 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. Cisco is a company at the crossroads. It's transitioning from a high-margin hardware business to a software subscription-based model, which also should be high-margin, through both organic moves and targeted acquisitions. It's doing so in the context of massive macro shifts and digital in the cloud. We believe Cisco's dominant position in networking, combined with a large market opportunity in a strong track record of earning customer trust, put the company in a good position to capitalize on cloud momentum. However, there are clear challenges ahead for Cisco, not the least of which is the growing complexity of its portfolio, a large legacy business, and the mandate to maintain its higher profitability profile as it transitions. into a new business model. Hello, and welcome to this week's Wikibon Cube Insights, powered by ETR. In this Breaking Analysis, we welcome in Zias Caravalla, who's the founder and principal analyst at ZK Research, longtime Cisco watcher, who together with me crafted the premise of today's session. Zias, great to see you, welcome to the program. Thanks, Dave. It's always a pleasure to be with you guys. Okay, here's what we're going to talk about today. Let's set the agenda. The catalyst for this session was Zias and I attended Cisco's Financial Analyst Day. We received a day and a half of fire hose presentations, drill downs, interactions, Q and A with Cisco execs and one key customer. So we're going to share our takeaways from these sessions and add our additional thoughts. Now in particular, we're going to talk about Cisco's TAM, its transformation to a subscription-based model, and how we see that evolving. As always, we're going to bring in some ETR spending data for context that gets Zias's take on what that tells us, and we'll end with a summary of Cisco's cloud strategy and outlook for how it could win in the cloud. So let's talk about Cisco's sort of structure and TAM opportunities. For Zias, Cisco has four main lines of business or it's organized, it's executives around sort of four product areas and it's got a large service component as well. Network equipment, SP routing, data center, collaboration and security, as they say, services. That's not necessarily how it's going to market, but that's kind of the way it organizes its ELT, its executive leadership team. Yeah, in fact, the ELT has been organized around those products, as you said. It used to report to the street three product segments, infrastructure platforms, which is by far the biggest, it was all their networking equipment. It had applications and then security. Now it's moved to five new segments, secure agile networks, hybrid work and then security, internet for the future and optimized app experiences. And I think what Cisco's trying to do is align their, the way they report along the lines of the way customers buy. Because I think before, they had a very simplistic model before, it was just infrastructure, apps and security. The ELT is organized around product roadmap and the product innovation, but that's not necessarily the way customers purchasing. And so purchasing, so I think they've tried to change things a little bit there. When you look at those segments though, by, it's interesting, they're all big, right? So by far the biggest distilled networking, which is almost a hundred billion dollar cam as they reported. And they have a growing at about a 9% keger as reported by other analyst firms. And when you think about how mature networking is Dave, the fact that that's still growing at high single digit keger is still pretty remarkable. So I think that's one of those things that, you know, watchers of Cisco historically have been calling for the network to be commoditized for decades as for as long as I've been watching Cisco, we've been, people have been waiting for the network to be commoditized. My thesis has always been if you can drive enough innovation into things, you can stave off commoditization and that's what they've done. But that's really the anchor for them to sell all the other products, some of which are higher margin, some of which are a little bit sort of, but they're all good high margin businesses to your point. Awesome, we're going to dig into that. So they flatten the organization when Gekler left, you got Todd Nightingale, Jonathan Davidson, Liz Santoni and G2 Patel who we heard from and we'll make some comments on what we heard from them. One of the big takeaways at the financial analyst meeting was on the TAM, as you just mentioned, Liz Santoni, who also is heavily involved in strategy and the CFO, Scott Herron, showed this slide which speaks to the company's TAM and the organizational structure that you were just talking about. So the big message was that Cisco's got a large and growing market, no shortage of available markets, somewhere between eight and 900 billion depending on which of the slides you pull out of the deck. And ironically, Zias, when you look at the current markets number here on the right-hand side of the slide, 260 billion, it just about matches the company's market cap, maybe an interesting coincidence. But at any rate, what was your takeaway from this data? Well, I think the big takeaway from the data is there's still a lot of room ahead for Cisco to grow. Again, it's a company that I think most people would put in the camp of legacy IT vendor just because of how long they've been around, but they have done a very good job of staving off innovation. And part of that is just these