CNBC Transcript: Cisco CEO Chuck Robbins On SQUAWK ON THE STREET Today

The following is the unofficial transcript of a FIRST ON CNBC interview with Cisco CEO Chuck Robbins on CNBC's "Squawk on the Street" (M-F 9AM - 11AM) today, Thursday, May 17th. Watch video from the interview on CNBC.com here!

JIM CRAMER: I'M DELIGHTED TO TRY TO CLEAN UP SOME OF THE MISTAKES THAT WERE SAID ABOUT THIS STOCK LAST NIGHT AND THIS COMPANY. CISCO HAD A NICE BEAT. THERE ARE SOME PEOPLE THAT FELT THAT THE OUTLOOK WAS WASN'T AS STRONG AS THE STREET WAS LOOKING FOR. THERE WERE OTHER PEOPLE, NAMELY ME, THAT WAS THRILLED WITH THE ACTUAL OUTLOOK. SO LET'S SEE WHERE THE COMPANY'S HEADED AND CISCO'S CEO CHUCK ROBBINS IS JOINING US NOW FROM SAN JOSE. ALRIGHT, CHUCK, LET'S JUST STRAIGHTEN THINGS OUT A LITTLE. FIRST OF ALL, THIS WAS A MUCH BETTER-THAN-EXPECTED QUARTER. SECOND, YOU DID NOT OFFER AN OUTLOOK THAT WAS BELOW WHAT PEOPLE WERE LOOKING FOR.

CHUCK ROBBINS: YEAH, JIM, FIRST OF ALL, THANKS FOR HAVING ME TODAY. AND LOOK, I THINK THERE'S THREE KEY POINTS ABOUT THE QUARTER/ NUMBER ONE IS THE STRATEGY THAT WE LAID OUT THREE YEARS AGO IS WORKING. WE DELIVERED RECORD EPS. WE HAD CONTINUING BUSINESS MOMENTUM IN OUR GROWTH RATE ON THE TOP LINE. RECORD, YOU KNOW, SHAREHOLDER RETURNS DURING THE QUARTER. IF YOU LOOK AT THE SECOND POINT OF THE INNOVATION THAT WE'RE DRIVING RIGHT NOW IN OUR CORE NETWORKING SPACE WITH THE INTENT-BASED NETWORKING THAT DAVID AND WE LAUNCHED WITH DAVID ON THIS SHOW LAST JUNE ON THIS NETWORK, THAT PRODUCT IS THE FASTEST RAMPING PRODUCT IN THE HISTORY OF THE COMPANY. WE HAD 19% GROWTH IN OUR APPLICATIONS BUSINESS, 11% GROWTH IN OUR SECURITY BUSINESS. AND THEN THIRD, THE BUSINESS MODEL TRANSITION FOR SOFTWARE AND SUBSCRIPTIONS -- THE SOFTWARE AND SUBSCRIPTION DEFERRED REVENUE UP 29%, 55% OF OUR SOFTWARE BUSINESS IS NOW SUBSCRIPTIONS. SO WE'RE QUITE PLEASED WITH WHERE WE ARE. WE THOUGHT IT WAS A GREAT QUARTER AND WE THINK THE OUTLOOK IS QUITE POSITIVE.

CRAMER: ALRIGHT. NOW I WAS HOPING THAT YOU WOULD GIVE US A LITTLE MORE INSIGHT TO WHAT BROADSOFT - THE DEAL THAT CLOSED LAST YEAR - IS GOING TO BE DOING FOR YOU AND WHAT ACCOMPANY IS GONNA BE DOING FOR YOU - THAT'S A NEW DEAL THAT IS ARTIFICIAL INTELLIGENCE. AND I WAS TRYING TO PUT TOGETHER THE PIECES TO TRY TO FIGURE OUT WHAT CISCO WOULD LOOK LIKE A YEAR FROM NOW, AS OPPOSED TO THE ANALYSTS WHO I KNOW ARE FIXATED ON WHAT IT'S GOING TO LOOK LIKE BY FLAG DAY.

