Welcome everybody. Before we get started, I'll read some research disclosures. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. For those who don't know me, I'm Meta Marshall. I lead up the networking coverage here at Morgan Stanley. We're delighted today to have Cisco and Jonathan Davidson, which who I was saying always has a new title that's grander and grander, but now we have as this EVP and GM of Cisco's networking business. Great. Great to be here. All right. Perfect. You know, Cisco is coming off of a very strong quarter. You know, you guided to double-digit growth for the year in light of macro headwinds. Understanding there's backlog release as part of that, but what is the biggest pain point for your enterprise customers today, and what is kind of causing that continued investment in Cisco? You know, there's a lot of different transitions that are happening. First of all, continued digitalization of our customers' businesses and the need to really change how they're interacting with their customers is driving significant transformation. If you look inside of a new factory for cars, I had a tour of one just a few weeks ago. The amount of equipment every 10 feet to make sure that all of that equipment is networked is critically important. Of course, security is top of mind for all of our customers and how security and networking are coming together to create a seamless experience for users and applications and things. There's so many fundamental areas where connectivity is just pervasive in all of our lives, and that's really driving a lot of that. Okay. I mean, your Analyst Day in 2021, you noted 5%-7% growth CAGR, which is above the traditional growth rate Cisco had seen. You know, is it just this connectivity that's causing the increasing of networking as a% of the IT budget? Just what is causing that to be maybe less macro sensitive than in the past? Well, I think if you look at the areas in which we play. Mm-hmm ... it's really important to look at how all these businesses are continuing to transform. I mentioned the digitalization. If you look at businesses that maybe people aren't aware that we're even in, for example, our Connectivity Management Platform. What we acquired a company called Jasper 7 years ago, we are now the number one connectivity platform with 60 service providers around the world. We have over 200 million mobile connected things. We're the number one connected car player in the world. Connectivity is certainly there. Also, as you look at how companies are either trying to incentivize people to come into the workplace instead of mandating it, how the workplace is being used is changing. Even in our corporate campus, we have taken certain buildings that used to house people, and we've converted it so that you could go and have really large off-sites. Instead of going and having an off-site off-site, you have an off-site on-site. We've actually blanketed it with more connectivity because you could have a room full of 100 people instead of a room full of 50 people. We think that how you're using connectivity changes. Our Penn 1 building in New York, for example, has Power over Ethernet-based lighting. You can save 50% on your cost by moving down that path. Mm. When you look at how all these things are tying together, including, of course, sustainability, especially, in Western Europe, these are really driving a lot of additional need, not to mention other tailwinds like the fact that governments around the world are putting tens of billions of dollars into infrastructure to drive connectivity into homes and the need for broadband everywhere to close that digital divide. Got it. We saw at Mobile World Congress last week, like, you know, there's 80 million connected cars at this point, kind of powered by Cisco. It's a big number. All right. Where do you see the greatest opportunities for Cisco to evolve the portfolio to kind of address these pain points? Is it more integrated security, more subscription sales, more analytics? Like what do customers need more of from you guys? I'm gonna say yes. Oh, okay. They need all of those things. What customers really want from Cisco is outcomes. They're really looking for us to help them transition from current state to future state. There's a lot of areas in which we can help them do that. If you have an on-premise data center and you need to move to the cloud, okay, well, how do I get connectivity to the cloud? How do I ensure security to the cloud? How do I connect from cloud to cloud? How do I know that my employees, when they're on-premise or when they're working from home, are having a great user experience? This is where things like full-stack observability- Mm-hmm come into play. Helping you understand what's happening with the applications, because most enterprises are digital now. You know, pizza companies are digital companies. How do we help them understand their users' experience, whether that's their employees or their consumers? We're one of the few people on the planet, I think, if not the only company on the planet, that actually can help you understand your employees' experience and your customers' experience in real time across public cloud, private cloud, the internet. We have more data points and more just straight analytics than anyone. On top of all that sounds really complex the way I just described it. Yeah. They want it delivered to them in a simple way, and this is where we have been putting in just a tremendous amount of effort, is to