Cisco Systems, Inc. (CSCO) Management Presents at Bank of America Merrill Lynch 2019 Global Technology Conference (Transcript)

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Cisco Systems, Inc. (NASDAQ:CSCO) Bank of America Merrill Lynch 2019 Global Technology Conference June 4, 2019 2:45 PM ET

Company Participants

Jonathan Davidson - Senior Vice President and General Manager, Service Provider Business

Conference Call Participants

Tal Liani - Bank of America Merrill Lynch

Tal Liani

Okay. If you don't mind, just to sit down, so we can start. We -- the next -- you got a glimpse of our discussion in the previous session if you attended the 5G session. Jonathan Davidson is Head of Service Provider Business, and he is going to introduce himself in a few seconds.

We want to talk about what Cisco is doing with service providers, the growing parts, the challenging parts, the product portfolio. Before we start, I want to first thank you all of you at the end of the [IR] [ph] season, all the votes are in. Hopefully, I want to thank you for your continued support. We have a terrific team, research team that has been around for many, many years. I'm just closing 21 years at Bank of America. Justin and Kash and Vivek and Wamsi are all superstars and we want to sincerely thank you for your continued support on all the activities around our research.

We published heavily on 5G. We published heavily on Huawei and what's going to happen to – if trade war continues and even various views, different views within Bank of America, how the whole trade war between U.S. and China moves on from here. But there is one thing that I think is the consensus now among the economists and strategists, is that the U.S. and global trade may slowdown. And this morning you saw that our economist published a view that the interest rate is going to actually be cut for the next 3 times, 25 basis points for the next 3 times, because in order to encourage some activity in the U.S.

So, with that, in the backdrop, this is kind of the backdrop for our discussion, global trade, economic slowdown in the U.S., as well as globally and then Cisco's portfolio, the most important part is here to speak about Cisco, that's kind of the basis for our discussion today. And Jonathan some of the people here heard your views on the market in the previous session, but some of them did not attend the previous session. So I would like you to reintroduce yourself to the group, if you don’t mind, and speak about your areas of responsibilities and then we’ll take it from there.

Jonathan Davidson

All right. Sounds perfect. Thanks, Tal. It’s great to be here with you. So, hello, everybody, we appreciate being the show part of the lunch.

Tal Liani

Yes. I am hungry. Yeah.

Jonathan Davidson

So a few things, one, so I lead the Service Provider Business at Cisco. That’s inclusive f 5G technology, areas of mobility, optical, cable, automation and routing. And of course, I need to let you know, since there are new people in the room to share our Safe Harbor statement. I'll be making some potentially future looking statements, if you want to know details about that, please go to our cisco.com website and you can read the full details there.

Tal Liani

Great. So just so you know today's my birthday.

Jonathan Davidson

Oh! Happy Birthday.

Tal Liani

And you are the, [Marlene] [ph] said, I have a gift for you, this is it.

Jonathan Davidson

It's me? I’m -- this is the worst birthday present you have ever had.

Tal Liani

But – wow.

Jonathan Davidson

We got to get you something better.

Tal Liani

Yes.

Jonathan Davidson

We'll work on that at the break.

Tal Liani

I’ll take this for now.

Question-and-Answer Session

Q - Tal Liani

So I want to start with just an overview. Cisco’s Service Provider Business, can you frame us first of all the size of it within Cisco. What are the big components and then we'll go and kind of drill down to speak about the trends within each component of your Service Provider Business?

Jonathan Davidson

Sure. So high level, yeah, Service Provider at the company, it consists of, I think, of it as three distinct parts. So the first part is the -- what I would call the critical infrastructure elements that I'm responsible for building, that they then take those products and software, and then they build their networks and they sell their network as services. That’s kind of step one -- part one.

Part two is what we sell to them as enterprises. So Service Providers, they are just really, really large enterprise accounts from the IT side and the majority of them have separate IT organizations from their network operations. So one part is their business. So I mostly work with them and the other part is their IT, like, how you support, like, WiFi and those types of things and so we sell to them.