ROBBINS: WELL, JIM, IF YOU LOOK AT OUR APPLICATIONS BUSINESS, BOTH OF THOSE ACQUISITIONS LINE UP DIRECTLY IN THAT SPACE. AND FIRST OF ALL, BROADSOFT IS - YOU KNOW, IT HAS 20 MILLION USERS OUT THERE TODAY THAT WE CAN ACTUALLY BRING THE BALANCE OF OUR PORTFOLIO TO, DELIVER CLOUD-BASED COMMUNICATIONS THROUGH OUR SERVICE PROVIDERS -- WHICH IS A GREAT, YOU KNOW, PART OF OUR BUSINESS AND A GREAT ROUTE TO MARKET FOR US. SO WE SEE HUGE OPPORTUNITY TO BRING THE BROADSOFT PORTFOLIO TOGETHER WITH CISCO'S COLLABORATION PORTFOLIO AND DELIVER THAT FROM THE CLOUD IN THE FUTURE AND THAT'S THE CORE PART OF WHAT WE PLAN TO DO THERE. AND ON THE ACCOMPANY SIDE, YOU KNOW, OUR COLLABORATION PORTFOLIO, WE'VE GONE FROM AN ON-PREMISE SOLUTION TO THE CLOUD ARCHITECTURE AND THE NEXT WAVE FRANKLY IS HOW DO WE BRING DATA, ARTIFICIAL INTELLIGENCE, MACHINE LEARNING, EVEN MORE SO INTO THAT PORTFOLIO AND THAT'S WHAT ACCOMPANY AND THE YOUNG LADY YOU KNOW VERY WELL, AMY CHANG, ACTUALLY BRINGS, SO WE'RE EXCITED ABOUT THAT, AS WELL.

CRAMER: ALRIGHT. LET ME JUST GO BEFORE I GET MY COLLEAGUES -- JUST IN CASE PEOPLE DO NOT THINK THAT THIS WAS A ROBUST OUTLOOK, $25 BILLION STOCK BUT YOU'RE BUYING 12% OF THE COMPANY. I MEAN HOW MUCH OF THE VOLUME ARE YOU GONNA BE EVERY DAY?

ROBBINS: WELL, WE BOUGHT BACK $6 BILLION THIS PAST QUARTER AND LAST QUARTER WE ANNOUNCED AN ADDITIONAL 25 BILLION, WHICH I THINK INCREASED THE TOTAL THAT WE HAVE AVAILABLE TO 31 BILLION. I THINK KELLY CALLED OUT THAT WOULD BE OVER BETWEEN 18 TO 24 MONTHS AS WE BEGIN TO EXECUTE ON THAT. AND AS YOU LOOK TO NEXT QUARTER, I BELIEVE THAT IF YOU LOOK AT THE EARNINGS PER SHARE THAT WE GUIDED AND THE REVENUE THAT WE GUIDED, IT'S ONE OF THE FASTEST GROWING QUARTERS WE'VE HAD IN QUITE A WHILE. AND ALSO THE - I BELIEVE THAT THE EPS IS A RECORD EPS GUIDE, AS WELL. SO, YOU KNOW, WE'RE CONFIDENT IN THE OUTLOOK. WE'RE CONFIDENT IN THE FUTURE. WE BELIEVE IN THE STRATEGY AND FRANKLY, WE'VE JUST BEGUN THIS JOURNEY ON THIS INTENT-BASED NETWORKING AND THIS FIRST PRODUCT WE LAUNCHED HAS SHOWN THAT OUR CUSTOMERS ARE ADOPTING THAT, THEY BUY INTO IT AND WE THINK THAT'S GONNA BE CRITICAL TO THE FUTURE.

DAVID FABER: CHUCK, I'M ALWAYS INTERESTED IN CAPITAL ALLOCATION. SO, I'M CURIOUS, BACK TO THAT ANNOUNCEMENT, LAST QUARTER AS YOU SAID, 25 BILLION IN THE SHARE BUYBACK, YET YOU BROUGHT BACK 67 BILLION FROM OVERSEAS. YOU SAID THE NEXT 18 TO 21 MONTHS YOU'RE GONNA BE USING THAT 25 BILLION. WHY WAS THAT THE RIGHT NUMBER? YOU HAVE, WHAT, 47 BILLION IN THE U.S. BUT HOW DO YOU THINK OF THAT NUMBER BEING THE RIGHT NUMBER AS OPPOSED TO EITHER LARGER OR THE SMALLER?