unify the experience of Cisco so that it is simple for them to digest all of this technology. More Meraki-like experience across the portfolio. Right. It's, you know, we have different feelings about that. The... If you wanna make it a. Yeah ... the Merakification of the large part of our portfolio, we started talking about this last June at Cisco Live, where we were taking our existing very large on-premise portfolio and enabling the monitoring of that portfolio, which the adoption has been great for that. And then expanding that into management of that portfolio as well to really create a seamless path for that huge install base... Yeah ... so that they can start to step into cloud. Obviously we've got Meraki. Meraki's a very large business. If you wanna go all in on cloud, you can do that today. Yeah. Okay. Got it. You know, you just spoke a little bit about kind of the outcomes that people want. Well, you know, really the outcome for enterprises is that we're moving towards a hybrid future. Is there a better way of helping them manage these environments? Either, I mean, I guess better security or at-home connectivity or just what does a hybrid environment require that is more Cisco intensive? Yeah. There's a few things. One, I think it's important to call out that there are different hybrid environments that exist. Mm-hmm. There. Especially if you look at governments around the world, especially in the U.S., you need to make sure that you are certified, you're FedRAMP, you're SOC 2 compliant, all those types of things. This is where we put a tremendous amount of effort in that. In fact, just last week our SD-WAN portfolio was FedRAMP moderate certified. We continue to invest. If you need to have a cloud experience but you're in the government, you can go and use our, you know, the number one SD-WAN technology out in the market today. We're really excited about that and we're gonna continue to do that. When you start thinking about what's happening in the cloud, of course there are private data centers that are going to exist forever, right? Right. The mantra of private data centers going away, a few years ago you heard that. You know, the pendulum from a marketing message swings both ways. Right ... but it usually settles right in the middle from reality. We're continuing to see how we can help customers migrate. Mm-hmm ... to the cloud. Really it's about how we can help them really understand what workloads make sense on premise, what workloads make sense in the cloud, and then how do you have seamless policy and connectivity and security between all of those. Mm-hmm. If I'm a user and I want to get access to an application that you shouldn't have to log in two different times if it's in the cloud versus if it's on premise. This is where our, our security approach of enabling that consistent policy from the campus, from the data center, from the public cloud is so important because that drives simplicity. Yeah enables the customers to just worry about the outcome. Got it. ... instead of having to worry about the swivel chair management and having to have my user instance in multiple places. I mean, you can provide the outcome, but where do you think customers are on that? You know, you've mentioned the pendulum swings on what investors think or what the market thinks, but, like, where are companies on thinking about what that hybrid footprint looks like, do you think? Well, we have a few different ways of segmenting out the customer base. Mm-hmm. This is from an internal perspective. I don't walk up- Yeah to customers and ask them this. Yeah. We say, "Look, there are customers that are cloud averse." I'll give you a simple example. Cloud averse customer could be a DoD. Mm-hmm. Right? Basically where do you want your management and orchestration for your infrastructure to exist? You know, it's probably good for all of us that the DoD wants that firewall from the internet. Yeah. You've got the smaller enterprises who are all in on cloud first. Mm-hmm. You've got cloud averse, you've got cloud first, and then you've got cloud hybrid type customers. Mm-hmm. This is not only how they want to manage and orchestrate their infrastructure, but how they view where should their workloads reside as well. We have products, and that's the beauty of this. We have products that can help our customers and it doesn't matter whether they're cloud first, cloud averse, or cloud hybrid. We have a very broad portfolio that enables you to be on that entire spectrum. For maybe ignoring cloud first and ignoring on-premise first, I guess we're in this period of cloud rationalization. We're in this period where maybe people are reevaluating what hybrid means to their organization. You guys, you may not ask them where you are on your hybrid journey, but just you're having a lot of customer conversations. I guess I'm just looking to see if there's any way to kind of determine where people are in figuring out what hybrid means to them, maybe post this kind of digestion period. Right. Right. first I almost wanna make sure I'm, the terms are similar- Yeah. Yeah. I'm gonna describe the 2 different things. One, if we say customers want to have a Hybrid Cloud Environment, that's for their workloads. Yeah. If customers are looking at how they wanna orchestrate and manage their... they're in a hybrid management orchestration perspective from the networking infrastructure. The beauty of it is, I'll give you one really large customer in the U.S., where for their very