WHEN: Today, Monday, March 18, 2024
WHERE: CNBC's "Squawk on the Street"
Following is the unofficial transcript of a CNBC interview with Cisco Chairman & CEO Chuck Robbins and Splunk Former CEO Gary Steele on CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET) today, Monday, March 18. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2024/03/18/cisco-ceo-chuck-robbins-28-billion-splunk-deal-will-be-a-significant-financial-growth-driver.html
All references must be sourced to CNBC.
DAVID FABER: Cisco announcing it has completed almost a $28 billion deal, all cash, to acquire the data services company Splunk. Joining us now first on CNBC is Chuck Robbins, he's the chairman and CEO of Cisco, and Gary Steele, CEO of Splunk, was here when you guys announced the deal. Now Gary's going to be a part of Cisco's executive leadership team. Gentlemen, nice to have you.
CHUCK ROBBINS: It's great to be here. Thanks for having us.
GARY STEELE: Thank you for having us.
FABER: You know, alright, it's part of the company now. So, you know, you have some other products out there in security offerings, for example. I think AppDynamics, ThousandEyes. How do you sort of address potential overlaps, redundancies? How do you go to market now with your product portfolio, given the ones you previously had and what you now have?
ROBBINS: Yes, well, first of all, thanks for having us.
FABER: Sure.
ROBBINS: It's – it -- we're in a situation where we had very little – we had zero overlap in security.
FABER: Right.
ROBBINS: We have basically zero. We have slight overlap in what's called observability, which is basically monitoring the infrastructure for application performance and those kind of things. And we've been working really hard over the last six months to actually address those and, and build an integration plan. Gary, you may want to talk a little bit about it. We're actually going to move the Cisco assets into Splunk on that, in that particular part of the business. You want to talk about it.
STEELE: Yes. No, I'm super excited about this. I think the combination of AppD plus Splunk's observability cloud gives us the best multi-cloud hybrid solution in the industry. So, while there's some really good work that's going to happen, we think we can do a lot for our customers. Super excited about it.
FABER: What does that mean, some really good work that's going to happen?
STEELE: Simply bringing the AppD capabilities into Splunk. So, driving that integration. And bringing the capabilities of AppD with the observability cloud. So, customers can monitor their digital footprint and really understand their uptime and ensure that they don't have outages.
FABER: Chuck, I want to get Jim in, but just, you know, the bigger picture here in terms of what it means for the future of cybersecurity, observability, and how Splunk fits into the vision overall for Cisco.
ROBBINS: Well, if you look at the combination of their data platform with our security portfolio, and particularly with our extended detection and response capabilities, you, you think about taking the data platform that they have for the customer, you apply high-end AI-based detection and response. What we believe we'll be able to do is give our customers the ability to identify threats and dynamically react to those threats in real-time, because as – as the bad actors become better at utilizing AI to launch attacks, we think the real-time correlation of disparate events that together might indicate a security problem is a critical capability that our customers are going to need. And between our technologies, their data platform, we believe we can actually deliver that to our customers.
FABER: Alright, our and their. You're the same now, you know?
ROBBINS: That is true.
FABER: Yes.
ROBBINS: Our and our.
FABER: Yes, our and our. Jim, I –
ROBBINS: Hey, it just happened in the last hour, you know?
FABER: It did. Yes. The big – the big wire transfer has been completed. Jim, I know you've got – I know you've got a question.
JIM CRAMER: Sure. First, congratulations, gentlemen. Successful at putting this together. I think it's really important. Gary, I'm going to go to you first. What is percentage of recurring revenue do you have -- and now you're going to be part of the management team – what will your recurring revenue do for the whole mosaic that is Cisco, and what will it mean for the compound annual growth rate of the combined companies?
STEELE: So, Splunk brings basically $4.2 billion of annually reoccurring revenue to Cisco. We just wrapped up a very good year where ARR was growing 15 percent. And while we generated over a billion dollars of cash flow on that ARR. And I'll let Chuck speak to how that comes together in terms of the overall ARR for the combined companies.
ROBBINS: Hey, Jim, it's good to see you and I hope you enjoy being on the West Coast. I'm sure you're going to have fun this week.
CRAMER: Thank you.
