WEBVTT - Bloomberg Markets: King on Cisco's Push Into Software, Services

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<v Speaker 1>Globile Business News twenty four hours a day cast Bloomberg

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<v Speaker 1>dot Com. The Radio blows Mobile and on your Radio

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<v Speaker 1>is a Bloomberg business plan from Bloomberg World Handquarters. I'm

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<v Speaker 1>Charlie Pellot. We begin with the latest from Barcelona. A

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<v Speaker 1>van plowed into pedestrians on one of Barcelona's busiest streets

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<v Speaker 1>at the height of the summer tourist season, causing multiple

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<v Speaker 1>deaths and injuries. Local media reported the driver fled the scene,

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<v Speaker 1>but police now saying no one is at large in

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<v Speaker 1>any bar in central Barcelona. There were reports initially that

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<v Speaker 1>that's where a suspect had fled to Barcelona. Barcelona police

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<v Speaker 1>are now confirming that they have made one arrest in

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<v Speaker 1>connection with the attack. Spanish media, including El Mundo, put

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<v Speaker 1>the death toll at thirteen. The authorities say they are

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<v Speaker 1>treating this incident as a terrorist attack. They have not

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<v Speaker 1>given a specific number. They do say that three two

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<v Speaker 1>were injured, so again one suspect under arrest. Death toll

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<v Speaker 1>reportedly at thirteen in Barcelona. US stocks worst level of

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<v Speaker 1>the day right now. The now down two hundred one points.

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<v Speaker 1>That's the drop of nine tenths of one percent. SMP

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<v Speaker 1>down twenty seven down one point one percent, as stack

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<v Speaker 1>tumbling ninety two down one and a half percent. Ten

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<v Speaker 1>you up six thirty seconds at yield two point two percent,

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<v Speaker 1>gold up eight night. He the oounced up seven tenths

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<v Speaker 1>of one percent. Crude oil also hired by seven tenths

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<v Speaker 1>of one percent. I'm Charlie Pellett. That's a Bloomberg business flash,

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<v Speaker 1>thank you very much. Indeed it is Caroline Hikes out

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<v Speaker 1>here in London with another than Corey jumping over in

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<v Speaker 1>San Francisco. This is Berg, We think Tisco, we think

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<v Speaker 1>Ian King. He's a Bloomberg News, the semi Conductor reporter.

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<v Speaker 1>It's also covering the Cisco for US walk over Cisco

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<v Speaker 1>Arni's olt last night, Ian covering those for us, and

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<v Speaker 1>here in our nine sisso studios joining me right now, Um,

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<v Speaker 1>what does this have to say Cisco? Cisco's going through

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<v Speaker 1>this really interesting change in their business. That's um monument

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<v Speaker 1>to the biggest ever, I would argue, right, And that's

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<v Speaker 1>exactly what the CEO said Robbins when I spoke to

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<v Speaker 1>him last night. He said, Look, you know, this isn't

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<v Speaker 1>like a transition that you've seen other companies do we're

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<v Speaker 1>moving from being a hardware company to being a software company.

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<v Speaker 1>Nobody's ever done that, at least not at the scale

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<v Speaker 1>that we're at. This isn't going to happen, you know, overnight,

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<v Speaker 1>and so really that's where we are. I mean, if

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<v Speaker 1>you're an investor, are these guys IBM, are they at

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<v Speaker 1>a time out of context? Are they losing losing what

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<v Speaker 1>made them great? Or are they Microsoft which is a

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<v Speaker 1>company that people were riding off thought they had lost

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<v Speaker 1>their their relevance, and yet have somehow gone it right

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<v Speaker 1>there their hustles exactly exactly, Yeah, I mean give us

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<v Speaker 1>a sense in of how quickly whether you think they're

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<v Speaker 1>wearing on the Microsoft or the IBM side of things.

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<v Speaker 1>Because what's also more worrying for them is not only

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<v Speaker 1>remaining relevant in getting into the software space, but how

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<v Speaker 1>much of their rivals offering the cloud compute are able

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<v Speaker 1>to build their own networking equipment. Well, that's ex exactly here.

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<v Speaker 1>I mean, this is if you look at where the

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<v Speaker 1>energy is, if you look at where the technology is going,

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<v Speaker 1>it's coming from Google, It's coming from Facebook, It's coming

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<v Speaker 1>from you know, their Chinese counterparts who you know. I've

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<v Speaker 1>already told us in non certain terms, we don't want

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<v Speaker 1>Dell servers, we don't want storage systems from the usual providers,

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<v Speaker 1>and now we're looking at networking and we're going to

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<v Speaker 1>do that ourselves as well. We're very good at software.

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<v Speaker 1>We don't need them for that. We don't need the services.

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<v Speaker 1>We're going to do it ourselves. That is the negative

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<v Speaker 1>for Cisco. It's like, how do you make yourselves relevant

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<v Speaker 1>to these guys who think they're the cleverest guys in

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<v Speaker 1>the room. Um. Cisco's answer to that as well, Actually, no,

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<v Speaker 1>hold on a minute. These guys are relatively small right now.

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<v Speaker 1>Yes they're growing fast, but they're they're not everything. Companies

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<v Speaker 1>still need us. However, we have to get smarter, we

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<v Speaker 1>have to get faster. We have to offer the software,

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<v Speaker 1>the flexibility and the kind of services that companies are

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<v Speaker 1>looking at Facebook and saying I need some of that too.

