Melissa Selcher - Senior Director, Analyst and Investor Relations John Chambers - Chairman and Chief Executive Officer Frank Calderoni - Executive Vice President and Chief Financial Officer Robert Lloyd - President, Development and Sales Gary Moore - President and Chief Operating Officer

Simona Jankowski - Goldman Sachs Jeff Kvaal - Barclays Ittai Kidron - Oppenheimer Tal Liani - Bank of America Merrill Lynch Ehud Gelblum - Morgan Stanley Mark Sue - RBC Capital Markets Brian Modoff - Deutsche Bank Paul Silverstein - Credit Suisse Simon Leopald - Raymond James Rod Hall - JPMC Subu Subrahmanyan - The Juda Group Brent Bracelin - Pacific Crest George Notter - Jefferies Michael Genovese - MKM Partners

Welcome to Cisco Systems' first quarter and fiscal year 2013 financial results conference call. (Operator Instructions) Now, I'd like to introduce Melissa Selcher, Senior Director, Analyst and Investor Relations.

Good afternoon, everyone, and welcome to our 91st quarterly conference call. This is Melissa Selcher, and I'm joined by John Chambers, our Chairman and Chief Executive Officer; Frank Calderoni, Executive Vice President and Chief Financial Officer; Rob Lloyd, President of Development and sales; and Gary Moore, President and Chief Operating Officer. I would like to remind you that we have corresponding webcast with slides on our website in the Investor Relations Section. Income statements, full GAAP to non-GAAP reconciliation information, balance sheets, cash flow statements and other financial information can also be found on the Investor Relations website. Click on the financial reporting section of the website to access these documents. Throughout this conference call, we'll be referencing both GAAP and non-GAAP financial results. The matters we'll be discussing today include forward-looking statements, and as such, are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent annual report on Form 10-K and any applicable amendments which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. Unauthorized recording of this conference call is not permitted. All comparisons throughout this call will be on a year-over-year basis unless stated otherwise. I will now turn it over to John for his commentary on the quarter.

Thank you, Mel. As we open this call, I want to recognize the devastation in the eastern seaboard of the United States in the wake of Hurricane Sandy. Knowing many on this call consider the impacted area, home, we want to share our sincere condolences for all that has been lost. We remain committed to doing all we can to support and enable our employees, partners and customers, and the local government agencies and support organizations, who will work to rebuild and move forward. Now, moving on to a discussion of our year-over-year performance in Q1 FY '13. We delivered another strong quarter of record revenue with growth of 6% and record non-GAAP earnings per share of $0.48 with growth of 12% from an earnings per share perspective. As we continue to manage through a challenging macroeconomic environment, we continue to see the benefits of our focus on operational excellence with only a 1% increase in non-GAAP operating expenses, Gary nice job there; and strong non-GAAP gross margins at 62.7%, Rob, the teams are doing well sales and engineering, yielding 11% increase in net income and record non-GAAP operating income. In a world of many clouds mobility, bring your own device, and the internet literally connecting everything. The network has never played a more central role, connecting people, the process, data and things, anywhere, anytime, across any device. In this cloud of mobile world, the challenges of scale, agility, security and resilience can only be addressed by an intelligent network, and Cisco is uniquely positioned to help our customers meet business requirements and drive this new growth. From my perspective, our strong results this quarter are improved that our vision for the evolution of this market and our strategy for Cisco's leadership role is playing out as we expected. My key takeaway for this quarter are the following. First, revenue growth of 6% in a very challenging market, where many of our peers are reporting declines and bringing down future expectations. Second, profitability growth in double digits, with solid expense management, with gross and operating margins exceeding our guidance. Third, our service business continues to grow double digits as our customers ask Cisco to partner to build their technology and business architectures for the future. Fourth, $2.5 billion cash from operations generated this quarter with more than a 3% dividend yield took a boot, continuing to drive value for you, our shareholders. And fifth, while we continue to see very challenging order trends in Europe, we are pleased with our order growth in the U.S., where enterprise group 9% year-over-year, U.S. Service Provider grew 13%, and U.S. Commercial which is not included in public sector grew 5%. We continue to deliver the innovation, quality and leadership, our customer expect, and we are evolving the role we play in our customer accounts moving from the top communications company to our goal of becoming the number one IT company. To provide additional detail on our Q1 FY '13 results, I'd like to turn the call over to Frank. I will then walk through, after Frank you are through, what we're seeing in the business and where we're focusing going forward. Frank will then come back with a detailed guidance, and then we'll wrap up with Q&A. Frank, over to you.

Thank you, John. In Q1 FY '13, we executed consistent with our operating model of driving profit faster than revenue, contributing to our long-term profitable growth, driving operating leverage and increasing shareholder value. Total revenue for the first quarter was $11.9 billion, an increase of approximately 6%. From a geographic perspective, total revenue increased 7% for the Americas, 10% for Asia-Pacific, Japan and China, with revenue for EMEA about flat. Total product book-to-bill for Q1 was slightly under 1 similar to most prior Q1. Total product revenue was $9.3 billion, up approximately 4% year-on-year. We believe our position in the industry after conversions of the major transitions occurring in the market, allows us to continue to drive solid financial performance, despite the challenging macroeconomic environment. Total service revenue was $2.6 billion, up approximately 12%. We have seen strong growth in our services business with a revenue compound annual growth rate of approximately 12% of the last decade, which has provided consistency to our financial results. Our services business contributes to both long-term revenue growth as well as adding stability to our gross margins. Our advance services business continues to perform well with growth over 20%. This business is a growing strategic asset, while we are partnering with customers to build the architectures and end-to-end solutions to deliver business outcomes. Q1 FY '13 total non-GAAP gross margin was 62.7% that was up 0.8 percentage points quarter-over-quarter and also up 0.3 percentage points year-over-year. While we have variations in gross margins from quarter-to-quarter, most often impacted by product mix driven by growth in several product areas, I am pleased with the benefits from the strong focus that the entire company has had on gross margins. For product only, non-GAAP gross margin for the first quarter was 61.5%, an increase of 1.1 percentage points quarter-over-quarter and also up 0.2 percentage points year-over-year. We saw a strong execution in driving cost savings, lower overall manufacturing cost and improvements in our commodity pricing. We have invested and will continue to invest in value engineering, which has driven more stability of our product gross margins over these last multiple quarters. Our non-GAAP service margin for the first quarter was 66.9% that was down from 67.1% last quarter and up from 66.8% in Q1 FY '12. Our services gross margins continue to perform very well. We have driven productivity and cost improvements over time, including for example, increased automation in our service delivery and have delivered exceptionally high customer satisfaction results. Total gross margin by geographic region was 63.6% for the Americas, 63.3% for EMEA and 58.5% for APJC. Non-GAAP operating expenses were approximately $4.1 billion in Q1, up approximately $100 million, when compared to Q4 FY '12. The increase was due primarily to the addition of NDS operating expense in Q1 FY '13. Non-GAAP operating expenses as a percentage of revenue was 34.8% in the quarter versus 34.4% in Q4. At the end of Q1, our headcount totaled 72,360 and excluding the addition of approximately 5,750 NDS employees, our headcount was slightly down from last quarter. Non-GAAP operating margin for the first quarter was 27.9%, representing growth of 13%, which grew faster than our revenue. Our Q1 FY '13 non-GAAP tax provision rate was 22%. Non-GAAP net income for the first quarter was $2.6 billion, representing an increase of 11%, and as a percentage of revenue non-GAAP net income was 21.6%. Non-GAAP earnings per share on a fully diluted basis for the first quarter were $0.48 versus $0.43 in the first quarter fiscal year 2012, which is a 12% increase. GAAP net income for the first quarter was $2.1 billion as compared to $1.8 billion in the first quarter fiscal year 2012. GAAP earnings per share on a fully diluted basis for the first quarter were $0.39 versus $0.33 in the same quarter fiscal year 2012. The total of cash, cash equivalents and investments at quarter end was $45 billion, that's down $3.7 billion from last quarter due to the completion of our acquisition of NDS. Of this total balance, $7.5 billion was available within the U.S. at the end of Q1. The increase of $1.3 billion in our U.S. cash position from last quarter was driven by cash flows from operation as well as a distribution during the quarter of previously taxed earning, offset by cash we returned to shareholders. Our cash flow from operations was approximately $2.5 billion and we returned approximately $1 billion to our shareholder through the combination of purchase program, as well as the quarterly dividend consistent with our capital allocation strategy that we discussed last quarter. We continue to closely manage our U.S. cash position taking into consideration a number of variables, including the dividend and the stock buyback requirements, our operating cash flow, capital requirements, funding of our financing business and our acquisition strategy. In terms of our acquisition strategy, we closed several strategic acquisitions this quarter, including NDS, vCider and ThinkSmart, and we expect to be active with acquisitions to drive our growth and value proposition with our customers. As we look forward, we continue to prefer small-to-medium size deals that are a fit from a technology, strategy, culture and an ROIC perspective. We are pleased with the integration of NDS with the financial performance consistent with our expectations and the guidance that we provided at Q4 FY '12 earnings call. Our results are reflective of the continued focus and execution around operational excellence. We have a number of initiatives that we are driving across the company, including an enterprise-wide shared services organization that is delivering improved, global, scalable capabilities and significant cost efficiency. Over the last year-and-a-half, we have been driving numerous operational initiatives and our expectations are to continue to deliver on these over the next three to five years. As we build a company that can be both innovative and disciplined, we will remain focus on achieving profitable growth, where our profits can grow faster than revenue over the long term. We believe our strategy and financial model support Cisco and are confident in our ability to execute moving forward. I'll now turn the call back over to John for more detail on our business momentum and our trends.