large campus locations, they're on-prem. They're comfortable with that. For all of their massive amounts of thousands of retail locations- Mm. It's cloud first. Okay. They wanna have a console capability so that they can manage both in parallel. In fact, for their remote operators, they give them the cloud first login, and they can go and turn a port on and off, and it's a seamless experience for the central team that manages the whole thing. Mm-hmm. This is something that we're giving them today and they're using today. Okay. We see it's not just, hey, this customer only wants it this way. It's like, what's the use case? What problem are you trying to solve? How can we help you go and do that? That seamless automation and management experience, which only we can deliver. Right ... is really resonating with both very large and very small customers. Got it. You know, a big conversation we have with investors is just around the campus portfolio. You know, you guys have been dominant here. It's one of your most profitable markets, but there's a lot of, you know, people at this conference who have spoken about kind of attempts to chip away at kind of your position there. You know, what steps can you take to kind of defend some of the positioning that you have here? Yeah. I think there's a few things. One, I always welcome competition. Competition. Yeah ... us on our toes. I think that's a great thing. You know, what we've seen is that we need to be more clear about what innovation we have inside of our portfolio. I'm certainly... We see marketing messages from our competitors, and what we think usually is like, "We've had the capability for two years, and they're announcing it, and people are getting excited." We need to do a better job of explaining the capabilities that we have in our existing portfolio that's been out and available to our customers. That's kind of one. We need to do a better job of messaging that, and you're gonna see more and more of how we're able to use AI and ML. This isn't new for us. This is something we've had for years. We've been shipping for years. The other thing that we've seen is that our competitors like to go and compare, especially on the on-premise side, something that is on-premise, where the customer may not have upgraded for three or four years. Mm. Although we push the code to our on-premise capabilities, and we say, "Hey, you need to upgrade. Just click this button and magic will happen, and you'll get the upgrade." There are some customers who haven't clicked the button, and that's their decision. Yeah. We have competitors who compare what they have right now to our on-premises offering from three, four years ago. Okay. What we do when we get into those sales scenarios is we say, "Hey, that's not apples to apples. Let us show you what we have right now that you've been missing out on, that you already have rights to. Right. We need to do a better job of making sure our customers are moving to the latest and greatest. We've been, or I should say I have been, surprised at how rapidly people are willing to accept cloud management. Okay. I'm not talking about small commercial customers. I'm talking about large customers. I'd say go back 10 years, it's kinda like how fast the banks were willing to move their workloads to the cloud. It went from, "We're never doing it," to, "It's one of our top priorities," over a period of 2 years, like 10, 8 years ago. Right. It feels like we're in that same kind of space. The good news is we have the largest cloud networking portfolio from a networking infrastructure perspective than anyone on the planet. All right. Some, some self-affirmation, some good marketing, will go a long way. You know, I don't think that there's any. There's headlines all the time about campus footprint shrinking, less office space even. You guys have rationalized some of your office space. You know, are there enough kind of opportunities to expand products into this market to keep it as attractive as it's been? I think the conversations that we're having with our customers are very different. Mm-hmm ... than they were. For those of you who've been around for a while, if you remember when we moved campus switching to Power over Ethernet, all the ports became Power over Ethernet, even though only the phones and then eventually the APs were Power over Ethernet. Well, we see that there's a densification happening inside of that remaining office space. Yeah. Also it's a full spectrum. There are certainly companies that mandate that you come into the office. I think you might have had one of those speakers earlier this week who came in, and he's one of the people who like to mandate people to come into the office. Yeah ... every day. There are companies who are on that end of the spectrum, and then there are companies at the other side of the spectrum are like, "Hey, come in when you need to do things where you need to collaborate. Yeah ... face-to-face." The power of drawing on a whiteboard is real. Mm-hmm. We're an innovation company. From an engineering perspective, our engineers, we heavily encourage them to come in anywhere between 2 to 4 times a week. In some teams, we have people that we encourage them to come in more than 4 days a week. That's more on the hardware side because innovation and hardware requires you to really be in person. It's really for team kickoffs, for brainstorming, for solving really intense problems. All of that comes down to we see that there's a way that the