Cisco Systems, Inc.
John Chambers; Cisco Systems, Inc.; Chairman and CEO
Fredrik Halvorsen; TANDBERG; CEO
Marthin De Beer; Cisco Systems, Inc.; SVP, Emerging Technologies Group
Ned; Cisco Systems, Inc.;
Richard Marney; Olgam
Andrew Davis; Wayne House
Dominique Dodd; Frost & Sullivan
Jim Lundy; Gartner
Thomas Weisel Partners
Lee Doyle; Boston
Stuart; Eaton Vance
Angela Ashendon; MWD Advisors
John Chambers: Good day. I know we’re on a number of different locations. This is literally
how both Fredrik and I run our businesses.
Fredrik Halvorsen: It is.
John Chambers: It’s the ability to change the way that you communicate with your own
employees, change the way you communicate with customers, industry analysts, et cetera.
So it’s a chance for us to kind of share with you what the announcement today meant to us, share
first from Fredrik’s side and my side about the business, overall, and then turn it to our two
colleagues to talk about expanding that down in terms of technology and where does it go.
But if I would start off by saying one thing, it is -- the most exciting area of technology today for
me is all around collaboration and video architecture. I think it will literally change a decade of
productivity. I think it’s a $34 billion market that is going to grow very, very rapidly. I think it
will change business models. And we, ourselves, are completely changing the Corporate
structure to match these comments that I just made.
That when we talk together with customers, who are at Cisco and TANDBERG, without
exception it was amazing. If Fredrik’s team went in first they helped sell our Cisco gear,
whether they even realized it or not. And Fredrik was very kind in saying, “John, you are my
best salesman.” And I wasn’t sure at first was that a compliment or not, but what it said is that
our customers saw very quickly that what Cisco brought was a collabority of architecture, high-
end TelePresence capabilities, et cetera, and how do you transform business.
What TANDBERG did an amazing job on is the mid level and the video communications to the
desktop, open standards, open architecture, and an ability actually for the two combinations to
play very well across our customer environments.
And so when we began to look at this combination we saw an opportunity to hit a tipping point
in the collaboration market, to dramatically accelerate it both for us, but candidly for the industry
as a whole, and to make our first acquisition of a public company outside the U.S. that matched
our culture, shared vision, matched the same attitude toward commitment to a country, and a
willingness to be aggressive to catch these market transitions.
If you watch what causes acquisitions to be successful, it’s where you have shared vision, it’s
where you’re able to keep the employees, it’s where you have a current definition of roles,
you’re able to have a similar culture and geographic proximity. So we’re only missing one
element of what we normally find.
But most of all what I like about what we found at TANDBERG is their focus on the customers.
It was like you were talking to Cisco people, we actually can finish each other’s sentences in
terms of the direction. And a commitment to really change an industry together.
So the terms of the agreement is about a $3 billon transaction, 153.5 Kronens. That’s about a
25% premium to what the stock has been over the last 90 days moving average. It’s a 38%
premium from when we started talking just early in July, and I’ve got to admit your stock,
Fredrik, has outperformed ours, you’re up 200% this last year.
Fredrik Halvorsen: Yes, yes.
John Chambers: So it is a Company that we’re very excited about being a part of and has shown
the capabilities to move markets and make a difference.
So while TelePresence has exceeded my highest expectations in terms of our own success, we
will take the TelePresence organization and the Exchange organization and report it into Fredrik.
So we’re going to form a Center of Excellence for all video here in Norway and in London, that
we’re taking the project that personally is my -- one that I’m excited about, and I think, Marthin,
you, as well.
And we’re going to transfer the resources there and come with an [in terra] architecture in terms
of the collaboration market, first with video, and then tie it into what we’re doing with WebX
and what we’re doing with IP telephony and what we’re doing with the Flip capability, itself.
So bottom line is we think we have made an industry transformation move today. The further we
get into the call through an exchange with the people the more comfortable we get with that.
And, with that, let me turn it to you, Fredrik.
Fredrik Halvorsen: Okay, well, thank you, John, and to you, as well, Marthin. I guess I speak
for the whole organization when I say we’re very excited to join you and your teams to make this
We see this as a validation, right? Not only TANDBERG but of our people, our technology, and
not at least, in the UK and Europe as a Center of Excellence in innovation.
What struck us in going through this, and I think it was twofold. Number one how similar our
organizations are. At the heart, the core of the vision for most companies is this notion of
changing the way people communicate and collaborate. And we see Cisco having a very bold
vision in that space.
The other thing that was very attractive was the way Cisco has an excellent track record in
integrating expertise and in accelerating market developments. So I think we came to a point
where we saw that the timing was right to join forces.
As John pointed out, we have heard this from our customers, but I’m also today hearing it from
my own employees, as we go around in the All Hands meetings there are all smiles from sales to
engineering. To be able to put the joint talent of these two companies together I think we’ll do a
lot more innovation than either Company could have done on their own. And I really think as
well on the sales side people are now excited about the type of global footprint that we can get to
leverage and bring to our customers. So I think that sums it up at a high level for me.
John Chambers: Well, you know what was fun was watching yours and your Chairman’s PDA
and phones go off today, which is notes back from the shareholders saying, “Smart deal, really
love it, well done.”
Fredrik Halvorsen: Yes. No, I think we -- I should probably thank, if there are investors on this
call, all our major investors that have already given their blessing to the deal.
John Chambers: So let me turn it to you, Marthin.
Marthin De Beer: Thanks, John. And let me pick-up from what Fredrik just said, I’m equally
excited, Fredrik, to have you become part of the Cisco family. And this morning when we did
the All Hands I could just sense the passion in the room. Not unlike the kind of passion I’m
seeing across the TelePresence Team at Cisco, and I think putting these two teams together will
continue to evolve and further the vision we have as to what’s possible with this technology.
It’s a very exciting time because from a technology perspective the network is a platform that’s
ready for high definition video. And what Cisco is doing is creating an end-to-end architecture
that will span not just within business to reach across geographies but will enable companies to
reach out to their customers, their suppliers, and their partners using this technology and truly do
business in a brand-new way.
