网络设备行业访谈：思科前高管

1、GlobalResearch26 February2019Communications EquipmentNetworking Nirvana Interviews: Former Cisco Executive Charles StuckiCisco can keep growing slightly faster than the economyWe hosted Charles Stucki, Cisco VP/GM of service provider until 18 months ago and now advisor to start-ups in the Valley. He

2、 thinks Cisco is well positioned in the enterprise vertical, which relies on the company for end-to-end support and security. Ontheotherhand,serviceproviderroutingisinstructuraldeclineand5Gwillnothelp. Stucki says security and private cloud builds can help Cisco grow faster than the economy; the cam

3、pus upgrade cycle is from pent-up demand and not a permanent growthpush.WethoughtthecallwasNeutralfromaCiscostockperspective.Can software as % of revenue get to 50% of Cisco revenue?SoftwareasapercentageofCiscorevenuehasbeeninchingupfrom22%inF17.Most of it is from participating in categories like se

4、curity, collaboration and application performance management, which are inherently software driven. Stucki, who was general manager of the Cisco collaboration business, isnt optimistic for collaboration growth as (1) the value of hardware has diminished; (2) much driven by individual preferences and

5、 are hard to drive to a corporate purchase; and (3) stiff competition fromupstartsandover-the-topplayers.Sowhatcanmovethesoftwarecontributionup quickly? Nothing short of M&A. Stucki believes unbundling the software from the hardware wont work with enterprises (who simply want turnkey solutions) and

6、could causeshrinkingmarginsinserviceprovider(astheymightuseopensourcesoftware).Branch router market wont shrink like mobile packet coreThe mobile packet core market shrunk quickly when it converted to software. Stucki doesntseeSD-WANcreatingthesameshrinkingeffectonthebranchroutingmarket (we estimate

7、 40% of Cisco routing) because (1) there are no companies likeAffirmed andHuaweithatwereaggressiveinmobilepacketcore;and(2)enterprisespreferCisco routers over white box for security reasons.The pivot away from service providerStuckisaidCiscospurchaseofsettopboxbusinessesfailedbecausesecuritystandard

8、s got opened up via Cable Labs, which ruined the economics. He thinks the routing marketisinstructuraldeclineas(1)securityisbeingpulledout;(2)5Gcallsforsimpler boxes;and(3)morecloud/SaaStrafficflowsthroughprivateexchangesvstelcos.Communications TechnologyAmericasEquitiesTejasVenkateshCommunications

9、TechnologyAmericasEquities HYPERLINK mailto:tejas.venkatesh +1-415-3524719JohnRoy,Ph.D. HYPERLINK mailto:john.roy +1-212-7139440David Mulholland,CFA HYPERLINK mailto:david.mulholland +44-20-75684069TimothyArcuri HYPERLINK mailto:timothy.arcuri +1-415-3525676John C. Hodulik,CFA HYPERLINK mailto:john.

10、hodulik +1-212-7134226 HYPERLINK /investmentresearch /investmentresearchThis report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 17. UBS does and seeks to do business with companies covered in its research reports. As a result, investors shoul

11、d be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Moderator: Tejas Venkatesh, UBS Optical & Networking Equipment AnalystSpeaker: Charles Stucki,

12、Co-CEO Bayware Inc. and Former Cisco General Manager of Collaboration and Service Provider businesses.We present below highlights from our recent investor call with Charles Stucki. We have edited the transcript below for clarity. Grammatical changes that do not impact the meaning of content have bee

13、n applied. What we consider to be key points have been highlighted in bold. The opinions expressed herein do not necessarily reflect the views and opinions of UBS. UBS accepts no responsibility for the accuracy, reliability or completeness of the information and will not be liable either directly or

14、 indirectly for any loss or damage arising out of the use of this information or any part thereof.Friday, February 22 10:00 am ETTejas Venkatesh: Ciscos software transition gets a lot of investor attention. The company targets generating 30% of revenue from software offerings by F20 up from 22% in F