markets that they plan continue to grow and they continue to have challenges that they can solve. I think one of the things Cisco's done though, since the arrival of Chuck Robbins is they don't fight these trends anymore, Dave. I know prior to Chuck's arrival, they really fought the tide of software-defined networking and trends like that and even cloud to some extent. And I remember one of the first meetings I had with Chuck, I asked him about that and he said that Cisco will never do that again, that under his watch, if customers are going through a market transition, Cisco wants to lead them through it, not try and hold them back. And I think for that reason, they're able to look at all of those trends and try and take a leadership position. And then even though you might look at some of those and feel that some of them might be detrimental to Cisco's business in the short term. So something like software-defined WANs which you would throw into secure agile network certainly may not carry the same kind of arpoos and margins with it that their traditional routers did, but ultimately customers are going to buy it, Cisco would like to be the ones to sell it to them. You know, you bring up a great point. This industry is littered. There's a graveyard of executives who fought the trend. Some people remember Ken Olson of Digital Equipment Corporation. Unix is snake oil is what he said. IBM mainframe guys said PCs are a toy and of course the history, they were wrong side of history. The other big takeaway was the shift to software and subscription. They really made a big point of this. Here's a chart Cisco showed a couple of times to make the point that it's one of the largest software companies in the world, you know, in the top 10. It may also made the point that Chuck Robbins when he joined in 2015 and since that time it's nearly forexed its subscription software revenue and roughly doubled its software sales. And it now is an RPO remaining performance obligations that exceeds 30 billion. And it's committing to grow its subscription business in the forward-looking statements by 15 to 17% cagger through 25, which would imply about a doubling of these blue lines. Zeus, it's unclear if that forward-looking forecast is just software. I presume it includes some services, but as Heron pointed out, over time these services will be bundled into the product revenue, same way SaaS companies do it. But the point is Cisco is committed like many of their peers to moving to an ARR model. But please share your thoughts on Cisco's move to software subscriptions and how you see the future of consumption-based pricing. Yeah, this has been a big shift for Cisco, obviously. It's one that's highly disruptive. It's one that I know gave their partners a lot of angst for a long time because when you sell things upfront, you get a big check for selling that, right? And when you sell things in a subscription model, you get a much smaller check for a number of months over the period of the contract. It also changes the way you deal with the customer. When you sell a one-time product, you basically wipe your hands, you come back three, four years and say it's time to upgrade. When you sell a subscription, now the one thing that I've tried to talk to Cisco and its partners about is customers don't renew things they don't use. And so it becomes incumbent on the partner, it becomes incumbent upon Cisco to make sure the things that the customer's subscribing to that they do use. And so Cisco's had to create a customer success organization. They've had to help their partners create those customer success organizations. So it's really changed the model. And Cisco not only made the shift, they've done it faster than they actually had originally forecast. So during the financial analyst day, they actually touted their execution on software, noting that it hit its 30% revenue, percent of total target, well before it was supposed to, it's actually exceeded its targets. And now it's looking to increase that to it actually raised its guidance in this area a little bit by a few percentage points looking out over the next few years. And so it's moved to the subscription model, Dave. The thing that you brought up, which I do see as somewhat of a challenge is the shift to consumption-based pricing. So subscription is one thing and that I write you a check every month for the same amount. When I go to consumption-based pricing, that's easy to do for cloud services, things like WebEx or Duo or, you know, CloudLock, some of the security products that shift should be relatively simple. If customers want to buy it that way, it's unclear as to how you do that when you're selling on-prem equipment with the software add-on to it because in that case, you have to put metering technology in to understand how much they're using. You have to have a minimum baseline to start with. They've done it in some respects. The old HCS product that they sold with telcos actually was sold with a minimum commit and then they tacked on a utilization on top of that. So maybe they moved to that kind of model, but I know it's something that they get asked about a lot. I know they're still thinking about it, but it's something that I believe is coming and it's going to come pretty fast. I want to pick up on that because I think, you know, they made the point that we're one of the top 10 software companies in the world. It's very difficult for hardware companies to make the transition to software. You know, HP couldn't do it. IBM has kind of done it, but they