So the business-to-business aspect of this architectural approach is very important. And, of
course, that business-to-business exchange is run by some of the largest service providers in the
world, companies like AT&T, BT, Telmex, Tata Systems, and others.
And we are really excited about, you know, as we then later on move into the consumer space, as
well, with this technology and, of course, the TANDBERG acquisition gives us that full range of
technologies and end points all the way from the boardroom to the desktop. But as we later on
move into the consumer space, business-to-consumer business models and consumer-to-
consumer will also be able to leverage what we are both acquiring here, as well as what we can
So enabling people around the world to leverage face-to-face communication in a brand-new
way, but to have the experience be so good that you can see the expression in someone’s eye,
you can build trust relationships, and you can maintain relationships over long distance truly will
be the enabler of virtual business communications. And that’s what we’re really excited about.
Fredrik Halvorsen: We’re quite excited, too. So we’re actually quite proud of what we have
accomplished over the last 15 to 20 years. We have a great range of end points, as you
mentioned, high definition from the desktop, all the way to the boardroom. We have probably
the best infrastructure offering in the industry for high definition video, and we have our
management systems and our software technologies, which all fits very nicely together, with an
architecture based on the network, on collaboration and unified communications, as well as
messaging. So I think together in this family we can do lots of great things.
Marthin De Beer: Yes, one more comment, you know, you’ve been very humble, and because
TANDBERG has tremendously powerful technology that enable interoperability really across
the board for any end point, not just the Cisco and TANDBERG end points, but really end points
that come from any supplier or any vendor out there. And that will benefit our customers in a
tremendous way, and will really enable Metcalfe’s Law so that the more systems we can connect
across the network as a platform, the value of that system then just increase by the square of the
number of end points. And so it’s really exciting to see what that can do for business then at the
end of the day.
John Chambers: I think it will accelerate not just our business, it will accelerate our peers and
the competitors’ business.
Fredrik Halvorsen: Right.
John Chambers: So, Ned, do you want to add any comments before we jump into open
Ned: Thanks. So I don’t have a whole lot to add. I think you guys covered it very well, but
we’ve been working very closely with the TANDBERG Team now for a period of time, and I
can just reaffirm that the commonality in culture and vision around the market opportunity has
been absolutely fantastic. And I think we’re already good friends, and now coming together I
think we have a leadership team and a technical capability that’s going to be first in the industry
and going to enable us to succeed long term.
And it’s when we look at M&A and we look at our history of M&A, it’s always fun to be here at
the announce of the deals, but success is made over time based on the integration and the quality
of the team and the ability to go to Version 2, Version 3, Version 4 of the product sets, and
we’ve got a great team in place to go do that, and we’re very, very excited about the market
opportunity and what we can do together.
John Chambers: You know very quickly in the process as you go through this with a little bit of
stress is the match really going to be good or is it going to be great, and this one is going to be
great. Pretty uniformly across the group, we’ve spent times with the employees. The Chairman
of TANDBERG and I both raised Fredrik’s goal twice during the discussions. But it also shows
how well our teams are interfacing in terms of us moving key executives. And we will have an
exchange program among the areas. So this a huge commitment to Europe, a huge commitment
to Norway and the UK, and on my favorite project.
So, with that, let’s open it up and take the conversation wherever the group would like to go.
Unidentified Speaker: Great. So, actually, our first question comes from the web, a question
from Dow Jones. How does this deal affect Cisco’s effort to get TelePresence into SMBs,
smaller enterprises, and the consumer?
John Chambers: I think if you look where video communications, both for interfacing to
customers, interfacing to your supply chain, interfacing to your peers, the area that will benefit
the most over time will be actually small to medium business.
As most of us know, the majority of job growth as the economy comes back will be small to
medium, and the ability to make it easy to use with an architectural approach becomes very key.
And Fredrik and I both had the chance today to sit down and re-prepare the video for his small
channel partners, to not only reassure them about Cisco is a major channel organization and won
most of the awards, but to assure the AV and the VCs and the systems integrators and the service
providers that together we intend to stay really focused on the channel overall.
So it’s a nice way of saying I think you’re going to see this concepts which started in the big
companies and big service providers very rapidly come down market, and it’s one of the things
that candidly together we can accomplish using other products, as well, like WebX and like the
capability of unified communication, and the Flip, my new most favorite product, on a regular
Unidentified Speaker: Great, great. Anybody else care to add to that?
Fredrik Halvorsen: Yes, maybe just one quick comment. When you think about TANDBERG’s
end points that has very strong capabilities at the desktop and also very attractive price points, I
think those will play very well into small and medium businesses.
But the power here is when you then tie that in with what we do in the exchange with service
providers. You can do business with big companies that have the higher end systems. And so
Cisco today has a good position on the very high end of the market. TANDBERG covers the
rest of the range, and so you put the two together across exchanges and it enables small and
medium businesses to really use the technology to do business in a new way.
John Chambers: So what you’re talking about is the capability, let’s use the Flip as an example,
to capture high definition TV, to be able to do that on a personal basis or a business basis, this is
how I blog, this is how I summarize sessions. Finish it up, be able to play it back with high
definition capability, plug it into any PC, over time any phone, and you’ve suddenly begin to
move video throughout the network in ways that couldn’t be done before.
And this is where Medianet ties together, so you could almost play-out the hand, we started with
very basic video with our acquisition of Scientific Atlanta. We looked at how you added that,
and we did WebX. We looked at what we did from a security point of view, and then we began
to expand it with the Flip, and now you talk with TANDBERG, you see an architectural play that
pretty crisply ties it all together.
Unidentified Speaker: We’re going to go to Boston for our next question -- Boston?
Unidentified Speaker: From (inaudible) of [Ise].
Unidentified Audience Member: John, you talked about it a minute ago in terms of the reaching
out to the TANDBERG channel. I’m wondering if you could talk a little bit more about that?
The TANDBERG has a similar overlap with Cisco, but in many cases has gone into the AV
channel, and where do you put that channel in terms of the value of the deal?