ROBBINS: YEAH, WELL, DAVID, RIGHT NOW WE'RE THINKING ABOUT, YOU KNOW, THE CAPITAL RETURNS THROUGH A COMBINATION OF BUYBACKS AS WELL AS WE INCREASED THE DIVIDEND LAST QUARTER, SO YOU CAN LOOK AT THE MAGNITUDE OF WHAT IT COSTS ON AN ANNUAL BASIS TO SERVICE A DIVIDEND. WE WANT TO IN THE FUTURE CONTINUE TO BE ABLE TO RAISE THE DIVIDEND AS WE HAVE BEEN RELATIVE TO OUR CASH FLOW. AND SO WE THOUGHT RIGHT NOW THAT'S THE RIGHT NUMBER, PARTICULARLY OVER THE WINDOW OF TIME THAT KELLY TALKED ABOUT ON THE LAST CALL AND YOU KNOW, WE'LL CONTINUE TO LOOK AT CAPITAL RETURNS THROUGH BUYBACKS THROUGH DIVIDENDS AND ALSO M & A OPPORTUNITIES THAT MIGHT BEOUT THERE FOR US.

FABER: RECURRING REVENUE, AT LEAST THERE SEEMED TO BE A COUPLE OF QUESTIONS ON THIS - SOME PEOPLE HAD IT AT 32% AND WONDERING WHAT DROVE A DECLINING QUARTER OVER QUARTER AT LEAST, BECAUSE IT IS AN IMPORTANT COMPONENT AND USUALLY GETS A HIGHER MULTIPLE FROM INVESTORS GIVEN IT IS REPORTING. CAN YOU GIVE CLARITY IN TERMS OF WHAT THE EXPECTATIONS ARE WITH THAT?

ROBBINS: YEAH, IF YOU LOOK AT THAT NUMBER, DAVID, THE 32% WAS UP TWO POINTS YEAR OVER YEAR, BUT IT WAS A ROUNDING ISSUE FROM LAST QUARTER TO THIS QUARTER, FRANKLY. AND HERE ARE TWO THINGS THAT CONTRIBUTED TO IT. FRANKLY, OUR PRODUCT BUSINESS WHICH EVERYONE HAS WANTED TO SEE GROW FASTER ACTUALLY IT GREW FASTER THAN OUR SERVICES BUSINESS. AND WE HAD A VERY STRONG PERFORMANCE IN OUR DATA CENTER COMPUTE BUSINESS WHICH ACTUALLY HAS A LOWER SUBSCRIPTION RATE ASSOCIATED WITH IT. BUT IF YOU LOOK AT THE $5.6 BILLION THAT WE HAVE NOW IN OUR BALANCE SHEET IN DIFFERED SOFTWARE AND SUBSCRIPTION, WE'RE QUITE PLEASED WITH THAT. THE OTHER THING THAT I WOULD MAKE SURE WE UNDERSTAND IS THAT AS THESE NEW NETWORKING DEVICES LIKE THE CATALYST 9300 ACCELERATE, WE'VE BUILT A SUBSCRIPTION BUSINESS ON TOP OF IT. SO WHAT PEOPLE NEED TO REMEMBER IS 20 TO 25% OF THE ORDER RATE THAT WE TAKE ON THAT PRODUCT ACTUALLY GETS PUT INTO DEFERRED REVENUES. SO WE'RE PLEASED WITH WHERE WE ARE. WE'RE HAPPY WITH THE MOMENTUM WE HAVE AND WE HAVE A PIPELINE OF INONVATION THAT WE THINK GIVES US CONFIDENCE FOR THE FUTURE.

CARL QU: HEY CHUCK, YOU SORT OF THROUGH IN THAT LINE RIGHT NOW ABOUT WHATEVER M&A OPPORTUNITIES MAY BE OUT THERE. WHAT CHARACTERISTICS DO YOUR CANDIDATES NEED TO HAVE?