really struggle. It's kind of this mishmash of tooling and software products that aren't really well integrated. But I would say this, so everybody now, Cisco, Dell, HPE with GreenLake, Lenovo, pretty much all the traditional hardware players are trying to move to and as a service model or at least for a portion of their business. HPE's all in, Dell's transitioning. For the most part, I would make the following observation and I'd love to get your thoughts on this. They're pretty much following a SaaS-like model which in my view is outdated and kind of flawed from a customer standpoint. All these guys say, hey, we're doing this because this is what the customers want. I think the cloud is really a true consumption-based model and if you look at modern SaaS companies, a lot of the startups, they're moving to a consumption-based model. You see that with Snowflake, you see that with Stripe. Now, they will offer incentives but most of the traditional enterprise players, they're saying, okay, pay us upfront, commit to some base level. If you go over it, you know, we'll charge you for it. If you go under it, you're still going to pay for that base level. So it's not true consumption base. It's not really necessarily the customer's best interest. So that's, I think there's some learnings there that are going to have to play out. Yeah, the reason customers are shying away from that SaaS-type model, I think during the pandemic, the one thing we learned, Dave, is that the business will ebb and flow greatly from month to month sometimes. And I was talking with somebody that worked for one of the big hotel chains and she was telling me that with their CRM provider, she wouldn't tell me who it was except said Ryan was Schmalesforce, that their utilization of it went from a nice steady level to spiking really high when customers started calling into canceled hotel rooms and then it dropped down to almost nothing as we went through that period of stay at home and now it's risen back up. And so for her, she wanted to move to a consumption-based model because what happens otherwise is you wind up buying for peak utilization, your software subscriptions go largely underutilized in the majority of the year and you wind up paying a lot more than you need to. If you go to more of a true consumption model, it's harder to model out from a financial perspective because there's a lot of ebb and flows in the business but over a longer period of time, it's more cost effective, right? And so again, what the pandemic taught us was we don't really know what we're going to need or my consumption standpoint, never mind a year from now, maybe in six months from now and consumption just creates a lot more flexibility and agility, you can scale up, you can scale down, you can bring in users, you can take out users, you can add consultants, things like that. And it's much more aligned with the way businesses are run today. Yeah, Churn is a silent killer of a software company and so this retention is the key here. So again, I think there's lots of learning. Let's put Cisco into context with some of its peers. So this chart we developed compares five companies to Cisco, Core Dell, meaning Dell without VMware, VMware, HPE, IBM. We put in AWS and then Cisco. IBM, AWS and Cisco is the integrated place. So the chart shows the latest quarterly revenue multiplied by four to get a run rate, a three year growth outlook, gross margin percentage, market cap and revenue multiple. And the key points here are that one, Cisco's got a pretty awesome business model. It's got 60% gross margin, strong operating margins, not shown here, but in the mid 20s, 25%. It's got a higher growth rate than most of its peers. And as such, a much better multiple than, say for instance, Core Dell gets 33 cents on the revenue dollar, HPE is double that, IBM's below 2x. Cisco's revenue multiple rivals VMware, which is a pure software company. Now in a large part that's because VMware stock took a hit recently, but still the point is obvious. Cisco's got a great business. Now for context, we've added AWS, which blows away any company on this chart. We've inferred a market cap of nearly 600 billion, which frankly is conservative at a 10x revenue multiple, given its inferred margins and growth rate. Now ZS, if AWS were a separate company, it could have a market cap that approached 800 billion in my view, but what does this data tell you? Well, it just tells me that Cisco continues to be a very well-run company that has staved off commoditization despite the calling for it for years. And I think the big lesson, and I've talked to financial analysts about this over the years is that I don't really believe anything in this world as a commodity base. I think even when Cisco entered the server market, if you remember back then, they created a new way of handling memory management that they were getting well above average margins for servers, albeit less than Cisco's network margins, still above average for server margins. And so I think if you can continue to innovate, you will see the margins stay where they are. You will see customers continue to buy and refresh. And I think one of the challenges Cisco's had in the past, and this is where the subscription business will help, is getting customers to stay with the latest and greatest. Prior to this refresh of network equipment, some of the stuff that I've seen in the fields, 10, 15 years old, once you move to that sell me a box and then tap on the subscription revenue that you pay month by month, you do drive