Welcome to Cisco Systems’ Fourth Quarter and Fiscal Year 2012 Financial Results Conference Call. At the request of Cisco Systems, today's call is being recorded. If you have any objections, you may disconnect. Now I’d like to introduce Melissa Selcher, Senior Director, Analyst and Investor Relations. Ma'am, you may begin.

Thank you. Good afternoon, everyone, and welcome to our 90th quarterly conference call. This is Melissa Selcher, Senior Director, Analyst and Investor Relations, and I'm joined by John Chambers, our Chairman and Chief Executive Officer; Frank A. Calderoni, Executive Vice President and Chief Financial Officer; Rob Lloyd, Executive Vice President of Worldwide Operations; and Gary Moore, Executive Vice President and Chief Operating Officer. The Q4 fiscal year 2012 press release is on the U.S. High Tech Marketwire and on the Cisco website along with the corresponding webcast with slides. Additionally, downloadable Q4 and full fiscal year 2012 financial statements will be available following the call in the Investor Relations section of our website, including revenue and gross margin by geographic segments, as well as revenue by product categories. Income statements, full GAAP to non-GAAP reconciliation information, balance sheets and cash flow statements can also be found on our website in the Investor Relations section. Click on the Financial Reporting section of the website to access the webcast slides and these documents. Throughout this conference call, we’ll be referencing both GAAP and non-GAAP financial results. The financial results in the press release are unaudited. 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 forms filed with the SEC, specifically the most recent annual report on Form 10-K and quarterly report on 10-Q, 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. I'll now turn it over to John for his commentary on the quarter.

Mel, thank you very much. As we closed fiscal year ‘12, I am pleased to discuss our strong performance, continued execution of our plan to deliver profitable growth, and commitment to our shareholders. For the full fiscal year, we delivered non-GAAP earnings per share growth of 14% year-over-year, and revenue growth of 7%, a record year in terms of earnings per share and revenue. For Q4, we delivered our non-GAAP earnings per share growth of 18% and revenue growth of 4%, also a record quarter in terms of revenue. Our strategy delivering intelligent networks and technology architecture is built on integrated products, services and software platforms to fuel our customers’ business is proving the right long term strategy for our success, and you’re seeing it in our results. The success of our service provider business, where we’ve moved from an individual product provider in today’s market where many of our customers use Cisco as their best strategic partner, and being their top business and technology objectives. It is a clear example of our strategy playing out to our advantage. Our role as the official network infrastructure supporter for the London Olympics and Paralympics is another example of our ability to strategically partner. In this case with the British government, the London Organizing Committee of the games, NBC and NBT. And to do this, we drove incredible outcomes and experiences. From a technology perspective, which obviously excites, especially our engineering team, but me as well, the 1,800 Wi-Fi hotspots in the 34 venues and over 80,000 data connections that we provided had a capacity four times larger than the network infrastructure of any previous games and help connect 10 million spectators, 76,000 volunteers; 22,000 athletes and coaches enable and experience in ways before never thought possible. All of this was done…

Thanks, John, and good afternoon to everyone. For the full 2012 fiscal year, we grew profits safer than revenue as we had committed to do with our operating model of discipline decision-making, down portfolio management, strong operational execution and a focus on driving profitable growth. Through these efforts, we have improved our operating margin leverage increasing our value proposition to shareholders. In my section, all results will be on a year-over-year basis updated. Starting with the fiscal year performance, for the full year 2012 fiscal year, total revenue was $46.1 billion, an increase of 7%. non-GAAP net income was $10.0 billion, up 11%. non-GAAP earnings per share on a fully diluted basis were $1.85, which grew 14%. GAAP net income was $8 billion or $1.49 per share on a fully diluted basis, representing increases of 24% and 27% respectively. We generated strong free cash flow, meaning cash flow from operations activity, less capital expenditures during FY ‘12 of $10.4 billion, increasing 16%. Given the stabilization, we’ve seen in our business and our confidence going forward, along with the ongoing commitment to returning cash to our shareholders, I am pleased to announce that we are increasing our quarterly dividend for Q1, FY ‘13 by 75% to $0.14 per share, which represents a 3.2% yield on today’s share price. Going forward we intend to our capital allocation strategy to return a minimum of 50% of our free cash flow annually to dividend and share repurchases while providing sufficient financial flexibility to effectively invest in the business and strategic opportunities. To provide some additional detail on revenue and profitability for certain product areas for the full fiscal year. Starting with switching; switching revenue was up 3% in particular we are pleased to see stability in our switching gross margins, as an example of…