Thank you, Frank. I'll now provide a more detail discussion of the market and our five foundational priority areas in terms of year-over-year revenue growth, followed by discussing geographic and customer segments in terms of orders. First, our core business. Switching revenues decline 2%. We saw a solid growth in the Nexus data center switching with the Nexus 2000, 5000 and 7000 lines all going in the high teens or better. We continue to see specific strength and massively scalable data centers. Macro challenges in the U.S. public sector and EMEA, that's our Europe, Middle-East and Africa operation, did have a negative impact on switching revenues. I would remind you that Cisco's market share is disproportionably impacted by slowing in public sector and developed countries. Switching gross margins remain very stable, actually improving in Q1, and once again versus 12 to 18 months ago, back to where we were, Frank, at that time or above, and just very solid progress across the company; Robin, Gary nicely done. Our switching innovation across ASICs hardware and software is very strong and will drive our continued switching leadership. Second, our NGN routing portfolio remained strong, especially relative to our competitors. Our total revenue for NGN routing declined 2%, driven primarily by weakness in EMEA, especially the service provider sector there and declines in optical networking due to product migration to faster speeds. We saw double-digit growth in total Edge Routing with especially strong adoption of ASR 9000, up approximately 80% year-over-year. We continue to see strong momentum in SP mobility, where orders were up 86% year-over-year, as SP addresses the capacity requirements associated with incremental global smartphones and tablet demand. Wireless continues to be one of our fastest growing businesses with revenue growth of 38%, the fourth consecutive quarter of record revenue. We experienced strong growth throughout our portfolio led by the 3600 series, outdoor access points and high-end controllers. We saw exceptional growth in APJC of approximately 45%. We are very well positioned for the explosion of mobility, BYOD, bring your own device and SP Wi-Fi small sales. And for example SP Wi-Fi grew almost a 100% year-over-year, granted off of a relatively small base at this point in time. Security grew 6% driven primarily by high-end and mid-range router firewall platforms, growth in web security and strong adoption of our identity services engine. Transitions like to move to cloud based delivery models and BYOD are few in the growth and played our strengths. We will continue to capitalize on the opportunities in the security space. Moving on to data center. Data center grew 61%, fueled by our industry leadership, where we're delivering a unified data center strategy. Our unique ability to unify the physical and virtual by delivering ongoing innovation around unified fabric, unified compute and unified management has helped solidify our position as a leader in next generation data centers. For the first time we are starting to see our leadership in IT, especially the UCS pull through our communication products. This is especially important in terms how CIO's are beginning to view Cisco, not just as a leader in communications, but view us as an IT player, who also does communications. We saw a very good balance in data center globally. Growth was particularly strong in APJC, up by 127% and in service providers, up a 102%. Enterprise grew 54%, fueled by the rapid adoption of Romley based servers. The innovation we've driven in UCS and the cloud, combined with our ability to drive the transition to a unified data center have enabled us to achieve the number two position in the x86 Blade Servers category in the U.S., and the number three position worldwide. A category we entered only three short years ago. We also are number four in the overall server market, a market few thought we could penetrate. We will drive the same level of innovation in the evolution of the unified data center that we drove in the compute market with the UCS. Cisco's strategy for enabling program mobility of the network to drive application intelligence, focus on operational simplicity and cost effectiveness, while leveraging the decades of existing network investments is what our customers are looking for. With an integrated software, plus software, plus ASIC and hardware approach, we believe Cisco alone can deliver the scale, resilience, investment protection and features customers demand this evolution. Moving on to collaboration. Collaboration declined 8%, facing a difficult compared with Q1 FY '12, which is a record quarter for our collaboration products. We continue to drive our software momentum, and this quarter drove deployment of 2.2 million Jabber software clients. We continue to see challenges in our TelePresence business down in the mid teens and the U.S. federal business of more than 30% for TelePresence year-over-year. You will see us continue to pull together our TelePresence, unified communication and WebEx offerings into an integrated open architecture that enables communication with any device to any other, with consistent experience and unparalleled ease of use. We believe this strategy will position us well to address the evolving requirements in this market. We need to do a better job in collaboration, and will continue to invest in innovation and sales execution to capitalize on this very important marketplace. Moving onto video, total service provider video revenue was up 30%, of which NDS contributed approximately 20%. As you would expect, NDS had and is expected to continue to have a very positive impact on SP video margins. Video, mobility, cloud, speed of service delivery and monetization of network loads continue to be the top priorities of our service provider customers. Our unique ability to provide an integrated architectural approach is an area of major differentiation strength for Cisco to address in many, if not most all of the service providers around the world. Finally, our architectural approach, build off of market transition and focused on delivering solutions to our customers top priorities is moving us from an IP communication provider to a strategic business partner with many of our customers worldwide. One of the most strategic differentiation is our services capability of Cisco and our partners. Our ability to integrate services, engineering, sales, provides speed to market and innovation, and is an area of sustainable differentiation for Cisco and equally important for our partners. A growing number of our opportunities are led by services delivered by both Cisco and our partners. This business has consistently grown in the low-double digits with very strong gross margin, and is a key growth area for Cisco. We anticipate your will see our service businesses continue to grow, both in absolute terms and as a percentage of our total business. In summary, we are pleased with the performance across most of our priority areas. I will now move on to provide some color on our geographic and customer segments. The following geographic and customer segments growth rates are in terms of year-over-year product orders, unless specifically stated otherwise. In Q1 Cisco's total product orders were flat year-over-year. I would again remind you that we reported 13% growth in product orders in Q1 of last year that is Q1 of fiscal year '12, making for very challenging comparisons. Looking at the numbers from a geographic perspective, specifically the American region grew 2%, Latin America within America region grew 3%, led by Brazil up 24% and Mexico up 11%. Canada was down approximately 12% with a very tough compare with last year's Q1 FY '12, where growth was 34% at the end of Q1 of last year. As we discussed past quarter, we believe the U.S. must lead the global economic recovery. Looking at the U.S., we saw continued positive trends with U.S. service providers up 13% year-over-year, U.S. enterprise up 9% and U.S. commercial that is not including public sector, up 5%. The federal government was as top as we expected and was down 15% year-over-year. The Asia-Pacific, Japan and China region grew 7%, India had a very solid quarter with growth of over 50%, Japan grew in the mid-single digits, and China was flat. China is very important to Cisco and we want Cisco to be very important to China's transformation. We have invested a lot of resources in innovation in China for the last 20 years and our commitment to China has not changed in any way. Our Europe, Middle East, Africa and Russian region declined by approximately 10% year-over-year. Europe continues to be as challenging as we expected. We have very strong sales team there and will get our fair share of the business, nice way of saying, Rob, I think Chris will get everything that we have to get from our perspective. Now, moving on to a customer market view, where I will provide some additional details to quantify the impact of Europe, so you will have a better understanding of the details of our global performance. In Europe, we saw enterprise decrease in the mid teens. Service provider declined in the higher teen. Our service provider business grew in low-double digits in both the Americas and Asia-Pacific, Japan and China. However, when you add these three together, service provider orders in total only grew 3%. Enterprise, excluding Europe, grew in the mid-single digits, led by the U.S. as stated earlier with growth of 9%. Commercial grew 1%, public sector declined 6%, although it grew in Asia-Pacific, Japan and China in that single digits. While we feel very good about our performance and our opportunity, we all understand the uncertainty in the current microeconomic environment. Specifically, we are modeling Europe to get worst before it gets better. We see signs of improvement in the U.S. in both, the enterprise, service provider and commercial. Unfortunately, it's still too early to call this a trend that we are continuing to see what we like. And we feel good about our momentum in Asia-Pacific, Japan and China, and anticipate this region to continue to be our fastest growing region in the world. Now, Frank, let me turn it back over to you for your guidance for Q2.