more consistent refresh. Think about the way you just handle your own mobile phone. If you had to go pay $1,000 every three years, you might not do it at that three-year cycle. If you pay 40 bucks a month, every time there's a new phone, you're going to take it. So I think Cisco's able to drive greater, better refresh, keep their customers current, keep the features in there. And we've seen that with a lot of the new products, the new Cat9000, some of the new service provider products, the new Wi-Fi products, they've all done very well. In fact, they've all outpaced their previous generation products as far as growth rate goes. And so I think that is a testament to the way they've run the business. But I do think when people bucket Cisco in with HP and Dell and I understand why they do, their business is worse similar at one time, it's really not a fruit comparison anymore. I think Cisco has completely changed their business and they're not trying to commoditize markets, they're trying to drive innovation and keep the margins up, where I think HP and Dell tend to really compete on price versus innovation. Well, and we are going to get to this point about the tailwinds and headwinds and cloud and how Cisco's going to do it, but to your point about your cell phone analogy, to the extent that Cisco can make that seamless for customers, could have hide that underlying complexity, that's going to be critical for the cloud. But before we get there, I want to talk about one of the reasons why Cisco has such a high multiple and has been able to preserve its margins to your point, not being commoditized. And it's been able to grow both organically, but also has a strong history of M&A. It's, this chart shows a dominant position in core networking. So this shows, so the ETR data within the Fortune 500, it plots companies in the ETR taxonomy in two dimensions, net score in the vertical axis, which is a measure of spending velocity and market share on the horizontal axis, which is a measure of presence in the survey. It's not like IDC market share, it's mentioned market share, if you will. The point is Cisco is far and away the most pervasive player in the market. It's generally held its dominant position, although it's been under pressure in the last, you know, few years in core networking, but it retains or maintains a very respectable net score and consistently performs well for such a large company. See, it's anything you'd add with respect to Cisco's core networking business. Yeah, it's maintained a dominant network position historically. I think part of it because it drives good products, but also because the competitive landscape historically has been pretty weak, right? We saw a company like 3Com and Nortel who aren't around anymore. It'll be interesting to see moving forward now that companies like VM were involved in networking. AWS is interested in networking. Arista is a much stronger company. You know, Juniper bought Mist and is in better position. Even Extreme Networks, who most people thought was dead a few years ago, has made a number of acquisitions in this now a billion-dollar company. So while Cisco has done a great job of execution, they've done a great job on the innovation side, their competitive landscape, looking out over the next five years, I think is going to be more difficult than it has been over the previous five years. And largely, Dave, I think that's good for Cisco. I think whenever Cisco's pressed a little bit from competition, they tend to step on the innovation gas a little bit more. And I look back at even the transition when VM were bought in Isera. That got Cisco's SDN business into gear like nothing else could have, right? So competition for that company, they always seem to respond well to it. So let's break down Cisco's net score a little bit and explain why the company has been able to hold its spending momentum despite its large size. This will give you a little insight to the service. So this chart shows the granular components of net score. The lime green is new adoptions to Cisco. The forest green is spending more than 6%. The gray is flat, plus or minus 5%. The pink is spending drops by more than 5%. And the red is we're chucking the platform, we're getting off. And Cisco's overall net score here is 25%. Which for a company of its size speaks to the relationships that it has with customers. It's course got a fat middle in the gray area like all sort of large established companies. But very low defections as well, it's got low new adoptions, but very respectable. So that with that as background Z is let's look at spending momentum over time across Cisco's portfolio. So this chart shows Cisco's net score by that methodology within the ETR taxonomy for Cisco over three survey periods. And what jumps out is Meraki in the left very strong, virtualization business, it's core networking, analytics and security all showing upward momentum. AppD is a little bit concerning, but that could be related to Cisco's sort of pivot to full stack observability. So maybe AppD is being bundled there, although some practitioners have cited to us some concerns in that space. And then WebEx at the end of the chart it's showing some relative strength, but not that high. Zius, maybe you could comment on Meraki and any other takeaways across the portfolio. Yeah, Meraki has proven to be an excellent acquisition for Cisco. In fact, you might, I think it's arguable to say it's its best acquisition in history. I'm going all the way back to Calpana and Grand Junction, the ones that