 Live from Barcelona, Spain, it's theCUBE. Covering Cisco Live 2020. Brought to you by Cisco and its ecosystem partners. Hello everyone, welcome to theCUBE here live in Barcelona, Spain for Cisco Live 2020. It's our first CUBE event for the year, next 10 years of CUBE history. We look back 10 years since we've been around for 10 years, we had another 10 more we're looking forward to. It's the first event for 2020, Cisco Live at Barcelona. I'm John Furrier, your host with Dave Vellante, Stu Miniman, extracting the signal from the noise. The cloud business is noisy, the networking business is under siege and changing. Dave and Stu were pre-gaming Cisco Live, kicking off the show. End of the first kind of pre-day. Tomorrow's the big keynotes, David Gechler, variety of executives preparing to announce. Rumor has it, some insights into what Cisco's position will be vis-a-vis cloudification. That's going to change their portfolio and probably identify some opportunities and also some potential gaps in their strategy and what they could do to be competitive. The number one leader in networking, they got a great market position, but cloud is changing the game with networking. Yeah, John, it's funny. I heard you talking about the 10 years and everything. 10 years ago, if I thought about Cisco, I'd be looking at the eye pattern of getting the jitter out of the network and trying to tweak everything. And today, what are we talking about with Cisco? We're talking about software. We're talking about cloud. We're talking about developers. Yeah, they're a networking company at its core, but Cisco has been going through a significant transformation. It's been an interesting one to watch. Dave, you wrote a little bit about. Cisco's one of the four horsemen of the internet era. Of course, the .com, they were one of the ones that actually survived and thrived after the .com burst, but Cisco's a very different company today, far from the $500 billion market cap that they had a few years back. They're at about $200 billion, but still dominant in switching and routing, but there are threats from a number of environments and a lot of changes as to what you need to think about when it comes to Cisco. Well, sometimes it's instructive to look back and see how we got here. And Cisco made three big bets during its ascendancy. The first one was it bet on IP. I mean, John, you've talked about this a lot. It decimated the mini computer industry by connecting or distributed computing and client server, the underlying plumbing there. The second big bet it made was it trained a bunch of engineers, the Cisco certified engineers, CCIEs, and they used that as a lever and created a whole army of people that were Cisco advocates, and that was just a brilliant move. And the third was under the leadership of John Chambers. They did about 180 acquisitions, and they were quite good at acquisitions. And what that did for them was it continued to fuel growth, it filled in gaps, and it kept them relevant with customers. Now, part of that too was Chambers had dozens and dozens of adjacent businesses. He said they were all going to be a billion dollars. Well, most of them didn't pan out. So they had to cut and burn. But now under the leadership of Robins, they're a much more focused company, kind of getting back to basics, trying to bet on short things. And so, let's talk about what some of those short things are and how Cisco's performing. Well, it's clear, you said lever. They got to pull a lever at some point and turn the boat that is Cisco. Aircraft carrier, what do you want to call it in the right direction? And that's something that, you know, we've been covering Cisco for, you know, this decade still, as you just pointed out, and we've been close to all the action. I think Cisco knows what's going on. It's clear to me that they kind of understand the landscape and understand their opportunities in the future, but they're a massive business, Dave. You pointed out the combination of all those mergers. The thing that got my attention was as they understood the unification many, many years ago on the compute side, you saw Cisco clearly understand the unification and they know cloud is here. They know that if they do not make a move that's cloud friendly, they were going to get swept away and be drift with the next wave, which is cloud 3.0, whatever we call it. So to me, that's the big story with Cisco. What is the impact of the company when you cloudify business? That's not public cloud. That's hybrid public. The economics are changing, the compute capabilities are changing, the network capabilities are changing, got the edge. I think Cisco will be defined by their actions over the next two to three years. What they announce, how they position it, and what they bring value to the customers because you've got Silicon One chip, good move. You've got cloud position, you've got app D on the top of the stack. You've got cloud center. They're trying to get to the cloud, but you can't do that until you have a subscription business, until you, you can't do pricing by usage unless you have that model. So I think it's a brick by brick, but slowly they're doing it. We have to hear some things this next year on Cisco on how they're going to be true cloud enabled. Well, software is a huge play for them, right? I mean, they've got to be, because Cisco's been the dominant player in networking with two thirds of the market, I mean, they've sustained that for a decade plus and it was allowed up to drive, you know, 60 plus percent gross margins for years and years and years. You know, a huge operating margin. So how are they going to continue that? Software