And there's a third component of that as well, which is what we do through the service provider as a channel to our enterprise and small and medium business customers, and that can be for security services, for the connectivity services, for collaboration services, like, Webex or from our acquisition of BroadSoft for even calling services. And so those are kind of the three distinct buckets of how we look at the business. So my specific part, the kind of bucket one, we don’t break that part out.

Tal Liani

Yeah.

Jonathan Davidson

Except when we talk kind of to people who drive market share, we -- and we kind of club one and two together along with some other things, and we talk about what we sell to the service providers because that's a complete view of everything that we are selling to them but not through them.

Tal Liani

Service providers made explicit comments regardless of the economic activity level, et cetera. They made explicit comments they want to reduce spending. How can you grow within an environment where the spender is telling you I want to reduce my spending?

Jonathan Davidson

Yeah. They've been telling me that for a really long time.

Tal Liani

Yes.

Jonathan Davidson

So, I think, it's important to note that globally CapEx trends over the past several years have been flattish to depending on who you talk to some analysts say slightly down, some say slightly up, but flattish kind of covers the picture.

But underneath that there's a lot of change happening underneath the global TAM number where there certainly have been vast areas of rapid growth predominately around web-scale. I should comment that we put the web players into the Service Provider category.

Tal Liani

Yeah.

Jonathan Davidson

And then other places have been pulling back in other categories predominately around things like business services or legacy TDM services and things of that nature where they've been spending significantly less than they have in the past.

And to your point, if you look over the past five years and you take the top web-scale customers, and you take the top global service providers, the amount of not just spend as a proportion has gone up dramatically on the web-scale side, but also the actual EBITDA has surpassed on the web-scale side versus where the top, if you compare kind of the top five with top five. The actual revenue EBITDA has gone past with those and that's the fundamental problem is the majority of the global service providers excluding web-scales. Their revenues have been stagnating. And so that's one thing we feel like we are in a position to be able to help them with their topline growth as well…

Tal Liani

Yeah.

Jonathan Davidson

…which is then beneficial for us.

Tal Liani

But when I look at the Service Provider Business overall, it's composed of service providers, web-scale and/or cloud and cable. You have excellent position in service provider, excellent position in cable. On the cloud part, there are parts that are weaker. What is your strategy and this is -- you just said it, this is the growing part of the Service Provider Business, if I can call it, if I can look at it this way. What Cisco -- what can you do in order to expedite the growth, improve the growth on the cloud side of the equation?

Jonathan Davidson

Yeah. I think, it's not what could we do, but what – how we have been doing, it's not as though we're starting now. So it's important to call out first of all that, when we refer to web-scale companies, there is kind of the upper echelon of…

Tal Liani

Yeah.

Jonathan Davidson

…the top five or seven and then there's just a really long tail. And in general, if you carve out the IaaS providers, you've got one that's leading away with the majority of the market share and then you need the next four to get to that market share growth and then you need the next 20 to get to the two through five, right? So there is a very large and then it falls off rapidly and then there's a long tail.

And so it's important to kind of the way that we view it is in the top, what you call the top five or the top seven, depending on where you decide to draw the line, each of those individually we view as markets in and of themselves. And so you have to make sure that you are understanding their business that they are in. You’re understanding in detail the transitions that they're going through the timeframes. And then you have to build your technology roadmaps and your technology plans in order to meet those requirements.

And so, I think, we've been very public about missing kind of wave one of the build out, starting 10 years ago. But we also have, I would say, restructured how we are addressing this as a market segment in and of to itself, not only from the sales perspective, from a customer experience, CX perspective, but also from a development perspective so that we can fundamentally address their quality requirements, their agility requirements and I'm wanting features in the right timeframe as well. So I think we’re well-positioned from that perspective.

The other thing I would add, which I think is really important is you can't just wave your hands and say, oh, it's web-scale, like, it’s a one use case. Depending upon the web-scale provider, there is anywhere between seven and 15 different use cases that they have.

And so you actually have to go and target each one of those respective use cases, make sure you have the right products, the right quality, the right feature sets, the right agility to be able to meet their timeframes when they expect to make a transition. And they make their product transitions more rapidly generally than others, because they've got scale and they just continue to build out so rapidly.

Tal Liani

Yeah. So I want to start going from kind of the high level down to various products, because there are interesting questions to ask about products. And roughly big numbers half of your Service Provider revenue is routing. The routing is -- has been -- the market itself has been under secular decline for seven years or under decline for seven years.