brought up the catalyst switches. So in fact, I think Meraki's revenue might be larger than security now. So that shows the momentum it has. I think one of the lessons it brought to Cisco was that simpler is better sometimes. I think when they first bought Meraki, the way Meraki's deployed, it's very easy to set up. There's a lot of engineering work though that goes into making a product simple to use. And I think a lot of school engineers has directly looked at Meraki as that's a little bit of a toy. It's meant for small businesses, things like that, but it's not for enterprise. But Meraki's done a nice job of expanding the portfolio, of leveraging the cloud for analytics and showing you a lot of things that you wouldn't necessarily get from traditional networking equipment. And one of the things that I was really delighted to see was when they put Todd Nightingale in charge of all the networking business because that showed to me that Chuck Robbins understood that the things Meraki were doing were right. And if they confuse a little bit of Meraki into the rest of the company, that's certainly a good thing. The other areas that you showed in the chart, not really a surprise, Dave, when you think of the shift hybrid work and you think of some of the other transitions going on, I think you would expect to see the server business in decline, the storage business, maybe in a little bit of decline just because people aren't building out data centers, where the other ones are related more to hybrid working, hybrid cloud, things like that. So it is what you'd expect. The WebEx one was interesting too because it did show somewhat of a dip and then a rise. And I think that's indicative of what we've seen in the collaboration space since the pandemic came about. Companies like Zoom and Ring Central really got a lot of the headlines. Again, the comment I made in competition, Cisco got caught a little bit flat-footed, they've caught up in features and now they've really stepped on the gas there. Chuck joked that he gave the WebEx team a bit of a blank check to go do what it had to do. And I don't think that was a joke. I think he actually did that because they've added more features in the WebEx in the last year than I think they did the previous five years before that. Well, let's just drill into video conferencing real quick here, if we could. Here's that two-dimensional view again, showing net score against market share or pervasiveness of mentions. And you can see Microsoft Teams in the upper right. I mean, it's off the chart, literally. Zoom's well ahead of Cisco in terms of mentions presence. And that could be a spade of freemium, but it's basically a three-horse race in this game. Cisco, I don't think he's trying to take Zoom head-on. Rather, it seems to be making WebEx a core part of its broader collaboration agenda. But Zius, maybe you could comment. Well, it's all coming together, right? So it's hard to decouple calling from video, from meetings. There are all the members, including teams are going after the hybrid work experience. And if you believe the future is hybrid, not just work from home, then Cisco does have a pretty interesting advantage because it's the only one that makes its own endpoints where teams in Zoom doesn't. And so that end-to-end experience you can deliver. The Microsoft Teams one's interesting because that product, frankly, when you talk to users, doesn't have a great user score, like as far as user satisfaction goes, but the one thing Microsoft has done a very good job of is bundling into the Office 365 licenses, making it very easy for IT to deploy. Zoom is a little bit in the middle where they've appealed to the users, they've done a better job of appealing to IT, but there is a battleground now going on where video is not just video, it includes calling, includes meetings, includes room systems now. And I think this hybrid work friend is going to change the way we think about these meeting tools. Now, we'd be remiss if we didn't spend a moment talking about security. As a key part of Cisco's business, we have a graphic on the same kind of XY. And it's been, we've seen several quarters of growth, although last quarter security growth was in the low single digits, but Cisco is a major player in security and this XY graph shows they've got both a large presence and a solid spending momentum. Not nearly as much momentum as Okta or Zscaler or CrowdStrike and some of the smaller companies, but these guys are on a rocket ship, but others that we've featured in these episodes, but much more than respectable for Cisco. And security is critical to the strategy, it's a big part of the subscriber base. And the last thing ZSL say about Cisco made the point in Analyst Day that this market is crowded. You can see that in this chart. And their goal is to simplify this picture and make it easier for customers to secure their data nets. But that's not easy, Zs. What are your thoughts on Cisco's security opportunities? Yeah, I've been waiting for Cisco to break up in security a little more than it has. I do think, I was talking to the CISO the other day, Dave, that said to me, he's starting to understand that you don't have to have best to breed everywhere to have best in class threat protection. In fact, there's a lot of buyers that will tell you that if you try and have best breed everywhere, it actually creates a negative when it comes to threat protection because keeping all the policies and things up to date is very, very difficult. And so the industry is moving more to