Frank, thank you very much. I'll now provide a more detailed discussion of the market and our five foundational priority areas in terms of revenues followed by then by discussion on geographic and customer segments and that discussion will be in terms of orders or what we internally refer to as bookings. The following foundational priority results are shared in terms of the year-over-year revenue growth for Q4 unless otherwise stated. First, our core business, we continue to feel very good about our performance in our core markets, routing, switching, wireless and security. We continue to perform well in routing growing revenues 4% year-over-year while many of our peers are experiencing negative growth and sometimes negative growth in double digits. As you would expect, current industry analysts show our market share gains in both SP Core and Edge routing to be up dramatically year-over-year. We saw strong performance in mobility with ASR 5K up 67% and in the edge with ASR non-K up 97%. We continue to do a good job of maintaining our access routing market share of approximately 85% with slight fluctuations up and down each quarter. Optical was down 20%. CapEx budgets will continue to be challenged in the current environment, especially European Series Routers and government in the developed world. With the strength of our portfolio, alignment of our priorities with our customer’s priority and our architectural approach we believe we can continue to grow our shares spend in our key customer accounts with service providers being perhaps the best example from a customer segment perspective. Now, moving on switching, overall switching revenues flat this quarter at $3.6 billion, with fixed switching up 3% and modular switching down 7%. Within the fixed switching, our Nexus 2 and Nexus 5K switching had another good quarter and was…

Thanks, John. I would like to remind you again that our comments include forward-looking statements and you should review our recent SEC filings that do identify important risk factors and 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 that we have available today and of course the actual results could be above or below our guidance. The guidance we are providing is on a non-GAAP basis with the reconciliation to GAAP. I will first provide guidance excluding the recently closed acquisition of NDS and then conclude with the guidance that does include NDS. So looking forward, we are placing our guidance on neither a significant improvement nor a deterioration in global macroeconomic conditions in the near future. We expect Q1 revenue growth to be in the range of 2% to 4% on a year-over-year basis. As we have said in the past, forecasting gross margin has always been challenging due to various factors such as volume, mix, cost savings as well as competitive pricing pressure. So for the first quarter of FY ’13, we anticipate non-GAAP gross margins to be in the range of 61% to 62%. Our non-GAAP operating margin in Q1 is expected to be in the range of 26.5% to 27.5%, which is up approximately 0.4 to 1.4 points over Q1 FY ’12. Our non-GAAP tax provision rate is expected to be approximately 22% in the first quarter. Our Q1 FY ’13 non-GAAP earnings per share is expected to be in the range of $0.45 to $0.47 per share, which is up approximately 5% to 9% year-over-year consistent with our goal of delivering profitable growth. As we announced earlier this month, we have…

Frank thank you and well done. As I reflect on FY ‘12, I am very pleased with our execution as a company. We delivered on our commitments to you, our shareholders, to our partners, and to our customers. We changed where we needed to, build around our core products, our channel and services strength, while prioritizing our resources to our five foundational areas. Each of us has a Cisco employee takes pride in our earnings per share growth twice as fast as revenue in FY ‘12. Our operational discipline and ongoing company evolution is paying off, and the dividend and capital allocation roadmap we outlined today reflect our confidence in our business and our commitment to driving long-term shareholder value. Our products, solutions and innovations are at the heart of major market transitions. We are not just catching, we’re very often driving and leading these transitions. However what is most important to me personally is how we have architecturally tied hardware and software products together to deliver solutions to our customers that achieve their top priorities. And therefore enhance our value to the customers and our ability to achieve premiums in the market and to continue to be among the very best in the industry. As billions more people and devices come on to the network in coming years, we will be fueling unprecedented innovation, creativity, transformation and opportunity. 15 years ago, we said everything will be connected and ways that were hard to imagine at that time. Today we see the Internet of everything as another driver for our growth and opportunities in coming years. We always face good competitors and new technology transitions, but our track record of success is among the best in the industry. While our focus will always be on our customers and the major…

Okay. Thanks John and thanks Frank. Operator, now let's listen to the questions. We still request that qualified analysts please ask only one question. Operator please open the floor.

Thank you. Our first question comes from Rod Hall with JPMC. Rod B. Hall – JPMorgan Chase & Co.: Yeah, thanks guys for taking my question. I just wanted to clarify on the capital allocation commentary. You guys had originally linked the dividend increase back to the international cash repatriation, and so I wonder John and Frank, may be one or both of you could comment on what the – if there’s any change in your thinking on the probability of getting any cash back or if you’ve just decided to move on with the dividend even though there’s really no decision made? And then I also wish you guys could clarify a little bit on the macro commentary you made John, because the guidance doesn’t seem, and it’s a little bit weak, it's not terribly weak, but you did say that one of the guys you're talking to are thinking the next 12 months is going to be pretty tough. And I just wonder if you could tell us whether you're seeing them cutting budgets already, or if they’re waiting to take any further actions until you see more evidence in the economy? Thanks.