is the key. And as you say, John, subscriptions is the cloud model that is critical for Cisco. Now they talk about 70% of their software business is subscriptions and annual recurring revenue. It's unclear really how big their software businesses, they give hints. I pegged at about 78 billion last year, maybe growing to 10, 12 billion this year. So pretty sizable, but that's critical in terms of them driving the margins that they need to throw off free cash flow so they can invest in things like stock buybacks and dividends which prop up the stock. Well, the problem is you start chasing your tail on the stock price and or product Tams and product revenue, you might actually miss the boat on the new product. So it's a balance between, you know, cannibalizing your own before you can bring in the new. And this is going to be the challenge for Cisco. When do they bite the bullet and say, okay, we got to get a position on this piece here or that piece there. Ultimately, you know, it's going to be about customers. And what do we know? Public cloud succeeded with 1.0. Hybrid cloud is a reality and people are executing specific technologies to do an operating model that's cloud. And to me, the big way for Cisco, in my opinion, is multi-cloud because that's not a technology. That's just, that's a value proposition. It's not so much a technology. Yeah, Dave, you mentioned a lot of the acquisitions that Cisco has done. In many ways though, some of the areas where Cisco can be defined is the acquisitions that they didn't do. Cisco did not buy VMware and were behind in the virtualization wave. And then they created UCS and that actually was a great tailwind for them, created their data center business. They did not end up buying NYSERA. And yet they, you know, NYSERA has done very well but if you talk to most customers well, even if you're deploying NSX, whose hardware do you tend to have? Well, you're sure it might be Arista, it might be somebody else's, but Cisco's still going well. So they haven't had, you know, there hasn't been a silver bullet to kill Cisco's dominance but how are they going to do that cloudification? The data center group has gone through a lot of challenges. If you look at, they fumbled along with OpenStack like many other companies did. They went through just as VMware really failed with vCloud Air. The cloud group inside of Cisco had, you know, they had this large, you know, Cisco offering that for a couple of years everybody's looking, I don't know, are you enabling service providers? What are you doing? Now they have management pieces. They're partnering with Google, Amazon, Azure, across the environments. They are heavily involved in Kubernetes and the service meshes. So it remains to be seen, you know, where Cisco will find that next TAM expansion to kind of take into the next phase. But Stu, the acquisition is a good piece. Well, I think they got to do some M&A clearly and organic but the question is, wouldn't this here have been successful at Cisco versus VMware? Look at the timing of that. I think VMware being bought would have been a home run. But Nacira, I don't think that succeeds at Cisco. I think that would be a bunch of knife fights internally and Nacira would have been shifted out because what it was then and what it is now at VMware are two different things. I think VMware took it and shaped it. That I don't think Cisco could have done it at that time. The success would have been a defensive move to keep VMware out. That would have been the nature of the success. But I think you're right. The infighting would have been brutal but VMware wouldn't have Nacira. So, VMware, what they did when they bought Nacira is they spent the first three or four years just making it an extension of VMware. Now it's starting to become their multi-cloud interconnect and that's where we need to see Cisco be involved. Cisco has bought many companies that have promised to be multi-cloud management or that interconnecting fabric and they have not yet painted out. There's no security as a litspin though here. They've made a bunch of acquisitions in security and I've always said that they've got a position, their networking is the most cost effective, the highest performance and the most secure to connect multiple clouds to hybrid on-prem. And they're in a good position to do that. Thank you. I've always said this from day one. You guys know I'm harping on this. Stu and I, we high five each other all the time when we say this but back in the days in the IT days, the heyday, if you were a network operator, network designer, network architect, you were the king, king or queen. So, you had the keys to the kingdom. VMware is a legitimate threat to Cisco. They compete and they talk about that all the time. But the question is, which community has the keys to the kingdom? Rhetorical question. Yeah, well John, just one point I know you're there. Pat Gelsinger, I remember Pat Gelsinger got on stage and he's like, hey, here's the largest collection of network admins and everybody's looking at him. What are you talking about Pat? When I talk to customers that are deploying NSX, it is mostly not the network team, it is the virtualization team and they're still often fighting with the network team. But to your point, where I've seen some of the really smart network architects and people building stuff, Amazon, Azure, Google, all have phenomenal people and they're building environments where Cisco needs to make sure they partner and are embedded there. If you, Dave mentioned the lever, if Cisco's going to pull that lever or turn the boat around and one shift move now or otherwise they'll lose that