 Live from San Diego, California, it's theCUBE. Covering Cisco Live US 2019. Brought to you by Cisco and its ecosystem partners. Welcome to sunny San Diego, Lisa Martin with theCUBE Live at Cisco Live in the US here. I'm here the next three days with Stu Miniman and Dave Vellante, gentlemen. Great to see you. It is sunny. It is very sunny. It's a big 30th anniversary celebration here at Cisco Live. 30th year. Where were you in 1989? You don't have to answer that. But I thought about that this morning. I know exactly where I was. So the 30th year of them doing a customer and partner event, other 30 year anniversary notables this year, Tetris, is 30, Seinfeld premiered 30 years ago. That's kind of scary when you remember exactly where you were. So we came from the keynote just a minute ago. Not a lot of news here, but Stu, let's start with you in terms of where Cisco is. You guys were in Cisco Live Barcelona just a few months ago. John and I covered Cisco DevNet about six weeks ago. Lots of excitement around these waves of 5G, Wi-Fi 6, compute architectures. Your thoughts on Cisco, where they are today, where they are in their transition to becoming more software services. Yeah, so Lisa, a great place to start you. We've been watching the last two years that we've done theCUBE at their European and USVS, this transformation to become a software company. It was really interesting to see Chuck Robbins bring out this 30 year old box, it's like it's ribbon cables and multi-protocol routers and everything. And then most of the keynotes, most of the things that they're discussing, sure they had some boxes out there on display. I saw someone in Twitter, they let all the cats out of the bag because they're all cat 9000, cat 6300, things like that. But it's software driven. The point they want to make is that cloud and software defined networking was going to destroy Cisco. Well, and here we are five or 10 years into some of these waves, and Cisco's still going strong, that they have positioning in a lot of these environments. Cisco still does have a lot of hardware. When I look at how we track Cisco, it's still, it is more about the ports and the boxes than it is the software revenue, but they are climbing up the charts there and they are being more software. They are showing up at all the cloud shows when we had Google Next, we talked to Cisco there at AWS, we talked to AppDynamics and many of the software pieces. And here in the DevNet zone, it's all about enabling developers, which is at the core of so much of what's happening for that software transformation. So Cisco making good measurable progress, still a nice robust mix of hardware and software. And I personally, 30 years, I was actually at the 20 year reunion, I bumped into a friend of mine that we'd done a video with 10 years ago. We're comparing how we both have a little bit less hair than we did there, but amazing to think about the technologies we were looking at 10 years ago. Cloud was so early in some of these spaces, so a lot has changed in 10 years and Cisco continually matriculating the ball down the field as they would say in the old analogy. And in terms of revenue Dave, I was looking at their Q3 2019 report, which is just a few weeks ago. Six consecutive revenue growth quarter under Chuck Robbins. Your thoughts on where they are from a revenue perspective. Well, Cisco has been doing very well. The stocks have been crushing it since 2011. After the downturn, Cisco came out of the downturn as a stronger company. They're about almost $50 billion in annual revenue. They've got a $250 billion market cap, which as Stu and I were talking about, it's almost a 5x revenue multiple. And that's software like revenue multiples. Hardware companies don't typically get that. I mean, unless you're like a pure storage and you're growing super fast. But so, this is a company with almost 65% gross margins. It's got a 25% operating income. Again, that's like AWS. AWS is an incredibly profitable company. Just to put that into perspective, Oracle, which is predominantly a software company, even though it has some hardware, has operating margins in low to mid 30s. Okay, and that's an extremely profitable company. Cisco's got a net of $10 billion in cash and the balance sheet actually more, but it's got some debt. So if you're talking about the net debt, and it's growing at 5% or 6% a year for a $50 billion company, that's quite impressive. So I think to answer your question, Lisa, it's they're doing quite well from a revenue standpoint. Chuck has done a great job with Wall Street. They obviously trust him. The stock's up. It's on a, it's on a, I wouldn't say a rocket ship, but Cisco is a cash flow machine. Now, where do they allocate that capital? Obviously they spend some on R&D and operations. They spent seven and a half billion dollars last year on stock buybacks and dividends. So that's a big nut. And so Cisco's going to continue, in my opinion, to use its funds to obviously fund R&D but also do stock buybacks, dividends, prop up the stock. And acquisitions. And acquisitions, is that a good move? Well, so balancing organic R&D with acquisitions is good. We talked about the Meraki acquisition earlier. Obviously Cisco's done a lot of growth through its acquisition. But I would say this, buying stock buybacks are a good idea when your stock is undervalued. You know, is Cisco undervalued? I don't know, everything's like up these days, hard to predict. But the concern that I have for companies like Cisco and Oracle who do a lot of big buybacks is when the market sentiment flips and shifts toward profit based companies like a Cisco or an Oracle, cash flow based companies. You know, stocks tend to get depressed and then the market sentiment shifts. So there might be some better buying opportunities ahead but companies today who have a lot of cash, they have to do buybacks because they got to keep Wall Street happy. So as we look at these big waves of the explosion of 5G, 400 gigabit, Ethernet, GPUs. So AI everywhere. One of the things that Chuck Robin said this morning was that thinking of, and it made me think of the network as this common denominator in this changing architectural world we live in hybrid multi-cloud. So going from their first show 30 years ago that was called Networker, what are your thoughts too? We'll start with you about where they're positioned with the network as really this common denominator in changing architectures and the network, the data that traverses it can be gleaned by organizations to extract insights, new value, new