Chuck Robbins, CEO of Cisco Systems, took to Bloomberg Daybreak: Americas this week to discuss the state of the technology industry. He didn't stop at how the rapidly changing industry is impacting Cisco's customer base and what customers are investing in today, he also touched on how local governments around the world need to be thinking about how technology can solve some of the planet's biggest problems, and how tariffs could stand in the way.
From US-China trade, to cyber security, to the biggest factors that are helping—and could potentially hurt —Cisco's growth in 2019, here's what Robbins had to say.
To what extent are people investing in tech right now?
Last quarter, we posted revenue growth of 8 percent, so for a company of our size, we’re very pleased on where we are, and it was probably the most consistent quarter both geographically and across our entire portfolio that we've seen in a very long time.
I think that is indicative of the underlying network infrastructure and the things we do are, frankly, the digital nervous system for the economy. Companies today realise that technology is defining their future strategies, so technology is not an optional cost center now—it's really at the heart of what every entity is doing around the world.
The federal government put an emphasis on being able to expense any capital investments. Did Cisco see a result from that, and is it continuing?
I've been asked during the last four earnings calls, ‘How much of your success is attributed the macro tailwinds and how much of it is better execution?’ I've said: ‘53 percent, pick one or the other.’
I think the regulatory environment—tax reform—has clearly been positive. We've been in the midst of probably the most consistent macro environment that we've seen in a very long time, but I do think there is truth to the fact that technology is in a different place today relative to the strategic value to our customers —it's been strategic, but it's at the heart of everything they are trying to drive.
What do you see with your global IT glasses?
It's interesting because what we do creates this flat world that we live in—the technology we built has created a flat world—and now we find ourselves with lots of conflicts around the world. The geopolitical dynamics are clearly complicated for all of us, and I think countries are just trying to figure out, ‘How do I deal with this tech change that is happening so rapidly?’ Frankly, it's very difficult because governments around the world don’t have the expertise to be able to regulate to determine what they should do, so it leaves us with this very binary decision— ‘It's very difficult to do things surgically, so I have to do it with brute force.’
How much of the China-US trade dispute, when it comes to tech, is about trade and economics, and how much is about national security?
I think there are aspects of intellectual property, there's aspects of trade deficits, and then the view that this 5G buildout is critical to everyone's future and there’s a competitive race going on around the world. I think it's all of that, and what my hope is is that we can get to this place to all move forward in a way that lifts the global economy and being able to take advantage of some of the technology and what it can do for not only business, but candidly, we are at a point where technology can solve some of the biggest problems in the word, so that’s what we need to be focused on.
How are your clients handling this?
There are multiple aspects of this. There's the tariffs, and we continue to have discussions with the administration to help them understand the impacts of the tariffs. We've optimized our supply chain over the years and we will continue to do that, and then to the extent we've been able to, we've had to pass through some of those prices down to our customers.
Our business in China is a relatively small percentage of our business still, so the impact has been minimal. We're trying to stay a part of the discussion. We try to bring some logic, and we are trying to help people inside governments around the world with how should they be thinking about regulating this technology, how should they think about data privacy, and how we can help eliminate some of those concerns and help them achieve what they are trying to achieve while not destroying the global benefit of connectivity.
There's been talk of a possible tech iron curtain between China and the US. Would it help or hurt Cisco's business? Is China a frenemy?
We have great relationships there, and our business, while small, has been growing regularly over the years. I think if that happens, it's just bad. I think we need to figure out a compromise position to help both countries get to where they are trying to get to without breaking down the fundamental value of connectivity in the first place.
Do you think governments are going to hurt or help you this year?
I'm an eternal optimist, and I think it's in everyone's best interest to get through this.
As evidenced by recent news from companies like Facebook, do you think the big conglomerate tech world is going to come under some heat this year?
We've taken an approach that in every country we operate in, we try to be very local and we try to be great citizens, so we have great relationships. We are trying to help resolve some of these issues and help governments and the tech industry think about how we should be dealing with some of these issues to operate in the new world, and I think that’s going to happen.
When it comes to cyber security, are we doing enough?
I think the US is in great shape. Last year, we blocked 7 trillion threats on behalf of our customers—20 billion a day. So, there's a lot of activity. The problem is the adversary has to only be right once and we have to be right all the time. We have to think about an active adversary—we don’t do that in other parts of our business, but I think that by and large, when you look at cyber security organizations inside our customers, they are very good. It’s a constant battle, but I feel good about where we are.
What's the biggest concern of your customers this year?
It’s the geopolitical dynamics. It’s the uncertainty. The markets hate uncertainty, our customers do too, and primarily, it's anchored in the China-US issue because it’s the biggest issue that needs to get resolved, as well as obviously getting the government open again.
Where is Cisco's growth coming from in 2019?
I think it will be a little bit of both [organic and inorganic growth] but primarily organic. We are in a unique position as a company that has been around for 34 years that our core franchises are big areas of growth for the company, where other companies our age are looking at their core franchises as the profit pools in which to invest in other businesses.
We have done some of that, but we have seen strong growth in the core areas that we built. In order to solve the security issues we talked about, you have to do it deep within the network infrastructure, so we are rebuilding and revamping networks for customers all around the world, so it's very consistent right now.
What could limit Cisco's growth this year?
If we keep trying to talk ourselves into a slowdown, that could throw a wrench into things. The earnings from the banks [this week]—everyone thought they were going to be terrible and they came out strong, so it just feels like there is obviously some concern—people worried about rates, and year-over-year comps are going to be tougher—but in general, what you are hearing is the overall economy is doing reasonably well. When rates go up, emerging economies are going to have challenges, but we are talking about those challenges so much it's making people nervous.