Thank you very much for joining us for our third day of the conference. I did notice that outside there is a banner with barcodes of our reports. If you want to have our primers, we published plenty of primers on various topics. If you want to have our primer, primers are there. There is a primer coming soon about Cisco's largest segment, Secure, Agile Networks, and it's a bottoms-up look at their revenues and kind of all the trends, et cetera, but that's gonna come up soon. Thank you very much, Greg, for joining us. Maybe we'll start with introduction, and you'll do a better job in introducing yourself than me trying to make it.
If you can tell us kind of your background at Cisco and what are you, what are your areas of responsibility today, et cetera?
All right. Thank you. Hey, good morning, everybody. I'm Greg Dorai. I'm the SVP General Manager for what we call as our Campus Connectivity business. That is basically our switching business and products like Cisco DNA Center, et cetera. That's core in that Secure, Agile Networks.
Yeah.
portfolio. Our peers who are on wireless and WAN and data center, and those three or four is the Secure, Agile Networks.
Yeah.
Before we go forward, I'll just make the safe harbor statement. We'll be making forward-looking statements. You can refer to our 10-K for the details on that.
Perfect.
Thanks.
I promise then, I'm gonna hardly ask you questions about that.
Yeah, that's perfect.
Let's start, first of all, at the high level, Secure, Agile Networks grew last quarter, 29%, almost.
Yeah.
Year before was 4.4%. Talk about your area of responsibility. What are the trends you're seeing with this, with this kind of great growth we've seen?
Yeah, we saw a pretty significant boom, in, certainly our switching wireless businesses that are there, and we had supply chain issues, as we all know. Now finally we have unlocked that, and a lot of the growth, frankly, is orders that were booked during that boom. That's not a surprise to any of you.
Yes.
The reason for that demand was, as folks went home, the importance of technology, of connectivity, just hit home with CIOs, and that was an area that they decided to beef up, right? Like, some of those investments they're still absorbing.
Mm-hmm.
Because they frankly. A combination of supply chain plus, hey, we need to invest to get our corporate offices on, you know. Like, I'll give you an example. If you are on Wi-Fi from two generations ago to now, it was literally 10x better.
Yeah.
Right? Like, as hybrid work, as video conferencing becomes, you just kinda need that. You couldn't rely on something that was built for guest access and you didn't refresh. I'm not saying all verticals were like that, but there were verticals who were in that, so we saw that. Of course, we are seeing a little bit of recession come on top of those trends, and it's hard to know what's what, but those are all acting together.
Let's talk about kind of the current demand, need, not demand, need, the current need for infrastructure build out. In the last few years, there was build out.
Yeah.
At least not build out. There was demand going up. We're seeing the build out today.
Yeah
because of supply constraints. Put it in the historical perspective. If you look at the growth of 2021, 2022, 2023 together, right?
Yeah.
Average it between the years where you had supply and years you don't have, just average it. It seems to me like it's still way above the growth we've seen the previous few years. Unless, correct me if I'm wrong.
Yeah
T hat it wasn't, in the sense that it seems like there was acceleration of demand in the campus environment. The question is: Is this acceleration sustainable? If I'm totally wrong with my observation, please correct me. It's not gonna be the first one I'm wrong.
I think if you just look at 2021-2023.
Yeah.
you are right.
Yeah.
Right? Like, there was an acceleration. If you look at from 19 to 2024.
Yeah.
Right? 2024 being some of which is not played out.
Yeah.
It's hard to say whether it's.
Right
There was a little bit of a bump. It all depends on how we see the future order recover, right?
Right.
We are between that period. If you just take the three years
Yeah
mentioned, yes, right? Like, there was significant acceleration.
Right.
It looked like the trajectory was different. If you then take a five- or six-year period, there are signs that it could normalize, right?
Right.