15、17. Theyre somewhere in between 22% and 30% today and a lot ofthesoftwarerevenuecomesfromsecurityandcollaboration(whereyouspenta number of years).Now, theyre also trying to generate more software sales out of networking starting with the Cat 9k and Viptela. How do you see the transition and is there

16、 a path you think for that number to get to lets say 50% over the years?Charles Stucki: This transition has been underway for a long time. And what seems to work is to participate in categories that are software driven.Collaboration was thought to be software driven. I was at the center of building

17、upthetelepresencebusinessandbuyingTandberg,whichwasalotofhardware. And then there was a big push with Spark but Cisco turned around and bought Acano and made a big push for the Spark boards these giant iPad like devices that were also video conferencing units. In Cisco collaboration, WebEx has conti

18、nued to be strong it is more of a service than software. But that was one category.Thensecurityisacategorythattendstofavorsoftware.Securityisastronganchor forCiscoinbothsensesofthewordmeaningitsasecurepositioninfirewallsbut also tends to hold you back if your salesforce is largely driven by selling

19、more firewalls. But security is another market that until recently despite all the many acquisitions with not really breaking into the double-digit growth category. It seemstohaveinthislastquarter.Soparticipatingincategoriesthataredrivenby software seems to work.Ithasyettoreallycausethisnumberyouwer

20、etalkingabouttomovequickly.The softwarenumberisjustgrowingfasterthanCiscoenoughthattheoverallaverage creepsup.Thebiggerquestionthenthatyouaskishowdoyouconverttheother businesses into software and have the revenue number go up and those are two different things.As an example, the mobile packet core b

21、usiness has over the last five or seven years really moved dramatically towards software. It started with the things that had to do more with billing where Cisco really didnt participate. It then movedintothemobilepacketcoreitselfwhereCiscodoesparticipate.Thatallmovedvery quickly to software. It com

22、pressed the overall size of the market. Even though it convertedthesoftwareyoucomeouttheothersideanditsashrinkinrevenue.It moves the percentage up for Cisco but its not the pattern that youd want to have. And of course more importantly if you look at a company that really struggled with that transit

23、ion trying to survive it is Ericsson. If you want to sort of see what those dynamics do to acompany.Now lets look at the rest. The Nexus 9k was brought to market on the back of a software defined networking story with Application Centric Infrastructure (ACI). And you have the option in any of these

24、markets to decide how much youre going to say of the price is software and how much of the price is hardware. And of course the hardware is going to have to at least be marked up from the cost. And the problem with making that conversion is you dont want to charge such a low margin on the hardware t

25、hat you cause an erosion in hardware margins which in networking have traditionally been very strong.So then of the total price what can you charge for the software? You have a secondproblemonsoftwarewhichisthatyouhaveopensourcealternatives.Soin the case of ACI you certainly had open source alternat

26、ives in open stack and ONAP. I would say we should probably come back and talk Kubernetes as an emerging open source category.If you try to say for a router or for a switch that were going to charge you a subscription for the operating system separate from the hardware you have two problems. (1) How

27、 much total dollars are left to call software and if you call it software, and (2) do you cause your customers to say Oh good. Im glad you unbundled. Id like to use my own operating system that I got somewhere else. Thatiscertainlythecaseintheserviceprovidermarket.Onyourhardwareyouve gotalotofthat.T

28、heanswersprobablynobutitcausesthatdynamicofwhatever you expose as a software price certainly with powerful customers has the risk of compressingtowardszero.Themaintenancebusinessbeingtheexception;itwill remain healthy.So I think that makes the answer to your question that its hard to see a pathto so

29、ftware getting to 50% of Cisco revenue unless they enter into a lot more categories that are really truly software driven like application performance monitoring that theyve gone after recently. But it is quite small compared to the total.Tejas Venkatesh: The number one investor question we get on C

30、isco is on the sustainability of revenue growth. Campus switching has been on fire. In fact enterprise as a whole has been doing well lately including collaboration. Still, investorswonderifhowmuchofthegrowthisbecausetheeconomysdoingwell. I mean is this a company that grows 3% when the economy is go