We just heard from Juniper this morning they told us as it pertains to service provider routing, two things happen, number one pricing is going down 20% to 25% a year, number two, we don't expect it to grow, we think this market is going to decline forever.

What’s your view on routing? What do you think could drive a recovery for you in routing? It's a big part of your service provider revenues? What can you do in order -- even if routing is going down, what can you do in order to build upon it and have other parts of the business growing based on your routing position?

Jonathan Davidson

So I think we have – if I’ll start with it, I think, we've got the best product portfolio across the board, but really in routing in probably 10 years, in my opinion. And that's showing up from a market share perspective as well we've been gaining share for the last three quarters on a year-over-year perspective. And even in Q1 of this year we saw we were able to grow over two points of share year-over-year. I think we're at the highest core routing market share in four years or five years.

So you got to have the right levels of investment. This certainly is a market where if you -- I'll give you what I tell my new interns that are coming in. If you want to be an SP if you believe that you always want to be on the cutting edge of technology, so it's akin to getting on a treadmill, pushing it to the steepest possibly it can go to and then pushing it to as fast as you feel comfortable with and then don't ever get off, right? That's the service provider market, because you’re constantly are on this innovation cycle.

Because they have a problem, which is a good problem, their bandwidth demands continue to grow, because it's actually your fault here in the room and whoever might be listening on a webcast, but this insatiable appetite for cat videos and everything else you do on the internet is driving these bandwidth requirements to force them to continue to build out their infrastructure and that's a good problem to have.

And so that’s kind of number one. And then if you want I can talk about kind of what we believe our thesis for, there is five architectural shifts that are happening in the service provider market today. And we are working with our customers to actually help accelerate those shifts because it's in their best interest to make those happen.

And as they accelerate those architectural transitions market share that was previously unavailable to us becomes available to us inside of the TAM that currently exists and there will be market share shifts and there'll be TAM shift from one TAM to another as well, which we think is beneficial to whoever is the strongest player in that space at that time.

Tal Liani

The problem of routing was -- and you mentioned core routing, but the problem of routing so far was that the innovation of you and Juniper and Huawei, the innovation far exceeded or exceeded the rate of growth of demand, meaning the annual improvement of your product was faster, grew faster than the annual growth of traffic, and as a result, there is constant pressure on pricing. Do you think that routing, again being so -- such a big part of your revenues, do you think that routing could change, for example, SD-WAN or 5G or any other initiative that could change the growth trajectory of routing or maybe content -- adding content to routing in a way that could change the growth trajectory. I'm trying to understand why would routing market grow and I'm not talking about Cisco’s market share, I am talking about the routing market, why would routing market grow in the next five years if it declined in the next – in the previous five years?

Jonathan Davidson

Yeah. So it's good point. Let me explain a couple things, so one of the first, and probably, the most important architectural transition that’s happening, is the fact that our service provider customers used to build bespoke networks for every service type. So they -- if you wanted to offer services -- data services over mobile network, you build the mobile backhaul network. If you wanted to offer residential services on DSL or PON, you build a residential backhaul network. If you wanted to go and offer Business VPN Services over TDM, you bought that network or you build that network. If you want to do Ethernet, you bought -- you built out a Business Services Ethernet Network.

Tal Liani

Yeah.

Jonathan Davidson

So all of these bespoke networks that are being built for the last 20 plus years and if you include TDM well beyond that, in our opinion all of those networks are going to collapse over the next three years, five years, seven years onto a common IP over Ethernet infrastructure. So all that data that was previously in all these separate networks now gets into one.

Now it means that the buying decision and the win or the loss now becomes more critical. It's similar to the web-scale customers. If you win one or two or three web-scale customer, you're looking pretty good, it doesn't matter if you win number 80 through number 100 web-scale provider. It's good. I don't want to diminish them, right? They are important customers. But they don't add up to the one, two or three. And so we believe that that architectural shift is very important, the first one I just mentioned.

