Cisco Systems Inc CSCO
Q4 2010 Earnings Call Transcript

Operator: Tal Liani, Bank of America Merrill Lynch

Tal Liani - Bank of America - Merrill Lynch: If I look through your numbers your routers and switches where you have new products are down this quarter, and then gross margin disappointed, the operating margin declined second quarter in a row and the guidance was weak below our expectations. So if we combine all these data points the question is, what we are seeing is it something which is specific to Cisco, timing or mix or is it more the economy and signs that we're entering into another dip IT spending?

John T. Chambers - Chairman and CEO: Let me break into several pieces, Tal, because the question that are on many people's minds, I disagree with some of your statements on the facts, but let me cover the generalities. We are very comfortable with our growth for a $40 billion Company over the longer term with the goals of 12% to 17%. I have said many times that isn't my opinion a big job. I do believe we started into this economic upturn probably several quarters earlier than our peers and including this most recent quarter, its five quarters in a row where we’ve had very solid sequential order growth versus what you normally see sequentially, which is a nice way of saying we're not moving into normal comparisons. We are comfortable that with normal comparisons being up 18% to 20% year-over-year is again above the guidance, the goals that we've set for the long-term and something that we believe will position us very well within the industry. In terms of routing, switching I respectfully disagree on the switching numbers; you watched us both in modular and fixed, both this quarter and last quarter, you're talking about growth last quarter of 40% and I think 27% this quarter, those numbers are really good and you add up total switching. That’s hard for anybody to keep up with and yet we have the largest position in the market. In terms of routing our product line is really solid, really good. You might categorize some of the products differently based upon the IGS and the new categories within the IGS. But in terms of high end routing last quarter, the CRS being up 75%, this quarter 20%, you add those numbers together we're doing very well. We don't lose much of the edge any more, which is where Tal you might have be critical obviously year ago at the edge with the ASR, the growth from the ASR numbers I shared with you, which I think were 150% year-over-year. Those products are hot and we're winning the majority of new edge jump (hauls) very well positioned and again at the access level we've by far and away the largest position, we're doing some category changes within that. So I feel very, very good on that. So if you look at where we're going, I hope I am here in front of you many times apologizing for growth only being 27%, growth next quarter 18% to 20%, above our long-term goals of 12% to 17%. In terms of the caution that you're hearing; in summary in terms of Cisco's specific we feel really good. We're competing, we're winning, we're moving new market adjacencies, organization structure is working, my confidence has never been higher and candidly when you talk to customers you hear the exact same thing, be they service providers, enterprise et cetera. In terms of economy, it's mixed signals. And Tal what I have always done is being very candid with you all. We share with you the way you see it. We tend to be a cautious company. Hopefully, we are again being cautious this quarter, the cautious growth, next quarter of 18% to 20% is not bad at all. So that would be how I'd your question and not that we are making a call on the economy, the majority of my customers believe the economy, is just going to continue slowly growing up, but very slow and not what they would have said even in three or four months ago in terms of their expectations and if I'd have told them, I'd say probably the average comes in about at 2% growth for second half of the year. It doesn't mean those customers are right, but it does mean that's what's on their mind in terms of their spending pattern. Did I answer your questions? We're not making a call on the economy going down, I think that probability is on double-dip or whatever you want to call it are relatively low. We're not making a call in Cisco, other than we think we're very bullish on Cisco and very comfortable with where we are positioned. We are calling it like we see it Tal and we've always done that for the last 20 years and we'll do it for the future as well.