Now, where do I see demand, right? Like, more than the numbers. I think there are, there's headwinds and tailwinds, right? Like, which headwinds are, there's a strong demand for security, and some of the more modern gear is better to have tighter security because they have more memory. They can have agents in the infrastructure and tightly coupled with security portfolio. That's good, right? There's demands towards sustainability. Modern gear is 20% to 40% more energy efficient.
Yeah
than gear that you got from 10 years ago, and you could go do a lot of good things with it, right? That's good. There's demand towards smart buildings, which is people are not coming back to offices, so your offices need to be smarter, so you need to invest in IoT sensors. We see that if, like we have invested in three buildings, Atlanta, PENN 1, and here in San Francisco, where we made it totally PoE powered, et cetera. If you go that route, you need 3 x more ports than.
Mm-hmm.
Just for connectivity, right. Those are all tailwinds. The headwind is, that's a real estate consolidation going on, right. Not everyone's coming back to office, so people are consolidating their real estate assets. If you shut down.
Right.
Right? Like, that's going to be a headwind. It's difficult for, yet, for us to say
Net, yeah.
If you put net it out.
Yeah.
what it would be. It was looking like there was a total uplift.
Right.
As you look out to the next two years with a softer economy.
Right
it could normalize to historical.
What are the big buckets of your, of your products? If you look at it at the product basis, what are the big buckets? Campus switching is one. What are the other ones?
If you look at it historically, right? I think it's campus switching, it's wireless.
Right.
It's routing, and SD-WAN, and it's data center.
Right.
Right? I think we may include cloud compute, right, Carol? Yeah.
No, that's within your responsibility?
No, within my responsibility, it is switching.
Yeah.
There is management layer.
Okay.
Right? Like, on top of switching, wireless, routing, and we call that Cisco DNA Center.
Yeah.
That's one that we have, and then we have Meraki. That's not in my responsibility.
Right
but can also work on the same gear.
Got it.
A lot of the growth levers are software. What I spoke of before were hardware.
Yeah.
Right?
Yeah.
I do have software assets. One is the Cisco DNA Center, the other is what we call Cisco Spaces.
Right.
For our smart building, there's a security product we call Cisco ISE. These are our growing parts of our portfolio. They work on top of our hardware. That's some of them.
Speaking about switching is easy. I'll keep it to the end.
Yeah.
I wanna talk about the other parts you just mentioned. Can you take us through Cisco Spaces, through the Cisco ISE, through the other products that are software-oriented, and can you talk about it first in terms of what is the problem it is trying to solve? Second, how is it synergistic to your business?
Yeah.
How does it help you sell other things or attracts business from new customers?
Let's start with Spaces. That's a smart building offer. The premise in a smart building offer is, employees, when they wanna come into any campus, could be corporate, it could be retail, could be hospital, they want a better experience, right? Part of the data that we have from our Wi-Fi access points or Webex devices that are there, is we have very good location data on how people move around.
Yes.
Cisco Spaces reads all of it. You can start doing things like, "Hey, this building is occupied at 60% today." That's one. You can say which conference rooms are actually empty, because a lot of times people book conference rooms, they don't actually sit in the conference rooms, right? You can say that. You can do navigation to conference rooms. If you think about maps as an example, outdoor navigation, it's like brilliant, right? It's solved 10 years ago. We all use it every day. You look at indoor maps, it's actually pretty bad relative to outdoor, right? Like, within a building, you don't know. Even now, when we came in, Carol and I were searching.
Yeah
T hings, right? Actually, Cisco has maps, but it's IT maps, right? Spaces can convert it into actually more physical maps. Of course, need the help of the facility owner, but to say like, "Yep, this part." Then you can start doing navigation seamlessly, and if you can do that. That's the premise of Spaces. Then there's an API ecosystem on top of it, which now a vertical specific partner can read and give more sophisticated outcomes, right? I'll give you an example of higher ed. You wanna actually know, students, which classes they took, Especially if they're on a certain scholarship, there are requirements that they attend labs, that they, you know.
Yes.
