Cisco Systems, Inc. (CSCO)

October 20, 2011 11:30 am ET

Executives

Marilyn Mersereau - Senior Vice President of Corporate Marketing

Umesh Mahajan -

Analysts

Sam Chang - Turner Investments

Unknown Analyst -

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Cisco Webcast Bank of America Merrill Lynch hosted conference call. My name is Shaquanna and I will be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Tal Liani of Bank of America Merrill Lynch. Please proceed, sir.

Tal Liani

Good morning, and thank you all for joining us. Today, we'll be discussing datacenter switching, a topic du jour in networking. The purpose of this call is to better understand the market opportunities, architectures and technologies as well as competitive offerings. The call will be hosted in a Q&A format. We ask Umash Mahajan, VP and General Manager of Cisco's Datacenter Switching Group; and also Marilyn Mora, from the IR Group, to join us and help demystify this market. So before we go into the question, I have to pass it to Marilyn to enlight us with some interesting legal statements.

Marilyn Mersereau

Thank you, Tal. We're very happy to be here today. Now I'd like to remind the audience that today's call will pertain strictly to Cisco's datacenter strategy. No new financial information regarding Cisco's overall performance is intended or implied, and this call should not be viewed as an update of the quarter. We may make forward-looking statements regarding our business, which are subject to risks and uncertainties outlined in detail in our documents filed with the SEC, specifically, the most recent forms on Forms 10-K and 10-Q. Actual results may differ from statements made today. So with that, Tal, I'll go ahead and turn it back to you.

Question-and-Answer Session

Tal Liani

Excellent. Thanks, Marilyn. So Umesh, first of all, I want to thank you for joining our call. This is very interesting and very important topic for investors, and I want to start maybe with a broad question. Just if you don't mind to help us understand the various switches or switching or groups of switches that Cisco offers? And what are the kind of the broad differences between the groups?

Umesh Mahajan

Okay, thank you, Tal. And first of all, good morning, everyone. This is Umesh Mahajan. Let me first start out by explaining. Traditionally, we had the catalyst portfolio, which has been very successful for Cisco both in the campus and the datacenter. About a couple of years ago, we decided the datacenter requirements are changing and they're changing rapidly, virtualization, cloud trends, traffic patterns are changing. So we need to have a new product family over here, which we began to innovate and differentiate and meet the requirements of the datacenter properly. And hence, we came up with the Nexus portfolio. This is a very broad-based portfolio. We have Nexus 7000, which is a high-end 15-terabyte switch. It's a modular platform, layer 2, layer 3 features. Here, is where we do lots more innovations in this family, in this part of the family of the switches. And we have the Nexus 5000, the Nexus 3000, which are top of racks, which is the Nexus 2000, which we call tech switch. And I can explain later on what are the effects. And then we have the Nexus 1000V, which is a software switch, which runs on top of hybrid wireless. so with this broad-based family, we allow an entire architecture play. We can go from a small datacenter to a mid-sized datacenter to a very large datacenter with this product family. And, absolutely, we have a very large market share in the datacenter. We have 19,000 NX-OS customers worldwide today. We are absolutely deployed in the largest to the very large datacenters and to the small datacenters. Because we have this wide variety on this portfolio, which allows you to mix and match and architecturally design the network, which fits your needs going forward.

Tal Liani

Excellent. You often discuss 10-gigabit Ethernet as an adoption factor. I would like to just if -- you don't mind to explain what is 10-gigabit Ethernet? How your products fit into the space and why is it such a growth factor for your products?

Umesh Mahajan

So let's look at some of the emerging trends in the datacenter, right? Every year, Intel is introducing faster and faster multiple CPUs, right? And with the virtualization from VMware, Hyper-V from Microsoft, et cetera, people are now loading up these very fast multi-core CPU servers in the datacenter, but multiples of virtual machines. As you know, it used to be 4, 5, 10. Now people can put 20, 30, 40 virtual machines on some of these high-end servers. These virtual machines need a lot of network connectivity. So they will drive lower traffic, but within the server through the storage and out into the Internet. So the Nexus pipe is coming out of these physical servers, these high-end physical servers. Multi-core servers need to be 10-gigabit Ethernet. Otherwise, you just can't have so many 1-gigabit Ethernet connections coming out of the server. The bandwidth needed for the application running on these servers, on these virtual machines are data hungry and they need fast pipes coming out of these servers. So that's the number one requirement for 10-gigabit Ethernet, really, taking off. The second requirement is the -- this is to the multiple networks in the datacenter, a back-end SAN network for storage connectivity, a front-end LAN network to go towards the interconnect and connect the server. And then, sometimes, for high-performance computing, used to be a third high-performance computing network or clustered requirements in some cases, InfiniBand. With our unified fabric approach, we have decided that you can collapse all the 3 networks onto 1 common unified fabric network, built out of that Nexus portfolio. Once you unify these networks and the traffic patterns, they all need to travel on the same pipes and share the same pipes. Hence, again, you meet faster, higher-bandwidth pipes in the datacenter. And that's basically driving a very rapid requirement for 10-gigabit Ethernet. Now the server vendors are smart enough. They figured out a unique 10-gigabit Ethernet. So they are putting LAN on motherboard, which used to be 1-gigabit Ethernet that's rapidly transitioning to a 10-gigabit Ethernet. So this server, by definition, will have 10-gigabit Ethernet built on in the server. It's for free. So you might as well use it for 10-gigabit Ethernet connectivity onto your network, the physical network infrastructure, obviously. So those are the big, big drivers for 10-gigabit Ethernet. And then there is other applications, search applications, big data applications, where big-number transitioning is happening. There, again, people want to use servers that a lot afford, have a lot of data, which has to go crisscross across the servers. And there, again, these people, time, be able to do the search and competition is a factor, a competitive advantage for them. So they don't want to save on low-bandwidth pipe. They want the fastest pipes, the fastest servers, so that they can have a competitive advantage against their competition. That, again, is driving these higher bandwidth requirements in the datacenter. So we feel very comfortable with the 10-gigabit Ethernet. It's about -- all of our market share, we see it's about 25% in the datacenter. It's rapidly growing, the 10-gigabit Ethernet. And over the next couple of years, we feel it will be 50% of our networking portfolio will be 10-gigabit Ethernet. And that's clearly where the Nexus portfolio, the sweet spot for the Nexus portfolio, and we designed it with 10-gigabit Ethernet in mind. And then, overtime, we'll evolve to 40-gig and 100-gig. We do support 1-gigabit Ethernet, clearly, in the Nexus platform, because there's plenty of 1-gigabit still in the datacenter.

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