0:00

Unknown: Metcalf, the founder of Ethernet once once said at a

0:03

talk he said, I don't know what comes after Ethernet, but I'm

0:06

pretty sure it's going to be called Ethernet. Antone Gonsalves: Hi, and welcome to Tech News this week,

0:12

I'm your host, Antonio and solvus, editor at large for

0:16

techtarget editorial, Cisco recently released earnings that

0:20

spooked investors. What convinced them to push the sell

0:23

button on Cisco stock, which fell 10% in a single day, was

0:28

the company's lower than expected revenue and earnings

0:31

for the rest of the fiscal year. Here to help us understand

0:35

what's happening with Cisco is Bob Albert, Networking Industry

0:40

analysts at Tech targets at an Enterprise Strategy Group.

0:44

Unknown: Welcome, Bob. Thanks, Anton. Great to be here.

0:47

Antone Gonsalves: Yes. Nice to have you. All right. So Cisco

0:50

beat analysts estimates last quarter, but it's forecast for

0:54

this quarter and the rest of the year convinced analysts to lower

0:57

their price targets. What happened? Or what did? Why did

1:02

everything changed so rapidly? Yeah,

1:05

Unknown: I mean, I guess the The interesting part is, I don't

1:08

know that it's so rapidly, I think this is the, you know, the

1:11

event that we've been seeing, building up to this for quite a

1:15

while now, with all the supply chain shortages, and

1:20

organizations wanting to overcome that. And pre ordering.

1:23

And, you know, across both the distributor level, and the end

1:27

user customers, I think what we're just seeing is a bit of a

1:30

natural correction. And it's not just a Cisco phenomenon. If

1:34

you've seen if you've been following the earnings announcements all fall, you've seen a lot of the networking

1:38

companies do the same thing, like, hey, we beat this quarter.

1:41

But we're just letting you know, down the road, things are going

1:44

to slow down as both the customers and the distributors

1:50

get to consume the product that they already have. So it's just

1:54

I honestly, I look at it as a minor correction in the market.

1:58

And I think, you know, it's not anything impactful of any of the

2:03

vendors products or anything like that. It's just more of a

2:06

there's a supply and demand issue. And right now, there's

2:08

plenty of supply, which is going to weaken the demand for new

2:12

orders over the next couple of quarters. And that'll correct

2:15

itself. And then we'll be back back online, as

2:18

Antone Gonsalves: we all know, Cisco is is a bellwether in the

2:20

tech industry. You know, CEO, Chuck Robbins, you know, he

2:26

insisted that the earnings that disappointed analysts, it didn't

2:32

reflect a slowdown in enterprise IT spending in general. Right.

2:39

Now, investors, he said it was strictly what what you're

2:43

describing, you know, customers dealing with the backlog? Yeah,

2:50

the spending? Okay, well, but obviously investors didn't

2:54

believe them. They had doubts. This is so so why why the

3:00

disconnect? Is are is is is it? Is it enterprise IT spending? Is

3:07

it going to slow over the next quarters? Or isn't it? Well,

3:11

Unknown: I think like you said, for all those products that

3:14

people have been that were suffering from the backlog,

3:19

right, and pre ordering and ordering as much as they could

3:21

to make sure that they could meet their demands have now find

3:24

themselves in a little bit of surplus. I think that coincides

3:28

from also from a, you know, Wi Fi perspective, there were a lot

3:32

of organizations over the last couple of, or at least this year

3:35

anyways, who spent a lot on reimagining their campus

3:38

environment, and preparing for the return to work. And I think

3:42

we're seeing that a lot of those that maybe is a mature

3:45

environment as well. But like I said, from an overall

3:48

standpoint, we don't see anything slowing down to that

3:53

rate from a distributed environment, right. So at the

3:57

Enterprise Strategy Group, we refer to the distributed cloud.