ROBBINS: WELL, HEY, CARL, I HOPE YOU'RE DOING WELL. SO ON THE - WHEN WE THINK ABOUT M & A, NOTHING'S CHANGED. WE LOOK FOR YOU KNOW, COMPANIES OUT THERE THAT HAVE TECHNOLOGY THAT EITHER COMPLEMENTS WHAT WE DO TODAY, GETS US INTO AN ADJACENT AREA RELATIVE TO WHAT WE DO TODAY, OR YOU KNOW ACTUALLY GETS US INTO A NEW MARKET THAT WE THINK OUR CUSTOMERS WOULD BENEFIT FROM IN CONJUNCTION WITH OUR CURRENT PORTFOLIO. AND SO YOU KNOW, WE'RE CONSTANTLY SCANNING THE LANDSCAPE. OUR TEAMS ARE WORKING. WE'VE DONE 24 ACQUISITIONS SINCE I BECAME CEO AND YOU KNOW, WE'LL CONTINUE TO LOOK FOR OPPORTUNITIES WHERE IT MAKES SENSE.

CRAMER: HEY - CAN I ASK YOU A QUESTION, CHUCK? WHEN YOU GET UP IN THE MORNING DO YOU SIT THERE AND FRET ABOUT ARISTA NETWORKS, AS THE ANALAYSTS SEEM TO THINK? IS THAT SOMETHING YOU JUST SAY, "OH, MY, I HAVE TO GO UP AGAINST THIS $18 BILLION COMPANY. IT'S GOING TO BE A BAD DAY FOR ME,"?

ROBBINS: NO, I ACTUALLY DON'T WAKE UP THINKING ABOUT THAT, JIM. BUT, YOU KNOW, IF YOU LOOK AT WHAT WE'RE FOCUSED ON RIGHT NOW, AND I THINK THE BIG-THE BIG TOPIC OF DISCUSSION IS THE CAMPUS NETWORKING SPACE, AND I THINK THE ANNOUNCEMENT THAT WE MADE LAST SUMMER RELATIVE TO OUR MOVE INTO INTENT-BASED NETWORKING AND THE LEADERSHIP POSITION THAT WE'VE ESTABLISHED. THE FACT THAT THAT FIRST PRODUCT IN THE ARCHITECTURE AND THE AUTOMATION PLATFORM THAT WE BUILT, THE FASTEST-GROWING PRODUCT IN THE HISTORY OF THE COMPANY, IT NEEDS TO BE AN ARCHITECTURE THAT NOT ONLY ENCOMPASSES SWITCHING BUT ENCOMPASSES WIRELESS AND ROUTING AND ACCESS SWITCHING THAT'S WHAT THE ARCHITECTURE DOES. SO WE'RE QUITE COMFORTABLE WHERE WE ARE AND WE FEEL GOOD ABOUT WHERE WE'RE HEADED IN THAT SPACE.

CRAMER: ALRIGHT, WELL CHUCK. THE ONE THING I WOULD SAY - THERE'S TWO THINGS THAT DID CONCERN ME: ONE IS THAT YOU THOUGHT THE DRAM SCORE WAS GOING TO START COMING DOWN, THEY'RE STILL GOING THE OTHER WAY. THAT WAS A - THAT WAS JUST A BAD PREDICTION BY YOU GUYS. AND SECOND, DO YOU FEEL THAT THIS IS KIND OF LIKE AN ADOBE STORY OR AN IBM STORY? ADOBE CERTAINLY CROSSES OVER AT ONE POINT, SUBSCRIPTION, EVERYONE GOES NUTS. YOU'RE NOT THERE YET. IBM CROSSES OVER TO 49 AND NOBODY REALLY CARES. SO TELL ME WHERE YOU ARE WITH DRAM, TELL ME WHERE YOU ARE ABOUT WHAT NUMBER STRATEGICALLY IMPERATIVE, SO TO SPEAK, SOFTWARE AND WHERE YOU NEED TO GET BEFORE PEOPLE REALIZE THAT YOU ARE A DIFFERENT COMPANY?