Rod, I'm going to do something that Melissa is going to kick me for. When I answer your two questions, but then I'm going ask all of your colleagues please hold it to one. I'm going to take the easy part of capital allocation and give you the details, Frank as always. And I want to congratulate you Frank, you've been working on this for three quarters, you’ve worked with our finance committee, Board of Directors, we’re waiting for the right time to do this. So I want to just thank you very much. The easy part of the conversation is, no, this is not dependent in any way on repatriation nor are we signaling that. There are a number of leverage that we can pull in this area and putting the leverage together, we believe we’re in good shape to be able to do it with the U.S. case that we will be getting over the next several years. Frank taking the...

John, definitely. So as I mentioned on the call, given the stabilization that we’ve seen in our business, and really on the conference that we’re going forward, and as John just mentioned really just the outreach with listening to shareholders over the past year, and what’s important to all of you and trying to balance both the buyback as well as the dividend, and provide a framework on what we want to do going forward over a multiple years and our commitment to that. And that is really what we outlined today to have a minimum and I trust minimum of 50% of our free cash flow that we will allocate through the combination of the dividend as well as the buyback. When we announced the dividend, we did say we would support the dividend over a longer period of time. And this is just a further verification of that, we’ll continue to support that over time and continue as it’s appropriate to support the buyback as you saw, we had $1.8 billion of buyback in this past quarter. But again it’s the provided framework, we feel comfortable based on the analysis that we’ve done kind of looking out in the near-term as far as managing the U.S. cash, be able to make this commitment and we’ll continue of course to be very strong advocate for Tax Suite form in the future as we work through this. And taking the second part of your question, I’m going to break it into a couple of parts, first when you look at comparisons and these are both for orders and for revenues and revenues you see slide slightly behind the orders by maybe half quarter or a quarter, Q4 last year in orders was our strongest quarter that we’ve seen Rob, and…

Thanks. I think your next question comes from Jess Lubert with Wells Fargo Securities?

Thank you. Your next question comes from Jess Lubert with Wells Fargo Securities.

Hi, Jess. Jess Lubert – Wells Fargo Securities, LLC: Hi John, thanks for taking my question and congratulations on delivering a solid quarter in a tough environment. I was hoping you could expand upon what you’re hearing from your service provider customers with respect to their second half spending plans, to what degree do you still expect to see second half improvement and to what degree if there’s been a changing your expectations from carrier business, particularly from some of your North American carriers?

So, what we’re seeing in the service provider business, this one we believe we’re taking very good share of wallet spend and we got to win that everyday. And as you’d expect, our new – question was going to be what about the second half of this fiscal year in terms of cap spending? I think AT&T today said that their capital spending in second half of the year would be up over the first half of the year, that’s what we were expecting from them. If mixed across the U.S., I don’t believe there is a flesh going to occur in terms of dramatic differences, second half of the year versus the first half. Asia-Pacific, we’re modeling pretty solid, and I think, [it’s already] done there, and what we see in Japan and in China and now started in India finally Rob. We are in good shape on, and we’ve done very well in Australia and in Korea already. That looks solid, we’ll get our share spin there. Balancing that, however, is very tough comps, because service provider had very tough comps in Q4 and Q1, and two of this last year. so that kind of, I think balances a little bit of what you’re seeing momentum wise, European service providers especially the large, what we call the large five or six are going to not be spending much in the second half of the year when compared to people what they might have thought six months ago. Most of them are going to be very conservative in our opinion over the next two quarters. And we’ll get our share spin there and share of wallet and again, with that [one interest] there, I think would do well versus what’s available, we’re modeling that a little bit tougher. So overall, in service providers, we’re positioned extremely well, balanced dramatically different across the three theaters, and we think we will gain share of wallet as we go forward versus almost all of our peers, especially in the Routing segment, where we were real pleased about how much share we’ve taken. Thank you, Jess.

Okay, thanks, Jess. Next question?

And your next question comes from Brian Modoff with Deutsche Bank.

Hey, Brian. Brian Modoff – Deutsche Bank Securities: Hi, John. A question here, obviously you’ve addressed a little bit on SDN, but how do you see Cisco competing with VMware and Nicera in network virtualization? Do you see a need of beep up there? Do you see that have any effect on DCE, or maybe relationships that you have? Can you talk a little bit about that please?