There is a sub-element to that which comes back directly to the experience that we all have and we see, if you watch the global news, front page news about network outages. Back when I started at Cisco in 1995, we would dream of the day when IP was critical infrastructure. We're well past that point now. IP networks are critical infrastructure and if you don't believe that when one of those goes down notice how that you can't book flight on an airline or you can't trade stock or just fundamental businesses fall to the ground.

And that's a good thing, but it also provides the burden of the fact that we are deploying and helping to build critical infrastructure, which means that we need to start building in a different way. And the way that we've been building it for the past two decades is not the same where that infrastructure will get built for the next two decades.

And so, this is something I've been a proponent of for quite some time that we're seeing a market start to move in that direction where you can utilize the infrastructure to actually insure that the availability of the services that traverse that network are much, much higher and can come to that level of criticality that it deserves.

And so I think when you start to combine kind of part one to part two. My belief is that, we’ll do well overall. It's very difficult to explain or to talk about the overall market, because I don't control the investment that others are going to make in the space. But I believe from our perspective those two transitions are going to be beneficial too…

Tal Liani

Yeah.

Jonathan Davidson

…the number one player in the space.

Tal Liani

Is NFV good or bad for Cisco? On one hand it migrate the services to a software layer and typically price per unit if I can call it this way had been – the impact on revenues is deflationary when you move to softer domain.

Jonathan Davidson

Yeah.

Tal Liani

On the other hand it's a new revenue source for Cisco. How do you view with NFV? What is the cannibalistic aspect of it versus the opportunity that you see in the market?

Jonathan Davidson

So I think it's important to call out, so NFV is Network Functions Virtualization and it's important to have a little bit of a history lesson. So if you go back to the 90s -- late 90s they were awesome, if you missed them that's too bad, but they were awesome.

And what will happen is being at Cisco in the late 90s, every time there was a new network service or a new network function, we would put that network function in the router. If you want to deep packet inspection, we put it in the router. If you wanted to do subscriber management for cable or for DSL or PON, we put it in the router, like, that was our voice-over-IP, we put it in the router, like everything went into the router, that was our thesis for how to solve every problem and it was good, it was very good for us.

When you think about Network Functions Virtualization, we're not talking about routing and switching. We're talking about all the things that we put in the router or the switch that didn't really belong there in the first place. And so what we're doing is we're taking those functions that didn't belong there, subscriber management, deep packet inspection, voice-over-IP. And we're putting them where they belong, which a few years ago was in a VM and in the future it's in cloud native, micro services based architectures. Because you need to be able to scale those things out and a router with all the restrictions that a router has is not a great place for that, you don't have unlimited scale out capabilities from an x86 perspective in a router, it is a system.

However, routers are great at routing. They're the most cost effective way of moving traffic around your network, same with switches, same with optical equipment. Those will always exist. I always hate to say always, but as far as I can say, those things will always exist.

And what we're seeing is now that you are moving those network functions elsewhere that means that you need to have compute, storage, datacenter switches, you need to have a whole set of orchestration software, people call it MANO, there's lots of different names for it. But you have that software as well and our customers are coming to us and asking for our systems and building out those regional data centers, those centralized data centers and now those far edge data centers as well.

And so, I don't see this is bad for me from a routing perspective, because the services have been migrating to the right place for like seven years, eight years now. This is not a like a new thing kind of the last holdout is subscriber management. Our mobile subscriber management was never in a router, because we bought it out – we have – we bought another company and so it wasn't having a router.

However, our BNG software for DSL and PON and our cable software that's going to go cloud native, but the benefit of that is, we are now on our software model. I use -- we use to sell them a router with that software, so you had router economics applied to software.

Now we’re going to have software economics applied to software, and so I can go through subscription or through term based licenses and quick recurring revenue offer streams based upon this being a pure software business. And in fact we’re structurally lined that way as well inside of my engineering team. I know that's a really long answer to your question but…

Tal Liani

Right.

Jonathan Davidson

…there is a lot of context around that.

Tal Liani

Yeah.

Jonathan Davidson

And I think people misunderstand thinking that NFV means routers are going away.

Tal Liani

Yeah.

Jonathan Davidson

I wanted to make sure people didn't take that away.

Tal Liani

Right. What I got from all of this is, this is an opportunity for you, let me summarize it in three words?

Jonathan Davidson

I could have just said that.

