Cisco CFO On White Box, Amazon And Declining Switching Sales

Cisco CFO Looks Ahead To 2016

Cisco Systems CFO Kelly Kramer doesn't see the increase in white-box networking or public cloud providers like Amazon impacting the networking leader's wallet after Cisco reported $11.8 billion in revenue during its second fiscal earnings report Wednesday.

Although Cisco grew 2 percent year over year, the San Jose, Calif.-based networking giant saw a 3 percent drop in data center sales as well as a 4 percent decline in its bread-and-butter switching business. Kramer said channel partners have nothing to fear and hinted at some product innovations set to be unveiled at Cisco Partner Summit in San Diego from Feb. 29 to March 3.

In an interview with CRN, Kramer talks about white-box networking, public cloud providers, double-digit security growth and how partners should expect to see an increase in channel investment dollars from Cisco in 2016.

Were you surprised at all by the switching decline?

We felt the pull-back on spending for both switching and data center.

In switching, where we saw that largely happen was on the campus side. We had been really benefiting from a few quarters of refresh here, and we saw that stop basically as enterprises were pausing. Their networks were working; they're not going to refresh it. So both of those business units felt the impact of [companies saying], 'Let's hold back a little bit before we start spending some more money here. Let's see how the macro shakes out.' That's my take.

Should channel partners be worried about the drop in switching and data center sales?

This quarter doesn't change anything from a partner perspective. They should feel pretty good about how we did -- especially versus the tech peers that our partners deal with as well. They're going to be very energized when we get together in San Diego [at] Partner Summit with some of the innovation we're going to take them through.

We have our big Partner Summit coming up in the next couple of weeks, where we are going to be taking them through a lot of some exciting new product innovation and things along those lines.

Is the increase of white-box networking adoption impacting Cisco? And what's Cisco's strategy to continue revenue growth as white-box grows?

When it comes to white-box, where we differentiate ourselves is with our offers. There's always something white-box where a small piece of the market is certainly leveraging that. What we try to do is spend a lot of time with our customers, and that's everything from our enterprise where we've always been strong to these MSDCs [massively scalable data centers] that have huge scale that leverage white-box, but they also have special needs and things that we can help them with.

What are you doing with these MSDCs?

We've done some co-development with some MSDCs. They're looking for security, they're looking for orchestration, so what we try to do – whether it's the enterprise, whether it's big service providers or MSDC – is to understand what they're looking for. Whether it's open or easy, that's where we're also playing. We do what our customers are looking for to be relevant.

What led to the decline in data center sales?

We attributed that largely due to the macro [environment] for sure. We do have a really tough comparison from last year that I like to remind people of. We were up 40 percent [in the data center] a year ago, so our compare was tough.

When I look at what's changed this quarter versus last quarter, the only thing that's changed is there's been an acceleration of macro uncertainty.

Do you think Cisco's losing some business to cloud providers like Amazon Web Services?

So we don't think it's any shift in the public cloud or anything along those lines. We still had positive orders growth. It's a fast-moving space. We are going to have to continue to innovate in this area as it changes, and our partners will hear more about that at Partner Summit.

Cisco saw great double-digit growth in security. What does this mean to channel partners?

This is an area where we are just going to continue to be investing in and driving huge growth. This is an area that is completely fragmented and it's something that plays into the network where we're already world-class.

It's an area where we can be very acquisitive.

It's a huge opportunity for the channel because a lot of our partners haven't traditionally been in this space. So it is a huge opportunity for our partners to be in a fast-growing, very profitable business to help us accelerate that.

Is Cisco increasing its channel spending this fiscal year compared to last?

It's increasing as our revenue [is] increasing. Absolutely. As our revenue is increasing our channel dollar-wise is increasing with that – think about it that way, the percentage of revenue.

We always ensure that we are keeping our rebates and our money to our partners in line with how our overall revenue is going.

Can you talk about what partner incentives the Cisco channel will see in 2016?

I do spend a lot of time with our partners. I want to make sure that we get our incentives with our partners aligned so that we are driving the most profitable growth for Cisco as well as our partners. I want to make sure our incentives to our partners are set up where they're selling the stuff that is really strategic to what we're trying to sell so they have opportunities to increase their profitability just like how it works for Cisco.

Wendy Bahr [senior vice president of Cisco’s Global Partner Organization, pictured], talks about a value exchange. We want them to benefit as Cisco benefits, and she's really doing a lot of great work to help identify that, to make sure the right programs are driving the benefits for both our partners and ourselves.

So what's your overall take on Cisco’s second-quarter results?

Given the environment, we feel really good [about] how we executed through this quarter. We had some solid growth. Security being a nice breakthrough, a great bottom-line growth, cash flows are good. Overall, we feel really good [about] how we did.