Cisco Systems, Inc. Presents at Goldman Sachs Technology & Internet Conference 2020, Feb-13-2020 10:10 AM - SEHK:4333

SEHK:4333

During the presentation and question-and-answer session, Charles H. Robbins, the Chairman & CEO of Cisco Systems, Inc., provided insights and responses on various topics. Here’s a detailed summary of his statements:

On Current Business Environment and Orders

• Macro Issues: He acknowledged ongoing macroeconomic concerns such as Brexit, the trade war, the USMCA not being signed, impeachment proceedings, and the emergence of a virus.
• Customer Behavior: Customers are cautious with capital spending, leading to longer sales cycles and lower close rates.
• Order Volume: Orders declined sequentially, with a 6% decrease in the current quarter compared to a 4% decline in the previous quarter. He attributed this to the challenging macroeconomic environment and the comparison against strong prior-year growth.

On Green Shoots and Positive Trends

• Catalyst 9000: The Catalyst 9000 product line continues to grow rapidly and is the fastest-ramping product in the company’s history. It is still early in the transition relative to the installed base it replaces.
• 8000 Series and Silicon: The company has received orders for both versions of the 8000 series and its silicon, and several cloud providers were present during the announcement, indicating support for Cisco’s strategy.
• 5G Routing Wins: Cisco has secured 30 routing franchise wins associated with 5G, and Wi-Fi 6 began to ramp in the current quarter.

On Business Confidence and Future Outlook

• Business Confidence: While business confidence remains stable, customers are more cautious due to the uncertain macroeconomic environment.
• Software Transition: The company is on track to meet its goal of having software represent 30% of revenue and software and services represent 50% of revenue by the end of the fiscal year.
• Compute Business: The decline in the commercial segment is predominantly due to the compute business, which is experiencing a downturn following a period of high growth driven by memory price increases.

On Europe and Commercial Segment

• Europe: Europe has been resilient despite the halt in public sector spending in the UK. Budgets are expected to flow again in late March or April.
• Commercial Segment: The decline in the commercial segment is mainly due to the compute business, which is cyclical and currently facing headwinds from lower memory prices.

On Coronavirus Impact

• Impact on Operations: Cisco has taken precautionary measures such as canceling events and conferences due to the virus. The company is highly dependent on China for its supply chain, and the impact of the virus on operations is uncertain.

On Campus Refresh Cycle

• Campus Switching: The Catalyst 9000 continues to experience strong growth, and the company is still early in the transition relative to the installed base. The campus refresh cycle is ongoing and not significantly impacted by the current slowdown.

On Component Strategy

• Networking Chip Business: Cisco’s entry into the networking chip business aims to provide customers with flexibility in consuming technology. The company is engaged in deep strategic discussions with cloud players and has received orders for its 8000 series and silicon.
• Optical Components: Cisco is also entering the optical components business, aiming to provide customers with the option to purchase optics for use in white-box solutions.

On Service Providers and 5G

• Automation: Service providers are focusing on automation to drive cost savings on the operational side.
• 5G Opportunities: Cisco sees significant opportunities in 5G, particularly in the service provider segment. The company is involved in 5G deployments and expects enterprise 5G services to drive demand for dedicated 5G backbones.
• U.S. 5G Leadership: Robbins believes the U.S. is well-positioned in 5G technology, contrary to concerns about the lack of domestic players. He suggests that public-private partnerships, R&D offsets, and digital infrastructure bills could support the U.S. 5G ecosystem.

On Long-Term Vision for Cisco

• Software Transition: The software transition will continue, with all aspects of Cisco’s technology portfolio migrating to being sold as a service over time.
• Service-Based Model: Customers will increasingly demand services on a monthly basis, including bandwidth and connectivity services.
• Application Layer Integration: Cisco aims to bridge the gap between the application and infrastructure layers, enabling applications to influence infrastructure more effectively.

On Acquisitions and Strategic Focus

• Duo Acquisition: The acquisition of Duo Security aligns with Cisco’s focus on integrating the application and infrastructure layers, enhancing the value proposition for customers.

These statements provide insight into Cisco’s current performance, strategic initiatives, and future outlook in a challenging business environment.