>> From the SiliconANGLE Media office in Boston, Massachusetts, it's "theCUBE." Now, here's your host, Dave Vellante. (upbeat music) >> Hello everyone and welcome to this week's episode of "theCUBE Insights," powered by ETR. In this "Breaking Analysis," I want to look into Cisco. You know theCUBE is in Barcelona this week to cover Cisco Live. There's an expected attendance of about 17,000 people. Now today, Cisco is a company in transition. It remains a leader in key segments, but it's refocusing its business for the next decade, having exited a number of areas over the last several years. Allow me to briefly give you my perspective and review how we got here. Near the end of the dot-com bubble, Cisco was the most valuable company in the world, with a $500 billion market cap. It was one of the four horsemen of the internet, remember that? Along with Oracle, Sun, and EMC. Cisco really rose to prominence by betting big on ethernet. Old reliable TCP/IP was the linchpin of the internet, and allowed Cisco to power the wave that virtually decimated the mini-computer industry in the 1990s. There were many levers that Cisco pulled, brilliantly, during its ascendancy, and I want to call out two big ones. First was it created an army of network engineers. Literally hundreds of thousands of professionals trained on installing, configuring, managing, and optimizing Cisco gear. Cisco created very complex solutions and thrived on this complexity, and the Cisco Certified Inter-network Experts, or CCIEs, deeply understood the dark art of networking, and Cisco was their beacon. The second was acquisitions. Under the leadership of CEO John Chambers, Cisco completed about 180 acquisitions over a roughly 20-year period. This enabled TAM expansion, growth, and maintained Cisco's relevance to customers, who very typically and often were the generator of acquisition ideas. Cisco diversified quickly into a conglomerate with a portfolio that spanned video, set-top boxes, telepresence, compute, collaboration, security, wireless. At one point, Chambers talked about dozens of adjacent businesses, each of which would account for a billion dollars of incremental revenue for Cisco. Many, if not most, didn't pan out, and Chambers slashed and burned prior to handing the reins over to current CEO, Chuck Robbins. Now, under Robbins, Cisco was a more focused company, kind of going back to the basics. They're betting on what I would say are more sure bets, including data center, wireless, collaboration, security, and the Edge. Cisco is also evolving its model towards software subscriptions. Now today, I want to look at how some of those bets are performing. I'll discuss the impact of cloud on Cisco's business, and then I want to drill in to the performance in some areas like networking, collaboration, security, and then close on hyper-converged. And then the last thing I'm going to do is share some things that I'm watching as barometers of success, over the next 18 to 24 months. Now the first thing I want to do is give you a snapshot of Cisco's financials today. What this chart shows is some KPIs on a trailing 12-month basis. Cisco is about a $50 billion company with a $200 billion market value. That's a 4X revenue multiple, which is pretty good for a company that's generally viewed as a traditional hardware player. Now Cisco is guiding analysts on a flat to down year, and talking about a challenging macro environment, despite the stock market's seemingly insurmountable rise. Cisco is a very profitable company, with a 33% operating margin, and very nice, 66%, roughly, gross margin. Cisco throws off a lot of cash, around $15 billion annually in free cashflow. They make a big deal that 70% of its software revenue is now coming from subscriptions. And Cisco is mandating a new consumption model that is subscription-based. Now it's somewhat hard to tell exactly how large Cisco's software revenue is, as they're opaque in that detail, but I'm pegging it at between 11 and 12 billion by the end of this year. Today it's probably seven to eight billion. Cisco is riding some big waves, adding software to its portfolio, security grew at 22% last quarter, Wi-Fi 6, 5G, which by 2021 should start kicking in, it uses a chunk of its cash of course to buy back stock to keep the street happy, and it's leveraging a leadership position to compete. Now finally, I want to make some comments, later actually, on how they're approaching developers in a strategy that I really like. Now there are some headwinds that Cisco's facing, namely cloud, this macro picture that they talk about, which is not positive for them evidently, the company's overall complex portfolio, the competitive dynamics, and the perception that they have an aging, or that they are an aging hardware company, and they're really still touting, selling ports. So, let's drill into some of the spending data, and I want to start with this notion of leadership. This chart shows