Tal Liani

Yes.

Jonathan Davidson

Another thing.

Tal Liani

Another initiative that we see that is related to your business is SD-WAN and is SD-WAN by the way is part of your kingdom or that's part of the enterprise IP?

Jonathan Davidson

I don't refer to as a kingdom. But so, SD-WAN sits with our enterprise teams. So my peer…

Tal Liani

Yeah.

Jonathan Davidson

… Scott Harrell, he has all of the campus, all of the wireless LAN, all the branch routing, inclusive of…

Tal Liani

Yeah.

Jonathan Davidson

… our SD-WAN solutions, and obviously, we partner very closely with each other.

Tal Liani

Yeah.

Jonathan Davidson

And I give all of his stuff a ride across the service provider infrastructure.

Tal Liani

Got it.

Jonathan Davidson

But we tag team to go and talk to the service provider both in the business, decision makers at the service providers who built products that…

Tal Liani

Yeah.

Jonathan Davidson

…enterprise see and also the infrastructure people.

Tal Liani

And I know SD-WAN is very successful for Cisco in general the question is, is it cannibalistic to your branch routers business.

Jonathan Davidson

Yeah.

Tal Liani

…is it replacing because at the end of the day, you are providing a service over the internet infrastructure instead of providing it over a private network of routers. So I don't understand and again that it's not just might how couldn’t it be cannibalistic to sell the routers?

Jonathan Davidson

Well, I think, so I am going to include three things into the SD-WAN bucket.

Tal Liani

Yeah.

Jonathan Davidson

For the purposes of this conversation, I'm going to include Meraki in the SD-WAN bucket and then what we call vManage which was the former Viptela acquisition. And then also our traditional branch routers…

Tal Liani

Yeah.

Jonathan Davidson

… which also are with software additions are now can be plugged directly into the SD-WAN framework as well. And so you go into the way back machine a few years ago and SD-WAN was initially thought of as a way to save money by moving – instead of you moving across an MPLS network, I can move it across the internet. All this is a way of killing MPLS.

But the truth is, is that there's a set of traffic and it's not about MPLS and it's not about the internet. It's about there's a set of traffic that doesn't need an SLA and then there's a set of traffic that needs a service level agreement like I need the traffic to show up at a certain time. So if I'm calling you and I am -- we're talking on the phone the SLA matters, because I'm going to notice if the -- if we have a weird connection like so SLAs matter.

If I have a machine talking to a machine and I don't really care when they talk to each other then SLA may not matter. So if I can go and swipe a credit card whether that transaction took 50 milliseconds or whether it took 20 seconds, yeah, maybe 20 seconds you care, but 5 seconds you probably don’t care.

So when machines are talking to machines latency and those kind of things matter less. So what we have heard from our customers is that, it’s the same thing. There is a set of traffic that SLAs don't matter, but I really need that SLA for a set of my traffic as well and this is one of the reasons why one of our biggest challenge for SD-WAN is the service provider.

Because if they have the ability to offer an SLA based infrastructure for the SD-WAN, so what started off as arbitrage and pricing has now moved to I love SD-WAN because I have simplicity, because I have granular control over my applications and which ones use the non-SLA path and which ones use the SLA path and that's really what's resonating with these global CIOs.

And so, certainly, we see that as we provide more of the value chain we're not just selling a router and then seven years later we sell another router, right? This is an ongoing service that they're now buying from us. And so we get to move a portion of this into that kind of subscription based model, which we think in the long-term is beneficial for us.

Tal Liani

So that's the perfect segue to my next question that I wanted to ask you, within your domain what are -- where are the areas -- what are the areas where you can move some business to a subscription based business and I’ll give as an example the switching area with the catalyst 9K they were able to move certain part…

Jonathan Davidson

Yeah.

Tal Liani

…of revenues to a recurring revenue model?

Jonathan Davidson

So I think let’s start -- that's kind of goes into the intent based networking conversation, which actually our data center team started off with ACI. And that continues to have phenomenal traction in the marketplace and you think if it is in the data center you care about applications, and application performance and understanding what's application from an -- with – from an application perspective that in conjunction with application dynamics of understanding those two things together is a phenomenal solution.