a platform model. Now the challenge for Cisco is how do you get that the customer to think of the network as part of the platform? Because while the platform model, I think is starting to gain traction, Fortinet, Palo Alto, even McAfee companies like that also have their own version of a security platform. And if you look at the financial performance of companies like Fortinet and Palo Alto over the past couple of years, they've been through the roof, right? And so I think an interesting and unique challenge for Cisco is can they convince the security buyer that the network is as important a part of that platform as any other component? If they can do that, I think they can break away from the pack. If not, then they'll stay mixed in with those, you know, Palo, Fortinet, Checkpoint and Cisco in that mix. But I do think that may present their single biggest needle-moving opportunity just because of how big the security team is and the fact that there is no de facto leader in security today. If they could gain the same kind of position as security as they have in networking, I mean, that would move the needle like no other market would. Yeah, it's really interesting. They're coming at security, obviously from a position of networking strength. You've got, it's your point, you got Best of Breed Octa and Identity, you got CrowdStrike and Endpoints, E-Scalar and Cloud Security. They're all growing like crazy. And you got Cisco and Palo Alto. CISOs tell us they want to work with Palo Alto because they're the thought leader and they're obviously a major player here. You mentioned Fortinet. There's a zillion others we could talk all day about security. But let's bring it back to cloud. We've talked about a number of the pieces in Cisco's portfolio. And we haven't really spent any time on full stack of observability, which is a big push for Cisco with AppD, InterSight and the Thousand Eyes acquisition. And that plays into this equation. But my tag zeus is Cisco has a number of cloud knobs that it can turn. It sells core networking equipment to hyperscalers. It can be the abstraction layer to connect on-prem to the cloud and hybrid and across clouds. And it's in a good position with Telcos too to go after the 5G. But let's use this chart to talk about Cisco's cloud prospects. It's an ETR cut of the cloud customer spending. So we cut it by cloud customers. And there are, I don't know, 800 or so in the survey. And then looking at various companies' performance within that cut. So these are companies that compete in the case of HashiCorp, partner with Cisco at some level. Let me just set this up and get your take. So the insert on the chart, by the way, shows the raw data that positions each dot, the net score and the shared N, i.e. the number of accounts in the survey that responded. The key points, first of all, Azure and AWS dominant players in cloud. GCP is a distant third. We've reported on that a lot. Not only are these two companies big, they have spending momentum on their platforms, they're growing, they are on that flywheel. Second point, VMware and Cisco are very prominent. They have huge customer bases. And while they're often on a collision course, there's lots of room in cloud for multiple players. We've plotted some other Cisco properties like APD and Meraki, which as we said, is strong. And for context, we placed Dell, HPE, Aruba, IBM and Oracle. And also VMware cloud and AWS, which is notable on its elevation. And as they say, we've added HashiCorp because they're a critical partner of Cisco and it's a multi-cloud play. Okay, Zias, there's the setup. What does Cisco have to do to make the cloud a tailwind? Let's talk about strategy, tailwinds, headwinds, competition and bottom line it for us. Yeah, well, I do think, while I talk about security being the biggest needle mover for Cisco, I think it's biggest challenge is convincing Wall Street in particular that the cloud is a tailwind. I think if you look at the companies with the really high multiples to their stock date, they're all ones where they're viewed as, they go along with the cloud ride, right? So if you can associate yourself with cloud and people believe that the cloud is going to, more cloud equals more business, that obviously creates a better multiple because the cloud has almost infinite potential ahead of it. Now, with respect to Cisco, I do think cloud has presented somewhat of a double-edged short for Cisco. I don't believe the current consumption model for cloud is really a tailwind for Cisco, not really a headwind, but it doesn't really change Cisco's business. But I do think the very definition of cloud is changing before our eyes, Dave. And it's shifting away from centralized clouds. If you think of the way customers bought cloud before, it might've used AWS, it might've used Azure, but it really, that's not really multi-cloud, it's just multiple clouds in which I put things in these centralized resources. It's shifting more to this concept of distributed cloud in which a single application can be built using resources from your private cloud for AWS, from Azure, from edge locations. All the cloud providers have built their portfolios to support this concept of distributed cloud. And what becomes important there is a highly agile dynamic network. And in that case with distributed cloud that is a tailwind for Cisco because now the network is that resource that ties all those distributed cloud components together. Now that the network itself has to change and it needs to become a lot more agile and microservices