You can actually geofence and say, like Yep, they have been spending this many hours in campus, et cetera. There are privacy requirements in getting there, which is why I don't think Cisco can get in there. A partner who's working with that higher ed university may be able to take API from Spaces and deliver that more custom outcome for that vertical.
Got it.
That's Spaces, right? What is the opportunity in Spaces? This is rough, back of the envelope math. I'm not claiming that this is actual time, but if you look at a carpeted space today, and you put all that spend on infra, at least in the Cisco domain, it's probably $1 per sq ft.
Got it.
Right? If, if you look at the facilities budget, how much they spend on per square foot per employee, it's a lot higher than that. It's hundreds of dollars, right? The question is: Can you give some outcome, both to the employee and frankly, to the facilities owner, right? Because now they know how a building is actually utilized, they can shut down buildings. Can we get $1.50? That's a significant increase in our software TAM, 'cause we cover. Gosh, I don't know.
That's a recurring revenue basis?
That's a recurring revenue basis.
Yeah.
Right? That's what I'm saying. If you go into that model, today we are not in that model, but, you know, we have every one of our Wi-Fi access points covers, say, 1,000 sq ft.
Got it.
Right? We probably have $20 million to $30 million installed Wi-Fi access point. On a sq ft basis, that's the
Got it.
That's what we can see.
Yeah.
The question is: Can we monetize it differently?
Got it.
That's the Spaces.
Okay
value prop.
What are the other software? You mentioned a few of them.
Security, right?
Yeah.
Of course, for security, it's a security portfolio, but the part for me is, can we leverage the power of network? That's where Cisco ISE comes in. Because one of the threats here is everyone wants to go over the top. I'm going directly to an internet, so why do I really need horizontal campus information? The reason is because you have actually a lot of unmanaged devices, IoT devices in any campus, and we have that context because of the network, and Cisco is a product that knows, right? We actually have context of all those unmanaged devices. We can do AI to profile those devices. We know if a fire alarm behaves like a fire alarm, or if there's some data spike. If we can share all of that to our security products.
Yeah.
suddenly the security, defense becomes more stronger because you're getting information from the network, and you can make decisions. It's not just perimeter, security, it's not just agent-based security, it's throughout the network. If there's any anomaly in the data flow, we can do that, and I think that will help, our security portfolio grow a lot faster if we get this integration tighter, better. That's what there's a lot of Cisco Live announcements.
Got it.
It was about that.
Got it. Speaking about the campus switching, I can address it from multiple kind of angles. I wanna start from the angle of how do you make money in switching? Meaning, a few years back, 10 years back, the way to grow in switching was either if you had more people, if you hired more people, so you need more ports. Number two is if there was a new technology, Power over Ethernet, migration to 1 gig or 10 gig, whatever it was. Is it still the same thing? Are these the two drivers for growth, meaning technology, evolution, and more hiring? Or were you able to change the switching portfolio to have more software content, more recurring revenue content, and add more features to it that were not included in the past?
yeah. Can we.
It's a long question.
Yeah.
A long answer.
It's a long question, a long answer. I think to get back, certainly, ports to people.
Yeah
W as a driver.
Yeah.
It's becoming less of a driver, and as we discussed, it can even be a headwind, right?
Yeah.
Like, because, every desk used to have two ports, and now the question is?
Do you need?
Do you need that?
Yeah.
You're doing a consolidation. It is still a driver of growth. Why is it? Because it's an amazing insurance policy.
Yeah.
Right? Like it's $0.60 per port or something like that over 10 years.
Right.
Why would you risk not having that?
Right.
It's just nothing in the grand scheme of things. We think ports growing at GDP is something that you should.
Yeah
W ill continue. It's not going to have like a dramatic shrink, right? Like, that's one. Second is, except if there's an actual physical asset consolidation, right?
Mm-hmm.
Second is certainly, as we look at PoE and as we look at, mobility and video in that, you do need, newer gear, right?
Yeah.
