the transformation of countries, cities, homes, and cars into digital entities, which is driving Cisco's growth.
    • Benefits of Digitization:
      • GDP Growth
      • Job Creation
      • Inclusion
      • Health Care
      • Education
      • Traffic Management
      • Environmental Sustainability
    • Value Driver: The concept of the Internet of Everything (IoE) is a $19 trillion value driver, impacting profits and cost savings.

  3. Q3: Cisco's Ability to Self-Disrupt

    • Response: Chambers discussed how Cisco has changed significantly over the past year, particularly in terms of organizational structure and sales organization.
    • Changes Made:
      • Realignment of 40% of Employee Base
      • Transformation of Sales Organization
        • Global Selling to Service Providers
        • Change in 40% of Client Directors
      • Engineering Changes:
        • 62 P&L Centers Broken Apart
        • Focus on Horizontal Outcomes

  4. Q4: Confidence in Maintaining Gross Margins

    • Response: Chambers expressed confidence in maintaining gross margins, attributing this to Cisco's leadership in Software-Defined Networking (SDN) and ability to compete with white-box solutions.
    • White Box Competition:
      • Differentiation through Architectures and Outcomes
      • Cost of Ownership
      • Security Concerns with White Box Solutions

  5. Q5: Growth in Switching Business

    • Response: Chambers attributed the 11% growth in the switching business to a combination of market acceptance of Cisco's advanced strategy and favorable comparisons.
    • Product Cycle and Advanced Strategy:
      • Disruption with New High-End Switching and Routing Products
      • Nexus 9K and Nexus 3K Growth:
        • Year-over-Year Growth: 350%
        • New Customers for High-End Nexus 9K: From 584 to over 1,700

  6. Q6: Macro Environment and U.S. Recovery

    • Response: Chambers is optimistic about the U.S. recovery but believes it can sustain without the rest of the world, though not at the same growth rate.
    • European Outlook:
      • Optimistic on Europe: Europe is turning around, with growth accelerating over the past few quarters.
      • Emerging Markets:
        • BRICs plus Mexico: Down 6%
        • Rest of Emerging Markets: Grew 8%

  7. Q7: Situation in China

    • Response: Chambers noted that the decline in orders in China is largely due to political issues between the U.S. and China.
    • Impact of Political Issues:
      • Business Down 19% Year-over-Year
      • Potential Improvement if Rules of the Road Agreement Reached

  8. Q8: Service Provider Vertical

    • Response: Chambers believes that gains in the Service Provider vertical are about gaining share of wallet, driven by digitization and organizational changes.
    • Service Provider Spending:
      • Improvement in Orders Decline: From a 10% decline to a 1% decline.
      • Share of Wallet Focus
      • Organizational Agility and Speed to Market

  9. Q9: Competitive Landscape

    • Response: Chambers aims to make Cisco the #1 IT player by prioritizing and executing well on market transitions.
    • Competitive Focus:
      • Prioritize and Execute on Market Transitions
      • Becoming #1 Player in Areas Like Cloud, InterCloud, Mobility, Collaboration, Security
      • Data Center Growth:
        • UCS Growth: Over 40% last quarter, with a run rate of $3.3 billion.

  10. Q10: Lawsuit Against Arista

    • Response: Chambers clarified that the lawsuit is not about viewing Arista differently but about holding them accountable for copying Cisco's intellectual property.
    • Reason for Lawsuit:
      • Copied Across 14 Major Patent Areas
      • Exact Spelling Mistakes in Manuals
      • Message to the Market: Stop copying.

  11. Q11: Importance of IoT for Cisco

    • Response: Chambers emphasized the significance of IoT for Cisco, tying it to the broader concept of digitization.
    • Opportunity Size:
      • $19 Trillion Profit Contribution
      • Enables Digitization of Countries and Companies
      • Ties Together with Other Technology Trends
      • Job Creation and Security

  12. Q12: Tangible Impact of IoT

    • Response: Chambers explained that IoT will have a significant impact on Cisco's business, with a current pull-through of $2.5 billion, growing at over 40%.
    • Impact on Top and Bottom Line:
      • Expected to Grow Faster Than Current Rate
      • Examples of Impact:
        • Israel Partnership: 2x to 4x faster growth.
        • GM Partnership: Supplier of the Year Award.

  13. Q13: Capital Allocation Strategy

    • Response: Chambers addressed the lower-than-expected M&A spending, attributing it to tight expense control and high P/E ratios of potential acquisitions.
    • M&A Strategy:
      • Small- to Medium-Sized Acquisitions
      • Internal Startups and Strategic Partnering
      • Overseas Acquisitions Easier Due to Cash Position
      • Historical Growth Through Acquisitions: Average of 2% annually.

  14. Q14: InterCloud Strategy

    • Response: Chambers explained the concept of InterCloud, comparing it to the formation of the Internet.
    • InterCloud Explanation:
      • Combines Regular Data Center with Private, Public, and Partner Clouds
      • Common Security and Policy Prioritization
      • Advantages:
        • Differentiation through Security and Common Policy
        • Ability to Move Workloads Across Clouds
      • Partnership Momentum:
        • 50 Strategic Partners
        • 400 Data Centers Around the World
        • 50 Countries

  15. Q15: Future of Enterprise Applications

    • Response: Chambers discussed the expected location of enterprise applications, emphasizing the importance of the edge and the flexibility of Cisco's architecture.
    • Application Centric Infrastructure:
      • Common Policies for Running Applications
      • Flexibility to Run in Public, Private, or Hybrid Clouds
      • Cost Comparison:
        • Total Cost of Ownership Advantage for Cisco Architecture

  16. Q16: Talent Attraction and Renewable Energy

    • Response: Chambers addressed the challenge of attracting young talent and Cisco's involvement in renewable energy.
    • Talent Attraction:
      • War for Talent in Silicon Valley
      • Recruiting from Top Valley Players
      • Attracting Talent Outside the Valley
    • Renewable Energy:

      • Energy Management Over the Internet

      • Smart Grid Approach

      • Leading by Example in Renewable Energy Use

      • Role in Energy Management Technologies

Feedback