and container-friendly itself so I can spin up resources in an edge location as fast as I can on-prem and things like that. But I do think it creates another wave of innovation in networking. And in that case, I think it does act as a tailwind for Cisco aside from just the work it's done with the web scalers, those types of companies. But I do think that Cisco needs to re-think its delivery model on network services somewhat to take advantage of that. You know, at the analyst meeting Cisco made the point that it does sell to the hyperscalers and talked about the top six hyperscalers. You know, you had mentioned to me maybe IBM and Oracle were in there. I always talk about four hyperscalers and only four but that's fine. Here's my question. Practitioners have told me, buyers have told me, the more money and more workloads I put in the cloud the less I spend with Cisco. Now, even though there might be Cisco gear powering those clouds, do you see that as a potential threat in that they don't own that relationship anymore and value will confer to the cloud players? Yeah, that's, I've heard that too. And I don't, I believe that's true when it comes to general purpose compute you're probably not buying as many UCS servers and things like that because you are putting them in the cloud. But I do think you do need a refresh to the network. I think the network becomes a very important role plays a very important role there. The very, the really interesting trend will be what does your WAN look like? You have thousands of workers scattered all over the place or do you just have a few centralized locations? So, I think also, you know, Cisco will wind up providing connectivity within the cloud. If you think of the transition we've seen in other industries, Dave, as far as cloud goes, you think of, you know, F5, a company like that. People thought that AWS would commoditize F5's business because AWS provides their own load balancers, right? But what AWS provides is a very basic functionality and then use F5's virtual edition or cloud edition for a lot of the advanced capabilities. And I think you'll see the same thing with the cloud that customers will start buying versions of Cisco that go in the cloud to drive a lot of those advanced capabilities that only Cisco delivers. And so I think you wind up buying more Cisco over time, although the per unit price of what you buy might be a little bit lower, if that makes sense to you. It does, I think it makes a lot of sense and that fits into the cloud model. You know, you bring up another good point with the conversation with the customer, it was a Rakuten and that individual was essentially sharing with us. Somebody was asking, one of the analysts was asking, well, what about the cloud guys? Aren't they going to really threaten the whole telco industry and disrupt it? And at this point was, look, this stuff is not trivial. So to your point, you know, maybe they'll provide some basic functionality, kind of like they do in a lot of different areas. Data protection is another good example. Security is another good example where there's plenty of room for partners, competitors, on-prem players to add value. And I've always said, look, the opportunity is the cloud players spend $100 billion a year on CapEx. It's a gift to companies like Cisco who can build an abstraction layer that connects on-prem, cloud for hybrid, across clouds, out to the edge, and really be that layer that is that layer that takes advantage of cloud native but also delivers that experience. I don't want to use the word seamlessly, but that experience across those clouds as the cloud expands. And that's fundamentally Cisco's cloud strategy, isn't it? Oh yeah, and I think people have underestimated over the years how hard it is to build good networking products. Anybody can go get some silicon and build a product to connect two things together. The question is, can you do it at scale? Can you do it securely? And lots of companies have tried to commoditize networking and they're, you know, white boxes was looked at as the existential threat to Cisco, Huawei was looked at as the big threat to Cisco and all of those have kind of come and gone because building high quality network equipment that scales is tough. And it's tough for most people realize. And your other point in the cloud providers is, well, they will provide a basic level of functionality. You know, AWS network equipment doesn't work in Azure and Azure stuff doesn't work in Google and Google doesn't work in AWS. And so you do need a third party to come in and act as the elements that's the cloud middleware that can connect all those things together with a consistent set of policies. And that's what Cisco does really well. They did that, you know, back when they were founded with routing protocols and you could think this is just an extension of what they're doing just up at the cloud layer. Excellent, okay, Zees we're going to leave it there. Thanks to my guest today, Zees Karavala. Great analysis as always. Would love to have you back. Check out zkresearch.com to reach him. Thank you again. Thank you, Dave. Now remember, I publish each week on wikibon.com and siliconango.com. All these episodes are available as podcasts. Just search breaking analysis podcast and you can connect on Twitter at dvolante or email me at david.volante at siliconango.com. Thanks for the comments on LinkedIn. Check out etr.plus for all the survey action. This is Dave Vellante for theCUBE Insights, powered by ETR. Be well and we'll see you next time.