PoE powered switches, mGig switches. The penetration of that is small today.
Mm-hmm
I n the portfolio. I think if buildings get smarter, that then there will be tailwind from that.
Yeah.
The biggest driver is the third, and we have already seen a lot of benefit from it, right? You have heard Chuck talk of numbers on, what percentage of our portfolio is software, how much is ARR. Being a very large portfolio that switching is, the numbers that Chuck speaks about are very close to.
Yeah
My numbers as well. I will not give you the specifics, but it's almost like you can go say, see our investor call, that's kind of exactly where my business will be. There's a lot of upside even from that, because what we have managed right now is we took the dollar value our customers paid, and we said, instead of, at that time, 95% or 98% being hardware and 2%-5% being software, we have come to where we are, which I think is between 25% and 30%, right? Like, give or take.
Yeah
software. Still the customer was paying more or less the same dollar amount.
Yeah.
If they renew it, that was our upside, right?
Yeah.
That was the, that was the first thing, and it's working really well. The second thing that I think there's more upside as we look forward is, for any infrastructure that our customer buys from us, if they spend $1, they spend $4-$5 operating that infrastructure.
Mm-hmm.
Right? Like, either it's internally or it's with partners.
Right
C ontractors. If we can go and simplify, and this is where cloud and unification of the portfolio comes in, right? Like, because the brilliance of the Cisco of the past was we created this ecosystem of CCIEs, and that was so sticky, but it also was. Customers had to spend because you really needed those experts to come and set up your switches or troubleshoot your switches.
Yeah.
In this new world, I think we need something more nimble and agile. If we can get a certain percentage of that spend as product, and then we encourage our ecosystem to go from the world of more CCIEs and knobs to the world of APIs and do richer apps on top of it, I think it'll be good for them, it'll be good for us.
Got it.
That's a big driver of growth.
Give me an example: From, I understand from you, if I spent $100 on a switch yesterday or 10 years ago, I still spend $100, but the breakdown of software and hardware is different.
Correct.
Is the 20, you mentioned 25%-30% software? Again, taking this example, I assume that if I spend $100 on a switch today, $25 will be the software. Is the software recurring?
Yeah.
The software, 10 years ago, was not recurring?
10 years ago, first there was less software, period, and it was not recurring.
Right. Okay.
Recurring.
What are the big components of this recurring revenues? Meaning, well, you touched on a little bit on it, but what are the big components of this recurring revenue in campus switching, and why are companies willing to pay it? It used to be very hardware centric, as you mentioned. How do you convince them to start paying every year on the same switch?
for a lot of our customers, just, the, what is base automation, which is onboarding.
Got it.
a switch or updating to a later security patch, et cetera. In the past world, I'll just dumb it down.
Yeah.
You have to uplevel it, because it's easier to explain. In the past, you could go and say, "Hey, Saturday, Sunday, I'm shutting down the network. nobody can access emails." We all remember this, right? They'd get this email saying. It's impossible.
We still get it.
Maybe some of these folks. Yeah. It's impossible now, right? You cannot take down your network. You have to be more agile. It has to be smarter, right? You cannot just say, like, "Hey, I'm gonna boot down all these boxes." It's down for 24 hours, right?
Right.
The value of software, even for a basic upgrade, basic config, lifecycle management, or a security incident, right? Like, you have to react very, very quickly if you know there's some vulnerability in it, and these patches have to be pushed really well.
Right.
something like the Meraki suite, our cloud networking suite, is just brilliant for that because all of that's taken care of.
Right
A nd it's automatic. In our more, enterprise on-prem suite, it has to be done by these IT teams, and that's where software like DNA Center really helps. That's one, right? Base automation. The second area is around AIOps. Let's, I'll give you another simple example, right? Like, in a building, typically, you know, the network knows when the traffic is peaking. For this hotel, if you observe over 30 days, you can actually build patterns of what's happening. Actually, your Wi-Fi onboarding time, so this is like when you connect to Wi-Fi, how quickly can you connect to the internet, varies based on the number of people. This is physics.
