Cisco operates a deeply entrenched business that targets many layers of IT, but it’s making considerable investments of late to capture market-wide transitions to 400 Gb/s infrastructure and 5G, according to Jonathan Davidson, SVP and GM of Cisco’s Mass-Scale Infrastructure unit.

Those investments are being directed around optical systems, routing, IoT, 5G mobile core, and automation, all while Cisco continues to shift its business to software and service-based revenue, he said at last week’s Credit Suisse Technology Conference.

“As we move more and more toward disaggregation, we have actually been migrating more and more of the value of the entire system toward software, where it actually should have been the entire time,” he said. 

Software comprised a small portion, less than 5%, of Cisco’s traditional routers and optical systems sales as recently as five years ago, but 40% to 60% of the value of a Cisco system can be derived from software today, he said. 

Cisco, in 2017, set a goal to derive 30% of its revenue from software by the end of 2020. It narrowly missed that target for the full year, with 29% of revenue derived from software during its fiscal year 2020, but it did bring in 31% of revenue from software in Q4 alone. 

“We’ve taken a portion of that so our customers have a perpetual right to use that software,” Davidson said. “The recurring portion is any upgrades or updates and new features and functionality they now pay for as a recurring model for all new platforms that we have shipped for almost three years now. ... We’ve been slowly making this migration in our model, even in our traditional businesses.”

While Cisco is eyeing growth in 400 Gb/s infrastructure, a large amount of Cisco’s optical customers are still deploying 100 Gb/s. “In fact some of our customers are actually buying 400-Gb/s ports but deploying them as 100-Gb/s ports until they get the optics to the price points that they expect to be able to get a large amount of scale,” Davidson said.

“From a platform perspective, we have the greatest density, we have by far the lowest power per 100 Gb/s, per 400 Gb/s, and the greatest amount of actual capability versus anybody else in the market,” he claimed, pointing to sustained and growing interest in Cisco’s Silicon One-based platforms as evidence of that positioning.

“We’ve already announced the next set of silicon and we expect to announce the platform as part of that in the not-too-distant future as well,” Davidson said. 

Cisco’s Silicon One-based routers are now well into the deployment phase with all of its major customer segments, including hyperscalers, cable operators, and government agencies, he added. 

“We’re beyond the conversation stage with the webscale and the hyperscale customers,” he said. “You have to be able to understand your customers’ use cases at a very, very granular level and we also want to make sure that we’re meeting our customers in the way that they want to procure our equipment. So we are open to selling our optics, our silicon-only systems with no software, software with no systems, or even fully integrated customers.”

The more open approach is a “very different perception than our customers had of us five or 10 years ago where we were thought of as perhaps less flexible in the business model perspective,” Davidson admitted.

However, despite that relatively newfound flexibility, Cisco doesn’t expect a disaggregation of hardware and software to the most prevalent type of deal it lands with customers any time soon.

“The majority of our customers need an integrated system,” Davidson said. “It’s not just the disaggregation. It puts you in an entirely different ecosystem and so the things that you normally would get from Cisco you now have to do a lot of those things on your own because you’ve decided to go down this disaggregation path.”

A complete separation of hardware and software only makes sense for companies that have the requisite scale and technical competency, he said. 

“Obviously we’re going to keep with it, with disaggregation as a portion of our strategy, and we’re going to continue to work with folks like AT&T and the hyperscale customers on this disaggregation but I don’t see any major movements toward this of my current customer base,” he said. 

“AT&T spends $20 billion-plus a year on capex so they’ve got the people and the investment and the scale needed to make disaggregation work, and we’re seeing the same thing with some of the top hyperscale customers as well,” Davidson said, pointing to the vendor’s recent deal with AT&T to use Cisco’s IOS XR network operating system for an open, disaggregated IP edge routing platform. 

“The majority of [customers] by far stick with a fully integrated model,” he said.