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<v Speaker 1>And these are sort of software defined networks and things

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<v Speaker 1>like that. Right So it's not just they're not out

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<v Speaker 1>there offering database software to complete with Oracle or or

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<v Speaker 1>or you know, Sequel server or whatever, but there, but

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<v Speaker 1>the very nature of what they sell has changed, and

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<v Speaker 1>that has gone from the box to the software itself, right,

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<v Speaker 1>I mean, you're exactly right. This is this is one

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<v Speaker 1>of the things about networking which nobody's interested in, that

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<v Speaker 1>nobody cares about, but they perhaps should be, is you

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<v Speaker 1>can look inside a computer and know what's going on.

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<v Speaker 1>You can look inside the story system and know where

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<v Speaker 1>things are not. True with networking, knowing where packets are

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<v Speaker 1>getting dropped, knowing why something isn't working is really difficult,

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<v Speaker 1>and it's not been something that has been very clear

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<v Speaker 1>and as simple as checking whether or not a circuit

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<v Speaker 1>is connecting from a point A to C exactly. You know,

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<v Speaker 1>basically whether they're a packet of data was sent and

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<v Speaker 1>you know if it didn't arrive, what happened in the

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<v Speaker 1>interim nobody has a clue about. And that's it's not acceptable.

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<v Speaker 1>In the modern world where data traffic is exponentially increasing,

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<v Speaker 1>somebody needs to do something out that and there are

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<v Speaker 1>lots and lots of companies trying to do that, trying

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<v Speaker 1>to add different pieces of the puzzle, trying to allow

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<v Speaker 1>that customization, that knowledge to to you know, have an

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<v Speaker 1>input in how networks work and why they get faster.

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<v Speaker 1>Cisco has been the home of everything UM and it

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<v Speaker 1>has to step up to the challenge. I'm looking at

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<v Speaker 1>the E M function on Cisco, so looking at where

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<v Speaker 1>we're expecting earnings to go. And they've had what wanted

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<v Speaker 1>six quarters of negative revenue growth. We're expecting it to

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<v Speaker 1>falling shrinkage we've seen we've seen shrinkage just six and

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<v Speaker 1>we're expecting seven quarters. But then they are starting to,

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<v Speaker 1>like clawback analyst expecting it to be in the positive

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<v Speaker 1>one to two. We're going to be flat from here

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<v Speaker 1>on out. Basic when it comes to revenues of about

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<v Speaker 1>twelve billion. But what does ruck Robbins really say about

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<v Speaker 1>where what's going to be the driver and whether we

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<v Speaker 1>can boost revenue because it's been years since we've seen

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<v Speaker 1>significant growth exactly. I mean, you've nailed it there. I

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<v Speaker 1>asked him this. I said, you know, they keep talking

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<v Speaker 1>about deferred revenue all of these So there's accounting change too. Right,

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<v Speaker 1>when you sell a box and he also services on it,

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<v Speaker 1>most of the revenues of the day you sell the box,

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<v Speaker 1>except for some of the revenues you's got to check

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<v Speaker 1>in the mail. But with software it changes to sort

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<v Speaker 1>of a street line long term about link the contract

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<v Speaker 1>exactly and that's so that's where Chip goes. He's, oh,

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<v Speaker 1>you know, we've now got five billion dollars and deferred revenue,

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<v Speaker 1>that this is a fantastic sign of progress. And I said, okay, Chuck,

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<v Speaker 1>but when does that deferred revenue become real revenue? And

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<v Speaker 1>when does that, you know, turn this ship around and

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<v Speaker 1>get things back into the growth mode. And he said,

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<v Speaker 1>I'm not going to happen quickly, would be wrong to court.

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<v Speaker 1>James Baldwin said, what happens to a dream deferred doesn't

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<v Speaker 1>explode in the stock price. Well, I mean, you know

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<v Speaker 1>his other responses, The biggest problem we have is switching

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<v Speaker 1>and routing. Their two biggest businesses both decline nine in

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<v Speaker 1>the quarter they just reported. That's obviously fairly horrific. And

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<v Speaker 1>he said, what we've got to do is get innovation

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<v Speaker 1>back into these core products of ours, get people excited

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<v Speaker 1>about them, and then that will make the overall transitions. Historically,

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<v Speaker 1>Cisco has done the three acquisitions, and that when it

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<v Speaker 1>hasn't really benefited this. I mean, one could argue hasn't

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<v Speaker 1>been for the stock price. You could also sy if

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<v Speaker 1>they didn't the acquisitions of the stockward they would have

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<v Speaker 1>they would have become three Calm or something tune for

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<v Speaker 1>or something. But but they've spent vast billions and billions

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<v Speaker 1>and billions of dollars, whether it's through stock or cash

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<v Speaker 1>or both an acquisitions to keep their technology up up

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<v Speaker 1>to time. They can still do that. They can still

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<v Speaker 1>let that because I got seventy billion dollars in cash

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<v Speaker 1>sitting there. That So the argument is for those that

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<v Speaker 1>support them. Look, if anybody gets to the point where

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<v Speaker 1>they are chilote to Cisco, Cisco has gone to just

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<v Speaker 1>buy them, take them out. In King, thanks for walking

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<v Speaker 1>on the holl of suh In King, who covers semi

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<v Speaker 1>connectors and enterprise hardware for us here at Bloomberg Games.

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<v Speaker 1>You were listening to Bloomber Markets, on Bloombergrado, Corey Johnson

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<v Speaker 1>here in their mind sixty Studios, and uh, of course

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<v Speaker 1>uh Carlin High in London. This is Bloomberg