Thanks again, John. Let me now provide a few comments on our outlook, our guidance for the second quarter. First, let me remind you again that comments include forward-looking statements and you should review our recent SEC filings that identify the important risk factors and also understand that actual results could materially differ from those contained in the forward-looking statements. The guidance is based on the current pipeline and our view of business trends based upon the information we have available today and actual results could be above or below our guidance. Looking forward we are basing our guidance on neither a significant improvement nor a deterioration in the global macroeconomic conditions in the near future. The guidance we are providing is on a non-GAAP basis with reconciliation to GAAP. For Q2 FY '13, we expect revenue growth to be in the range of 3.5% to 5.5% on a year-over-year basis. For the second quarter, we anticipate non-GAAP gross margin to be approximately in the range of 61% to 62%. Our non-GAAP operating margin in Q2 is expected to be in the range of 26.5% to 27.5%, and our non-GAAP tax provision rate is expected to be approximately 22% in the second quarter. Our Q2 FY '13 non-GAAP earnings per share is expected to range between $0.47 and $0.48 per share, and we anticipate our GAAP earnings in Q2 will be $0.08 to $0.11 per share lower than our non-GAAP EPS. This range includes our typically differences as well as an impact of $0.01 as a result of anticipated restructuring charges. Other than those quantified items above, there are no other significant differences between our GAAP and our non-GAAP guidance. This guidance assumes no additional acquisitions, asset impairments, restructurings and tax or any other events, which may or may not be significant. As a reminder, Cisco will not comment on its financial guidance during the quarter, unless it is done through an exclusive public disclosure. Related to our July 2011 announcements on restructuring, we have incurred a total pre-tax charge of approximately $1.1 billion, which is consistent with our expectations. Any remaining charges that we expect will be incurred during the reminder of FY '13 related to these action are not expected to be significant. John, back to you.

Thank you, Frank. As I reflect on Q1 FY '13, I am very pleased with our execution as a company. We delivered on our commitment to you, our shareholders, to our partners and to our customers. Each of us as Cisco employees takes pride in our revenue growth of 6%, non-GAAP gross margins of 62.7%, non-GAAP expense growth of only 1%, $2.5 billion in cash from operations and 12% growth in non-GAAP earnings per share. Our innovation, operational discipline and ongoing evolution is separating Cisco from many of our peers. Never in our past, have we had so many growth opportunities in front of us. While the economy and emerging competitors always present challenges, and new technology transitions will always require Cisco to lead an adjust. We have an unparallel track record of managing and evolving our businesses to emerge stronger. As I look ahead I see the opportunities in the commercial marketplace, cloud, mobility and video, driving our business today. I also see our plans to aggressively expand our software and services business, our emerging markets opportunity and our security architecture as an additional driver of our business going forward. Perhaps, driving and contributing to all of these opportunities is the biggest market transition for us yet. The Internet of everything as a platform, bringing together people, process, data and things to connect the 99% of the world that is not connected today. We have an unprecedented ability to harness and turn the information that will flow across networks and to new capabilities, which are experiences and unprecedented economic opportunities for the businesses, individuals and countries. The opportunity for Cisco and the intelligent network is clearing compelling. We expect to capitalize on these opportunities the same way have done for almost three decades, bringing innovation to our customers' most important challenges and opportunities, leveraging our scale and reach every market, every segment and capitalizing on our strong balance sheet to make the right moves for our business and for our customers. In almost every case, the solution that enable customer success will be implemented and build upon architectures that leverage technology to solve business challenges, as IT underlies every business process as well as every business model and every budget becomes an IT budget. We believe Cisco's unique ability to be a business partner to our customers will enable us to become the worlds number IT company. Mel, let's now open it up for questions.

Thank you, John. We will now open the floor to Q&A. We still request that sell-side analysts please ask only one question. Operator, please open the floor to questions.

Our first question comes from Simona Jankowski with Goldman Sachs. Simona Jankowski - Goldman Sachs: Just wanted to ask you a question on the environment, it was interesting to hear your commentary, and unless I missed it, without once mentioning any kind of impact from either the fiscal cliff or the financial services vertical, and in fact a comment that the U.S. enterprise is improving. So I would love to get your feedback on that in the context of the fiscal cliff? And then related to that if you look out into next year, I also didn't hear your comment, much of your thoughts on the carrier CapEx environment in the wake of AT&T's announcement and the SoftBank Sprint announcement? So I would love to get your thoughts into the opportunity for next year as well?