Cisco's position in its core networking segment. The chart depicts market share over time, which remember is a measure of pervasiveness into each ETR dataset. Now look at what happens. Look how Cisco maintains its leadership, far outpacing the others in this networking sector each quarter. I'm going to make some comments on the sector overall, but notice the net score in the blue bars, which is a measure of spending velocity. It holds firm at 25%. Not great, but holding steady. And you can see the pie chart of the public cloud's impact on the sector, and I'm going to make some comments there later as we go on. But first let's look at the networking sector overall. ETR just released its January survey, and here's what they said in their sentiment on networking. So, when you see the networking space, it's been sort of down for a while, and ETR has been somewhat negative on the entire space, but what this shows is really net score, which is spending velocity, and the January 2020 results, with previous periods within Fortune 500 buyers. And you can see there's an uptick in momentum for networking generally, and Cisco is really cited as rebounding. But now look at the blue call-out. It's from an ETR VENN discussion, with an IT buyer, who essentially says, "Look, as we move to the cloud, "we are going to spend less on networking gear." And given that Cisco is the leader, we want to understand how the public cloud is affecting Cisco's networking business. So to answer that, what I'm showing here is data from the latest ETR January spending survey. And I'm filtering the data on organizations that are spending on AWS, Azure, and Google Cloud platform, and showing Cisco's performance measured in market share, or pervasiveness. You see, that's what's happening now in these big cloud accounts. There's an N of 809 cloud customers, and 480 Cisco customers within those accounts. And you can see the impact that the cloud is having on Cisco, much the same way it is affecting virtually every large supplier of on prime infrastructure. A slow, steady decline over the past 10 years. And you can see a net score, which measures spending intensity, in the upper right-hand corner, of almost 30%, which is somewhat lower than Cisco's average in the ETR dataset. But the story's not just about cloud. There are other waves in the industry, of what I've referred to in the past as innovation cocktail ingredients, namely data, plus AI, plus cloud. So the next question I want to pose is, how is Cisco doing in leveraging these waves? So here we have 916 customers in these superpower segments of data, AI, and cloud, that are combined, and we show the market share, or pervasiveness, over time, of Cisco, as compared to VMware's NSX, HPE, and Dell EMC. What the data shows is a couple of points. One is that Cisco is the most pervasive competitor shown in these customer segments. Its net score is 37%, four points higher, meaningfully, than the cloud-only chart. Actually seven points higher than I showed earlier. Only NSX has a higher net score, and relatively speaking, NSX is much newer, and should be growing much faster than Cisco, so that makes sense. So I would say that Cisco is holding its own here. Its challenge really, in my view, is to use data and AI to create better customer experiences. So, be a consumer of AI, if you will, as a means of better serving customers, and compete in the multi-cloud market directly with these players and others, none of whom own a public cloud. Okay, so I spoke earlier about Cisco's portfolio, so let's look at some of the ETR data, and see how various parts of Cisco's business are doing. This chart shows the net score, or remember, spending velocity, across Cisco's offerings, and includes Meraki, which is wireless, AppDynamics, AppD, is application performance management, we're showing here Cisco overall, Cisco Umbrella, which is cloud and DNS security, and Springpath, which comprises infrastructure for Cisco's hyper-converged offering. And as you can see, the segments in which Cisco plays, there are 10 in the ETR taxonomy, spanning analytics, security, mobile, device management, infrastructure, video conferencing, et cetera, et cetera. In the interest of time, I will say just the following. Red is bad, green is good, and gray is neutral. And again, Cisco is holding its own in these major segments, with decent spending velocity. So now, let's take a look in an area that I think is going to get a lot of attention in Cisco Live, and that's collaboration. This ETR chart that I ran shows net score, or spending velocity, for video conferencing platforms. And you can see, Cisco, they got some work to do. It's sort of teetering on the red zone. So I would expect some continued enhancements there. Now comparatively, you can see GotoMeeting losing steam, and Skype really falling off a cliff in January, but look at Microsoft Teams, that blue dot, with very very strong momentum. So what