campus network is being used differently. I'll give you an example of Spaces. If you were to go into our San Francisco office, just down the street here, what you would see when you walk in is a very large Webex screen. It will have a 3D model of the floor plan of the building. It will tell you which conference rooms are available just by glancing at it. It'll tell you the temperature of every room, the humidity of every room. You can book a conference room right when you walk into the building. It tells you how many people are on that floor, and it gives you a view of what's happening. I sit out in the open in that building, and I can see people come in, they look at it, they book. It's heavily used. How we're using office space is fundamentally changing. The whole point here is we've got cloud-based technology like Spaces, like Meraki, that give you the visibility and analytics. Spaces is one of our fastest-growing SaaS applications, where we're integrated with over 100 different partners that have sensors. Not just Cisco sensors, but sensors that are connecting into it, where we can give you that broad visibility of what's happening inside of your infrastructure. The Webex screens are sensors. They can count the number of people in the room and report that out, too, so you can see whether rooms are utilized or not utilized. Which is great for facilities teams, which we're seeing more and more is moved underneath the HR function. Mm-hmm. You need to think about your people, you need to think about your spaces cohesively and together. Those are the kinds of conversations that we need to have with our customers. It's not just about how many PoE ports do you want anymore. It's what kind of experience do you want to drive, and we're primely positioned for how to do that. Not to mention, of course, all the great technology around. We've got the best APs on the planet. Yeah. Wi-Fi 6E is great. The automation orchestration is phenomenal. Common policy and assurance, all those other things are great. The conversations are uniquely capable with Cisco. The ability to book a room by temperature blows my mind as a person who's always cold. All right, maybe moving on to the cloud portfolio. You know, you guys have made inroads with these customers over the past few years. Some of that was with the acquisition of Acacia. Just where have you found the greatest needs that you guys have been more uniquely able to address? I think this really started 7.5 years ago. When Chuck became CEO, he made infrastructure a top priority. He enabled the acquisition of Leaba, the silicon company out of Israel. That team is the best silicon team I've ever worked with, and I've been doing this a really long time. You know, it started there, but it really went to us going and engaging with the hyperscalers and the web accounts, understanding what they needed from us, and then we had to build the products that they need from the silicon up. We have continued to gain share. Chuck and Scott talk about it a lot in the earnings calls. You've heard over the last many quarters. Right ...that we continue to see great growth in that area. It has been where we first penetrated was mostly in the wide area network, but we are in the data center proper across several of these hyperscalers. We are definitely taking share. I know everybody says they're taking share. Fundamentally, we are very excited not only about what we've achieved so far, but what is additionally is possible because we're the only company out there that can sell silicon to the hyperscalers. We can sell systems with no software. Mm-hmm. We can go and sell fully integrated systems. If they need any other type of assistance, so if they want to put our software on there, you can do that. We have embraced this disaggregated approach. There's no one else who has all of those things to offer, and that really resonates to be able to have 1 common piece of silicon that they can buy multiple different ways, and have a common operational framework from their top-of-rack switch through the data center, through the wide area. Operations is painful at scale, and having each different box inside the infrastructure act the same way is really important. Big silicon competitors, they have 3 different switching port or silicon portfolios to get there. The largest hyperscalers are moving towards open NOS as either one they run themselves or SONiC. Mm-hmm. We have our own SONiC distribution. We are all in on enabling SONiC. For my competitors who don't sell silicon, don't really have long-term differentiation, I'm concerned for what that, what that's gonna mean for them. I mean, the topic of the conference has been AI. you know, we put out a note last week that looked at the AI opportunity for networking. I mean, clearly cloud customers have been at the forefront of this, just as you look at kind of what the data center or networking needs are for these AI workloads, you know, what can Cisco do to kind of help address or take advantage of that opportunity? On the, I would say there's two things on AI specific to infrastructure. The hyperscalers have a extremely large AI networks, and they're only going to get bigger. They have unique requirements for how the traffic flows through those AI networks, and we've been working closely with them for years to do modeling, to understand how our silicon needs to change, to understand how our software needs to change, to make sure the traffic is flowing across those AI networks exactly the way