John Chambers: Well, I think our ability to reach different customer sets, especially as you
move down market, becomes extremely key. As you saw when we moved into IP telephony our
channels hit a certain range of high end commercial and high end enterprise and, candidly, we
were very fortunate to get about 65% market share there. But, as we all know, it’s how do you
have the channels aligned that bring this capability to small businesses and over time even to the
So when you look at the assets that TANDBERG brings they are almost all complementary, and
we even describe the pie the same way. Rather than saying how do we get a bigger percentage
of the pie, we say let’s make the pie bigger. And then by definition approach it that way.
So I think the channels become even more important on this distribution capability, but at the
same time we’re really looking for the teams to build a video architecture that really ties into the
next generation of collaboration.
Fredrik Halvorsen: Yes, maybe just to reiterate that, we have a large set of very loyal partners,
everything from AV integration specialists up to the service providers. It has been a very key
topic of how we make sure this is a real win-win for everyone out there and how we create a real
proposition that goes, spans broader products and that goes deeper into the niches of different
customer segments to make sure all of our channel partners get to benefit.
John Chambers: So, as you know, we can’t do any joint sales operations until the deal is
approved, and the same things with channel. So in the interim our teams have to continue, just
like they were before. But you’ll watch us move very rapidly after the approval, which we
expect sometime in the first half of next calendar year, to align our channel strategies and
And this is one of growth. It isn’t like you’re trying to fend it down or make some -- make the
deal work off of synergies by reducing resources. Fredrik has almost an unlimited blank check,
and it’s an opportunity to move very rapidly in that. Now, easy for me to say, because his
margins are as good as mine, 66%. His Chairman has trained he and his team very well in terms
of the balance. So it just gives you an idea of our optimism that if we actually write together
what this could mean to the industry and to Cisco and to TANDBERG.
Unidentified Speaker: Great. Our next question comes from Merrill Lynch, Bank of America,
how long will it take to integrate TelePresence and TANDBERG such that you could make calls
between the two systems?
Fredrik Halvorsen: I can take a crack. Yes, maybe let me do with a caveat. I think, number one
John Chambers: Now, watch this, this is how well we’ve learned to work together. You’re
going to have Fredrik distract you for a second. The guys over here are going to figure out the
answer, and you’re not going to see that that took any time in between.
Fredrik Halvorsen: So I was going to say that we’re not obviously allowed to sort of fully
collaborate until this thing is closed. But once it is I’m sure we will try to move very rapidly to,
again, make sure this becomes interoperable in the standards space.
Marthin De Beer: Absolutely, and that is the goal. And I think the technologies are sufficiently
similar that that task isn’t that hard. And our goal is for full interoperability between multiple
John Chambers: And multiple vendors is the key word. That’s one of the many things we were
interested in and that you have is your open systems and open architecture. So if we were to bet
$100 on when that will occur after the announcement date, are we talking six months, 12 months,
Fredrik Halvorsen: Well, let me put it simply, you know, for single screen systems and any
solution that is standards based video, interoperability should be a matter of testing, maybe
within a couple of two weeks, John. So that could be done in a matter of weeks. Coupling that
with the [codient] platforms, the MCUs that TANDBERG also has, you know, again that gives
you immediate interoperability even with systems that is legacy in nature in the installed base
that could be from not just TANDBERG but multiple companies.
And then, thirdly, for the large three stream systems, where we actually combine streams
together where a standard doesn’t exist, that’s where I think we’ll probably need what, a couple
three months’ worth of work to make sure we implement and test?
Marthin De Beer: Yes, I think you’re right. I think it’s closer to three than six, and it’s certainly
Fredrik Halvorsen: Yes, exactly.
Unidentified Speaker: Great. We’re going to go to Bedfont Lakes for our next question, just
outside of London. I believe you have a question from [Richard Marney] from [Olgam].
Richard Marney: I was interested to see that TANDBERG had I think about 16% of revenue and
services, and I wondered if you could give me a little bit more of the detail in terms of what is in
that revenue line? And I think what’s the opportunity for Cisco in services around
TelePresence? We’ve seen a fantastic growth in terms of not just the TelePresence but the
services that sits around the technology, itself. So two questions, on both sides?
Fredrik Halvorsen: Very well. No, you’re very right. We have 16% in services, and it is a good
opportunity for us coming together. Other services are I would say of two natures. One is just
basic maintenance services, and that constitutes about 70% of it. The remainder are really
software upgrades, as we have all of our products on one platform and so forth, so we were able
to basically give you that continuous upgrade path.
When it comes to advanced services, spinning off a full architecture, which becomes more and
more critical in delivering this from the desk all the way to the boardrooms and across
companies, I think there are some really good synergies.
John Chambers: I would agree. If you watch what has happened -- and I’m going to ask
Marthin to break-down our services business versus our product business when we get the orders
-- we’ve found wherever we put professional services in place the customer tends to buy about
50% more. So if they’re growing at 10, they grow at 15. If they’re growing at 15, they grow at
22, 23. Customer satisfaction goes up, availability goes up, et cetera.
So you will see us provide a thin layer of services across all the architectures in the business
process chains we do, and still, however, be an organization that will partner with probably
500,000 consultancy service partners from the Accenture’s of the world, to the [Web Pros], to
the Tata’s, et cetera.
Marthin, you know, I normally prefer you don’t give them too much detail on the products, but
without implying anything positive or negative about this quarter, and nothing we say today
should interpret anything about the quarter we’re in, but give a feel for what the mix has been
and the growth? Because you’re growing in almost 100% type range year-over-year with the
products, how our service is doing, and what percentage of business is services?
Marthin De Beer: So we have quite a large installed base today with about 2,800 systems sold to
about 430 -- I’m sorry, 445 customers in total. And we’ve seen across the board services
representing about 40% of the overall product bookings and revenues. And so it’s been a very
significant services business for us. In fact, the service attach rate here is probably higher than
any other business inside of Cisco right now, John, because we’ve built it with services in mind
from day one.
And, again, I think you probably won’t see the same attach rate at the desktop that you would in
a high end room, like the ones you’re sitting in here. But across the board if you deploy it as an
architecture I think the services attach rate will continue to be very high.
Unidentified Speaker: Great.