Yeah.
Right? Like, the network knows that, and so it can actually start doing a baseline for this building so that the IT person doesn't freak out if things are slow, because it could be like, "Yeah, things are slow, but there's 1,000 people in a room designed for 100. Don't worry about it," right? Like, that's all that's happening. Yeah, you may need to upgrade to better gear, but it's not like anything is collapsed. As opposed to, "Wait a minute, there's nobody in the room, and yet this one person who's trying to connect is getting 30 seconds before he's connecting.
Yeah.
Something is wrong," right? We're talking just within a room, right? I was presenting yesterday our collab portfolio. If you do a Zoom call or a Webex call or a Microsoft Teams call, and you have an issue in the call where a few users are not able to connect, it's annoying, especially if someone's trying to present. At the end of the call, in the previous world, you would be like, "It's annoying. I don't know, it's a Webex issue." You don't know what it is. It could be the home Wi-Fi, it could be the middle mile, it could be the Webex node, or it could be a network in your campus, right? With something like ThousandEyes, we can actually stitch all this together, right?
ThousandEyes is a software offering that works on switches, that works on Webex. You can actually go into any meeting and any endpoint in that meeting, no matter where they are, right, hotel, home. Then you can say, "Yeah, it's actually the hotel Wi-Fi," or it's, "Nope, it's a Webex node in San Francisco that had the issue." These things people will pay for, right? It's actually troubleshooting an experience well beyond the switch.
Got it.
Right? I think that's the second example. These are the two really driving the base level of software.
Right
recurring.
Got it, software. another aspect of campus switching is, the relationship with wireless switching. how much Meraki is a, complementary, and how much of it is, cannibalistic to your business?
You use wireless switching. Let's sort of. There's wireless and the switching, and then in both.
Right
W e have Meraki and OnPrem.
Okay.
Okay? Meraki is just the cloud management layer.
Yeah
DNA Center is the on-prem management layer.
Okay.
I have responsibility for the overall switching business, so that includes Meraki.
Got it.
E ven though I don't own the management platform, and OnPrem. It may be cannibalistic between each other, but we only look at A plus B.
Got it.
Anything that I said when I say switching growth, I'm looking at A plus B. Which means it is to my benefit to migrate things to a cloud management layer because it's actually more sticky.
Mm-hmm.
I get more renewals, I can give more benefits to the user if they are to the.
Right
I f I move them to the cloud management layer, right?
Right.
That way, it is cannibalistic if you look at it that way, but we only look at it as A plus B.
Got it.
Wireless is very complementary, right? If there's any growth in wireless because of any trend, then they'll need more mGig switches. Any growth there is a boost.
Got it.
either of these switching portfolios.
Got it. One of the biggest trends in the industry in the last few years is competition. Arista, Juniper, right, campus switching. I wanna ask the question, but I wanna start 10 years back, not now. When we saw competition in data centers, and suddenly we had Arista, and suddenly we had Broadcom with a chip that enabled Juniper and Arista, et cetera, Cisco lost share in the data centers. These new players offered something else, you know?
Yeah.
At first it was feed and speed, and it was latency and openness, and they had. Their message was different.
Yeah.
at the beginning. How do you make sure or how did you make sure that you don't run into the same competitive threat in campus as you had in data centers?
Yeah. I think if, first of all, if you're a competitor, you do have to find something different, right?
Yeah.
This is. I think, one thing that I'll say from 10 years to now is that the game is more software.
Okay.
Right? Software, by definition, is more unified experience. It's not within a domain.
Mm-hmm.
What our competitors do is that they spike in a domain because they focus, and then they figure out some gap, could be speeds and feeds, or could be in that domain I'm gonna do software better, and it's a best of breed approach. We have to get that right as well. I think the big opportunity for Cisco to hold back competition is to deliver an experience across domains, right? We have the market share that none of them have in each of these domains, and our customers, frankly, look at us as Cisco and not as Cisco Switching, Cisco Wireless.