If you look at the trend, we believed for almost a year unfortunately that for the U.S. it has to lead the total globe out of this economic slowdown. It's going to come from Europe, and while we were all hopeful about emerging countries, they're just not going to be strong enough to really drive us out of this slowdown. So we're watching very carefully, the spending in the U.S. enterprise. Now, these U.S. enterprises has don't include the large global financials, Simona, in those numbers. And the U.S. enterprise has literally if you look over this last year, in terms of the direction, a year ago it was 15% growth, then it was 5%, then 0%, then 5%, and then this quarter 9%. And the number of large deals, the Brian Marlier who runs this operation is seeing are up both in terms of the number and the size of those deals pretty solid. Service provider growth in the U.S. was another indication and it grew 13% this last quarter. Well, areas such as AT&T have announced some pretty aggressive capital spending year-over-year. I think that was 15% type of numbers and we are obviously a beneficiary of that. And the Sprint SoftBank where we've very good customers with both companies and very strong relationships all the way up to Masa Son, it was on my board many years ago, as well as Dan Hesse who's a good friend as well. We've done a good job with both those accounts and would expect to get our first share in those areas. The commercial marketplace hasn't turned up quite as much. The pipeline Rob was a little bit better in the commercial marketplace in Allison's territory in the U.S. We'd like to watch that a little bit longer. And we would like to see the trends remain strong for another quarter before we'd say it's given. But we like what we're seeing trend-wise in this category. Service provider spending, if their revenues are looking up, they're going to spend more. And I think you're going to see a mix spending environment on the global basis. Our service provider spending, year-over-year, in terms of our ability to benefit from it has been in the mid single digits. So I think, Rob, depending on the geography to low teens consistently taking Europe out of the number. And as that said unfortunately, Europe was down in service provider 19% year-over-year, that clearly has a big huge impact on our revenue for router numbers, as well as our switching numbers when we look into it. So I think service provider spending is improving. But again the service provider customers are very different than and the different my other enterprise customers. Uncertainty in this market causes them to spin slower. I personally think the fiscal cliff, we're going to work through that probably with little bit of saber-rattling on both sides. We're looking more towards the tax policy and if government able to instill the confidence in business that allows and ready to invest. If I would look at one model, we have to look at very carefully around the world it's Canada, the easiest place to do business, it doesn't matter which party is in power, even their provinces or either states. When the national government, Prime Minister Harper gets it the leaders in auto will get it, they drive down through and make it very easy do business there. And you're going to see us grow our business there as well as invest overall. So I think it's one of the businesses confidences. I do think that is the wild card that can make a difference whether we're going to grow GDP at a 2%, give or take a little bit or get a platform where it belongs to 3% plus. The company's do have the cash to spend if they have the confidence to invest.

Your next question comes from Jeff Kvaal with Barclays. Jeff Kvaal - Barclays: It seems as though you all have put services in a much more prominent position in your script this time around, can you help us understand what efforts you're undertaking to grow your services business. And just in general, a broader question, where would you like your recurring revenue percentage of sales to get to over a unspecified period of time.

Two questions that I think are very appropriate and you did read it right in terms of the issue on services, Gary and I have believe that we could as the market moves to more of an architectural play and solving business problems and focusing on solutions. Services both from Cisco and from our partners together could have a major up tick for us and differentiation versus our peers. So when you sit down with the CEO of research provider or an enterprise account or large commercial or government environment. We often sit down with services led sales and implementation and whether you change that, we made Edzard Overbeek in charge of services reporting to Gary was not settled. We took one of our best global sales people who is a great general manager and companion with a world-class services operation to say how does engineering, sales and services work seamlessly together. So we would anticipate growth in services looking out over the three to five year window to both grow absolutely, but also to grow as a percentage of our total revenues. Stay tuned. More to come in fact, coming out in terms of a financial would comment in fact coming up in terms of a Financial Analyst Conference in December. In terms of recurring revenue, getting there is a difficult part. You're going to be very easy to take your current revenue and just recurred over the next three years. And the people who replace the four of us would very much appreciate that. But the key is as we move into this you're going to watch us, and it is easy on our shareholders but also easy on our business model to move to more and more recurring revenues. So as we do implementations in new areas, as we acquire new company such as NDS, we will very much focus both on the recurring revenue stream because they are new to Cisco, and makes it easier to introduce without a dramatic drop in terms of year-over-year revenue and we're also going to focus more and more on the software time tent. So you are going to see as our focus on all three of those areas. You read it pretty accurate in terms of recurring revenue and also our focus on the roll of services in increasing, both, in normal growth areas, but also in terms of the percentage of our total sales. And obviously, we're pleased with the gross margins in that area as well.

Your next question comes from Ittai Kidron with Oppenheimer. Ittai Kidron - Oppenheimer: John, clearly there is some part of the business that are struggling right now, like collaboration that you mentioned. Is there a way you can go area by area and tell us the areas where you truly believe that you are gaining share versus areas of challenges, where you still think it's going to take some time before you balance out the business? And one clarification from Frank. Frank, can you give us how much NDS revenue was in the quarter and how you thinking about it next and kind of just trying to understand the service provider business expenses-NDS?

We'll talk about areas are growth for collaboration and areas of challenge. Collaboration was down 8% year-over-year, although the very strong Q1 of last year, not only a record but the gross numbers were under double-digits. In terms of what went well, unified. Communications continues to be our leader there. It is whether use Gartner's four quadrant area. It's the number play in Gartner's quadrant. And what we're doing with Jabber, I think is very, very solid. Unfortunately, collaboration seems to be one of those areas and several of peers have seen that this well that during tough economic times, the people just take foot off the gas and watch. And so you are seeing some of that. You're also seeing requirement for us to tie together our WebEx portfolio including Jabber, including Unified Communications with TelePresence into a single call manager which clearly we're going to do, and it's got to be easier to use. I keep using the word CEO idiot proof in terms of the direction. In terms of areas, that also saw the pressure on it, I clearly we were impacted a large percentage of our business, the federal government is just bigger, it's a biggest multiple factors, and the spending was down in federal government pretty dramatically, not just overall spinning down 15%, but obviously this area is getting just really clobbered. And Europe, Middle-East, Africa, but especially Europe and the developing countries was an area that we also got hit in. I don't want to in anyway, however, say that we don't have to improve here. If you look at our five foundational building blocks overlaid by security, mobility, this is the area that I think you'll going to see us spoke us on the most, Rob, both on the field perspective and Gary from the services perspective and from an engineering with Martin's team and Rowan who is a new addition to the team going forward. We needed to also get all these underneath a single-engineering leadership and tightly tie to what we're doing in the field. It's a long winded way of saying, we're all over this, but we anticipate at being a tough battle, especially if we don't see economies pick up from present levels.

As far as NDS, so last quarter when we gave guidance from Q1, I said that we had approximately $200 million assumed in that guidance for NDS, and as I said earlier on the call today that we executed according to our expectation. So we not only from a revenue perspective, but we also executed on the margin as well as on the cost side with the inclusion of NDS plus the certain cost that we added for some of the integration which we have already started, so things overall from an NDS perspective after three months ago is quite well.