Richard Marney: (Inaudible) that what you’ve acquired through TANDBERG does give you
new opportunity in some service aspects of what they do?
John Chambers: I think it’s more important than new opportunity. I would look at this as a
chance to build relationships across large accounts and small accounts alike to become their
partner and their whole collaboration move, way beyond just video communications.
And video communications is the tip of the iceberg in collaboration, but it’s the one the CEO or
the CFO tends to focus on. And especially when you can lead with just real basic justification,
with transportation alone paying for the systems more often than not. Then you talk about how
you reengineer your business models, et cetera.
So it can be the area that really not only gets your foot into the door, it gets your foot into the
boardroom, and then can pull through a lot of product areas behind it. Because collaboration for
us, when you think about a $34 billion market, our products together are the run rate of only
about $1.2 billion, it gives you an idea how large this market is. And you add growth on top of
that, you’re going to see a whole bunch of really good competitors and peers in the market, as
Fredrik Halvorsen: If I can add to that? Today there’s a broad range of collaboration,
technologies being used out there. We believe that video will become an increasingly larger part
of all of the different collaboration segments, and so it will extend well beyond just the face-to-
face side of what we’re talking about here, especially as it extends into the desktop, whether you
think of WebX or other kinds of collaboration technologies, high definition video will become an
integral part of that and that’s why the broader opportunity is really the bigger one we think we
will move towards over time.
Unidentified Speaker: Okay, thank you. We’re going to go to Boston now, to Andrew Davis of
Andrew Davis: Hello. Thank you. Congratulations on a most interesting business deal. One of
you earlier in the presentation used the word passion, and my experience and observation is over
the past couple of years in the video space both the Cisco sales force and the TANDBERG sales
force have been incredibly passionate about their business and their products. And a result of
that, they’ve been fierce competitors down at the sales level to the point, quite frankly, where I
think some relationships have been filled with some animosity. My question is do you have any
plans to address that?
John Chambers: Well, the reason we’re laughing is, Fredrik, in the employee session today, I go
walking through the organization to ask questions and 500 people in the room, and I of course
feed the questions to Fredrik and Marthin from the floor. And one of the guys said exactly to
your question, he said, “John, you’ve been my best competitor for a long period of time, how do
I get focused on somebody else?” So I immediately asked the person beside him to move out of
the seat, and we sat down, and he was about 60 pounds bigger than me. And I said, “Well, first
of all, you may not realize it, but each time you sold TANDBERG I sold Flip, the TelePresence
and the video architecture behind you, and visa-versa.”
And what you’ll find is both of us were very effective with our sales organizations but it wasn’t
personal, and as you look forward the good news is we’re going to have Microsoft and HP and
Wahlway and Apple, and a whole bunch of competitors that will come into this space in an
You will find world class sales organizations, they have respect for each other, whose products
are going to be together, they’ll fall right into line. So I don’t see that being as big a challenge
perhaps as some of the areas we’re going to be careful on as we move into the data center where
competition in that environment does tend to be pretty ferocious in a different way.
I think you’ll find our sales forces will immediately get this. In fact, they’ll be -- we’ve got to
keep them in check during the period of politeness, because they can’t work together until after
it’s done. I think that will actually be one of the easier areas to implement.
Now, Fredrik, I’ve watched you already, if you disagree, you jump right in and disagree because
that’s part of our culture.
Fredrik Halvorsen: Yes, you know, but on this one I wouldn’t -- I really can’t disagree. I think
in just talking to our salespeople today, all day, you know, they have a passion to compete and
they love to compete and develop this niche. But, as was pointed out, this is a run rate of $1.2
billion, and it’s really about expanding market, right, and reaching that tipping point.
We firmly believe that together we can drive and accelerate that innovation which will make that
possible, it will make it more robust, it’ll make the user interfaces more intuitive and so forth.
The vision that both companies are so passionate about. So going from that to a $34 billion sort
of total opportunity will create more than enough room for everyone. So, yes, we’ll come out of
the block as one team as soon as regulatory is behind us.
Unidentified Speaker: Okay, thank you. Our next question comes from Reuters, from the web.
Did Cisco consider buying other video conference providers? What was TANDBERG’s biggest
John Chambers: I think it’s fair to say in today’s market with very few exceptions almost every
company that is for sale or is thinking about being for sale, we have a chance to evaluate. And
that’s a tremendous honor, and it speaks to our ability to do acquisitions, keep the people, do a
great job for the shareholders, a great job for the customers, et cetera.
So there were a number of options in this area of the market, and the further we got into the
options there was one clear leader about the furthest pace, and it was TANDBERG, and it was
probably around four key areas.
First, and I don’t want to underplay this, that our cultures are remarkably similar, remarkably
similar across sales, across engineering. You can put the groups in the room and you won’t
know one week later who was from which Company.
The second area was the product overlap is very minimal but yet the architecture covers the
gamut. And you start with the very high end TelePresence systems, you talk about how we build
a collaborative architecture that really enables innovation, and you fill it in with the midrange
TANDBERG systems and the desktop TANDBERG systems, and what we both have in
pipelines, and then you begin to think about video, like this, that we just kind of threw in just for
a fun part, and the ability to do Medianet, we can cover this collaborative architecture in a way
that no other combination of two, three, or four companies can do it. So the second part was the
The third part that TANDBERG has, the third part was interoperability and openness. They have
been in this business for 20 years. They built a long time ago how you interface to the
Microsoft’s and the Sony’s of the world, and the Polycom’s of the world into it, which allows us
to get the power of the number of nodes squared. We still think we’ll get way more than our
share of the nodes, but it takes away that worry about some people about do you get locked in or
what do I do with my existing installed base?
Having said all the above, what we both do well, our systems are used heavily. The average “old
world video conferencing room” is utilized 2% to 3% of the time. Our systems tend to be
utilized often 60%, 80%, 90% of the available time, and that perhaps is the last takeaway. It’s a
feature rich, easy to use, CEO idiot proof, and I’m the CEO that has to be able to operate it.
Unidentified Speaker: Great, thank you. We’re going to go back to Bedfont.