Microsoft's doing is they're migrating Skype and Lync, their install base, to Teams, and they're really really well-positioned there. And you can see as well, newcomer Zoom is right there in the mix, across this sample of 500 buyers. Now, I want to turn your attention to a really important sector, which of course is security. This chart that I'm showing here shows net score, again, spending velocity, in the cyber security sector. And Cisco is both large and credible in this space. Its security business grew 22% last quarter, as I said, and it's at a $3.2 billion run rate. So, spending momentum, maybe not as strong as Palo Alto Networks, which I'm showing here, and it's not as high as the rocket ship companies, like CrowdStrike, or Okta, or CyberArk, or SailPoint, or some of the others that I've highlighted in previous "Breaking Analysis" episodes, but Cisco's pretty solid. And you can see the likes of IBM and Symantec, by comparison, these guys are leaders in security, but their spending momentum is in the red. So once again, the steam of Cisco as a large player who has credibility, this story is playing out. And clearly this is going to be an area of focus at Cisco Live. So this next data point is kind of interesting, and looks at Cisco's data center business, and specifically, I'm trying to better understand what's going on in hyper-converged, the software-defined platforms that bring together storage, compute, and networking. Now the power of the ETR platform is that I can ask the question, how are the hyper-converged players doing inside of Cisco accounts? So what I've done is I've filtered on 458 Cisco accounts across three sectors, storage, compute, and networking, and I've isolated on Nutanix, VMware, or VMware's vSAN, Cisco itself, and Dell EMC with VxRail. And what we're doing is we're showing net score, or spending intensity, spending velocity. And the first thing to point out is that all of the vendors are in the green, and that's because this is a growing market that still has legs. Nutanix has noticeable spending momentum, ahead of vSAN, ahead of Cisco, and Dell EMC. Now here's the thing about Cisco. On the one hand, it's putting forth its own HyperFlex platform, based on the Springpath acquisition. But it has to tread carefully because it partners with converge players, like NetApp with FlexPod and IBM with VersaStack. And its HyperFlex, as an HCI play, is essentially designed to replace converge platforms like these. Now the same is true for VBlock, the business with Dell EMC, the old VCE business, but Cisco and Dell are at each other's throats, so, neither really cares that it's replacing them. Okay, long segment, a lot to cover, I got to wrap, but I want to end by saying what to look for over the next sort of 18 to 24 months as barometers. First thing is the pace of transition to software. The second thing that I'm watching is the uptake of the new core announcement that Cisco just made for big routers, silicon, and optics. This is Cisco's wheelhouse, and I expect that the 5G rollout in 2021 is really going to start to pick up and be a tailwind for Cisco. You know the macro should be a concern. Cisco is saying its business is soft, kind of across the board, there's China, there's Brexit, but the S and P is on fire. Now does that mean upside for Cisco? In other words, are they sandbagging a little bit? Or, are there more fundamental, structural, or execution issues? I think personally, Cisco may have a little bit of upside here, but they're big and exposed, so that's something to watch. The other thing is the impact of cloud on Cisco's business, and the company's ability to compete in multi-cloud, including how it embraces Kubernetes. Cisco, and I've said this before, has to position itself as the best, the most cost-effective, the most secure, and highest performance network to connect hybrid and multi-clouds. Now as well, the company's got to hold serve in networking, which I fully expect it to do. We're seeing a little uptick in Juniper, Arista's doing okay, but they're sort of smaller in the grand scheme of things relative to Cisco. Now the wild card here is VMware's NSX. So we'll be watching that and what impact it has. A lot of customers have both. Finally, I want to talk about developers. Cisco DevNet, as I've said many times, I really like what Cisco is doing there. I think they've outshone some of the traditional players. They are retraining hundred of thousands of CCIEs to code in Python, and really, code Cisco infrastructure. So Cisco has an infrastructure-as-code strategy that's going to help propel them in multi-cloud, the Edge, new Workloads, and they're leveraging this engineering force that they have. So, very long segment here. Watch the coverage at Cisco Live on theCUBE and on SiliconANGLE. It's a big chewy company, and a lot for me to swallow in one of these segments. So tweet me @DVellante if I've missed something, or comment on my LinkedIn feed, or you can email me at David.Vellante@SiliconANGLE.com. Thanks for watching, everybody. We'll see you next time on "Breaking Analysis, "theCUBE Insights," powered by ETR. (upbeat music)