4:00

So applications moving to multiple public clouds moving to

4:03

the edge being on private data centers, employees still very

4:07

much engaged in hybrid work activities. And then right, and

4:12

so they're working from home, they're working remote, they're

4:14

working in the office. So the one thing that's tying all that

4:18

together is everything needs to be connected. So is there going

4:21

to be a slowdown for the network? I don't think so. I

4:25

think as organizations continue to adopt hybrid and even return

4:29

to office, it's really going to continue to drive perhaps some

4:33

of that upgrade. Because what's happening is the legacy gear

4:36

that they have can't handle the collaboration bandwidth, right?

4:40

That video and voice traffic go into every desktop, right? Think

4:44

about pre pandemic, you had a video room. It was time for a

4:48

meeting and everyone was in the office and then you went to the

4:51

video room to talk to either another company or someone who

4:53

was remote. The reality is today's every desktop is a video

4:56

room. Right? And so and the way Everyone connects that desktop

5:01

is wireless now, right? No one runs wired to the desktop in any

5:04

new building, right prior to the pandemic, everyone was talking

5:07

about reimagining the office space and completely wireless.

5:10

And so to enable that organizations are going to have

5:13

to move to Wi Fi six, ie Wi Fi seven, right to get that

5:16

additional capacity to support that, that video,

5:21

Antone Gonsalves: and they are going to need that kind of an upgrade, given the fact that the return to Office is not full

5:26

staff. I mean, we're looking at, Unknown: it's not but like I said that because it's not full

5:31

staff is exactly why they have to do it. Because that means

5:34

what any, anytime they're going to collaborate with somebody,

5:37

half of the people might not be in the office. And so again,

5:41

it's not. So if everyone's having this in the office, you

5:43

don't have enough video rooms to accomplish that. So from what

5:46

I've heard, like said that the talk track is typically around,

5:50

how do we reimagine the campus environment to enable those

5:55

collaboration apps to be used from anywhere in the building

5:58

and not just specific video rooms, and then how this plays

6:02

out for the networking companies, that means new wireless access points. And because these new wireless

6:07

access points accommodate the 2.5, the five and the six

6:11

gigahertz range, they require more power, which means they

6:14

have to replace the wired infrastructure that's supporting

6:18

it, right. So they can get P OE plus and things like that. So

6:20

they have sufficient power to power the access points. And

6:23

they're multiple antennas, etc. So, so that's where that's where

6:27

you start seeing that change. Now, the question is where we

6:30

are not transition. Right, and whether that's going to continue

6:33

to drive more, or people have already bought for that. But

6:38

there's like said there's there's a few other things that are that are driving it, as well. I don't know if you want

6:43

to go there now or if you want to stay ahead

6:46

Antone Gonsalves: what because yeah, what's so my strategy

6:49

group's research showing Unknown: us? Well, it's there. It's not only the research, but

6:54

also the I've been on a lot of calls with the networking

6:57

companies Lately, they've been having analyst days and things

6:59

like that talking about their plans going forward. And there's

7:02

two little two little letters that keep cropping up. And all

7:05

those that happens to be a an AI. That happened. And so with,

7:11

with all of the, with all of the interest around AI and all of

7:16

the activity that's going on, there's there's something that

7:20

we refer to it's like networking for AI. So how do you enable

7:23

those back end infrastructures for these AI environments that

7:28

these hyper scalars are putting together these large enterprises

7:31

are putting together? And if you look at it, you know, based on

7:35

who you talk to, it could be anywhere in that range of an

7:39

additional six to $10 billion dollar Tam, for these network

7:42

providers. So here's something new that's going to drive

7:46

growth, Antone Gonsalves: what tam stands for, what a

7:48

Unknown: target addressable market. Right. So that's, I

7:52

mean, they're going to make six or 10 million, that's just that's what it is to be split up amongst all the all the vendors.

7:58

And you know, a lot of them will, you know, in that lower

8:00

end, one tends to be more toward just the back end networks, or

8:03

the high performance back end networks. These are the ones

8:05

that will compete against the InfiniBand stack, did invidious

8:09

put together for that space. And this is where things like I know

8:13

if you're familiar with the ultra Ethernet consortium, I am.