Unidentified Audience Member: Hello. It’s [Dominique Dodd], [Frost & Sullivan]. I’d like to
(inaudible) in congratulating you. I think the logic behind this acquisition is very compelling,
and I would like to ask about the timing. Would this have been an acquisition you would have
made earlier, maybe a year ago, if it had been possible? Is there anything suggesting maybe the
recession indicated that it was slower than you would have liked?
John Chambers: The very candid answer is we would probably not have been able to do this a
year ago, and there are several reasons. First, Cisco in the last year has got our desks cleared
pretty successfully and has really got these councils and boards, the new organization structure
working with 30 different priorities. For example, Marthin and Tony owning our video
architectural strategy, [Wim] owning our smart connected cities, [David Holen] owning the
sports and entertainment.
You begin to go through each one of these and you see how they come together, which by the
way, each of these plays are not siloed plays, they are architected together. We also moved
about a billion dollars in resources into these new market adjacencies during this same time
period, and without the quality of the products we both have we would not have probably had the
courage to go halfway around the world for this type of commitment into Norway. And now the
way we use our products it will actually allow us to do this very effectively.
I was so proud of 5,700 meetings [a week] in TelePresence, until Fredrik said we do 96,000 a
month, and so I smile at that but that really means we both have the common technology where
you’ll be able to do this integration architecture real live speed.
So we probably would not have been either structurally nor quite ready to jump this far around
the world a year ago. The recession actually doesn’t have an affect for us. We tend to be very
aggressive during market downturns. But we wanted to see the markets start to give a reasonable
indications of an upturn before you start to move, because, boy, you don’t want to bet into one
that potentially as many people projected in January and February could be off a cliff. We didn’t
think that was going to happen, but we knew that it was a possibility.
So the indirect answer to your question, timing wise if we’re right and we’ve been very public in
our statements, and we think the odds are good we’re coming out of this, and we saw the data on
a global basis, it’s too early to say how strong we come out of it but that’s the logical time that
And to the last part of your indirect question, are we going to be -- continue to be aggressive in
internal development and acquisitions and strategic partnerships? Yes, we will, we will be the
most aggressive you’ve probably seen us as a Company. And with $35 billion in cash now, $32
billion -- and the $3 billion that was used for this was the cash that was located outside the U.S.,
which I think our shareholders will be pleased with, as well.
Did that answer the question, both your direct question and your indirect question? You know,
I’m getting bad at reading your notes. I’ve got to do something with this (inaudible). That’s
how you can tell when you’ve been in the home office too long, when you can’t read notes
upside down quickly when your partners or customers give you a chance. But it does speak to
why, what -- video is the way you’re going to communicate in the future. And without video
you really can’t have effective communications with partners and supply chains.
Unidentified Speaker: We’re going to go to San Jose now to [Jim Lundy] from Gartner. Jim?
Jim Lundy: That’s Jim Lundy with Gartner. John, you certainly have been using and talked
about how much Cisco uses your high end TelePresence systems, which is high definition and
obviously for those on the call the very high clarity. Since you now have high def video from the
desktop to the boardroom, can you talk about maybe does this really potentially represent a new
era where we shift from a lot of audio and more from a B2B perspective to an era of video
communications? And can you talk about the ramifications for businesses about that?
John Chambers: It is I think the most important transition that is occurring. It doesn’t matter if
you’re in healthcare or education, or how you support your customers or how do you sell to your
customers, or even how you fill out tax returns, video is the primary way people communicate.
And I think now that you’re beginning to make video that has the high quality with any device to
any content with open interoperability to almost any device, it will change business models with
tremendous speed. This is why I feel so strongly about the definition of broadband to the home
shouldn’t be a meg or two, it should be 50 or 100. This is why I believe so strongly while
consumers should have a right to access the general internet capability, you’ve got to have
however the service providers have to have the capability to be able to guarantee a given
response time, whether you’re dealing with healthcare or you’re dealing with entertainment, that
the users are willing to pay a premium for.
So, yes, I do think video is the killer application here. It’s the heart of transforming this industry.
Until video took off, collaboration was nice but you didn’t get the paybacks, you didn’t get the
excitement at the top, and you didn’t get people willing to spend the money. We think this is a
tipping point that will drive the industry.
And so I know you set me up with that question, but I completely agree with everything you
implied. Now, is there anything I missed in the way you asked it? And is there a second
question behind it?
Jim Lundy: Well, I mean for example the traditional way that CEOs and CFOs have meetings is
people get on a plane and they go to headquarters. And so the speed that you inferred there
relative to the people that bought your systems and the TANDBERG systems, you know, for the
people that don’t have them I think that there are some implications that maybe that the people
that don’t have them don’t understand yet.
John Chambers: Completely, again, I’ll answer this. You go first? No, it’s (inaudible). Go
Marthin De Beer: Well, I was just going to say it’s fascinating we just the other day was talking
about this, because inside of Cisco we do about 5,600 scheduled meetings a week, 2 million
Cisco employees participate per quarter in a TelePresence meeting. And often we will hear that
people would realize a day or so in advance that the meeting they were thinking would be on
TelePresence was actually scheduled as an audio conference, and they would cancel the meeting
to make sure they get on video, they would reschedule it. And that’s what the IT person was
So it’s a fascinating trend that I think you’re identifying in terms of I do believe, especially in the
B2B side, we’ve all struggled through audio conferences with a partner or a customer where you
can’t read the body language, and it’s very hard to interpret sometimes what people are saying or
what they’re feeling.
Whereas with this medium, of course, you get a totally different experience and a much more
high quality experience. And I think now that the network is ready, the technology is ready, and
high definition is broadly available, and we can make it interoperable amongst many systems, I
think that’s just (inaudible) and it’s going to be pervasive.
John Chambers: Let me just do one more question from the Fredrik side, go ahead.
Fredrik Halvorsen: No, that’s quite all right. I actually do believe companies that have not
started adopting this technology will be at a competitive disadvantage. I think this will drive
permanent productivity increases for the organization. And using our own Company as an
example, as was pointed out the 96,000 video calls a month across 1,500 employees. We would
not have been able to drive the type of operation we are at the global scale without video, and I
think more and more companies will get to realize that.