they need to. We are in a great position because they're working with us and collaborating with us, so we know which kind of products to make. To me, that's the most precious thing. If they stop working with you don't know what to build, and if you don't build the right thing, they're not gonna buy it. Right. They continue, and they have been working with us. We have the intellectual property to change our silicon, to change our software, to change our systems to enable these very large AI networks. We're uniquely positioned in that space. We see that there's definite continued upside for how large those networks are going to be. That knowledge can be taken into the enterprises. We have a lot of enterprise-type accounts who are going and building their companies around AI- Mm-hmm ... who have similar types of requirements. Not necessarily the same size and scale... Yeah This is an area where you're gonna hear more from us over time about how we're taking our intellectual property and moving that into AI-based networks for companies that are focused on it. If your company's doing a little bit of AI, go use a public cloud. Right. If you're basing your company around AI, that means you've got large amounts of AI, it's actually more cost-effective to do it on premise, and we wanna make sure that we're able to help them. That we've already been doing that for years. There's customers who have been building their AI networks on top of our products for a long time, but there's more opportunity there. Got it. Maybe moving on to the service provider portfolio. You know, these guys have always been maybe laggards in architectural changes, but this kind of Acacia routing portfolio has gained a lot of traction. Just can you maybe contextualize for people, like, what that opportunity is and why it's so kind of transformational for carriers? Two things. One, the traditional optical model has been, "I'm going to sell you a hardware shelf at pretty much no margin is being made, and then I'm gonna sell you transponders that slide into them, and those transponders are where I make all my profit," or if you're in the optical-only business. That's the traditional razor-razor blade model. Right. what if I was able to take that transponder and put it in a pluggable-. Mm-hmm ... you don't have to buy that shelf anymore. If you don't buy the shelf, there's no lock-in. Mm-hmm ... anymore. If I buy a transponder on one side from vendor A, I have to buy the transponder on the other side from vendor A. Right. We're breaking two models with Acacia and ZR optics. One is, you don't have to buy the shelf anymore. That's number one. Number two, ZR is a standard, so you can get a ZR pluggable transponder from me, you can get it from another vendor, and they will work with each other. Finally, optical has options and open interfaces. That's the first part of it. Yeah. Second part is what you called out is this Routed Optical Networking architecture. If you go back to the 1990s, all of the internet ran over TDM networks. Now TDM runs over IP networks. We're moving to the point with the cost per bit of silicon for routing where, and this is a really important point, the cost per bit for routing is so low that you actually makes more sense to put optical on top of the routing. Mm-hmm. I know it kind of makes your head explode. Yeah Being able to put that, and we have it shipping today, being able to go and put wavelengths over IP is real, it's available, and we think that that's the future. From a cost perspective, it makes sense, anywhere between 30% and 50% savings. Got it. Maybe just the last question for you. You know, subscription software has become a bigger part of Cisco, but there's room to go. Just where are we on kind of more products being available by subscription, more ELAs? Like, kind of where do you think Cisco is, and where do you think customers are on kind of accepting that transition? I, it's a great question. Across the board, if you look at the traditional infrastructure business, when we first started migrating towards, hey, the majority of my engineers have always been software, even though even on the hardware side of the business, but we're not charging for the value of the software that's being created. We started having different conversations with our customers 6 plus years ago. We migrated the model where instead of saying, "We're gonna charge you $2 out of every 100 for software, we're gonna charge you $40 out of every 100 for software." About half of that's gonna be renewable. Like, you're gonna have to. It's term-based license. You're gonna have to renew it at 1, 2, 3, 5 years, whatever you decide to buy in the after the first part. That's happening. Back to the cloud conversation. We have, when you look at all of our unified cloud experiences, the potential for knowing that you have a platform is when other companies are building their software platforms on top of your software platform. We have over 200 software companies who are building their companies on top of our unified software cloud experience. This is across Meraki Spaces and things of that nature. All of that is driving subscription. All of that is driving software. Of course, ThousandEyes, full-stack observability with AppD, and of course, collaboration and security. All of those are critically important. These new consumption models are important as well. Got it. Well, with that, we're at time. Jonathan, thank you so much for being here today. Thank you, Meta. Appreciate it.