Well, when you really think about SDN, I want to be very candid. We think the future is going to be hardware and software combined. we think when you have knowledge of the network, and are able to know what’s going on in the network, you can program to it. You can get dramatically better flexibility, et cetera. Its nice way of saying, we think it’s going to be A6 hardware and software combined. Secondly, if you watch why we’ve done in this area, we saw virtualization coming early. So it wasn’t like its knock up on us. We went into the virtualization with the Nexus 1000V in 2009, which is exactly who entered the data center market with the UCS and our movement there. So we saw both of these trends coming. Our view on this SDN OpenFlow in the same type of activity, as you are really looking multiple years out in terms of its impacts one way or the other. And our ability to handle transitions with our partners when it times compete and times partners has been unprecedented in the industry. So as we look forward, we’re completely saying committed with VCE and our ability to work together. We are looking at the innovation that we can do in our market, and we will have partnerships like what occurs of Microsoft and IBM and Citrix in this area as well. So good growth this last quarter, but if you look at it, we think we will encompasses and really an architectural play pretty aggressively. Rob, would you add anything to that?

Just John that we obviously expect to leverage the strength of our install base, which is pervasive across the data center, multiple ecosystem players, we’re going to support multiple hypervisors, multiple applications and operating systems. So we’ve got that working underway in every area. And we can’t forget some of the innovation we got going both inside and outside the company.

Just want to add, with VMware and EMC, it’s been a very strong partnership. We’ve both benefited greatly from it. They candidly need us and we like very much being a partner with them. So, I think you’ll see us worked this out in terms of our direction. But we are going to be an open player, and we’ve shown in the marketplace when we compete, we can be really very tough. Thanks, Brian.

Thanks, Brian. Next question?

Thank you. Your next question comes from Simona Jankowski with Goldman Sachs. Simona Jankowski – Goldman Sachs Group Inc.: Hi, thank you very much. Just wanted to ask a question about product gross margin, I think you said it was 60.4%, which is the lowest it’s been in quite sometime and I think one of the drivers you said it was pricing. So if you can just give us a few more examples of what areas you’re seeing pricing be a factor in particular? And then also on a go forward basis, can you comment on how you see product growth margins, especially now that they include NDS?

Okay, Simona. If you look at where we are going, the pricing on a global basis has not changed, I don’t think materially in the last one to two quarters. Those people who come and ask about price and unbelievably aggressive pricing at our bids. We are now learning how to compete very effectively against and our comfort level in competing not with our traditional players in the marketplace, some of whom – some people had concerns 12 to 18 months ago. But taking on Huawei and others, we are getting very good on doing. So, on a global basis we do not have normal pricing in any area. Anytime you win large deals in emerging markets such as China and India, especially, in service providers, those have tighter gross margins and clearly you saw us win some of those these quarters. So I would not say that it’s an unusual pricing environment, you just see time certain pressures based upon size, bids and also geographic issues, mix is probably something that I watch more and it was a positive mix when you have 90% growth with UCS and the Nexus. And well, the two together are clearly better than our server margins, it brings us down a little bit in terms of the direction. Frank, what would you add to that?

Yeah, John. So we gave guidance for the quarter, for Q4, 61% to 62% came in at the high-end of that 61.9% overall at our product margin. As you said from a pricing standpoint, the pricing has been so stable now going on about two years, if you look at it from a quarter-on-quarter standpoint in the range of what we had expected. Yes, we did have a mix impact as you mentioned primarily from data center strength, which was positive. We also had a manufacturing cost was higher in this quarter driven by warranty costs. If you would kind of just normalize that Warranty Plus and Warranty Plus do kind of come up and down from quarter to quarter and you look at the margins going back, fairly consistent I would say from that perspective. And Simona, it’s been – also a good thing as far as going forward, similar to what we’ve done this past year, tremendous amount of focus on gross margins. We have now incentives across the board from a leadership standpoint in the sales regions as well as in our business groups that are focused on profitability, which has been driving a lot of the emphasis on project like value engineering, which we saw great improvement on this past year and which we now going to see some further leverage as we move into FY ’13 and we’ve been investing more in FY ’13 to see that continue as we move in to FY ’14. So many initiatives continue on the margin. And then I would say, as far as the guidance that we gave today for Q1, consistent guidance, 61% to 62% overall, which I would say, if you look at it from even a product standpoint, fairly consistent from a quarter-on-quarter standpoint, when you take into consideration the items that I mentioned.

Gary, you’ve been driving for us more discipline and really focus on profitability and value added engineering and even how we measure each of leaders in terms of profitability, maybe you can just spend a little bit of time on trends here and how that’s going to help us in the margin picture over the next year?

Yeah, John. So as Frank pointed out, when we started the transformation work last October, we invested more money in value engineering, which goes beyond just value engineering, it’s value design. So bringing together the engineering teams with the procurement teams as well as the overall supply chain team has really driven value and Frank and I set targets for them. They hit the targets, which we thought we set pretty aggressive targets. And that’s just one area where we think we have leverage to continue to drive the efficiency and effectiveness to drive profitability higher and certainly higher than revenue as we go forward.