John Chambers: You know, what is interesting, this is the only technology I’ve ever seen that
CEOs sell other CEOs on. You can be sitting in a conference room with a hundred CEOs, at a
[Jack Welch] conference or other events, and they talk about investing in technology as general
discussions. Then one person mentions TelePresence, then the other person mentions
TelePresence, then they talk about how they use it for business, then they talk about how they
transformed their travel costs, and they say new markets, et cetera.
And once you get the high end of the iceberg, where people understand the advantages, it goes
right through the organization. So you’re suddenly instead of talking about how you go from
five to 10, you’re talking about how you go from 50 to 100 to 1,000. And as you fill in the
product range, and it comes to what customers are doing, saying we want to see this architecture
across the board.
Now, somebody asked the question, you have to speak with two sentences before you--?
Ned: Yes, John, this was Ned. I was just going to jump in. You made some comments earlier
about some of the things we look for for acquisitions that make acquisitions successful and how
TANDBERG had fit across every one of those except for location. And I can tell you personally
I first visited TANDBERG back in 2003. You know, from a Corporate development perspective
we spent a lot of time obviously meeting with companies, understanding markets, and how
things were changing.
And when I left Oslo in 2003 I said this is a really interesting market, but I don’t think we can
make the combination work between a company located in Oslo and a company located in the
United States. And now as we went through this and the conversations internally to Cisco about
whether we thought this was a good acquisition, actually the availability of video
communications is what changes us from being able to say, “No, that’s not a place we can do
something,” to “now we can.”
In fact, I think what you’ll see with this acquisition is it will be a showcase for how you can use
video to actually operate a business that is located across multiple sites in multiple countries and
increase actually our pace and capability of innovation as a result.
John Chambers: Go ahead?
Jim Lundy: No, I just wanted to follow-up on that point. So whose TelePresence system is
going to be in the clean room?
Ned: Well, so right now we will continue to operate as separate Companies, right? We’re not
going to establish a complete clean room in that sense, but we’ve been very successful as we put
the transaction together in using TANDBERG technologies to bridge the MCU, et cetera, and
we’ll connect pretty seamlessly during the interim period here, before we put the deal together.
Unidentified Speaker: Great. Our next question comes from the sell side, Thomas Weisel
Partners. When can we expect the deal to be accretive for Cisco?
John Chambers: Fiscal year 2011.
Unidentified Speaker: Okay, great.
John Chambers: Now, that assumes conservative business modeling. The challenge we’ll give
to Fredrik and to Marthin is let’s see if this truly is a tipping point which can scale quicker. But
if you were playing with Cisco normal conservatism, that’s when it would occur.
Unidentified Speaker: Okay, great. We have another web question from an investor. In order
for companies to experience the true benefits of video conferencing, it seems as though top
management must mandate that video be used instead of travel. In many instances it seems like
the video room is installed and never used and, therefore, perceived as unproductive. How do
you plan to address this issue and get top management onboard?
John Chambers: Two separate questions, even though it sounds like one. This is actually an
easy CEO sale. You get in front of a CEO, you share with them the budgets that both of us do.
You share with them the savings, likely in travel. You reference a JPMorgan Chase, who has 70
of them involved, which Jamie Diamond admitted. He buys a company, he puts four or five of
these TelePresence systems in place. You reference a GE that looks about how do they share
their professional resources in Europe and in the U.S. into the markets where 70% of the growth
will come, which is emerging markets. That can’t be done without these technologies.
You talk about new business models, and then all of a sudden with this combination you talk
about the ability down to a desktop or a handheld device, up to the boardroom with easy to use.
And then you talk about Medianet, being able to send it to communities of interest. And then all
of a sudden you take these concepts that many people have thought, Cisco, you’re five or six
years ahead before I’ll do it, to them saying, “Perhaps I need to reshape my organization next
year, not further out.” So this is truly the one technology sale that you can sell top, down easier
than you can bottom, up.
Fredrik Halvorsen: I also think that four or five years ago video didn’t really live-up to its
promise, but since then a lot of technology has improved a lot. We have high definition, we have
faster processors, we have much better audio, we have this kind of experience, which really
John Chambers: But you all have delivered an architectural system, not a video conferencing.
That’d be like in generation one. Video conference rooms today are still used 2% to 3% of the
time. They have been -- and they’ve actually slowed down our industry because people were
thinking of the past rather than the future. You didn’t have a common IP network that keeps
voice in synch with data with the capability. You didn’t have the capability for advanced
services to go and help not only the installation be successful, but help the model, the business
model as you move forward.
You didn’t have a group like IBSG saying, “Here’s how you do it to change your aircraft engines
business case. Here’s how you do it to change in Home Depot, the capability in your kitchens.
Here’s how you do the experts visibly into the kitchen.” You didn’t have the capability at the
retail bank to do cross selling, and the balance end to it. You didn’t have the capability to deliver
healthcare, like we do at Cisco, straight to our doctors on campus so that if somebody gets sick,
they don’t leave, which is great for productivity and they get a healthier response quicker.
So I think it’s those changes in terms of it being much easier to use, more of an architecture to
sell, but once you use it at the high level then you’re much more likely to accept it in a more
subtle format down at the desktop or on a phone or something like that.
Fredrik Halvorsen: And just one addition to that comment is this TelePresence room you’re
sitting in, think of it as a big phone on top of our unified communications system. And to use it
is as simple as making a phone call or one button to push.
As we integrate all of TANDBERG’s end points with our unified communications that simple
ease of use model will come to all of the end points in the complete portfolio. And that means
that it becomes so simple to use that you don’t have to train anyone in the organization to do it,
and no one has to stand outside the door to make it work. And that really I think will be at the
end of the day what will drive much more pervasive usage.
John Chambers: And, as we’ve said before, we’ll bring this into the home in this next year, and
you’re going to see us very much on schedule to do that in multiple formats. So you’ll be able to
get any video from any device, any music from any device, split between your business and your
others, and you’ll see why we’re playing this architecturally, not siloed products.
Unidentified Speaker: Okay, thank you. Our next question is from Lee Doyle in Boston.