>> Voiceover: From Orlando, Florida, it's theCUBE. (upbeat music) Covering Sapphire Now. Headlines sponsored by SAP HANA Cloud, the leader in platform as a service, with support from Console, Inc., the cloud internet company. Now, here's your host, Peter Burris. >> Welcome back to theCUBE. I'm Peter Burris, and theCUBE is, once again, our flagship platform for bringing what's happening in big events to the community. Today, we're here at SAP Sapphire and I'm being joined by Tom Roberts, who's the Global Vice President of Third-Party Software Solutions. Tom, we're going to spend some time talkin' about how you're working with the ecosystem at SAP to fill in some of those crucial gaps that customers face as they try to create those new outcomes with SAP-related technologies. Tell us a little bit about what your team does. >> Great, Peter, and thanks, appreciate you havin' us here. You know, Peter, one of the key things that Third-Party Solutions does, and what my team does, is we really help complete the solution. Right? So, it's a complex world. We've got customers out there trying to solve some very challenging problems and, of course, SAP brings the bulk of the solution there, but there's going to be some gaps. We've created unique relationships in our ecosystems in order to help fill that and deliver a complete solution. So, for example, you'll hear the name out in the marketplace, Solution Extensions, and that's our external branding. These are solutions that SAP sells on its paper, that have been tested and are supported by SAP, same as our own products, so the customer can buy with confidence and help get that total solution in place. >> So, it's your almost SAP-compliant additional software. >> Yeah, that's right. >> Excellent. That's a really interesting perspective. You know, it's interesting. Over the course of our two days here at Sapphire, and we'll be here tomorrow as well, two things have popped out that are a little bit different from SAP. First off, the tension between whether or not SAP was an applications company or platform company seems to have totally gone away. >> Yes. >> You're a platform company. >> That's correct. >> The second thing that I find very interesting is that SAP has always been the company that kind of, was a little bit more neutral, stood back. When a customer needed us, we'll show up and we'll do it. You're now being a little bit more aggressive about going after business, after some other companies' customers. How are you utilizing this extensions approach to more rapidly create a solutions fabric that can bring, that can rapidly grab new customers for SAP, and your partners? >> Well, Peter, you're right on the money. You know, it's no doubt that the industry has moved rapidly to the cloud. In fact, everybody said it would happen faster and it's happened even faster than they said it would. Everyone is, when they see results, they're always surprised, and cloud growth was even faster than we thought it would be. Now, what a lot of people haven't figured out, but I think SAP has, is that, in a cloud-based solution world, the expectation is that, one, it's seamlessly integrated, and, two, the experience of buying it is seamlessly integrated, and, three, it's supported in a seamlessly integrated way and that's what Solution Extensions delivers in the cloud. So, you take an example of the success we've had with the acquisition of SuccessFactors, growing great, growin' well in the industry, but they have a lot of needs in order to mature the solution and meet the customer's entire wishlist. One example that we use is we've got a relationship with WorkForce Software for time and attendance, so it wasn't something that SAP developed, but it's something that the customers needed and provides high ROI. But, if you go and you look at that solution, you'll look and see that it's directly embedded inside employee central, right on the drop down, so, for the customers, a completely seamless experience, and they can buy that from their SAP account executive. >> So, SAP is installed in a lot of companies, 300 thousand across all industries. >> Right. >> As we move to a digital world, a lot of your customers, a lot of your SAP customers themselves, are starting to envision how software becomes part of their delivery mechanism. >> Right. >> And they're looking at the customers that they serve and saying, I wonder if I can use this software better. Are you startin' to see non-traditional software companies starting to come to you and saying, how can we be part of this program so that we can plug into, or we can enhance, that broad set of solutions for our customers. >> Right. So, look at, everyone likes to talk about Internet of Things, right? So you take a historical