Frank, I want to particularly thank [Ian Collard] and Kelly in how well they worked on your team, maybe you’re interfacing to engineering and manufacturing and making me well here. So it’s amounted to the indirect part of your question, we don't see anything unusual occurring in pricing, or margins, and while it’s always a possibility that's been wrong. We’ve actually been getting more accurate about forecasting that and mix rather than to be worse.

Great, thanks, Simona. Next question?

Thank you. Your next question comes from Ehud Gelblum with Morgan Stanley. Ehud Gelblum – Morgan Stanley: Hey, guys, thanks. I’m just trying to speak my clarifications to make sure I understood them correctly, and then my real question. On the clarification, Frank, you gave lesser numbers, there were some $10 billion free cash flow last year assuming that’s roughly run rate, 50% payout of that as $5 billion and your new dividend rate will give you roughly about $3 billion a year in dividends. So that would leave about $2 billion for buybacks, you just did $1.8 billion in buybacks this last quarter. So the math that I just went through, almost I did it wrong, I just want to understand if I did do it wrong.

We’re going to count there is a question…

No, no. Ehud Gelblum – Morgan Stanley: Let me ask my other question. My other question – I can throw that out there, and you can answer it any other time, because it would imply that, buybacks are going down. My other question really is when you look at your product order growth, it has now gone for the last couple of years where we have easier comps and your product order growth accelerates, and then you hit the tough comps, and your product order growth starts to decelerate for the last couple of quarters, I have it going down a few quarters in a row. Are we in a world right now where product order growth accelerates for year that has easy comps and tough comps and decelerates and hit the easy comps and accelerates and that's kind of the pattern as we just kind of anniversary back and forth, or do you envision away, I know you’ve structured the company in a way that we can actually have a multi-year order growth reacceleration, because something breaks out of them hold, or something else takes hold?

Okay. So on the question, we deliberately word it as a minimum of 50% of CapEx going into that. you’re going to see us be aggressive, bit of opportunistic and predictability, we wanted to get the dividend to allow all that the shareholders clearly understood we’re committed to and if we do our job right at the right times we’re committed to raising. We also have been aggressive in share buybacks, and you continue to see us we’re appropriate to do that. So I was kind of thinking about the question, my sense of humor is getting better here or at least I think it is, Frank, would you add anything to that?

I know that’s true, and then I wanted to stress that, because it’s the framework of the multiple years, and it’s also to set a minimum, so that you can expect us to at least get to the minimum. The other thing I just want to add the question was answered before, as far as when you look at U.S. cash and the question that came up on the tax rate. One thing to add that we factored in especially when you look at it in the near-term let’s say over the next year or year and a half. One of the other factors that does give us a little bit more flexibility from U.S. cash position as we periodically make some distributions of our cash to U.S. from somewhere our foreign subsidiary earnings, these are some earnings that have been previously taxed by the U.S. so we have a little bit of flexibility there, and that’s also have been factored in as I look at – or I take into consideration the commitment that we’re making on the 50%. So again, that does add, we had little bit of benefit from that just in this past quarter. if you kind of look at the overall balance sheet and will continue to see some of that in the near-term and will factor that in as far as distributing the cash to the dividend as well as the buybacks.

, : In terms of are we going to move over time to a more predictable revenue stream, the answer is yes, we do that too fast, you see short-term growth rates dropped. So we got to evolve into that. And so when you see models like NDS in terms of what we do with NDS and keeping their revenue stream and actually using it as the model for the future as opposed to the path that’s been able melt to not have a base behind this. So, we can build this revenue stream as good. And if you watch what we’ve done with some of our products at multicore EDGE as an example, we’re leaning how to price both on the product itself and then price for software additions and be able to add and bring up gross margins over time. So, you’re beginning to see as we think this through, Gary and team and Rob and team have a lot of work going on to this. And so making that revenue stream a little bit more predictable is the key, making that transition from primarily acquisition to a regular revenue stream over the period of years, we have to do that delicately as you would expect. So, I had answered your question, I hope not on order growth fluctuations, none of us want to go through the last three years or four years again. And in terms of, do we see our ability to transition through this and became a little bit more predictable, I think we’ve got to, we just have to be careful in the transition. Ehud, I hope that answers the question okay? : In terms of are we going to move over time to a more predictable revenue stream, the answer is yes, we…

I like your sense of humor.

All right, thanks Ehud. Next question please?

Thank you. Your next question comes from Tal Liani with Bank of America/Merrill Lynch.

