WHEN: Tuesday, June 20th
WHERE: CNBC's "Power Lunch"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Cisco CEO Chuck Robbins and CNBC's David Faber. The interview aired on CNBC's "Power Lunch" (M-F, 1PM-3PM ET) today, Tuesday, June 20th. Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000629185
All references must be sourced to CNBC.
CHUCK ROBBINS: WELL FIRST OF ALL DAVID, THANKS FOR HAVING ME. IF YOU THINK ABOUT WHAT CUSTOMERS ARE FACING AND WHAT OUR ENTERPRISE CUSTOMERS ARE TRYING TO DEAL WITH, WE'RE LIVING IN THIS WORLD WHERE THERE ARE BILLIONS OF NEW CONNECTIONS THAT ARE BEING ADDED TO THE NETWORK. THERE'S A STATISTIC THAT SAYS IN 2020 THERE WILL BE 1 MILLION NEW DEVICES ADDED PER HOUR. AND WHAT OUR CUSTOMERS ARE TRYING TO DO IS FUNDAMENTALLY GET THE BUSINESS BENEFIT OF ALL OF THOSE CONNECTIONS, FRANKLY, IN MINUTES AND NOT OVER THE COURSE OF DAYS, WEEKS OR MONTHS. SO WHAT WE ANNOUNCED TODAY IS THIS TECHNOLOGY THAT FUNDAMENTALLY BRINGS MACHINE LEARNING, ARTIFICIAL INTELLIGENCE, AUTOMATION TO THE NETWORK. WE'RE USHERING IN A NEW ERA OF NETWORK – OF NETWORKING THAT IS POWERED BY INTENT, INFORMED BY CONTEXT AND OVER TIME, CONTINUES TO ADAPT AND LEARN AND ACTUALLY BECOMES INTUITIVE AND IS CONNECTED DIRECTLY TO WHAT OUR CUSTOMERS' BUSINESS OUTCOMES ARE. SO WE ARE PRETTY EXCITED ABOUT WHAT WE ANNOUNCED TODAY.
DAVID FABER: WELL, IT SOUNDS PRETTY LARGE WHEN YOU HEAR IT THAT WAY. A NEW ERA FOR NETWORKING. IS IT REALLY THAT LARGE AN ADVANCE FOR YOU GUYS, CHUCK, TO SAY A NEW ERA? WHY WOULD YOU DEFINITE IT THAT WAY?
ROBBINS: WELL, DAVID, I THINK THE BEST THING TO DO IS TO SHARE WITH YOU AN EXAMPLE OF HOW A CUSTOMER MIGHT TAKE ADVANTAGE OF THIS. SO LET'S THINK ABOUT – LET'S SAY A FINANCIAL INSTITUTION THAT WANTS TO ENSURE THAT THE TOP TIER OF THEIR CUSTOMER BASE HAS THE ABSOLUTE BEST EXPERIENCE WHEN THEY ARE ENGAGING WITH THE BANK OR THE FINANCIAL INSTITUTION – TODAY, THE WAY THAT WORKS IS THEY WOULD DEFINE QUALITY OF SERVICE, AND WE WOULD HAVE HUNDREDS OF ENGINEERS WHO WOULD GO THROUGH AND ACTUALLY DEPLOY THOSE LINES OF CODE THROUGHOUT THE INFRASTRUCTURE. AND WITH INTENT BASED INFRASTRUCTURE, WHAT WE CAN DO NOW IS HAVE THE CUSTOMER DECLARE THE INTENT, THAT FOR THIS TOP 20% OF MY CUSTOMERS, I WANT THEM TO HAVE THE BEST EXPERIENCE. AND THEN THROUGH AUTOMATION AND THROUGH MACHINE LEARNING, THE NETWORK WILL ACTUALLY DEPLOY THAT INTENT IN AN AUTOMATED WAY IN A MATTER OF MOMENTS. AND THEN OVER TIME, THE NETWORK WILL ACTUALLY ADAPT AND LEARN USING MACHINE LEARNING SO THAT IT ACTUALLY CAN OPTIMIZE THAT EXPERIENCE FOR THE CUSTOMER OF THE BANK BASED ON THE POLICY AND THE INTENT THAT THE BANK DEFINES. SO, WE DO THINK IT IS A SEMINAL MOMENT IN NETWORKING AND WE THINK THAT FOR OUR COMPANY, THIS IS SOMETHING WE'VE BEEN WORKING ON FOR THE LAST TWO YEARS AND WE'RE LOOKING FORWARD TO HELPING OUR CUSTOMERS BEGIN THIS JOURNEY.