Your next question comes from Tal Liani with Bank of America Merrill Lynch. Tal Liani - Bank of America Merrill Lynch: I have a question on gross margin. Gross margin was above expectations, and I am wondering what is the combination of drivers this quarter, is it that existing products improved in their margins or is it just a mix that certain things grew faster than other things? And then you're guiding back to the same 61.5% gross margin for next quarter. So why do you expect things to reverse back to where they were in the next quarter?

Gary, I'm going to ask you to comment on the second, on our overall focus on gross margins. If you look at it from a company perspective, we have put a lot of time into this last year. And you have seen our dramatic improvement switching as an example. But also, our improvement in areas such as collaboration, where Martin's team has been all over and that was before we added NDS, which obviously helps our gross margin as well. And you're seeing us focus on seen focus on your programs, and the field structure roll out with encouraging benefits and rewards for lower discounting, in terms for the balance as well. If you watch what the engineering teams have done, they've focused not only on not having redundancies, sharing common ASICs, et cetera, but it's been an ongoing process. And Gary, let me have you take at the second step in terms of our focus here. Then Frank, I'm going to let you summarize with the answer to these questions, in terms of it being primarily a mix issue?

The work that we've been doing and I think I said there is a year ago, we're going to double down on the things that will drive margin gross margin across the company and it's not just engineering, it's not just supply chain, and it's not just our selling ability, it's bringing all those things together in a constructive way, so that we're driving component purchases. We're driving value design with shared component, shared ASICs across the broader set of platforms. And then taking that to market with a sales force and a channel organization that understands the pricing, understands the market much better, has better visibility and to drive our discounting in a way that we're not leaving money on the table. So it's all three of those things. And the whole company continues to be focused on gross margins. And we believe we've done an excellent job. We told you that we've thought we would be able to do this and we've executed to it. And we have not given up, we're actually doubling down again.

On Q2, the major drivers as Gary just mentioned, if you look at it, is the cost improvement. It's been the biggest driver to growth margin improvement quarter-on-quarter, and it's across all the products for the initiative that Gary just talked about with the strong focus on value engineering commodity, elements and things like that. Second I would say that a pricing of discount was within the typical range of the quarter, so there was no material change from a quarter-on-quarter standpoint. And then the other point is the mix in Q1, were had less of a negative impact than we saw in Q4. And primarily, we had strength from the mix perspective with the NGN routing and then we also had a less of an impact on the data center business within the quarter. Now, moving forward into Q2 and the guidance that we gave of 61 to 62, the major delta from quarter-on-quarter is really the mix dynamics. And what we're assuming on a couple of the major segments that we'll have, that kind of an impact, the SP video, the data center as well as NGN routing from a mix standpoint. And then also what I would say is just looking at it from a transaction standpoint, we've actually done a lot of work in the pipeline looking at the transaction. If you look at some of the transactions and taking the mix of those transactions, is also a factor in looking at that range of 61 to 62. And if you go back and look at this past year, FY12, you'll see that the margins do kind of vary a little bit from quarter-to-quarter, primarily because the mix and also because some of the transactions. And so it's not something that's out of the ordinary.

Your next question comes from the Ehud Gelblum with Morgan Stanley. Ehud Gelblum - Morgan Stanley: Frank, you mentioned that some of the U.S. cash balance today is a result of bringing over or distributing some overseas cash that seems to have previously paid taxes on. I wonder how much more you have of that, so that you could bring over that we could be looking at the overseas cash, more kind of without penalty.

From time to time, we do make distributions of our cash to the U.S. from foreign subsidiary. I had previously been tax by the United States, and this quarter we had a higher amount. I mentioned this last quarter as well. We'll continue to have some period-to-period. And that's of the things that we've take into last quarter when we announced the capital allocation strategy going forward. So we're factoring that in, kind of looking at that as also one of the factors on the U.S. cash and then being able to support the dividend as well as the stock buy back to be able to distribute the cash at least at about 50% as we cash flow on an annual basis. Ehud Gelblum - Morgan Stanley: I understand that, I was hoping you could quantify how much more there, but if you don't, that okay?

We can't really quantify, we have some estimates that we look at, but all depends on some of the dynamics that occur within a quarter. And it's not a steady amount from quarter-to-quarter. Ehud Gelblum - Morgan Stanley: So on routing, you made some interesting comments. The service provider Edge routing business seemed to be growing double-digit. Most people thinking of routing in general these days as a low single-digit almost, an expenses-growth kind of a business. You didn't mention core routing? And I'm wondering, is what you're seeing in core routing kind offsetting Edge routing, so we really are looking at routing, going forward as kind of a low single-digit overall business? And service provider Edge routing just sort of riding some sort of share gains, some kinds of cycle that's going on right now? Although it seems to be hurt on the other side out of Europe, but it appears our guest routing is doing weak in Europe as well. So as we look forward, can we be looking forward to routing being kind of a high single-digit, maybe 10%-ish kind of market going forward, or how do we look at the different pieces of routing, is that something that you can speak to?

We're going to stay away from long term guidance in the conference call. I never mind, Ehud, what you're asking, it's something we're going to focus on the Financial Analyst Conference in December and our growth expectations by product category. But in terms of your specific question, let me answer maybe in terms of the quarter. Our Edge routing tends to be very order centric. And so for example, as I said, in the call the revenue on the 9000 edged fixed router was up 80% year-over-year. The revenue on the 5000 was actually very low, but the orders were far away the best orders we've seen dramatically how to book to build with 80% growth players. So we didn't get much revenue growth, but got actually slightly down on the 5000 this quarter. You're seeing a huge pipeline going in next quarter. And the 9000 we did get very solid growth both on orders and balance. Now, my experience has been you tend to grow in the core and then as you get that build out, then you grow in the Edge. Then you build out Edge and as that begin to get loads. Then you go back in the core. They tend to go back and forth on that. And there are a lot of different views on routing growth on it. We always get too pessimistic on it during the tough time and too optimistic on the good times. We will address that a little bit. But I think it's fair to say, mid single-digits is conceptually where that consensus comes out, and there will be periods where it's low like this quarter and periods where it's high hopefully in the future as well. And we'll try to cover that in more detail in the Financial Conference coming up December.

Your next question comes from Mark Sue with RBC Capital Markets. Mark Sue - RBC Capital Markets: Can we turn to the investor focus that's really related to possible structural changes due to switching and routing markets? John, we understand your view of intelligent networks, yet, what are the customers saying about the future of switching and routing, and just kind of the division of labor between software and hardware. And also there is a recurring team to improve gross margin, longer term the margins actually move higher, but should we be concerned about revenue growth actually moving lower. Trying to get a sense of how all the dynamic change your financial model over the interim and longer term, or is that rather just operational focus that just drives gross margins higher and higher?