business that's asset heavy and, by that I mean, think of like an oil and gas company. You know, traditionally the guys would work out in the field and they didn't carry devices with them. They carried wrenches, (giggles), right? They didn't carry mobile devices that were digitally connected. >> And flasks. (laughter) >> Sometimes. I hope not too often. That's a dangerous line of work. But, if you think about it, now that's changed. Right? They now use the Internet of Things not only to get information back from the field, but they also use it so that when they have to go out and do those repairs, they're getting digital assets that they can see. Now, we have created some relationships, and I'll give you two examples. You'll hear about a relationship that SAP has with OSIsoft, right. They have a well-known reputation for being able to draw that information off Internet of Things, and we've created a link between that and the HANA platform. So that now, you can do that analysis in real-time, because, as you know, HANA is made for the real-time and, if you're going to do Internet of Things, that's the only platform you can really go with. You can't go with, it's not the old batch then analyze later; you need that information happening in real time. That's one example. The other example that I'll give you is you'll see here a Sapphire, you'll see a company called, Utopia. You say, well, alright, I've never heard of this company but they do a unique thing. It's a direct add in into he SAP platform, a solution extension, that allows you to do master data governance around your enterprise assets. And you say, wow, that sounds really complicated. Okay, what is that? This is the ability to look at those documents in a digital way while you're out in the field to understand hey, that bolt there, that needs to be made out of steel, not aluminum, or you're going to have a chemical reaction, for example. That's the kind of thing that can safe lives, save time, and also make the job out in the field easier. And you can't do that just with SAP's software by itself, we need the partners to contribute into that ecosystem and bring that richness there. >> You talked about the rapid adoption of the cloud, in many respects, almost surprising adoption of the cloud. 'Cause you're right, we all knew it was going to happen, many of us didn't necessarily know how fast it was going to be. SAP has a very on-premise and a lot of the programs that SAP put together were initially optimized for that on-premise orientation. >> That's right. >> Are your clients today, when they become part of the SAP extension, or the Solutions Extension program, are they automatically part of both worlds? First off, let me start there. >> Yeah, I mean, it's true that we live in a hybrid world already today. Hybrid happens so quickly. You saw SAP move aggressively forward and acquire some leading cloud companies. >> Yep. >> Right. (mumbles) >> And you did a great job of integrating them, by the way. >> Thank you. I think we did. And I'm really impressed with these properties. I think you saw in the keynote yesterday, a really great representation of some of the leaders of those businesses up there and how tightly they've become part of the SAP family. Now, when you look at Solution Extensions, it mirrors that. We have solutions across all five of the major pillars of the business which, of course, include these cloud properties, and the areas we're seeing the fastest growth, or the most rapid adoption, are in these cloud properties. Because we all went through the era of the best-of-breed became the suite, and then we had the era of the cloud. And if you noticed, when the cloud companies were launched, they were best-of-breed companies and now we're in that period where people want things to move back to the suite because they want integration. >> Or a least at a platform level. >> Sure, because they want efficiency. Efficiency comes from that integration and they get the first round of benefits by moving to the new application in the cloud and they get out of the business of having to operate it themselves. But, then, they want to get back to the business of having that seamlessly integrated with their core operations. So, we live in a hybrid world today but it's clear that the pendulum is moving directly to cloud. >> So are you suggesting to companies that want to be part of the extensions program, that they focus on the cloud first and then everything else second? >> Yes, I would, and here's why. All conversations with customers start with cloud. And they'll look to see if they can do something in the cloud first and it's the default. So, we've really moved past that world where the first conversation's around on-prem and then look to cloud. That changed maybe two to three years ago and today, every conversation starts with the cloud. >> So, I want to go back to that notion of non-traditional software companies creating