FABER: YEAH, I WANTED TO UNDERSTAND BETTER IN TERMS OF THE TIME AND RESEARCH THAT HAS GONE INTO THIS. YOU'VE MENTIONED MACHINE LEARNING, YOU'VE MENTIONED ARTIFICIAL INTELLIGENCE. OF COURSE, THEY ARE TWO THINGS WE DISCUSS A GREAT DEAL THESE DAYS. WHAT ADVANCES, THOUGH, NEEDED TO BE MADE FOR YOU TO BE ABLE TO ACTUALLY MAKE THIS ADVANCE IN TERMS OF NETWORKING?
ROBBINS: YEAH, DAVID. SO, WE'VE BEEN WORKING ON THIS IN EXCESS OF TWO YEARS. WE HAD TO REWRITE OUR CORE OPERATING SYSTEMS. WE HAD TO BASICALLY BUILD NEW HARDWARE PLATFORMS FROM THE GROUND UP. COUPLE THAT WITH OUR MOST ABSOLUTELY ADVANCED SOFTWARE CAPABILITIES AND THEN, ACTUALLY INTRODUCE THE NOTION OF MACHINE LEARNING AND AI INTO THE NETWORK. AND I'LL GIVE YOU AN EXAMPLE. ONE OF THE BIG THINGS THAT WE KNOW OUR CUSTOMERS NEED IS SECURITY, RIGHT? THEY ARE DEALING WITH SCALE, THEY ARE DEALING WITH COMPLEXITY AND THEY ARE DEALING WITH SECURITY. AND THROUGH THIS PROCESS, WE ACTUALLY HAVE ANNOUNCED TODAY SOME NEW SECURITY TECHNOLOGY THAT WITH 99.95% EFFICACY WILL ALLOW OUR CUSTOMERS TO DETERMINE WHEN THERE'S MALWARE INSIDE ENCRYPTED TRAFFIC. AND THAT IS SOMETHING NO OTHER COMPANY CAN DO. AND THAT IS ONLY THROUGH A COMBINATION OF HIGH PERFORMANCE HARDWARE WITH REALTIME ANALYTICS HAPPENING AT WIRE SPEED THROUGH THE NETWORK. AND IS ACTUALLY DONE THROUGH MASSIVE MACHINE LEARNING AND ARTIFICIAL INTELLIGENCE. SO, THAT'S AN EXAMPLE, BUT IT HAS HAPPENED OVER THE LAST TWO YEARS, DAVID.
FABER: RIGHT. OK. SO, HERE IT IS, YOU INTRODUCE THE NEW PRODUCT, OF COURSE. YOU USHER IN, YOU SAY, A NEW ERA IN NETWORKING. HOW QUICKLY CAN YOU ACTUALLY IMPLEMENT THIS AND BRING IT TO CUSTOMERS? WHAT ARE YOUR EXPECTATIONS IN TERMS OF THE ABILITY OF THIS TO START TO SCALE AND TO BRING IT, WIDELY SPEAKING, TO THE ARRAY OF CUSTOMERS CISCO ALREADY HAS IN PLACE?