business models. Where does Cisco sit in your opinion? Yeah, great question, Lisa. So first of all, we need to look at where does Cisco play and where do they win? If you talk about the enterprise switching and routing they are dominant in that environment. We're going to be digging in some of the service fighters. Service fighters is not, Cisco is not nearly as dominant with service fighters as they are in the enterprise. Then if you talk in the hyperscale players, they don't do as much gear and that's where they're looking to have their software in there. Cisco wants to make sure that in this new hybrid multi-cloud world wherever you live, there's going to be some piece of the stack that Cisco is part of. But there are opportunities for growth but there are risks. Some of the traditional business, the enterprises are not building as many data centers and they're going to go to hosting providers and therefore the network that most companies manage most of what they're managing isn't under their purview. They don't touch it, they don't cable it, they don't put any of that together. And so Cisco needs to be extending who they work with, help with common interfaces across them. An area we've spent a lot of time looking at is this multi-cloud management where Cisco is going up against some of their traditional partners. People like VMware and Microsoft used to just be the software pieces that ran on top of Cisco. Now they're going for some of that same piece of the market because that is a control point and Cisco needs to have leverage there. So can they be strong there? So it's interesting some of these waves that we have where Cisco plays and where they will have a lot of competition. So guys I think as Cisco moves from, just a purely data center player to all these other opportunities and they talk about the bridge to possible, I see it as Cisco is in a position to connect all the world's data sources. When you talk about multi-cloud, Cisco's got an opportunity and a challenge to convince the world that its networks are higher performance, more cost effective and more secure than everybody else. And you saw David Gekler today put up a slide and he talked about the one, two, three, four, five, six things he said. Automated, secure, agile, cheaper, easier to manage, drivers of business outcomes. Now easier to manage, cheaper, automated, those are all cost efficiency sort of plays. So Cisco is in a good position because it's such a huge piece of the market, two thirds of the market and it's been able to maintain that it's not, doesn't have a monopoly quite but it's been able to maintain that huge market share for a long time. And Dave if I can just to comment on that. Number one is Cisco has not been known to have the simplest networks out there nor in the past it was the best network I could do, I would buy Cisco only. Today's, you've said it many times Dave, today's multi-cloud is the old multi-vendor. Cisco, sure they would do interops and they would make sure to test it out and they follow all the standards and they drive all of the standards. But in today's world, if Cisco is not the dominant player in the market, will they win in those environments? And you look at something like 5G, Cisco's not the leader in 4G and LTE roles out there working with the telecom providers but they have a strong position with Meraki on the Wi-Fi so something like Wi-Fi 6 and their strong connection between the Wi-Fi 6 and the 5G to be able to make sure my indoor and outdoor can now work seamlessly but there's areas where Cisco's trying to go into that have not necessarily been their strongholds in the past and at the end of the day it's frictionless and simplicity is what's driving a lot of these cloud waves and that's not Cisco traditionally. Well to that point complexity means cash historically in this business and so 25% of Cisco's revenue comes from professional services and 60% from infrastructure and then the balances for other stuff. What's the point? The point is that Cisco is transitioning his business to more of a subscription model. Now they talk about that they had huge growth in the subscriptions business but they don't really tell you how much of their business is software. It's sort of opaque. You got to kind of dig through that but it's clearly on a big upswing. So Cisco's got to transition its business from, you know, back in 1989 it was a lot of break fix, right? Then it's become a lot more sort of consulting and other professional services. Now it's going more toward an as a service model and maybe still some of the professional services to, okay, how do I secure my network? How do I architect that? What about cloud? What about multi-cloud? A lot of opportunities there for services value add but it has to transition. Speaking of security, I wanted to kind of touch on that for a second day. They just announced the intent to acquire Centrio SaaS which is a cyber security company out of France per industrial control. Their cyber security is one of their fastest growing businesses. Is that an opportunity for Cisco to differentiate itself with respect to network security? Well it's an imperative. I mean, the network, their security business grew 21% last quarter which is, you know, what, triple, more than triple the overall company. What they said around that acquisition that made total sense to me is that, you know, it used to be you would just invest in protecting the perimeter. That's where all the money went. Now with things like the Edge and that's part of this acquisition, you've got to really secure the devices and the applications that are out there but also I think increasingly the big opportunity is how do we respond? So things like StealthWatch and other, you know, machine intelligence and analytics help organizations that are ultimately, we know they're going to get breached but the question is how do they respond? Yep, excellent. Well guys, I'm looking forward to three days of wall to wall coverage with you, talking with Cisco folks, DevNet folks, customers, partners. It's going to be bright. I think we can guarantee that but it's going to be good. Yeah, we should say we're here in the DevNet zone, right? So stop by and see us. A lot of action here. There'll be a lot of takeovers and we'll be covering it. Yes, the sale pavilion which feels just like that. All right guys, going to be a great week. I'm Lisa Martin for Student Miniman and Dave Vellante. You're watching theCUBE live from Cisco Live in sunny San Diego. Stick around, our guests lineup begins in just a minute.