solutions within the SAP ecosystem for their customers. Do you have companies like that in the extensions program today? >> Well, I think many of these companies are evolving, just like SAP. Now, I tend to deal with the ISVs, so I tend to deal with companies that are in the business of that. But, I will tell you this, what we're seeing with HANA Cloud Platform is exactly what you're talking about. It's that intersection of SAP, our ISV ecosystem, and those non-traditional customers that are, themselves, moving into the digital, and it's that intersection, and you'll see that happen on HCP, where they'll develop applications unique to their own business. I like to remind people this, when we first rolled out our three and then we went to the business suite, companies wrote billions of lines of custom ABAP code to get that system the way they wanted it, in each of these individual companies. Well, as we move to S4, companies are going to revisit what they did to make those systems special and perform just the way they want it to. But they're not going to do that in ABAP, likely. They're likely they're going to do that on HCP, and they're going to build in that platform because that's where they're going to get the integration, that's where they're going to get the benefit of where our ISV ecosystem is headed and tap into the richness of that. So, I think this is why you hear this rebirth of innovation at SAP and it's because it's driven by the customers. That's why we have so many people turn out at Sapphire this week, so much so that even the SAP employees are like, wow, this is really an impressive turnout. >> It's 60,000 plus people, it's one of the most, without question, this is one of most energetic and packed trade shows that I've ever been to. Or customer shows I've ever been to. >> Yes, it's impressive. We're lookin' around here right now and you just, all these, just, bodies. It's incredible. >> Yeah, absolutely. So, if I envision the next couple of years for you, every, we had a partner on yesterday, in fact, and we asked him a couple of pointed questions, as we're asking you, and we asked him, what do you want to see from SAP, as a partner? What would make SAP an even better partner so that you would be that much more willing to tie into the ecosystem? And what they said was, we want to see better road maps to, so that we can see how, where our responsibilities and SAP's responsibilities, our roles and SAP's roles, end. We're still concerned about the platform mentality rolling us. How are you assuaging those ISV concerns about your roadmap as you try to bring even more integrated value into the platform? >> You know, SAP has a brand of trust. And, when you get to road maps, you have to have trust with your partners- who's going to do what. Very clear and transparent conversations. I've seen a lot of maturity from SAP really in the last six to eight months being much more diligent in how they're planning their road maps and how they're involving partners in those road maps. I'll give you an example. You know, Wieland Schriener, who really leads some of the development around S4, in particular, as it relates to initiative that we work on with open text. That's one of our largest partners inside Solution Extensions. We have, right now, about 19 million users who have purchased that through SAP so, really, an incredible relationship, unique in the industry, that we have with them. As they, as we launch S4 and as we push it out into the marketplace, we've seamlessly integrated the open-text capabilities around unstructured content into S4. And, that's happened through the leadership of our development team. By making commitments like that. Weiland presented that on the partner summit on Monday to all the partners in there, really as a message out to them to say, this is how SAP is going to do business in the future with our ISVs and our partners. And it, and we're moving at such a pace it requires that level of coordination. Right? We can't just let it to chance. Or, we can't let it be ambiguous. We have to be clear about we're going to build this and we're expecting our partners to step up here, so that that dance happens the way it should happen. I do respect though, that the partners have that concern, 'cause it's a legacy. >> They're always going to have the concern, but a big piece of it is going to be how well do you share and how well do you work together. >> Yeah. >> Hey, Tom, thank you very much. Tom Roberts, Global Vice President, SAP Solutions Extension program. Thank you very much for being here as part of this great show, talkin' about partnerships and the evolution of the SAP platform and SAP the company. This is theCUBE, we're going to be back shortly with more from Sapphire. (upbeat music) (slow tempo music) >> Voiceover: There'll be millions of people in the near future that are, want to be involved in their own personal well-being and in wellness. Nobody--