Hey, Tal. Tal Liani – Bank of America/Merrill Lynch: Hi, I also have clarification on the question. So let me just stick with one clarification part. The how much of your cash flow is generated in the U.S. I am trying to reconcile between dividends and buybacks. I assume that buybacks are done also globally when you buy ADRs and convert them, but dividends have to be paid in U.S. dollars, in domestic cash flow generation. So when I do the math of how much cash flow you generate and then deduct the dividends, I'm not left with much for U.S. cash flow to do the buybacks unless most of your buybacks are done overseas. So I'm trying to understand the dynamics of the global use of cash flow from a buyback perspective and from a dividend perspective. Thanks.

So, first of all, if you look at from a buyback and from a dividend perspective, both have to be funded as U.S. cash. As you know, we mentioned we had a U.S. cash balance in the end of the fourth quarter about little over $6 billion and that would be what we'd use for both the dividend as well as the buyback and any other U.S. need that we have, we have to fund out of that. We will continue as far as forecasting what we will generate in U.S. from an operations perspective and work in that flow. The other aspect as I mentioned just a few minutes ago is probably taking into consideration some previously taxed cash that we have which is outside the United States that we have the potential right now based on our analysis to bring back and use as part of this in the near term. And I have clearly I wouldn’t go out there and make a commitment to a plan or a framework with the 50% commitment if we didn’t have the ability to kind of work through that. But the dividend right now with the increase that we have today would be about $2.8 billion on an annual basis and then the buyback of course does change from quarter-to-quarter, and we’ll have to work that in based on opportunistic as well as just kind of where we can fund that and work that through. But we’ve done extensive planning looking at this based on expected business results, and be able to work this through, and then we'll continue to always look at, as I said before, ways of being a strong aggregate for U.S. tax reform as we go into the next several years, which of course would give us even more flexibility.

So we are not stepping off that, we think regards of who wins, this is something our country needs to do and we’ll see what we can do as a industry and a business group in the period between the election and the next president becoming in the role. And we all know that there’s one President that’s already committed to supporting this, should he get elected in terms of the changes that need to be made? In terms of the overall process, it’s more data point, cash from operations was $10.5 billion this year, a year ago it was $10 billion, that’s additional $1.5 that you should begin to think about our models. Lots of levers that Frank can pull, which ones he pulls in which sequence and which ones don’t get pulled, that’s really your call, Frank; I’m very pleased with what you’re doing and making this commitment. Thanks, Tal.

Great. Thanks, Tal. Next question, please?

Your next question comes from Mark Sue with RBC Capital Markets. Mark Sue – RBC Capital Markets: Thank you. Gentlemen, if I look at Cisco from a S curve point of view, we went from a growth phase to now a stabilization phase, which results in faster profit growth and higher cash generation, which you’re commendably returning to shareholders. What happens next on the curve, and how do you fund future innovation so that the trajectory of the curve points higher, and can you do that without growing expenses or do you take the approach of exiting certain businesses, and then acquiring higher margin software companies?

I’m going to take the easier part, which is really talking about growth opportunities. Then Gary, I’m going to ask for you to fill in, in terms of how much we’re freeing up resources to be able to move them both in terms of productivity duplication resources, layers, et cetera, which is what we did in this last change, and move into where the growth is like emerging markets. In terms of the opportunities, Mark, I don’t think we’ll surprise you in a big way, but there are lot more opportunities, we can go after than we can bring down, so we’re going to stay within our five foundational frameworks with mobility and security, any across those, but even within those, when you think about the Internet of things, you begin to think about smart grids, you begin to think about how we do connected industries, how we really put this capability to work and drive video in a big way, each of those are major growth opportunities. And so what we will try do is share with you where we think the growth opportunities will come in normal times, and I think all of us would agree this is not no more anywhere near close to it. GDP growth in the U.S at 1.5% to 2% is anemic, growth in Europe and a full blown recession where every major country in Europe is showing negative year-over-year comps in mid to high single digits that is anemic. What we’ve seen in challenges in Asia, even though we’ve managed through them pretty well have been challenging. So I think you’re talking about an economic question, I think you’re talking about our ability to move into new markets, and our ability for current core markets to grow, so I think it’s a combination of that. Now however, one thing that we’ve got much more discipline about and Gary, I really want to compliment you, and the whole team, but Rob, you and Frank as well as we’re starting to say, where do we have resources that we are choosing it effectively, how do we realigned that resources with productivity implications, how do we move into emerging markets effectively, how do we not have duplication of efforts across the board, so Gary, your thoughts.