Right.
Cisco Data Center, right? When we have the share, and if we can simplify and converge and get unified experience, that is the stickiest.
Got it.
way to do it because troubleshooting is easier. If you can do automation in one domain, it's more or less the same in another domain. It's sort of like your Microsoft Office.
Right
Suite, right? It's a platform suite. You get used to one, you're gonna use the other. I think that is. Of course, you need to have a best product in each domain.
Mm-hmm.
I think we'll do that, but competing within a domain is not recipe for success for Cisco.
Got it.
We need to be really good in the domain, but the competition, we need to lift it up to be across domains.
Right
It's very sticky. I'll give you an example again of our Meraki Cloud portfolio. Extremely loyal towards the platform.
Right.
You get used. They have switched our wireless. They don't have data center yet today, if somebody buys wireless, the likelihood that they'll buy switching.
Is high
O n Meraki is very high.
Got it.
The likelihood. I think that's where we want to get to.
Right
I s to this platform approach with a unified experience. We think it's very, very hard, right? Like Arista doesn't have a strong wireless footprint.
Right
A t all, right? Like, Juniper's SD-WAN, they just acquired. I think they are at very early stages in certain domains, but if you look at data center, yeah, Arista is.
Right
More mature. If you look at Juniper, they're more mature than wireless and switching. If you put together five or six domains, I think the gaps are huge, and that's how we win.
Do you feel any pricing pressure because we have more competition from these companies?
You always feel some pricing pressure. I don't think the game is pricing in enterprise segments.
Got it.
Maybe in, emerging regions and the lower markets is pricing, but the competition is different.
Got it.
It's not the ones.
Got it.
spoke about there. I think where we have is, it's the operational simplicity and lower cost pressure versus the pricing pressure.
Mm-hmm.
If it's simpler, I think at the end of the day, our customers are gonna save more. They'd go with that solution, even if it's actually slightly more expensive.
Got it.
G et for that, pay for that.
We have 1 minute left, and I wanna ask. Finish with a last question on spending in: Do you think if you look at the entire kind of, you know, the, if you look at all your Cisco's target markets, right? You have cloud, you have service providers, you have campus, you have data centers. Do you feel that or do you share the view that campus is gonna be most, the most vulnerable to any economic slowdown out of the others, or is it the opposite?
I think if you view the campus as how it is today, it could see slowdown.
Yeah.
Right? I don't think that's how we should view it. The office of the future is very different than today, right? Like, you should view the campus as an office of the future. A next-gen factory is a campus.
Got it.
A next-gen hospital is a campus. A worker who works at a large branch or comes into a collaboration center, comes in, it's a campus. I think if you broaden this to a discussion around office of the future or a campus of the future, I think the opportunities are tremendous in the levers that I spoke about, right?
Got it.
Actually going slightly up than just the plumbing and then going into PoE-powered outcomes, going into experiences, going into security. There's so much opportunity because in this future is very, very different than today. I think that's how Cisco is viewing it. That's how I'd say anybody has to view it. I'll give you one example to hit this home. Hospitals, right?
Yeah.
Like, if you go into an ER room, historically, there was a triaging area where you waited for, because they were just triaging for the stroke patients first. If you had a leg injury, you waited 2 hours. Then you went in another room, and you waited. I know some of you, because they would put you. All that, with good network and hybrid experience now in Stanford, here in the Silicon Valley, the triaging starts literally in the parking lot, right? Like, you don't really need to go into that small room. They can move around, they can do this. Doctors can be hybrid, right? With the Webex Desk Mini, some part of your discussion can go. You can actually scale up your staff up and more.
This whole ER experiences can be changed if you invest in it with a futuristic view. Huge upside for Cisco.
Got it. Great. Greg, thank you very much. We ran out of time. It was extremely insightful.