ROBBINS: WELL, WHAT WE BELIEVE IS THAT THIS IS TRULY A SECURE INTELLIGENT PLATFORM THAT OUR CUSTOMERS CAN BUILD THEIR DIGITAL BUSINESS ON. AND IT IS GOING TO TAKE SEVERAL YEARS FOR OUR CUSTOMERS TO TRANSITION FULLY TO THIS NEW ARCHITECTURE. BUT WE DO – WE HAVE HAD 75 CUSTOMERS WHO HAVE BEEN IN EARLY FIELD TRIALS. WE HAD A FEW OF THEM WITH US TODAY WHO ACTUALLY TALKED ABOUT THEIR EXPERIENCES. AND IT IS ALSO AN EXAMPLE THAT WE'VE TALKED ABOUT WHERE MANY WERE WONDERING IF CISCO COULD ACTUALLY GET TO A PLACE WHERE WE COULD BUILD A SUBSCRIPTION MODEL ON TOP OF OUR CORE NETWORKING PLATFORMS AND THAT'S WHAT WE'VE ANNOUNCED TODAY. SO, THIS VALUE OF AUTOMATION, INTENT BASED NETWORKING IN COMBINATION WITH THE SECURITY LIKE THE ENCRYPTED TRAFFIC ANALYTICS, THAT'S BEING SOLD AS A SUBSCRIPTION ON TOP OF THE PLATFORM. AND IF YOU THINK ABOUT WHAT THAT DOES FOR US RELATIVE TO THE LIFETIME VALUE OF THE CUSTOMER, IT NOW ALLOWS US TO CONTINUE TO DELIVER MORE AND MORE CAPABILITIES ON TOP OF THIS PLATFORM. SO, WE'RE REALLY OPTIMISTIC, BUT WE ALSO KNOW THAT OUR CUSTOMERS ARE GOING TO TAKE SEVERAL YEARS TO MAKE THE FULL TRANSITION TO THIS NEW ARCHITECTURE.
FABER: RIGHT. WELL, WHEN YOU HAVE BEEN WITH US IN THE PAST, YOU'VE DISCUSSED THE FACT THAT, I BELIEVE, AS MUCH AS 80% OF YOUR R&D SPENDING IS IN SOFTWARE. AND THERE HAS BEEN AN EXPECTATION ON THE PART OF YOUR INVESTORS, CHUCK, THAT YOU WILL START TO SPEED UP OR ACCELERATE THAT SUBSCRIPTION BASED SOFTWARE MODEL. THIS IS A KEY TO THAT I WOULD ASSUME, CORRECT?
ROBBINS: YES. WE'VE MADE A LOT OF PROGRESS AND WE'VE OBVIOUSLY BEEN TALKING A LOT ABOUT OUR DEFERRED REVENUE THAT IS ATTRIBUTED TO OUR SOFTWARE AND SUBSCRIPTION MODEL. AND FROM THE TIME I TOOK OVER, THAT HAS GONE FROM 1.9 BILLION TO 4.5 BILLION OUR ON LAST EARNINGS CALL. AND OBVIOUSLY, WE HADN'T REALLY TAKEN ADVANTAGE OF WHAT IS POSSIBLE IN OUR CORE AT SCALE AND WE THINK THIS IS WHERE WE START THAT JOURNEY TODAY. SO WE'RE VERY EXCITED ABOUT IT.
FABER: HOW DO YOU KNOW WHEN YOU'RE READY? YOU KNOW, YOU SAY YOU'VE SPENT TWO YEARS RESEARCHING THIS, YOU'VE HAD A VARIETY OF TEST SITES I KNOW, INCLUDING FROM CRUISE SHIPS TO NASA. BUT HOW DO YOU ACTUALLY KNOW WHEN THE PRODUCT IS READY TO BE ROLLED OUT?
ROBBINS: WELL, TWO OF THE THINGS I WANTED TO DO WHEN I TOOK THIS JOB. NUMBER ONE, I JUST WANTED A MASSIVE ACCELERATION OF OUR INNOVATION. AND SECONDLY, I WANTED TO REINVEST AND INCREASE THE INNOVATION PARTICULARLY IN OUR CORE. AND THAT IS WHAT YOU ARE SEEING TODAY. SO, THE WAY I THINK ABOUT IT IS WHEN MY ENGINEERING TEAMS TELL ME WE'RE READY, THEN WE'RE READY. AND FRANKLY, WHEN THESE CUSTOMERS ARE WILLING TO STAND UP WITH US AND ARTICULATE THAT EVERYTHING WE'VE BEEN BUILDING IS TRULY GOING TO ALLOW THEM TO GET TO THESE BUSINESS OUTCOMES FASTER, THAT ARE GOING TO FUNDAMENTALLY CHANGE HOW THEY ARE ABLE TO TAKE ADVANTAGE OF THESE BILLIONS OF NEW CONNECTIONS COMING ONLINE. THAT'S WHEN YOU KNOW YOU'RE READY.
