Cisco Earnings Conference Call Nuggets: Enterprise and Carrier IT Spending

Cisco Systems Inc. (NASDAQ:CSCO) reported its first quarter and fiscal year 2012 earnings and in its subsequent conference call, the company answered the following analysts’ questions we thought you’d like to know.

Enterprise and Carrier IT Spending

Brian Modoff – Deutsche Bank asked: What are your thoughts on the enterprise and carrier IT spending environment in the first half and the second half of calendar year ’12? What are your top tier customers telling you in terms of budget product used case priorities?

John T. Chambers – Chairman and CEO responded: With many of our large companies, their budgets are going to be up a little bit more than I anticipate. I was thinking it was going to be flat-to-down with the average enterprise customer when I do the polling but it’s going to be probably flat to slightly down.

Commercial, if their business is good, I see their payback. They are going to spin within it. Service providers would probably spend a ratio maybe a two to three times than what they are going to spend in terms of their actual owned revenue growth type of opportunities. I think most CEOs are going to do exactly what we’re going to do here–which is we’ll start with the conservative budget and then we’ll see how the year develops in terms of the balance.

Therefore, if we’re going to grow to the indirect part of your question, this is where you got to move into really meeting the business needs.

For those talking about cost control, we’re able to go in and say here is what you can do on cost of ownership in a data center built by Cisco with UCS and the Nexus partnering with EMC and our VCE correlation there. You can really take cost of ownership as they do these consolidations down by as much as 50 percent, 60 percent, 70 percent. You can combine networks in architectures.

For those customers that are into productivity, we can talk about how collaboration really enables productivity and completely changes business models for video. You can talk about where you are going in terms of that approach and maybe a good example of that is what we did last week for Virginia.

It’s an area where state government and higher education came together.

The Governor of Virginia and four presidents from Virginia’s top universities came together and said, how do we share teaching capabilities; how do we get another 100,000 degrees out over the next certain number of years; how do we place our state in a better competitive advantage? We did it over TelePresence. We did the announcements in four or five different locations.

We saw savings for Virginia in terms of education costs with a more effective use of their teachers, with the creativity of collaboration among four university presidents; I think this is a good model for the rest of the country, with the Governor saying I am going to fund this.

As you can imagine there was not a single discussion about routing and switching. It was included  how does video change education and how do you use medianet to be able to make the video really usable? How do you bring it not just to each classroom or each dormitory, but how do you bring it to the home, how you make the state more competitive?

When you play at that level, you’re going to get people spending with you even in very, very tight times; that’s what we’re trying to accomplish. So we’re trying to get a larger share of spending and move into areas such as the data center consolidations or such as collaboration of video, where we haven’t been as heavy before.

Order linerarity and Europe disruptions

Nikos Theodosopoulos – UBS asked: Can you can talk a little bit about the order linearity month-by-month in the quarter as compared to what you were expecting in the normal seasonal pattern? Did any of the macro uncertainty in Europe disrupt things even temporarily during the quarter?

John T. Chambers – Chairman and CEO responded: It’s a key question. Our quarter linearity month-by-month was almost identical to what we would see every month in prior Q1s. Without too many specifics: the first month 22 percent to 24 percent; the second month 28 percent to 30 percent and the third month, 46 percent to 48 percent. We are right in the middle across the Board. Linearity was extremely good and it occurred almost every week.

Frank Calderoni – EVP and CFO responded: You can also look at our DSO at 35 days. I think that was a good reflection of the improvement in DSO because of the balance throughout the quarter.

Note: There was response to Europe’s effect.

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