Let me start off with the 30,000 foot view and try to land the plane very quickly. If you watch the growth of the internet, we see it actually at the next stage of growth in an explosion there. The internet, that everything isn't just a nice concept connecting, 99% of the devices aren't connected. It has huge implications for a big data, huge implications of where you put processing and storage throughout the network, huge implications on security, programmer ability, flexibility et cetera. So you are going to see the growth occur in multiple areas. And we do see a number of both existing growth opportunities going well such as wireless, such as Edge, as you articulated. And growth in the future in terms of the services, the software that we refer to, recurring revenue stream with our acquisitions and acquisitions will continue to add one to two points in terms of our objective of even growth per year, as we move forward. In terms of the customers, thereafter how do you solve their problems? And those problems very dramatically, if you're an academic location versus massively scaleable datacenter versus somebody who is interested in could versus search data versus enterprise. And we're going to approach as you would expect us to do with the multiple software and hardware level to your indirect Edge. You are going to us do more in software, both in terms of areas. We're going to focus on the solutions, but also our software in the stack, you'll see us do more strategic within this, switching and routing at the core. And we did not believe that it's just going be a software world anymore, than it's going to be just a hardware world. And we do believe that ASICs, are going to play a much more predominant role than many people anticipating in this. And putting software in ASICs, is we all know, if you really want fast performance, is one of the key ways as you can differentiate yourself when you already have the resiliency. So I like our cards, I like how we're positioned. We don't miss market transition. You can get give us lot of grief about many things, over the last 20 years. But we will get it right ahead of people, either cloud and where we're today in the data center, or IP telephony or the role that our business models are going change in search matter, where we very quickly adjust within it. And it's one that I know there're a lot of opinions on, you're going to see it's all over this next couple of years. And we think we're positioned very well for the future. Rob, your thoughts a little bit about where we're going to head in this area.

Well, John, I think our message is getting out there that the whole constructive suffer, separation of the control plane and the data plane. It means different things to different peoples. So you touched on it. Large scale controllers and agents mean something quite different to a large scale cloud provider or a very large enterprise customer. We've had a chance to review our roadmap in this area and our customers love it. They just want us to get there faster, because we have what they're looking for. On the idea of overlay networks, where we actually going to combine the construct of a virtual overlay with our significant footprint in physical networks, it's very clear that this migration that will go on over a decade in traditional data centers, is going to require both. And I think we will lead in the transition from physical to virtual with what we're doing with our Nexus 1000D. And this family of network virtual services that relating with. And then finally, the one we haven't talked that much about, but could be the biggest impact for our customers is creating programmability to the operating systems they relied on. XR, IOS XR in service provider, IOS which is predominant across the enterprise. And when we start to touch the applications that our customers run, we start to touch the experience they can deliver to their clients. So the whole idea of software tied ASICs and our very comprehensive platform is being understood by customers. And I think it's going to open a lot of opportunity for Cisco in the future.

Your next question comes from Brian Modoff with Deutsche Bank. Brian Modoff - Deutsche Bank: So the question, you talked a lot about the strength in your order book for the UC or the Evolved Packet Core, the 5K product lines, can you talk a little bit about what's driving that? Is that LTE, can you give us a little geographic color? And given your role in the Evolved Packet Core, do you see and it's kind of got role as a central nervous system of an LTE in architecture. Do you see getting into more of the access side of the LTE as a company? And if so, how would you go about doing that, talking base stations?

So let me say that all of those factors, I'll deal with the first two, you've seen a explosion for us in the data center, both taking share and for the first time this is the key point, the CIOs are looking as IT player that is suddenly starting to pull through communication. And while that sounds basic, it is a huge step for us in terms of the direction. There are many things feeding Packet Core LTE and the explosion of that 3G, 4G. And in terms of base stations traditional, no, but in terms of the future we're going where the market is where can be the margins and architecture plays. And that's around SP Wi-Fi which we grew at about 100% year-over-year and isn't the growth rate, because it's still roughly a small number, approaching a $100 million, it's a number of SP Wi-Fi wins we had. There are going to move into small sales and then we're going to combine with SP Wi-Fi, with 3G, with 4G with our architectural plays with application and program ability and flexibility, Rob referred to earlier. And then it gets pretty exciting. So in traditional base stations, no. Base stations for the future, small sale in the home, top-of-pole capabilities, and the answer would be yes.

Your next question comes from Paul Silverstein with Credit Suisse. Paul Silverstein - Credit Suisse: I think gross margin OpEx as it translates into operating margin are key to your ability to maintain grow your healthy $10 billion plus annual cash flow. I've got two questions, question one, your OpEx was 34.8% of as a percentage of revenue. I think 34.0% was your post bubble best, couple of quarters ago. I know you're running the company more towards the value bias now. Can you improve upon that 34%, in terms of how much room do you have to get OpEx lower as a percentage of revenue? And related to that your gross margin his now run 62% to 63% in last right quarters, with your product margin running 61% plus and several last three quarters. I know you're not giving long term, but it's been an impressive performance over the last three years, after the big come down from two years ago. How much stability can we expect going forward?

I'm going to take the last question and give the OpEx question which is much harder, Frank, to you. So if you'll take the first part, I'll take the second part.

So just a call to put in perspective on the OpEx standpoint, clearly the work that we've done over the last year and a half, around some of the restructuring that we've done, and also the focus on operational expense is in critical to get to the point where we are right now. We do a tremendous amount of work both on the gross margin as well as on the OpEx in focusing on the portfolio. We've been able over the last two and half year to really drive a whole approach across the business and looking at return and making sure that we used that as the basis for making decisions. And that's allowed us to be much more efficient in where we make our investments and also where we expect to payoff to in the longer term. That's a factor, that's not only for the current our performance, but also as we get into the long range model that we provided last year. So I would say that the 35% as a percentage revenue is clearly a good number as we've seen in last couple of quarters. We want to make sure as we go into the future, that we through that portfolio approach to making the right investments, to drive innovation, to be able to stay within the range of what we talked about a year ago and driving revenue growth in 5% to 7% over the longer period time, and then continue to support the 7% to 9% of profits. At a range of what we provided last year, and we'll update that as we get continued new information.

So in the second part of the question, if you look versus 18 or 24 months ago when the gross margins deteriorated, we made the mistake of bringing out five new product lines in switching, at dramatically lower gross margins, especially at the high end of the switching product of 7K, all one time. And before we've not been as good on innovation of bringing the matters quick, but we weren't as effective in designing them to be able to improve the gross margins quickly. So first takeaway, if you want to see us announce powerful new products at the same time, second key takeaway is that you'll see us design for higher gross margins, and think more through the second and third moves within the gross margins as you do continues price performance improvements and design for those. You will see us also drive through, like Gary said earlier comment ASICs common sharing, we didn't use many platforms. You'll see us do a better job on that. And instead of taking, I don't know how longer the Nexus 7K was announced, but we're just now getting up finally up to normal gross margins. So in the complement to the 7K team, we didn't design it with proper gross margins in mind, but you all have really done an amazing job of getting the gross margins back up to where we would expect. But to your point, Paul, I do not see something fundamental change. I'm a very much aware the software issues, some of you are looking at another issues. I don't see a fundamental change on the horizon, but if we execute right, we won't play out where there is gross margins feel pretty good in our core products. But I think is our mix. And our mix issue, when you're growing an area like UCS that is really becoming very material, and we're in UCS not for growth reasons, its control of the data center. Its ability to be the primary data center provider when you host and interface into all of the hypervisors. When you look at processor power combined with the network, combined with storage, the ability do that with an open architecture, were almost every peer trust this. Even if we might complete, is a unique opportunity for us. So I think it's going to be subject to mix. And we're clearly matching this, but secondly we are focusing very aggressively, even though it takes a couple of years to do it, much more software, much more recurring revenue in terms of the approach. So I feel good about that. We're much tougher on designing products consistently at a given gross margins, when they come out and you wont see us announce a whole bunch at the same time. But we're not seeing any abnormal pricing pressure. Rob, your thoughts?