ROBBINS: When you look at the combined ARR, I think we're approaching $29 billion now. So, it's a meaningful amount of our business. It's been a journey we've been on since I became CEO. We actually, as you know, achieved 50 percent of our revenue last quarter came from reoccurring revenue, which has been another thing that we've been trying to achieve. And if you just do the math on – on adding – I mean, obviously, in the first four quarters, Splunk's going to be a significant growth driver from a math – from a financial perspective. And then even beyond that, growing the four-plus billion dollars, growing in the mid-teens on our business, layers of point of growth on just by that alone, even in the outbound years. So – and that's without any of the revenue synergies, which were really the things that drove this deal in the first place.
CRAMER: OK, so, Chuck, the last time I spoke with you on "Mad Money," you did talk about activation issues. You talked about the idea that you could be limited this quarter just because there was kind of a back-up in the system that – from your customers. Can we make it so that that's not the focal point of the discussion now that this deal has closed?
ROBBINS: Yes, Jim, I think – we talked a lot about the fact that on the tail end of this supply chain problem the customers now are sitting on the inventory that we've delivered and they're trying to get that installed, so they've slowed down their ordering patterns until they get that digested. And – but I think the -- the reality is, is that the – the transition that we've made to ARR and software and – and the recurring revenue is not fully appreciated because of that right now. And I think once we get through that, it will be fully appreciated. You've got – you -- we're looking at a company now that has over $20 billion in software revenue. Fifty percent – over 50 percent of our revenue now is coming from recurring offers, and almost $29 billion of ARR. So, we think over time it's going to be very positive, and we're looking forward to the future.
CRAMER: OK, you have a – the luxury now with Splunk of the generative AI that they have, which is immersive chat experience. That's now you. That's one part of the puzzle. I know that Jensen Huang, obviously GTC this week, has his own networking capacity, but somehow you're a part of it too.
ROBBINS: Yes.
CRAMER: And could you explain how you -- which I regard as having a competitor product – are also Nvidia's partner?
ROBBINS: Well, Jensen approached us, as I've talked about, and he -- he basically understands the relationships that we have with our enterprise customers and our understanding of how they deploy applications and how they build their infrastructure. And so he felt like we were the right partner for him to actually take his GPUs, create integrated stacks to help facilitate the simple deployment of advance AI workloads for our customers. And that's what you're going to see from us over the next three to six months. But if you look at the Splunk acquisition also, we think that same infrastructure now can power some of these data platforms that Splunk built over the years. And as we -- as you know, the more data you have, the more powerful your AI capabilities are going to be. And so we think between their data platform and our technologies, we can bring the ability for customers to let -- the enterprise customer to actually deploy and gain benefit from AI workloads in a very unique way.
FABER: Gary, Chuck referred to threats, obviously, as a result of AI in particular, the great advancements. I mean how, how quickly are things moving on in the threat environment? I'm just curious to get your perspective.
STEELE: Yes, I think we're in a pretty difficult time right now. I think the threat actors continue to use advanced technology to design more sophisticated threats, whether they're phishing-related threats or other kinds of sophisticated attacks. The good thing is, we're the defenders. All of us are – are leveraging AI in a very constructive way to better defend the enterprise today. And so while the stakes get higher, I think we're doing a great job of continuing to defend.
FABER: And, finally, Chuck, let me just end sort of, again, back to sort of Cisco overall.
ROBBINS: Yes.
FABER: You know, you're – it was only on February 14 when you were talking about coming out of the quarter with guidance.
ROBBINS: Yes.
FABER: You were cautious. Our customers this quarter, you know, you said, saw more caution than the prior quarter, which led your teams to express more caution in the forecast. Is that still the case a month later?
ROBBINS: Well, we're in the middle of the quarter, but I'd say that the dynamics haven't changed meaningfully. I think -- the good news is, the economy – I talk about this a couple weeks ago. I think the economy is – is – is good. It's not great. It's not bad. I think it's good. And I think that's what's going to be reflected in our customers' ordering over the next several quarters as we look forward.
FABER: Right. So, unchanged at this point.
ROBBINS: Unchanged, yes, I would say that.
FABER: Guys, thank you both.
ROBBINS: Thank you.
FABER: Chuck Robbins. Gary Steele.
STEELE: Thank you.
FABER: Both of Cisco.
RABBINS: We are both of Cisco.
FABER: Yes, you are.
STEELE: And very happy to be part of Cisco.
FABER: Alright. There you go.