Cisco CEO Chuck Robbins on Earnings, China Trade, 5G and more

CNBC Exclusive: CNBC Transcript: Cisco CEO and Chairman Chuck Robbins Speaks with CNBC‘s “Squawk on the Street” Today

Cisco CEO Chuck Robbins

Image source: CNBC Video Screenshot

WHEN: Today, Thursday, November 14, 2019

WHERE: CNBC’s “Squawk on the Street

The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Cisco CEO and Chairman Chuck Robbins on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today, Thursday, November 14th. The following is a link to video of the interview on CNBC.com:

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Cisco CEO Chuck Robbins on earnings, China trade, 5G and more

 

JIM CRAMER: The huge communications company Cisco down this morning, despite beats on the top and bottom line for the quarter just reported. The next quarter, though, the guidance was actually quite disappointing for many of the analysts. Joining us now exclusively is Cisco CEO and Chairman Chuck Robbins. Chuck, as my partner David Faber said, rain or shine you come on. And first, I want to tell you, we appreciate that greatly and thank you so much.

CISCO CEO CHUCK ROBBINS: Well, it’s good to be here, Jim. How are you doing, David?

DAVID FABER: I’m doing well, Chuck, thanks.

JIM CRAMER: Okay, so Chuck, I just want to get things in perspective for people at home. This morning, we had an amazing quarter from Walmart, the consummate consumer company. And people might say, ‘You know what, if Walmart is good, why isn’t Cisco good?’ But you’re actually the exact opposite. You’re completely involved in enterprise worldwide. Can you explain to people that it’s entirely possible that the consumer business, even in technology, can be strong, but the international and actually domestic enterprise business can be quite weak? They’re different, different economies.

CISCO CEO CHUCK ROBBINS: Yeah, Jim, I think you’ve heard from many of my peers and colleagues over the last couple months, frankly. Those that rely on business investments and capital investments have been expressing concerns over things we are seeing in the marketplace. And we actually mentioned it in our last call. So, this is not something that has newly emerged. And what we talked about at the end of last quarter of Q4 when we said we began to see some weakness just manifested itself throughout the quarter. So, you heard Chairman Powell yesterday talking about his concern over business investment. And I think that’s the issue that we’re facing. The consumer in the U.S., as you see from Walmart and from others, has remained very strong. And it’s a bit of a dichotomy in the U.S. market right now.

JIM CRAMER: And so, we all know you as someone who returns a great deal of cash to shareholders. Stocks done very well since you came in. You have an incredibly forthright and transparent CFO, Kelly Kramer. No relation. And at one point on the call, Chuck, she goes, I don’t see any catalyst to change the momentum right now. That made me feel like that you and Kelly are saying, this is not a one-quarter turn. If you buy the stock, from my perspective, do not expect that the next one or two quarters, maybe even three quarters are going to be different.

CISCO CEO CHUCK ROBBINS: Well, Jim, I think what Kelly said was: we’re not modeling any shift in momentum simply because we don’t see anything in the short-term that is going to definitively resolve some of the uncertainty that exists around the world. You know, as well as I do, that business confidence, CEO confidence has been waning. And it’s really been waning because of the all of the uncertainty, whether it’s the U.S./China trade situation, the Hong Kong situation, Brexit, what’s going on in Washington. I mean, there’s just -- there is a lot of uncertainty. So, all we are saying is that we aren’t modeling any change in the momentum.

But certainly, if we get a resolution in China, even an interim deal, that can potentially help. And I also think that our customers. I think they’ve taken a pause. But this technology is so fundamental to their strategies, it’s not just, you know, operational infrastructure. Technology today is fundamental to how they are running the organization and the strategies of their organization. There is only so long they can actually pause.

JIM CRAMER: Alright, Chuck, you are a suffering Atlanta Falcons fan. But last week, you beat the Saints. So, on any given Sunday, I think that Cisco can win. Let me give you the bull case on Cisco. I know that’s a little odd, that there is a guy given the bull case to the CEO. I think you have a tremendous amount of your business that’s in secular growth mode. And that you spent most of the call talking about the secular part. But, the growth mode that a lot of people want to be in, the Cisco growth mode, actually had great margins, is coming on strong, and if you just hold on you will see upside, regardless of worldwide growth.

CISCO CEO CHUCK ROBBINS: Hey, Jim, if you look at how we’re – and we’ll talk about football in a minute – but if you look at how we’re executing around the things that we control, margins were fantastic, security growth was fantastic and I just want to take a minute to talk about this transition to software that we have been pushing for the last four years. Because I think it’s underappreciated. We said in 2017 that by the end of 2020, which is next July, that we would have 30% of our revenue coming from software.

And we are on track to make that happen. So, think about 30% of our revenue. That’s a big software number. And we said we wanted to have 66% of that coming from subscriptions to SaaS. And we are ahead of track – we are ahead of that, heading towards July. If you go back four years ago and you look at our software business, it was much, much smaller.