ROBBINS: SO FIRST OF ALL, JIM, I THINK KELLY ON THE CALL SAID THAT THE DRAM PRICING WAS STILL A HEADWIND, BUT IT WASN'T AS BAD AS IT WAS LAST QUARTER, SO - BUT IT'S STILL A HEADWIND FOR SURE AND WE CONTINUE TO MONITOR THAT AND MEET WITH THE SUPPLIERS AND DO ALL OF THE THINGS THAT WE CAN TO PUT OURSELVES IN THE BEST POSITION POSSIBLE. YOU KNOW, AS IT RELATES TO COMPARING US TO OTHER SOFTWARE COMPANIES, I THINK THE THING TO REMEMBER IS THE TRANSITION WE'RE GOING THROUGH IS REALLY NOT ONE THAT ANY OTHER COMPANY HAS EVER GONE THROUGH, BECAUSE WE'RE BRINGING TOGETHER A SOFTWARE AND SUBSCRIPTION BUSINESS WITH A HARDWARE BUSINESS. SO IF WE WERE A PURE SOFTWARE BUSINESS, WE CAN MAKE A DECISION AND MOVE IT ALL TO THE CLOUD, DELIVER IT AS A SUBSCRIPTION, FLIP A SWITCH, AND THAT'S IT. IN OUR CASE WE STILL HAVE TO CONTINUE TO BUILD THE HARDWARE, WE HAVE PRICING STRUCTURES THAT INCLUDE HARDWARE AND THE SUBSCRIPTION ON TOP, WE'VE GOT THE SALES COMPLICATIONS OF MAKING SURE THAT WORKS, SO I WOULD SAY THAT NO ONE'S REALLY GONE THROUGH A TRANSITION THAT LOOKS EXACTLY LIKE OURS AND I'M PLEASED WITH THE PROGRESS SO FAR.

FABER: SPEAKING OF TRANSITIONS AND WE'RE GOING TO RUN OUT OF TIME OURSELVES AND HAVE TO TRANSITION, BUT I HAD LOWELL McADAM ON A COUPLE OF DAYS AGO FROM VERIZON, AND WE WERE TALKING ABOUT 5G. THEY'RE GONNA ROLL IT, I MEAN EARLY DAYS, BUT ROLLING IT OUT LATER THIS YEAR IN SACRAMENTO AND L.A. HOW ARE YOU GOING TO BE POSITIONED FOR WHAT THAT IS GOING TO MEAN PARTICULARLY GIVEN, IOT, MACHINE LEARNING, ALL OF THE DIFFERENT NETWORKING THAT IS GOING TO TAKE PLACE AS A RESULT OF THE LACK OF LATENCY IN 5G?

ROBBINS: YEAH, DAVID, IT'S A GREAT QUESTION AND LOWELL AND VERIZON ARE A GREAT CUSTOMER AND PARTNER FOR US. YOU KNOW, LOOK, WHAT 5G IS GOING TO DO IS IT'S GONNA CREATE INCREDIBLE CAPABILITIES AT THE EDGE OF THE NETWORK THAT, I THINK HE SAID ARE UNPRECEDENTED IN WHAT IT'S GOING TO MAKE POSSIBLE, AND THAT'S GOING TO CREATE A TREMENDOUS BANDWIDTH LOAD ON THE CORE NETWORKS. SO WE'VE BEEN TALKING ABOUT THE SERVICE PROVIDER BUSINESS FOR QUITE A WHILE ACTUALLY AND ONE OF THE KEY THINGS THAT WE THINK COULD DRIVE THAT BUSINESS BACK INTO POSITIVE TERRITORY IS THE 5G BUILDOUT. AND IF YOU LOOK AT MOBILE WORLD CONGRESS THIS YEAR, OUR CUSTOMERS ARE NOW TALKING ABOUT, OK -- GIVEN THAT WE BELIEVE THAT 5G IS REAL, IT'S HAPPENING, YOU'VE HEARD LOWELL - THE CORE NETWORK REDESIGN AND THE ARCHITECTURE OF THE CORE NETWORK IS GOING TO HAVE TO EVOLVE TO BE ABLE TO ACCOMMODATE ALL THAT TRAFFIC AND THAT'S THE KEY ROLE THAT WE'LL PLAY FOR THEM, DAVID.

CRAMER: YEAH, WELL WE NEED TO SEE THE SERVICE PROVIDERS FINALLY DO SOMETHING FOR THE COMPANY, BECAUSE IT HASN'T HAPPENED LATELY. BUT THAT'S - IT'S ALL TO COME. HEY CHUCK, CHUCK ROBBINS, GOOD TO SEE YOU. THANK YOU SO MUCH FOR COMING ON "SQUAWK ON THE STREET".

ROBBINS: HEY, THANKS, GUYS.

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