In enterprise you talked about what's happening there with the NAC. And then the service provider space there's really a couple of things happened there. One is, again, it's back to intent based networking approach, so automation or the differences is that, in the service provider base we have scale, tremendous scale, I have customers with hundreds of thousands of like one customer, hundreds of thousands of my routers.

So think about how do you manage that entity, if I say, hey, can you just upgrade your devices like upgrading 20 a night is not going to cut it, but you have to upgrade tens of thousands of devices every night without any of you noticing right? That's pretty difficult to do.

So we had scale but we also have this complexity of being in a multi-vendor environment in the service provider space for the most part. We have to be able to manage multiple vendors in a loosely coupled fashion. Because service providers also have software development teams and they might have built their own internal tools we feel integrate with those as well. But that -- those automation software is -- has the ability to have recurring revenue and I was very careful not to say subscription...

Tal Liani

Yeah.

Jonathan Davidson

…but recurring revenue, which means either it's subscription or it's a term based license.

Tal Liani

Yeah.

Jonathan Davidson

And at the end of the term they're going to buy it again and it's about how they need to procure it so they can capitalize their, whatever it is, whether they are buying. That's number one.

The second part is how a portion of my portfolio is moving to subscriber management services and so I would put cable, mobility and BNG software into that bucket as well. And that is going to be a multiyear transition as well, but that is also an opportunity for subscription based offers or for what I would need to notice term based licenses.

Tal Liani

Got it. I have two questions that I want to cover. The first one is the smaller one, if you can discuss the trend, we speak a lot about cloud, we speak a lot about service providers. I think we're very educated about what's happening there. One area we always understand less is the cable environment, cable providers. Are they going to spend more money less money, what are the things that are concerned about, how do you participate in their build out, how do you view this segment as a source of growth?

Jonathan Davidson

Yeah. Well, I think, everybody saw in Q1 the cable market overall was challenged and I think anybody who sells significantly into the cable space saw those challenges. Some of the cable providers MSOs have come out and been explicit about what they're saying.

Tal Liani

Yeah.

Jonathan Davidson

But I think there is some fundamental changes that are happening in the marketplace globally around. And I'll say, I'll go back 10 years in cable and then move forward. But what we've seen in Europe, as well as in Asia a lot of that market has been moving more, more towards PON, which is kind of moves them away from cable or the cable provider starts to become more of a PON provider. So the actual access technology is changing. The challenge is that often times, I mean, that’s going back into people's homes and it's expensive, if you have a high cost of labor. So that’s kind of yeah fundamental change number one.

Fundamental change number two and I kind of mention this that first architectural transition of everything moving to IP over Ethernet and different cable providers calls us different things some of them calling it fiber deep, some of them calling it DAA, the fundamental technology is remote file, remote MAC file.

So taking that complex analog stuff and instead of having it and kind of the edge of your network you're pushing it way out to where it's basically sitting on your block or within a couple of blocks from where from where your house might be, that's a pretty fundamental shift and what it does is it helps them to lower their costs from analog based equipment to digital IP over Ethernet equipment.

Now we sell both. We sell the analog equipment and we sell the digital equipment as well the routers and switches and the optical equipment. So that net-net is a positive thing for us because we have a much higher share and routing than we do in the analog stuff.

Tal Liani

Yeah.

Jonathan Davidson

So we believe that as those markets transition there is another opportunity for us to gain share. The last big thing that I think is important for everyone to know is the cable industry has been, I would say very collegial and nature towards each other, in general they've got properties that do not overlap. So it's not like, here, I could have Verizon, I could have AT&T, I could have T-Mobile and Sprint, and I could pick up the phone and I could make a call, sitting in this room on any of those providers.

However, at your house or wherever you live you generally have one cable option and that's your only cable option, because there's a few over builders, but most of them don't over build, so they are collegial in network and nature and they try to have a common consistency about architectures. And they have something called CableLabs which for the last 20 plus years has driven that architecture, which actually the cable companies fund. So you should know that. For the first time in 20 plus years there's actually disagreement on the future architecture for cable.

And so the industry will sort it out, but currently as things stand right now, the largest cable operators do not agree on what the next architecture is. Now they're going to have to agree over the next one year, two years, three years or four years, because otherwise there is enough TAM for vendors to invest all of those options.

Tal Liani

Right.

Jonathan Davidson

And they understand that, but they haven’t agreed yet, so that's another thing that everybody should know as well is the downside of that is that could slowdown potential re-architecture of the infrastructure waiting to see what the architectural win is going to be.

Tal Liani

Got it. Last segment I want to discuss is security and how it relates to your business. Is this a big driver for your side, are service providers be customers of security gear or not then educate us about the importance of security to your segment?

Jonathan Davidson

So I think there's really two parts to that and so this is why I often refer to what we do is building critical infrastructure, because it is both for businesses, obviously, we sell to federal and state governments around the globe as well and that's kind of the height of critical infrastructure.

But at the end of the day what you really want to know is can this infrastructure be trusted. Is the hardware that we ship to you the hardware that we deploy, is the software that we post in our website, the software that you deployed and how can we help you validate those facts. And so being able to understand the trust level of your critical infrastructure is important.

To the point now where I'm having very large fortune 50 type customers asking for me to enable the service providers to tell them if the networks that they're using our trusted, right? And so we're starting to see governments get involved and start to define trust criteria around what that needs to look like and obviously they're doing this in an open manner and we're trying to help them understand what this trust mean.

So that's kind of on the, how do you protect the – your own house and then once you have your own house protected then you could start offering services to enterprises to be able to help them protect their infrastructure as well.

And the service providers actually sit in a phenomenal way. If you think about malware that can go come in from this part of the network, traverse the service provider network and then land on your laptop. Well, there was an opportunity to stop that when it came in to the network, but often times we stop it when it gets right to your laptop or right before it gets to your laptop.

And so we've seen and certain instances where some service providers are moving more towards having a clean infrastructure. They are not going to stop everything but is there a new bar that can be set for what's a basic service level.

And so those are interesting conversations that that are happening. Obviously, majority -- many of our sources make a lot of money selling the ability to stop the malware for you and stop your malware stop. And then there's not I'm picking up malware there is more to it than that and if they were to provide blanket services would everyone here pay a bit more to have a secure infrastructure. And you have to pay less than if 20% of the people opt in for it. Like if we all opt in and we all pay a little bit more then you'll be more secure than if only 20% of its opt in…

Tal Liani

Yeah

Jonathan Davidson

Right.

Tal Liani

Got it. So when I look here I'll share with you our challenge always with Cisco. The stock is getting too high multiples, you’re at the high end of the historical range from a P perspective from the stock. At the same time, the performance of the company and that's the reason why the stock is behaving so well, the performance of the company is great. But it's great only on the enterprise side, meaning your space will still challenge in the last few quarters. So in order for the stock to be even more expensive you need to perform better. So the question I have now is, give us a sense of timing of improvement, a sense of your optimism level with, when you outlined here over the last hour, you outlined great initiatives for better growth rate.

Jonathan Davidson

Yeah.

Tal Liani

On the other hand the last few quarters were not that great, so connect us the dots, right? Or for us the dots?

Jonathan Davidson

So there is certainly a thought, like, you turned to Kelly for a second there. So the truth is, there are things that we can control and there is things that we can't -- that we can't control. What we control is making sure that we're listening to our customers. We can make sure that we're on the cutting edge of innovation that we’re solving our customers greatest needs. I can’t control the macro-economy. I can't control what other geopolitical forces might be happening.

Tal Liani

Yeah.

Jonathan Davidson

But whenever buying decisions are being made I want the preference to be Cisco. And I think as long as we stay on our innovation portfolio track. I think as long as we stay humble and we continue to listen to our customers which I don't see any change in that happening that whenever these architectural shifts kick into gear whenever globally we’re all on 5G phones right.

Tal Liani

6G.

Jonathan Davidson

I am not going to touch 6G that we will continue to be the premier deliver of critical infrastructure for the planet and I think that we’re on our way to do that.

Tal Liani

Great. Okay. We have question for maybe – time for maybe one question because I took up most of the time any question in the audience – from the audience? No. Great. We covered it all. Great. Thank you very much.

Jonathan Davidson

Thank you very much. I appreciate it.

Tal Liani

Thank you.