And less than a third of it was coming from subscriptions. So, by the end of this year, 30% of our revenue will be coming from software, and probably greater than 70 of that will be coming from subscription to SaaS. So, that transition, you know, has been going really well. And the success we had building a subscription business on top of our core networking portfolio, I think years from now, two to three years from now, when those renewal windows come up, I think you will see the benefit of that.

DAVID FABER:  Chuck, I would like to come back to sort of the concern, at least we see reflected in the stock price this morning, in terms of what you are hearing from your customers. You did address it in some detail on the conference call. But I’d love you to sort of help our viewers understand it as well. When you said things like, you saw some large deals get done but they got done smaller. You said that you were personally involved in a few things, talking to customers about transactions, the time they got done, they were smaller and more signatures were required. So, what’s going on out there? And do you expect it to continue into the next quarter and the quarter after that?

CISCO CEO CHUCK ROBBINS: Yeah. David, what we see, when we see our customers pause, there are a few things that are just – that are usually signatures of that. First of all, our close rate on our funnel or our pipeline goes down, which we saw. We see deals getting pushed down, and we see some deals that start out bigger and then get smaller. And we saw all of those things occur. And it’s just a classic signal that we’ve seen historically. I have been doing this a long time. And I mean, it looks exactly like what we’ve seen in the past.

Now the thing that I would point out is, some of these large customers that, you know, when they start saying, ‘I need one more signature. Let’s add another step into the procurement process,’ they’re just expressing caution that they’re concerned about what’s going on in the macroenvironment. And that’s what we saw even with some companies who service the consumer. You know, we saw -- Kelly and I were involved in one transaction with a very large customer, that it started at one size, and by the time it finished, it was relatively smaller.

And it was because they were concerned this could bleed over to the consumer at some point. So, we hope that doesn’t happen. But that’s what we heard from our customers this past quarter. Now, relative to how long it lasts, again, as I said earlier, I think we are modeling—it’s impossible for us to model improvement. But, we are going to just continue to focus on what we can control.

DAVID FABER: Alright. Well, let’s assume we get a Phase 1 trade deal signed with China before the end of the year. Do you think that changes the calculation for a lot of these businesses in terms of how they view their expenditures?

CISCO CEO CHUCK ROBBINS: I think that would help. I think that’s one of the most significant things lingering right now. And I think that any good news like that, or if you get to a resolution on Brexit, or one of these major issues, I think that certainly would give our customers more confidence. We’d have to see how much confidence it gives them, but that’s certainly one of the biggest issues hanging out there right now.

DAVID FABER: Yeah. Chuck, you spoke to us moments ago about sort of how you positioned the company if terms of the importance of software. You also talk often about cloud automation, 5G, which is something we talk a lot about here. Tell us in and our viewers, 5G: we hear the words, but it may be a number and a letter, I mean, to a lot of people. What does it actually mean in terms of the opportunity for a Cisco? And what are you seeing right now in terms of how your customers are adopting whatever it is you have available to them and will continue to?

CISCO CEO CHUCK ROBBINS: Well, I listened to how Jim described it yesterday. I thought he did a great job. It’s, you know, right now where the focus is, is really on building out the networks for the consumer mobile devices. And the early stages of that, they’re going to run that across their existing network infrastructure. But as they build out broad-based enterprise services, which probably begins later next year into ’21, then they’ll have to then upgrade their core networks to accommodate the massive increase in traffic that they’ll see with IoT applications, manufacturing applications, et cetera. And that’s where we will begin to participate in that, because of that backbone network upgrade. And you are going to see some announcements from us over the next month or two that will position us for being very well prepared for that transition when it occurs.

JIM CRAMER: All right. Chuck, last question. What do you say to the critics, including ones on the call, that say, ‘You know what? You’ve got this continued deceleration, you’ve got this structure – you know, service providers—they just don’t seem to come back and buy. Is it time to do something big, now have you this great secular growth story, versus the cyclical, and not tolerate that level of what I know you think is underperformance?

CHUCK ROBBINS: Yeah. You know, Jim, we’re -- we have a lot of things that we’re working on now that we’ll begin to unveil. There’s a lot of innovation coming out of the company. We have a significant number of announcements next week. We have more coming over the next few months. So, you know, look, one quarter comes and goes. And I think, we are focused really on -- I know it sounds so cliché. But we are focused on driving this business for the long-term. And I think most of our shareholders care about it for the long-term. And again, quarters come and go. We’re not too worried about it. And by the way, Jim—hey, the 49ers look pretty good this year, don’t you think?

JIM CRAMER: Oh, geeze. You switched to the West Coast. And I was going to tell you talk to your friend Arthur Blank and have him fire Dan Quinn. Chuck, again, thank you for coming on. And I want people to know that thinking for the long-term has made people money for Cisco and Chuck Robbins. I just appreciate seeing you, sir. And I hope you have a good one.

CISCO CEO CHUCK ROBBINS: Thank you, guys. Have a good day.



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver