Cisco Responds to Its Internet of Things Bear Case

In the video below, Motley Fool analyst Eric Bleeker talks with Cisco's Chris White, who is a general manager of Internet of Things sales at the company. 

Cisco has been trumpeting their opportunity around the Internet of Things. Yet, as Eric notes in the video below, the past technology shift the company proclaimed as "the next big thing" was mobile data. Yet, since day the iPhone was first announced and began the modern era of smartphones, investors in Cisco have actually lost money. Chris responds to how the Internet of Things could be different, and what kinds of Internet of Things services will generate huge amounts of data and present large revenue opportunities for Cisco itself. 

A transcript follows the video. 

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Eric Bleeker: One final question; let's play devil's advocate for a moment here. Cisco in the past few years has published a lot of reports around mobile. I know that this would be more of a question for a John Chambers about stock price, but the share price is below where it would have been when the iPhone came out, so a lot of people who might have invested in Cisco on the promise of mobile have not seen the returns they might have expected.

When we're looking to the next trend, which is the Internet of Things, why might this be a trend that lives up to its full billing? Why should investors think differently about that than something like mobile over the past five or six years?

Chris White: That's a good straight man type question, and I guess I'd both take you back in history, and challenge you to look forward a little bit.

When we led the Internet revolution, when our investors did see the meteoric rise of both growth and stock share price, we did two things incredibly well. We built really good infrastructure, but we worked with our customers and the industry to figure out how they took advantage of it.

We helped them build e-commerce websites. We helped them build e-enabled support centers. We helped them figure out how to do the virtual close. That helped everyone. It helped our customers improve their business, it helped our shareholders with a great stock price, but it also helped us differentiate and sell an awful lot of stuff.

I give you that same analogy in this next wave where -- to some of these questions -- companies don't just want to talk about technology. They want to talk about how they use it. It's not just using it; it's how does it make a business impact, and what are the infrastructure implications?

I feel very bullish that we're sitting in a next generation driving seat of that dynamic, where we have leading edge customers and solutions that help drive the conversation, we've got an infrastructure impact, and I think the challenge with your iPhone example -- which is a damn good one -- is, what bandwidth did that actually drive?

It really drove connectivity; cellular connectivity. But when you are getting data out of drill bits and sensors on basketball players' shirts ... the data requirements are going up exponentially, and therefore the need to get that data to the right people has a huge data center and network impact, because you want to get that data to the right person at the right time, as fast as possible -- let alone with the meteoric take-up of using videos in all different applications.

People don't want to put people walking up and down pipelines; they want to put video tracking that. People want to put video on sports courts to track the motion of players. I think there's a number of trends helping us here, not just one single trend.

Bleeker: Just to push on that a little bit, we were at a company which I won't name the other day, and they talked about this really cool installation where an entire military base they connected, with 800 buildings.

They went through it all and it made so much sense, and then I said, "OK, how much data are you collecting a day?"

And they said, "A few gigabytes." It was like the air left a little bit, because they were infrequently sending data, all the sensors, in small bits.

You talked about drill bits, you talked about video there. Maybe could you talk about just where you're going to get that tremendous amount of data transmission, where the big opportunities are?

White: I'll give you one that I think we can all relate to, which is somewhat surprising. I also run the Sports & Entertainment Division at Cisco, and we were in the unique market leadership of having 200 of the leading venues around the world.

That industry has kind of pushed back on technology. "What the heck do I need connectivity in a stadium for? It's all about Cristiano Ronaldo scoring goals for Real Madrid, or whoever -- LeBron James scoring more baskets."

Well, to your point of data, we're seeing on average three terabytes of data usage being used at your average game nowadays. We're seeing 30 to 40 thousand people get connected at a stadium.

I actually just heard an amazing story -- I've got to validate it -- that Metallica was going to Switzerland and the Rolling Stones were going to Scandinavia, and they said, "Hang on a minute. We're not going to do a concert unless that stadium is connected."

The reason they wanted to do it is saying, "We know we can sell out a stadium. We know we can get 20 or 30 thousand people to show up at a stadium. But we want 3 million connected experiences across social media and Instagram and Facebook. That's our marketing pull, not just getting $20,000 worth of seat tickets."

I do think -- don't get me wrong -- there are some yawner applications where, "Wow, that actually is not a lot of data, and that doesn't provide the connectivity impact." But I think as many negative stories, there's probably 3, 4, 5-fold, 10-fold stories of, "Wow, I didn't realize it needed that amount of data."

Pulling data off of oil rigs at the moment has been satellite-based small-bit sampling. Well, the reason is because they take the sample and helicopter it somewhere, and burn fossil fuels and time, taking that sample off the oil rig, to a specialist researcher.

Well, if they put enough pipe in there to do a video conference call, a remote analytic, a remote data compute platform, I think the dynamics change because you're looking at the problem slightly differently.

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Eric Bleeker, CFA owns shares of Cisco Systems. The Motley Fool recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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