John, I don't think there's anything in the short-term that should change that.

Your next question comes from Simon Leopald, Raymond James. Simon Leopald - Raymond James: I wanted to see if you could comment on China, both from broad perspective as well as from Huawei perspective, particularly in light of the congressional study that I guess probably bought more attention to the issue in the public domain. And wonder how you think about the potential for either a trade wall with China or competitive threats as Huawei currently stands whether that's changing for you?

So first of all, I think it's very important that the issues involved here are not between countries. We take on a competitor like Huawei very aggressively. And if you were to look back, flash back, to what I think Paul alluded to earlier, in 15 or 18 months ago, a lot of people had concerns about Juniper and HP and while we're eating our lunch and how we were losing share and how they had a better architecture and better products, fast forward 18 months later, we've beaten them all. And that doesn't mean we would do it in the future, but we know how to compete, we know how to compete very toughly. In terms of the congressional study, it's really important to note contrary to what was said in original post, we did not have anything to do with that nor would we have done that. And that does put pressure on us in China. The nice thing about the Chinese leadership is they are developed very carefully both business and government through a study that makes the GE School at Crotonville look slow in terms of how they develop their leaders. And I think you'll see them do the right thing on a progressive basis both for their country and for the enterprise at the U.S. The two countries have to work very closely to get other. We're going to compete aggressively where appropriate versus our competitors overall. So I think there will be a little bit give and take, especially in our communications industry. But I think you'll see the two sides work it out, because it's in the best interest of the world to do in both economies. And candidly in the best interest of the U.S. as well on it. So I see the probability for those issues to be in a trade works that were being very low.

Your next question comes from Rod Hall with JPMC. Rod Hall - JPMC: I just had a clarification on the impact of China, particularly in the margins, because you guys had guided I guess on the fact last year that margins were going to be impacted negatively. Do you think that if revenues do slow from China, which looks they may, but margins actually, you see a little bit tailwind from that? And then I guess I'd circle back around, Frank, to your commentary on the margin guidance. It still feels like its awfully weak, which you're guiding considering what you're delivering. It feels like the margin guidance really are to be at least 50 basis points maybe a little bit higher, because even if you ex-out India's impact, we still get just under 62.5% on the gross margin this quarter, which is pretty strong, so if you could just comment on that, it will be great?

A couple of thoughts. First, on China, we are committed to China. We are invested full force. We will partner in China. And we'll work through ups and downs in the China market. We do think with the challenges going on that we will be under pressure in China for the next couple of quarters and we've modeled that into our business analysis. But as I alluded to you earlier, the Chinese are very effective in government and business. They would do what's right for the long-term and currently we've earned their trust and ability to partner in the country. So I don't model that for a sustained issue. I see a couple of quarter issue in terms of how we move in that marketplace. In terms of the question on gross margins, the effective emerging markets, we've got to do two things, what Gary and Rob are both focused on, is how do we design products for emerging markets, where the average selling price being something that market going to afford be at the business or the end-use of consumer in terms of buying the services from the business. So you continue to see us focus in those areas. But I think in terms of mix of emerging countries on large deals, they will continue to be and I hope they are, because that means there are a number of large deals, Frank, that will impact that. And that's incremental profit for us, even though it's at lower margins, but it profit you either get or you don't. In terms for the guidance, just before I give Frank, the comment on that, Frank, who would have thought 12 months ago we would be descending our guidance being two week at 61% to 62% and increasing, we ought to be more optimistic. So first a compliment to the three of you, and then how do you answer the question.

So, Rod, the comment you mentioned about the China and emerging country transactions, clearly we've had mentioned that a couple of quarters ago, as John just said. We've had kind of some in a particular quarter and another. So that's one of the variability that we look at, when I was referring to earlier about some of the transactions that we have visibility to that we take into consideration and we give guidance. The key thing for us, as I said before, is to factor in that, plus look at the mix dynamics across the business as the data center growth has an impact in one quarter and the other as well as SP video, which I factored in. Hopefully, we're in the situation where the guidance is conservative and we can do better than that, but we want to make sure that we have a realistic view right now based on the information that we have. And that was taken into consideration, the guidance that we gave of 61% to 62%.

Your next question comes from Subu Subrahmanyan with The Juda Group. Subu Subrahmanyan - The Juda Group: My question is on the unified data centre, John, you talked about it a few times. From a partnerships perspective, how do you see that progressing, there seems to be some pressure on your partnership with EMC with VMware's acquisition of Nicira, how do you see your other partnerships playing out with some getting stronger and some getting weaker?

First comment, I commented on EMC in this area with VMwares. I think Joe Tucci said about earlier this week and he basically said in one of their conferences that Cisco is their most strategic partner and will continue to be. But it he was also very candid in this area and did clearly put pressure on us and them in terms of the relationship. Gary, you and Rob have been heading this for us for three or four years, they're going to continue to be our strongest partner. We're going to be very good there together. So you're going to see us work together on BCE and other focus areas and continue to get very healthy growth there. In terms of opening up, however, the relationships, you are seeing us move with Citrix, and you saw the first of a series announcement there. You are going to see us get closer to players like NetApp's and Red Hat, probably Microsoft, IBM if they'll have us. And you will see us do much what VMware has done in terms of an open approach to the market, supporting all four hypervisors, multiple players on the stock, et cetera. And more what we do best, which is we will partner tightly with a few players, but we also are going to be able to empower the major transitions, overall they're going to the market. And after we work through this, actually, we think we're in much stronger position now than we were at the time of their announcement. And I think we're well positioned for the future. Rob, it's something that you've been heavily involved in and your thoughts?

I think, John, if we support any hypervisor, any orchestration and management layer, any storage partnership, and we do so with really tightly integrated solutions, we're solving the problem that customers are challenged with. We're going to combine the N1K, the Nexus 1000D with a series of virtualized services, virtualized WAAS, virtualized routing, virtualized security and not those to the physical networks that our customers have relied on across any hypervisor, that's actually what our customers want us do. So I think our strategy here is what they're looking for. I think a unified data center is what they're asking for. And then combining the physical with the virtual in a way that only Cisco can, is actually our strategy.

Your next question comes from Brent Bracelin with Pacific Crest.

I wanted to kind of go back to the quarter, and the real surprise here is the stability we're seeing in America's growth rate. I think 7% growth this quarter, 7% growth last quarter, like 7% growth last year, that's quite different than what we heard from some of the enterprise peers that report their results in September. So could you maybe walk us through how much of the stability you're seeing in Americas has driven by Cisco share gains versus the seasonal improvement that perhaps you had an extra month here in October that you benefited from just tied to traditional enterprise yearend spending? Pacific Crest: I wanted to kind of go back to the quarter, and the real surprise here is the stability we're seeing in America's growth rate. I think 7% growth this quarter, 7% growth last quarter, like 7% growth last year, that's quite different than what we heard from some of the enterprise peers that report their results in September. So could you maybe walk us through how much of the stability you're seeing in Americas has driven by Cisco share gains versus the seasonal improvement that perhaps you had an extra month here in October that you benefited from just tied to traditional enterprise yearend spending?