FABER: YEAH, WELL, OF COURSE, TODAY AN IMPORTANT DAY FOR YOU TO ADDRESS YOUR CUSTOMERS, EXPLAIN TO THEM WHAT IS COMING. WHAT ABOUT YOUR INVESTORS THOUGH, CHUCK? WE HAD YOU ON RECENTLY, OF COURSE, JIM AND I TALKED TO YOU AFTER WHAT WAS A VERY DIFFICULT QUARTER FOR THE COMPANY TO A CERTAIN EXTENT. WHAT DO YOU TELL THEM OR HOW SHOULD THEY VIEW THIS ANNOUNCEMNT, WHICH CLEARY, YOU BELIEVE IS OF GREAT IMPORTANCE IN TERMS OF THE CHANGES THAT YOU ARE IMPLEMENTING AT CISCO?
ROBBINS: WELL, WITH OUR INVESTORS WE HAVE BEEN TALKING ABOUT THIS CONTINUED SHIFT TO HIGHER SOFTWARE CONTENT IN OUR BUSINESS. WE'RE ALWAYS GOING TO BUILD THE HIGHEST-PERFORMANCE HARDWARE BECAUSE FUNDAMENTALLY, AN INTERNET THAT IS SUPPORTING BILLIONS OF CONNECTIONS IS STILL GOING TO NEED HIGH-PERFORMANCE HARDWARE. BUT WE ALSO BELIEVE THAT DELIVERING HIGHER VALUE SOFTWARE ACROSS OUR SECURITY PORTFOLIO AS WE HAVE SEEN ACROSS OUR COLLABORATION PORTFOLIO IN THE PAST AND HOW WE'VE BEGUN TO DEPLOY IT ACROSS OUR CORE WITH CISCO ONE, AND NOW WITH THIS SUBSCRIPTION MODEL, WE BELIEVE THAT THIS IS THE RIGHT THING FOR THE COMPANY LONG TERM. OBVIOUSLY, IT IS A LONG TRANSITION FOR THE CORE NETWORKING TECHNOLOGIES, BUT WE BELIEVE THAT THIS STORY WE TOLD TODAY TO OUR CUSTOMERS AND THIS LAUNCH THAT WE DELIVERED TODAY IS THE BEGINNING OF A JOURNEY TO HELP US BUILD THAT SOFTWARE AND SUBSCRIPTION MODEL ON OUR CORE, WHICH IS WHAT OUR INVESTORS HAVE BEEN ASKING US ABOUT.
FABER: HOW SHOULD WE JUDGE YOUR PROGRESS AND HOW ARE YOU GOING TO JUDGE IT IN TERMS OF WHETHER YOU HAVE SUCCEEDED WITH THIS NEW NETWORK?
ROBBINS: WELL DAVID, WHEN WE ANNOUNCE NEW TECHNOLOGY, ONE OF THE FUNDAMENTAL THINGS THAT WE LOOK AT EARLY ON IS NUMBER OF CUSTOMERS WHO ADOPT THE TECHNOLOGY OVER THE FIRST FEW QUARTERS. THAT HAS ALWAYS BEEN A METRIC THAT WE HAVE WATCHED. AND I THINK THAT WILL BE ONE THAT WE WILL CONTINUE TO LOOK AT AS WE MOVE FORWARD WITH THIS PARTICULAR ARCHITECTURE WITH OUR CUSTOMERS. AND I THINK THE FACT THAT WE'VE HAD 75 WHO HAVE BEEN IN FIELD TRIALS WITH US ALREADY IS A VERY GOOD INDICATOR. YOU SEE SOME OF THE NAMES AND SOME OF THE CAPABILITIES OF THE CUSTOMERS WHO ARE ALREADY IN PROGRESS WITH US HERE. SO, WE'LL CONTINUE TO LOOK AT CUSTOMER ADOPTION AND FRANKLY, CONTINUE TO LOOK AT OUR CUSTOMERS AND THE VALUE THAT THEY'RE RECEIVING FROM THE TECHNOLOGY AS IT RELATES TO THEIR BUSINESS IN GENERAL.
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