Lee Doyle: Hi, John.
John Chambers: Hi, Lee.
Lee Doyle: How are you doing? You touched on one of my favorite topics in terms of
guaranteed bandwidth over the internet to provide video services, so I wanted to either expand a
little bit, does that neutrality debate sort of compromise the ability to deliver high quality video
experience to the consumer?
John Chambers: I think the debate does not compromise, at all. I think you’ve got to have a
very healthy give and take, and I think Julius Genachowski from the FCC, a very smart guy, I’ve
been very impressed with him, he’s out listening to the public, to the service providers, to the
cable companies, et cetera, and also listening to the business and understanding the premise that
need to be done from both sides.
I think you can find a way to do an and here, not a nor, and I think it’s very important that people
do not make a decision on a net neutrality and define it right, regardless of if you’re in Europe or
in the U.S. without saying, “What do you want your infrastructure to look like five and 10 years
If your definition is you want 100 megs to the home, your definition is you want when you talk
to your doctor, guaranteed bandwidth response so you’re able to see your charts, able to see the
doctor when you say, “How serious is this?” And all of a sudden the voice breaks up. Your
ability to be able to watch your games among families across areas to where the game is coming
through, not like when it breaks up like from the satellite, et cetera.
You’ve got to do something to find your end goal. Where do you want to be on the paradigm of
in the top 20 countries in the world or do you want to be in the top five. Where do you want to
be on the paradigm in terms of being able to really drive productivity, at 2% or 3% a year from
this broadband implementation with collaboration in video.
So my view is you describe your vision first, then you describe your strategy to get there. Then
and only then do you make your decision on net neutrality. President Clinton said it very well at
the Clinton Global Initiative this last week, he said, “Government spends 80% of its time on
what to do and how to pay for it, as opposed to how do you do it and what’s the vision you want
to be in.”
So I actually am probably the optimist here. While it might sound like groups are arguing from
opposite ends, I think Julius will listen well and I think he really will come with a plan for the
first time in the U.S. where a broadband plan is a basis for productivity and sustainable growth.
And as you do that you’ve got to have guaranteed response times and managed services capable.
At the same time the service providers are going to have to come some way and compromise to
say how do we provide a capability that allows the average citizen for areas that may not be near
as critical to get an approach.
So maybe I’m a little bit optimistic here. I hope not, but I think this will be a healthy give and
take, but I think in the end if it’s done right it will position the U.S. to be really competitive long
term. And I think that’s how the hand should play out in Europe countries, as well as in China
and other areas.
Unidentified Speaker: While we there in Boston, Stuart, can we go to you? Stuart is a buy sider
with Eaton Vance.
Stuart: Thank you. A question for John and Fredrik. John, you mentioned that TelePresence
will report into Fredrik and be run out of Oslo, so geographically that seems to be challenging.
So I’m wondering if you could talk about what specific actions will be taken to reduce the
John Chambers: Okay, and it goes back to also setting up the question, we would not have tried
this 12 to 24 months ago. So Marthin, and Fredrik is going to be reporting to you, let’s talk
about how we minimize the geographic risk? Because it’s a fair question for the Cisco
shareholders saying, “This is a risk that you’ve not done before. And we understand that clearly
reflects into premium that you’re going to be, you know, and build that into the premium. But
how do you then turn it around and say why this is going to be done very well and why is it
going to exceed our 70% hit rate of making acquisitions very successful?”
Talk about it from the human resources, technology, and your biggest concerns. And then,
Fredrik, obviously this is coming your way, since Marthin and I are going to then turn to you and
say, “Make it happen.”
Marthin De Beer: We’ve thought about this, and I think Fredrik and I share absolutely a
common vision on this. It comes down to three things. First of all, we have two teams, that is
incredibly passionate about video and using video. In fact, there are few phones on people’s
desks in TANDBERG as I walked around and looked at it. And, of course, the TelePresence
Team in San Jose is equally passionate.
So we are going to use our own technology extensively to bring people face to face on a
continued basis and cross that geographic boundary. We’ll have video walls up in engineering
labs 24 hours a day so people can walk by and talk to each other and interact. But, more
importantly, at a leadership level we are going to relocate the two top TelePresence executives
from San Jose here to Oslo and London for at least the first year. So Fredrik will have his entire
leadership team in the same time zone to manage and do the integration successfully. And that I
think is a very, very important step.
And then, thirdly, we’re going to rotate engineers from Oslo and London to San Jose for three,
six-month periods so that they can keep doing the same job but doing out of the other location,
building the relationships, sharing ideas. And we are going to rotate engineers out of Silicon
Valley also to London and Oslo, similarly. And so we think that through the combination of
having the leadership in the same time zone, using the technology extensively.
And actually there’s a fourth one we spoke about which is time shifting some of the work hours
in both locations so there’s more overlap, especially for the first couple of years. Doing all those
things with two teams very passionate about using this technology, we think this could be a
model for how you successfully integrate in ways that hasn’t been possible before.
Fredrik Halvorsen: I think that was very well articulated, and I think you can tell from also from
Marthin’s answer that this has been one of the key discussions as we went through the planning
for this, and it’s been one of those things we wanted to make sure we had nailed down to people,
responsibility, and location. Again, I think what we found was cultures that were very similar. I
think that’s what makes us comfortable that at the R&D level we can really get this done.
We’re talking about time shifting, but you would be surprised, we have teams today in the UK,
Norway, and India, and they will work at any hour. And the most productive hours are typically
in the afternoons and in the middle of the day, they will work at all hours from home offices and
so forth. We are very used to working. I mean people just walk up to virtual video roles that are
always on in India and shoot questions to their colleagues in Norway and so forth. So we will
definitely use our own technology, and we will trust that we have people that have the same
vision at heart, that wants to drive for the same goal, and that’s the feedback we’re getting and
that’s what we’ll architect for.
Marthin De Beer: And I would say both our teams have fully bought into that at a leadership
John Chambers: So three things that you’ve heard that is dramatically different here. I’m going
to go to the third one now. If the organization structure of Cisco had not changed over the last
couple of years from command to control, top down, this would not work. You had to get these
councils and boards working with the ability for Marthin to be able to reach across the whole
Company and make this flow the right way.