First, just so I get all the numbers right for the people listening. The Americas in totaled grew 2%. We had some areas that did very well, some areas that did not grow as much. Within the U.S. it grew a total of 2% for the quarter in terms of the bookings. It was hit pretty hard by federal, which was down 15% year-over-year. But the enterprise segment of the U.S., and this is even Brian's team, did move from 15% growth in five quarters ago to 5% to zero, to 5% to plus 9%. And what you're seeing as I alluded to earlier, a consistency of more large deals and more deals in the pipeline. That piece feels good. We are not seeing that growth and what we called our global accounts are top 24. They're largely financials. The financials are still spending very slow. So some of you are getting your indication of growth rates from the financials, you probably were surprised by how we grew this quarter, because that segment of market is continuing to stay a little bit tough. In terms of, what I'd like to see, I'd like to see the enterprise continue and do it more consistently throughout the quarter. And then I'd like to see the commercial come up three or four points in terms of growth rates. If you see that stability of service provider, then candidly the numbers are almost always indicative of economic growth. You see it first in CapEx then you see it in job hiring. Now, to your indirect question, we did see both in Q1 a push at the end of the quarter, which you always see with real strong sales force and we did see it again in Q4 of last year. So for the last two quarters, we closed hard. And, Rob, it's a world-class sales organization that really goes for every thing until we start our flow again the next month in the new quarter within that. So it was a little bit more backend loaded for this quarter and the quarter before, but both of those numbers were good numbers than the last month or a month-and-a-half of the quarter. So I'd like to see it continue, but the balance was there, part of that market share, but the trend is what you got to watch. And we were probably gaining share earlier even when the trend was lower as well. So we very much appreciate your alls kind words about growing it mid-single digits, when our peers are often shrinking to mid-single digits. But we think part of that share, but I think we're in the right market, the right time, and mainly our customers are changing how they buy. They're buying architectures and they're buying ability to help solve their solutions as opposed to pinpoint products. If the decisions on architectures and solving solutions, our win rate is extremely high. If it's a pinpoint product and they quote the best price, then our win rate isn't as high. I know that's an indirect question, just answered, and I tried to answer it with an update if it helps you, but I think it's a wait and see one more quarter, before I feel as good as I'd like to on it.

Your next question comes from George Notter with Jefferies. George Notter - Jefferies: I'd like to come back to the question on China and just spinning around a little bit. Are you guys seeing any positive impact globally from this renewed focus on security issues around Huawei, ZTE and Chinese suppliers? Obviously, countries like Australia, Canada, certainly the U.S., India have all kind of raised the issue, is there any market share capture you guys can get at the expense of the Chinese vendors and those kinds of places and elsewhere around the world?

We think we're doing very well on a global basis against all of our major competitors, almost without exception in the traditional networking and many of our related areas, and our competition still continues to be different competitors in each category. In terms of our opportunity, I think what you're seeing is with competitors like Huawei, we are getting very good at reminding people what they buy the company price point wise, isn't what they pay a year to two or three years later. And if you want innovation and an open architecture there are some real challenges to go with that. And ability really to bring the world-class integration and the services and to help our customers achieve their goals, we're beginning to breakaway which is nicely the same, we're competing much more effectively against the company like Huawei than we were 12 to 18 months ago. ZTE is not a major competitor, in fact I look at them as much as a partner and would be very open to expanding that relationship as appropriate towards. But I think what you're seeing is we're just executing well and more they are looking for a complete architectural play with security that we don't give your code to anybody, not even our own government or anything else, is an advantage for us and is consistency, which I think is very key overall. But I think we're ought to executing Huawei on many fronts at the same time and we are seeing that benefit.

Michael Genovese with MKM Partners, your line is open. Michael Genovese - MKM Partners: John, through the fourth quarter in a row were the year-over-year order growth decelerated, but given the guidance, given the stabilization, given easier comps, would you, I don't know if you would care to comment on this, but do you think that we would see some order acceleration in terms of product order acceleration in the current quarter? And then, secondly on deferred revenues, it look historically not unusual to have a drop like this in the fiscal first quarter, but a big $300 million drop in deferred revenues, can you just comment on that please?

You're correct, Michael. I mean it's not unusual to see that in the Q1 timeframe, primarily because of the strength that we on the services side in Q2 and Q4.

So a little bit longer answer to your questioned, Michael, but it is the last question, then there aren't any more in the queue, and we want you all to speed back in terms of did you like this format, in terms of being crisp on overall data and then spending most of our time on Q&As or would you like to see a little bit more data, given on the front end, and a little less time on Q&A. Mel, if you'll give us the feedback overall, I'd appreciate it. Let me just give you some numbers, because when you get the numbers and you think about them, you'll understand the answer to your question. Bookings over the last five quarters had gone 13% five quarters ago, 7% growth four quarters ago, 4%, 2% and zero. And revenue, which you all have access to five quarters ago was 5% growth, 11%, 7% growth, 4% and 6%. So clearly we're going to be on tough revenue quarters, the next two quarters in term of the comp. And just using next quarter as an example with 11% growth as your comparison, where you'll only average 6% for the year minus 11% will average 5%, and the growth rate that we're putting up there is clearly at an aggressive growth rate. What I'll now watch is actual sequential orders. And so we know what our run rate of sequential orders would be at a bookings growth rate of 5%, we know what it would be at 3%, we know what it would be at 7%. And so we're watching quarter-to-quarter booking growth rates. You are seeing its billed backlog wherever possible that candidly is the best way to run it. You ship once you got orders for in terms of the direction. And so it's a nice way of seeing that if the next quarter plays out, as we think it will, you'll begin to see the sequential growth. And we'll report on it in terms of orders sequentially is that in the range that indicates that we have not only bottomed out, but we are starting back up or not. But it's a sequential number that will give you the better indication of that or adjust your revenue numbers and have a consistency on revenue and look at the year-over-year revenue number or the year-over-year booking number with that sequence. I think that summarizes pretty well. I just want to walk away with probably we are pleased with the quarter. It was clearly a very challenging market we're in. It was a very solid quarter and we thank you all for your support from the shareholders side. We are focused on giving you the best value for your investments and that should seen in almost everything we do. We're getting good balance in our product directions. We are very open on the areas we must improve that are under our control. We are also very candid in areas like federal in Europe that are going to get tougher, before they get better. And we'd point out that we probably never had more new growth opportunities to go in and we'll talk about that more in a couple of months than we're seeing now. You will see us continue to evolve our model, focusing on both gross margins, reoccurring revenue, software, services, et cetera, but that's a gradual process that you'll see going forward. And our major pressure, while it's always possible and by mathematics many people would say more than just possible, but our experience has been that once we really get focused on item, we're able to hold it very well and that's what we see on our gross margin. Our gross margin mix issue is one of mix as opposed to otherwise. Bottomline, we're starting to become an IT player. It's an important aspirational goal for us to become the number one IT player. Time will tell we can do that or not, but we like what we're seeing in the market overall. Mel, with that let me turn it over to you.

Thanks, John. Cisco's next quarterly call which will reflect our second quarter for FY '13 will be on Wednesday, February 13, 2013 at 1:30 PM Pacific Time, 4:30 PM. Eastern Time. Again, I would like to remind you in light of Regulation FD, Cisco plans to retain its long standing policy to not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. Please call the Investor Relations department with any follow-up questions from this call. Thank you for your participation and continued support. This concludes our call.

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