8:17

So something recently, Antone Gonsalves: Cisco and Arista are members of that

8:21

consortium. And their purpose is to make Ethernet instead of

8:27

InfiniBand. The number one net Correct? Yeah,

8:32

Unknown: HPE. And there's a few other companies on it, you can

8:34

go and see the whole list of them. And yeah, the idea is,

8:37

look, do you really want to introduce another technology.

8:40

And we've all known if you follow networking long enough,

8:43

there's been a lot of technologies that have been introduced, but Ethernet is still going. And so remind Bob

8:49

Bob Metcalf, the founder of Ethernet. Once once said at a

8:53

talk, he said, I don't know what comes after Ethernet, but I'm

8:56

pretty sure it's going to be called Ethernet. And so and

8:59

that's what you're starting to see with this ultra Ethernet,

9:01

right is that hey, how do we, how do we have a tech? Why

9:04

don't? Why would we try and put something completely new in

9:07

where people don't have the resource, the skill sets, etc.

9:10

When we could just modify and leverage Ethernet to do the same

9:14

thing, right? Let's keep the cost down, leverage the same

9:17

boxes, the same methodologies, there's a little bit of

9:20

difference, right? Because the performance is required. And so

9:22

there's some new technologies and that's what the that's what

9:25

the the UEC, the ultra Ethernet consortium is all about how do

9:29

we modify Ethernet? How do we modify the rocky stuff to make

9:33

it simpler to make it non blocking all this kind of good

9:36

stuff to enable organizations to use that? And so, you know, like

9:40

I said, with Arista, with Cisco and HPE, and you can imagine

9:44

others will join as well. There's a lot of other companies in there, that they're really going to be focused on. How do

9:49

we how do we incorporate this and build it out? So that's a

9:51

big opportunity for a lot of the network companies to expand

9:55

their Tam and get back to a growth area right through Do

10:00

something that doesn't exist didn't exist six months ago 12?

10:03

Well, it did, but not in a way it is now with everything

10:06

blowing up and all the attention being spent on it.

10:09

Antone Gonsalves: Okay, so who's going to who's going to be the

10:11

buyers of this ultra Ethernet? When and if it comes, I mean, we

10:17

have I mean, when it comes to AI, enterprises, these based on,

10:24

on my reporting that enterprises are not this will try to figure

10:30

out the return on investment on AI, they're still trying to

10:32

figure out what's required. And because there's so much more

10:36

than even beyond the technology, what's required technology wise,

10:40

but to get the education of employees, how do you use it?

10:43

How do you secure it, I mean, these are issues that they're

10:46

struggling with. And as a result, if they're under

10:48

pressure to do something right away, if a CIO is under pressure

10:52

from the board, or the CEO to do something right away, they're

10:56

just turning to Microsoft to Salesforce, and use AI. All

11:02

right, so you're talking about something about Ultra Ethernet?

11:05

I mean, is that really, for networking companies to sell

11:08

more to service providers and cloud, but then cloud providers

11:13

hyper scalar, scalars, as opposed to the universe? So

11:17

Unknown: I think this is going to follow a path, right?

11:19

Initially, it will be those hyper scalars, right, the

11:22

service providers, the, you know, really large enterprise,

11:27

who will be wanting to build their own training and

11:30

inference, malt, right environments. That's who's going

11:33

to adopt it. But like most technologies we see, and even

11:36

hyper scalar technologies make their way down to the

11:39

enterprise. So the initial market is yes, it's about

11:43

enabling these hyper scalars that are using 10s, of 1000s of

11:47

deep of GPUs, and like just massive environments, huge power

11:50

consumption, that's who will be the initial customers, you'll

11:54

have some of the really large enterprises doing that as well.