31、od anddeclines 3% when the economy is bad. How would you think about thisquestion?Charles Stucki:I would do maybe look at it in three or four categories. If it works security has two big upsides for Cisco: (1) it probably grows faster than the economyessentiallyforeverbecauseasmorethingsgetdigitized

32、youessentially needmoreprotectionagainstallsortsofcorruptionincludingsecurityrisk.Andso it probably grows as bandwidth grows and its application intensity grows ineveryjob, theres more security. So its a good category that should grow much faster than the economy.(2) The second thing is that Cisco d

33、oesnt have huge market share on overall security. If they can get a leadership position - theyre probably pretty close to being a leader - theres lots of room between being the leader and having huge market share which theyve done in other markets. Id have my eye on whether they can compete with the

34、 Zscalers of the world with these cloud-delivered models.Collaboration is much harder for me to understand how that continues to grow. You have this clear move from the time I was pushing telepresence as an alternativetotraveltotodaysZoomworldwherepeoplecansetupaconference call with an easy click th

35、at has video included, and most of the time people turn off the video in smaller calls. And so what youre left with are these team rooms where people are in a group setting and therefore you need some sort of equipment to handle that. And of the overall behaviors that people do in corporations that

36、meetings are still a slight negative compared to writing code, editingvideo,buildingmachinelearningalgorithms,operatingwhatevermarketing softwareyouhavewhichiswhatpeoplearesupposedtobedoingandmeetings are still a negative. Its hard to see how collaboration grows a lot faster than the economy or it c

37、ould shrink because you have a lot of price pressure from all of the over the topplayers.Id then ask about campus networking. I think there was in campus a double resistancetoupgrading.Soonewaswehadamassiverecessionwhichisnowten yearsago.Itcausedpeopleoperatingcampusnetworkstosayohtheseswitches just

38、 keep on going. They dont actually suffer from silicon fatigue after five or seven or eight years. And mostly the bandwidth in the campus is gated by the wirelessaccesspoints.Morethatpeoplearentreallyplugginginandusingupall of the available bandwidth. And you can always add more switches on a floor

39、of workersanyway.Theyrealizedtherewasntrealpressuretoupgradetheswitches.And then the second effect which is SDN took over and everyone talked about network function virtualization and the service provider market was very keen on thatandmaybestillis,probablyalittleshallowernow.Butpeoplewerewondering

40、are we going to finally see the commoditization of switches. But before we upgrade to the next major rev maybe lets see if we get a commoditization. Broadcomseemstobecomingonstrong.Theresalotofwhiteboxtalk.Iwonder if thats going to penetrate the campus network.And a couple of things have happened. O

41、ne is that the white box ecosystem and the prices that Broadcom and others charge dont really allow a collapse in the price sort of no matter how you buy it. The way we maybe thought we saw with PCs many years ago. But also people realized that lookthis campus networking nothing really interesting h

42、appening. Network function virtualization hasnt really turned into anything superinteresting.Itseemslikeitisquitecomplexandalltheenergyhasmovedtowardsapplication development and marketing and other types of digital work. And companies are reducing the number of networking people they have. They want

43、 to get away from being network experts which favors a Cisco. Whether they say look ifsomething goes wrong if theres a security alert or something, I want my support agreement that covers everything in my network.So white box isnt going to deliver huge economic benefits. Theres no major virtualizati

44、oncoming.Infacttheresnothingreallystrategichappeningincampus except that its an area I dont want to invest human resources in. So I have a vendor and support. I think thats causing in the current condition where companies are quite healthy to catch up on going through a major upgrade cycle. I would

45、expect just from observing the overall macro pattern that this is a catch up not a permanent growth push.AndthenlastlyIwouldsayroutingisjustconstantlythreatenedandwellprobably come back to it. So I dont see that as a sustained growthpush.SoIthinkthereisapushonbothcampusnetworkingasacatchupandIthinkw