leverage. They have more power than they think in my opinion, they probably do know, but they have the network. And I think the network guys, Trump, the operating guys, because you can always swap in operating staff, but you get the network and the network runs the business. No one could swap out Cisco boxes for, you know, Synopsys years ago, so, or Bay had whatever turned into. So they have that nested position. If they lose that, they're done. Yeah, and I agree with you, John. There's a lot of, Stu, you pointed out there's people by NSX and in Cisco ACI, but my question is, okay, how long will that redundancy last? I think to your rhetorical question, Cisco is sitting in the cat bird seat and, you know, they know networking, they're investing in it. I don't think they're going to lose sight of that. Yeah, Rist is, you know, coming at him and Juniper, but Cisco, they know how to, you know, manage that business and maintain its leadership. I guess my question is, have they lost that acquisition formula? Are they as good at acquisitions as they used to be? I think their old models flawed for the modern era. I think the acquisition is going to come in and integrate in, I think VMware has proven that they can do acquisitions right. I think that comes from the EMC kind of concept where it's got to fit in beautifully and have synergies right away. I think what Pat Gelsinger is doing, I think he's smart. And I think that's why VMware is so successful. They got great technical talent. They know the right ways to be on and they execute. So I think Cisco's got to get out of these siloed acquisitions, this business unit mindset and have things come in. If they work in line with the strategy and the execution, it has to from day one. You got to be fitting perfectly in. The portfolio is still pretty complicated. You got the core networking. You got things like Webex, right? I mean, would you want to be going up against Microsoft Teams? But they're in it. Cisco's in it to win it. And they got to talk about a nice fight. Don't count out Zoom. Talk about, no, Zoom's right there too in the mix. And so Cisco's got some work to do, expect some enhancements coming there. And HCI, they've got to walk a fine line stew. You made this point. On the one hand, they've got IBM and NetApp with UCS in converged infrastructure, but then they buy Springpath, which is designed to replace converged infrastructure. So they've got to walk that fine line stew. All right, what are you guys going to hear this week? Let's just wrap this up by going down the line on thoughts and predictions as the keynote kicks off tomorrow. I took some notes. I was doing some, you know, going around the floor, trying to get inside people's heads and ask them probing questions. And here's what I got out of it. I think Cisco is going to recognize cloud and absolutely throw the holy water on the fact that it's part of their strategy. I think we'll hear a little bit about Silicon One, but how it relates to the portfolio. But I think the big story will be how tying the application environment together with networking, not end to end, but really has one seamless solution for customers. I think it's going to be a top story. That's been teased out by some of the booths that I saw connecting things as one holistic thing with application development focus with DevOps. So John, ACI was application-centric infrastructure. And I was critical back in the day there, is like, well, the application owner really doesn't have much connection there. If you look at what Cisco's been doing in the last few years, it is tying together more that application owner, the DevNet group that, you know, we're sitting here in the DevNet zone, that connection between the developer and making enabling them as part of the business absolutely is a wave that Cisco needs to drive. I don't think we're going to see a ton of the silicon one, 5G and that kind of stuff, if for no other reason then, in about a month, they're going to be sitting here with 100,000 people from Mobile World Congress, and that's where they keep their dry powder to make sure that they push that piece of it. But that is super important. So, yeah. I think, you know, software and security. I mean, as we're talking about Zoom teams, so they better, you know, focus on collaboration and want to hear some stuff there. Security, IoT and the Edge, they've got a very strong position there. Cisco's security business grew 22% last quarter. It's really doing well. So I want to hear more about that. And I think data center, what they're doing in the data center, what they're doing with their switching business, their HCI stuff and converged infrastructure, hyper-converged, I think of three important areas that we'll hear about. And Dave, I'll emphasize on what you were saying. Edge, edge, edge, you know, absolutely. If Cisco is going to maintain a dominant player in the network, they need to deliver on that edge. And I've heard a couple of messaging strategies in the past, there was fog computing and all of this other stuff. But I think Cisco is in a position today between Meraki that they have, between their core product, DevNet, to really be able to enable those edges. And those are only triables. Yeah, well, I want to see more progress. I'm looking forward to seeing, I'm going to drill them on the interviews we do here. They spent millions of dollars sassifying and creating a subscription model at the cloud. We're going to dig into it, we're going to extract the signal from the noise. Cube Coverage here in Barcelona, Spain. First show of 2020, Cisco Live 2020. I'm John Furrier with Stu Miniman and Dave Vellante. We'll be right back.