Yeah, so Mark, we wouldn’t make the commitments that we’ve made, if we didn’t feel very confident that we still have operating leverage to bring to bear here. I think we’re much more confident than we were a year ago about our disciplined focus approach, I think as the business is being well managed, you wouldn’t see the results we achieved in Q4 or for that matter FY ‘12, if we want it. But we still have a number of transformational things going on that drive revenue, reduce expense and make us more efficient. So without going into detail in every one of those, we’re very confident that we still have almost 1,000 full time equivalents working on these programs to look at things. And what you don’t see is, during the last several quarters, internally we’ve also realigned 1,000 people, every quarter to the priority. So if you think about what sales is doing, if you think about what engineering is doing, services and the rest of the business, we’re putting our best people where the greatest opportunity is, and we’re putting our resources where we have significant opportunity.

Rob, could you expand a little bit just to get market feeling, for example what you’ve done in sales, and how began to share the common resources, take players out, move resources to where the emerging markets are, et cetera?

Sure, John. We’re now a full year into creating these three regions with the vast majority of our go-to-market sales resources all under one of those three leaders. You can see right now that as the opportunities in emerging markets exists, we’re shifting investments and resources into emerging markets, and out of some of our slower markets in Europe, you can that we can prioritize architectures and investments across the board. So the idea of creating that very simplified operating model with the vast majority of our resources is allowing those regional teams to actually move much more quickly, and we can see that in some of the results.

Yeah, what’s been exciting Rob, as you’ve done this, and when I look to your regional leaders in the eye, and your key VPs and Senior VPs and say how much effect this is going to have on the business, they’ve been in unanimous agreement, almost none, it will actually accelerate business overtime in terms of the direction. So just giving you a feel Mark, we clearly understand the question you’re asking both directly and indirectly. We think we’re going to be even more disciplined and focused and we also think that, I always believe and hope this is not the market we’re in for the next ten years with the current slowness.

Great. Thanks. Next question, please?

And your next question comes from Grady Burkett with Morningstar. Grady Burkett – Morningstar, Inc.: Yeah, thanks a lot for taking my questions. Looking at security, it looks like we’ve seen six quarters of sequential growth in this business. And it seems like the business is kind of turned the corner. Can you talk about what’s working in our business and what kind of things you can do to maybe start taking share and drive growth little faster?

Okay. If you watch what has happened in security, I think it’s a combination of issues. It’s been one that we’ve always felt architecturally could go across all of our products and time together in a unique way that no one else in the industry can replicate and our customers (inaudible) how to do that. Second, we made some changes in the leadership there and I just want to congratulate Chris Young and the team that they are bringing together. We’ve got leadership teams we really believe in. Third, the way Gary structured engineering, we’re now moving much more effectively and crisply across the groups to say when we say, we’re going to go after securities, this is what we expect each one and each group to be able to do. I like their plans and directions and Gary may surprise you, but (inaudible) Chris let me to meet the other end. I think this is one that we can do a lot better growth on but it can be the best example of how we tie it all together. So I like the movement, as you saw we got our growth primarily in network security, farewells et cetera on that. We got to expand that and get an architectural plays to move forward. Thanks Grady.

Thanks Grady. Next question please.

And our next question comes from Sanjiv Wadhwani with Stifel Nicolaus. Sanjiv Wadhwani – Stifel Nicolaus & Company, Inc.: Thanks. John, I wanted to take another crack at the order growth situation. I understand that year-over-year comps are tough, but just going through the other metrics you’ve given which is your backlog is up I think 11% year-on-year, your book to bill is comfortably above one. But your order growth is still about 2%. So just trying to see if there is anything we can go through to help us explain sort of the disconnect over there?

Well, as you will see in our Q report, our backlog is up about $500 million versus last year. We clearly went out of this year with a good backlog, which is what you want in all Q4’s, because our orders come in very back-end loaded. In Q1, as you know, the order rate was – it’s always off dramatically versus Q4 even doing double-digit growth years. In terms of the comps, the comps are tough when you have 12% or 13% growth in a quarter, and you compare with the next year to that, the comps in quarters where you only have 2% or 3% growth i.e. Q3 and Q4 this next year are lot different. So just with normal execution you’ll begin to see things balance throughout the year in terms of the comps. The second issue is, we’re taking share at the present time, and our peers are all almost all at negative or flat growth. So for us to be at 4% to 6% or something, we are pretty pleased out in the industry given the economic challenges involved. I just don’t want to see ahead of this, we are gaining share at the present time, if the economies turn, I’d expect that to do better as they return, but I don’t want to mislead you, Europe is going to get worse before it gets better, and federal government spending is not going to improve in the short-term here in the U.S. So we are focused on share wallet where we want to be one and two years out, and I hope we’ll be apologizing to you a couple quarters out about being conservative. But I think these are pretty candid and aggressive numbers at the present time, especially based on what we’re seeing from our peers.

Great.