11:58

And then you'll see over time, right, that you'll see other

12:02

enterprises wanting to have their own environments wanting

12:04

to build things out. But you're right, if you're, if you're an

12:07

SMB, or a smaller enterprise, and you can leverage, you know,

12:11

Ignite was this week. So it's top of mind, right? If you can

12:13

do co pilot for 365 and Microsoft graft and use their

12:17

studio to integrate with your, your SharePoint, for data,

12:21

right? Because it's all about the data for AI, right? How do I

12:23

get the data? And most importantly, for all the

12:26

enterprises like you're saying, from a security perspective,

12:29

it's about how do we make sure that none of our data gets put

12:32

into a public API environment? So by building out those

12:36

private, we commonly refer to them as SLM is right, the set of

12:40

the large language models and the small language models, just

12:42

based on their own data, it's that they own and control. So

12:47

you're right, it's going to be a process. But definitely the

12:50

larger organizations, the hyper scalars are absolutely gonna

12:53

lead the charge on this. They're obviously they're already there.

12:55

Right? They're already buying this. And so the question is,

12:58

how much of it goes to? How much of it goes to InfiniBand? And

13:02

how much of it goes to Ethernet initially, and then once like

13:05

UEC, is out? How much starts shifting over to to Ethernet? I

13:09

mean, the, the hyperscalers have certainly shown that they don't

13:14

want to use proprietary technology, right? Everything's

13:17

white box, or some slightly modified white box type of

13:21

technology, right? They want to be able to reduce cost, they

13:23

want everything to be standardized. So there's a lot

13:26

of, there's a lot of pluses for why they would want to use

13:30

Ethernet. Over InfiniBand.

13:33

Antone Gonsalves: Okay, so let's circle back to Cisco here. Were

13:36

one of the because Cisco, Cisco, if Cisco is going to get back on

13:43

track in terms of revenue to satisfy their investors, it

13:48

seems like Splunk is, is a critical piece of that they're

13:53

spending $28 billion for this company. How will Splunk change

13:59

their business? And, you know, give them their next round of

14:04

revenue? Unknown: Yeah, I think that's another it's a really

14:08

interesting one. Obviously, this has been talked about for a couple of years, right? Whether it's people have been waiting

14:12

for this to happen. So it obviously it presents a huge

14:17

opportunity for them from the observability space. As I

14:20

mentioned earlier, these distributed cloud environments,

14:24

with applications everywhere, with workers everywhere, it

14:27

becomes increasingly difficult, right? The complexity increases,

14:31

the ability to have the ability to have visibility, essentially,

14:36

right across these highly distributed environment becomes

14:39

really challenging. So they've been doing things on the network

14:42

side, like with 1000 eyes to look at what's going on in the

14:46

across the internet, right? Being able to tie that in with

14:49

their devices, being able to get all that telemetry. While Splunk

14:53

has been working on how do I collect all the log data from

14:56

everywhere? How do I collect application data? So there's

14:58

obviously there's a little bit of old up there, right? Because

15:00

Cisco has AP D and things like that. But the overall strategy

15:04

here is how do we take all the tools that we have to collect

15:08

all the data, we have to provide that end to end visibility

15:11

across that environment. So that we're able to very quickly and

15:16

easily detect when there's an issue or to be able to collect

15:19

enough information and correlate it so that we can then you know,

15:23

proactively optimize the traffic. And so what Splunk is

15:27

doing is really, you know, the the addition of Splunk is

15:31

enabling them to have that, basically that full stack of

15:36

observability solution that collects from the was it melt,

15:42

right, the metrics, events, the logs, the traces from the, from

15:45

the applications and from the network. And I don't know that

15:47

anyone's got a better network visibility story than Cisco

15:52

does. Between all the you know, all the acquisitions, they've

15:55

made, all the AI focused acquisitions, they've made all

15:58

the observability acquisitions they've made to be able to feed

16:02

all that data up, and then be able to, you know, crunch it and

16:05

provide ultimately what everyone wants, right? It's not data for

16:08

the sake of data. It's data for the sake of getting actionable

16:12

intelligence, right? Being able to do something with that data

16:16

that drives a better process that drives better quality that

16:20

drives a better experience is ultimately what the goal is

16:23

right. Antone Gonsalves: Bob, thanks a lot for joining me. It's always

16:27

a pleasure to hear your insight and Cisco and everything else

16:31

networking. And for our listeners, that wraps up today's

16:36

podcast,