At the same time we’re doing the data center, at the same time we’re doing the consumer, at the
same time we’re doing smart connected communities, at the same time we’re doing the
implementation of sports and entertainment. At the same time we’re moving in the music
industry, at the same time we’re going into Mexico with 3.0. At the same time we’re going into
So you’re seeing the structure of the organization capable of supporting this, that only if this was
made our one or two priority would we have even tried this two years ago, where now I don’t
have to do anything.
This team presented to the Board with two weeks’ notice, had your team in place on how to do it,
and the Board signed off very quickly. That would have normally taken me six to 12 months,
two months of getting ready for the Board, et cetera. So speed, scale, replication, and flexibility.
It’s amazing these organizations’ structures, how it works, but they’re built on what we’re doing
together at the collaborative platform.
As you can tell, I’m excited about it, so just let me slow-down my enthusiasm for a second and
get to the next question.
Unidentified Speaker: Great, thank you. We’re going to go back to Bedfont. We have a couple
of questions there. David from [Ovom].
David: Thanks very much. You talk there about partnerships, and you mentioned your own, and
you talked about integration partners that you have. Could you tell us a little bit about how you
see presenting Cisco and TANDBERG options through service providers, particularly the large
Telco’s that have been an important part, as how, they’re particularly at the high end of the
business, what should they expect from you, and are they dealing with Fredrik now exclusively?
Or how has is that going to work?
John Chambers: Well, first is that understand Cisco’s view on service providers has aligned with
service provider strategy from day one. We believe that service providers will be the vehicle to
deliver much of the communications data, Cloud capabilities and functionality, and we invested
almost 50% of our R&D budget for a decade to give that capability.
We are equally interested with the network being intelligent, not just dumb pipes, because if that
occurs service providers don’t provide much value. So architecturally in terms of how we want
the market to evolve completely align with service providers.
Secondly, in terms of the game plan there’s been a huge transition in the last year to where if
you’d asked a [Randall Stevenson] how closely does Cisco align with your top business
objectives and how does that compare to two years ago, it is night and day.
It was another service provider, which I won’t say, who pushed me very hard -- Ned, six months
ago, completely holding up orders if I didn’t move on it but it was not subtle, to move on it. So
this, when you call-up a service provider, and we called a number of the big ones already, there
is not much of a discussion point about what we did or why we did it. The answer is, “Good
news, when can we do it?”
And so this is one that is a natural with the service providers. There were actually, a half dozen
of them were driving accounts behind this, wanting us to get much closer together, so it isn’t just
about how do I build a TelePresence exchange for the high end, how do I bring it all the way
down to the desktop, how do I really get this well ahead of the market, and how do I begin to
bring it to business models?
Fredrik Halvorsen: I would say, s per our previous conversation, our channel partners, as well,
you know, whether you talk about the TANDBERG general partners or the Cisco general
partners, you know, there has been a desire to provide a complete solution, desktop to
boardroom, and none of them have had it, and with this combination they will.
John Chambers: You all have to keep us balanced, but my view is and I’m repeating the same
point, this is a market transition, a tipping point in the industry, I think it will accelerate the
whole industry, both for us and candidly it will force our peers to move, as well.
Unidentified Speaker: Okay, we’re almost at time, so we have our last question. And we’re
going to stay in Bedfont, and go to [Angela Ashendon] from [MWD Advisors].
Angela Ashendon: It’s actually a bit of a follow-on question, actually it’s the last one around
partners. I see TANDBERG had a number of strategic partners. I’m sort of more coming from
the software side of things, so IBM, Microsoft, also HP, Avia -- how do you see those
partnerships, will they carry on going forward, how will they play out? Are they sort of
something that you’re still looking at to maintain?
Fredrik Halvorsen: Well, certainly, I think this is a game, we’re trying to expand the market, and
since this is a communication architecture we’re trying to put in place part of the rationale here is
to really open it up and make sure we get the multiplicator effects in place. So we love to sort of
compete, but we also like to collaborate so that brings more success to the customer. So I think
that will be our going forward vision.
John Chambers: I think it’s important and it’s in the best interests of the industry to allow
interoperability. And use Microsoft as an example, we work with Microsoft in eight areas, we
compete in two, and those two we interoperate. It’s in their interest and our interest to do that.
And I think the industry will move much faster because of this open interoperability, open
standards. And, again, repeating, this is part of the reason that we were comfortable in making
the commitment that we did to TANDBERG in terms of the acquisition.
Unidentified Speaker: Closing remarks? Any final thoughts?
John Chambers: Fredrik, I’m going to let you close this, but I’m going to make a comment in
front of you.
I’ve been in this business for almost two decades. There’s never been an area that I think had the
capability to transform everything from standard of living, to education, to healthcare, to
business models, to maybe for the first time addressing the global challenge of 3 billion people
making less than $3 a day in a way that was sustainable, like collaboration, and the power of the
network as the platform for these change and innovation.
And what we’re seeing, with what might look like Star Trek today, we are doing things in
emerging countries and learning in China and India very rapidly what to do and bring it straight
back to Western Europe or to the U.S. with tremendous speed and efficiency.
But what has always been missing was ease of use of getting systems to work together well, and
what was really missing is the vast majority of communications and interaction isn’t one-to-one
and isn’t voice or data, it’s many to many and it is with video. And that’s really what this
combination is about, and I think it gets people thinking a lot more out of box on what can occur.
Fredrik, closing comments?
Fredrik Halvorsen: Well, I’d just like to say that while we are proud of our legacy, we have
built, our focus as a team and as a Company has always been on the future. And, as John pointed
out, that is a $34 billion market opportunity, everyone to everyone. As we’re very proud to be
part of that journey. We think the time is right now to join forces. It will accelerate innovation.
It will expand the marketplace. And I think it will be a great proposition to both the people of
Cisco and the people of TANDBERG.
So I guess I’ll just close by saying that we are fully behind this and really look forward to getting
it closed so we can get on with the business.
John Chambers: Fredrik, thanks.