46、e should come back Tejas and talk about private data center has done through a turnaround. And I think thats whats causing the Nexus 9K to grow is people are realizing they need private cloud. And thats probably a little bit a source of growththatmightalsobealittleabovetheeconomy.SoIthinkitcangrowal

47、ittle fasterthantheeconomybutamassiveaccelerationrightnowprobablyisalittlebit of catch up in the campus networking.Tejas Venkatesh: Maybe we can talk about the private cloud growing now. And perhaps in the context of Cisco having pivoted away from service provider in recent years. I think this sort

48、of started even while you were at Cisco. They went through a phase of buying set top box and video software companies. But since then they have pivoted away from SP, sold off the set top box business. And I thought they might keep the software offerings but they even sold that. And so they really pi

49、voted hard toward enterprise, perhaps they think private cloud will continue growing, and then the cloud. So just talk a little bit about that pivot away.Charles Stucki: Yes, for sure, and I was at the center of that. Scientific Atlanta andtheset-topboxbusinesswascommoditizedbytheopeningupofsecurity

50、.The security standards, the interfaces for security via Cable Labs was created since theres an open standard, which sort of forever ruined the economics of the set- top box business. And that was about the time Cisco boughtit.The set-top box side of Scientific Atlanta generated lots of revenue but

51、it had no chanceofeverbecomingstructurallysound.WhentheyboughtNDS,ahugepart ofthatrevenuewasstillinthesecuritybusinessbecauseinternationallytheresno suchstandardforsecurity.Sotothisdate,thatbusinesswassoldoff,SPVSS,hasa lotofrevenuefromwhatusedtobecalledcablecards.Butthissecuritybusiness overallisnt

52、growingbecausepayTViskindofareplacementmarket.As much as it grows in emerging markets with new satellite offers, the streaming sort of takes away subscribers. So thats not a growth business. The software business that was inside of it where I spent a lot of time is driven by huge deals and trying to

53、 sell somebody an entire replacement for their DVR and video-on- demand,oritcouldbetheirentirepaytelevisionsystemend-to-endisamajorsale.And my opinion is just that for Cisco, selling incremental boxes so people are measured weekly, which means they have to sort of have a constantflow of boxes, makin

54、g a major sale that takes a couple years to realize is a tough fit for them. I think that may explain some of that. But in the rest of the serviceproviderbusiness,youhadthisproblemofvirtualization.Imentionedthem inmobilitybutasIalsosaid,eveninthecorenetworksoftheseserviceproviders, theycontinuetotry

55、tomovetoopenstandardsandtovirtualnetworkfunctions.And one of the things I heard Vint Cerf talk about in public at the Open Network SummitinLAlastyearisthatmuchofthesecretexpertise,therealhighexpertise of networking essentially got bundled up in routers. And routers have all sorts of securityandallso

56、rtsofprotocoltranslation,andofcourse,allsortsofdiscoveryof whats going on in the network. And certainly, security is being pulled out where applications take care of themselves by basically different types of end-to-end encryption.Andtheresnotverymanyprotocolsrunninganymore.BasicallyyouhaveTCP/IPor

57、UDP for streaming so thats not that interesting. And the router, therefore, is harder to defend as the franchisee. You have to have a vendor who knows routing so they can provide the rest to your networking. So the carriers have figuredthatoutandtheyhavemanyvendors.Theytriedtogetmorevendorswith virt

58、ualfunctionsandtryingtousedifferentoperatingsystems.Andthatmakesthe carrier market much tougher, totally unlike what I just said about enterpriseswho dont want to learn. They dont want to know about networking for the most part.On the service provider side thats all thats left. Theyve competed in an

59、d essentially lost the cloud. They wanted to be mini-clouds with data privacy that may be still kicking a little bit against the idea of hey, we can be sort of the cloud extension.Butveryquickly,themajorcloudplayersjustputpointsofpresencein all of the countries and created their own data privacycapa

60、bilities.Itisveryhardforthesecarrierstocompeteincloudandsoontheenterpriseside, all they really have left is networking. The business that they have in broadband internet, and wireless internet, and wireless carriage continues to be very profitable.The service provider companies are just not looking