So I didn’t mind you taking a crack at me second time on Sanjiv, more than fair.

Thanks, Sanjiv. Next question, please.

Our next question comes from Paul Silverstein with Credit Suisse. Paul Silverstein – Credit Suisse: Yeah. Hi, John. If I could return you all to the margins, two questions. One, Frank, can you quantify price impacts, historically it’s been running about 250 to 300 basis points of degradation a year. I heard the comment that there was nothing extraordinary about pricing, but if you could speak to that. Then a question, related question on operating margin; 34% is the best you have done in terms of OpEx as a percentage of revenue, going back to the telecom bubble days, you got to get back to fiscal 2000, you are at 34.5% now, I heard your comments about further improvement. Can you talk to that 34% benchmark?

Paul, as John mentioned before, I mean, again if you look at the pricing aspect of, I mean, you can see it in the filings that we provide, the amount of impact on the pricing has been fairly stable from a quarter-on-quarter standpoint and that really hasn’t changed much as we look back over as I said eight quarters. I am not sure what more I can share on that from that perspective. But if you look at, pricing from the standpoint in the last quarter, it’s in the range of about half a point as far as how it impacts from quarter-to-quarter and again that’s fairly stable as you look at it over a number of quarters and that’s what we would anticipate. The other items in gross margins I mentioned, you always have a mixed dynamics, it usually get benefits from a cost perspective; this quarter, we had more of a warranty impact that kind of took us on the negative side. Now as far as the operating margin, yes, 34% is at a low level from what we had before. That is not – we’re not saying we want to obtain it, we will continue to work through, I mean we are also looking at a period of time where we are going to be investing in the portfolio to make sure that we have strategic investments that we need to make, a lot of that’s going to be done through just continuing to be much more efficient in aligning our portfolio as we work through it. And as Gary mentioned before, we continue to drive areas of productivity and efficiency continuing on some of the things that we’ve put in place over the last year to 18 months. So the overall, if I stand back and look at the overall commitment to what we’d talked about last summer at the end of the last fall I should say we kind of looked at a three model revenue growth in that 5% to 7% range, profits growing at 7% to 9%, so better than balanced growing profits faster. And with that you’re going have to see some leverage that’s Gary talked about. But we’ll have to continue to see how that plays out, but that is the objective that we laid out and one that we use as a management team to make sure as we make the decision we follow through on it.

Thank you, Paul.

Great, thanks. Next question.

Thank you. Our next question comes from Simon Leopold with Raymond James.

Hey, Simon. Simon Leopald – Raymond James: Hi, thanks a lot. I know they will get my question in. I wanted to follow-up on some of your commentary around data centers and thank you for the clarifications on software to fine networking, because I think that has caused tons of confusion for folks. But maybe if you could elaborate a little bit to help us with some context and there is really two parts to the one question and legitimately two parts with one question.

Okay. Simon Leopald – Raymond James: In terms of data centers, if we could get an understanding of your total revenue to derived from data center, so not just the data center segment, but if we’re to get an understanding of the overall revenue coming from the data center markets including other switch and products going in routing. I’m believing it’s between 10% and 15% of revenue, I want to make sure that that’s correct. And then just drilling down on the partners, I think there is some concern about the co-optation environment that you addressed. But if we could get an understanding of your diversification or dependency on partners beyond the VCE partnership, but how much is coming through partners indirect in that data center vertical in particular? Thank you.

Okay, Simon, for the first part it’s almost impossible for us to get that answered. It’s not that we shouldn’t go through and look at it may be at future times think about how we’d answered. If you look at our run rate in what we consider data center and cloud that's primarily the UCS categories except or the run rate is well over $1.6 billion type of run rate in terms of that segment. We are up to over – I think 22% market share in North America, number two in terms of that segment and rapidly closing and the global market just little bit behind the number two player in terms of direction. Our value to our customers has probably never been more relevant to the data center and where we’re going to go. And we – Rob made on a heavy comment, we work across not just in EMC, VMware partnership, which is very good and very strong and very successful but we are an open standard in terms of where we go here. And we fully will control our destiny not to be dependent on anyone in terms of our long-term strategy although strategic partnerships must be a part of achieving that strategy. Your thoughts, Rob?

Well, I think John as well you mentioned the Cisco 1 developers’ approach where we're going to give programmatic access to our operating systems. I think it's going to have big impact on the value the customers can subscribe through our data center portfolio, and it's something that we plan on leveraging going forward. So I think it's an ecosystem play John in summary, great relationships across multiple environments, and that's exact what our customers expect.

I've seen this multiple times before also when we look at markets and there’s often lot of excitement three to five years before it really is impactful some people might think. And each time that has occurred Cisco is not only responded will, we usually lead the transition. We're very comfortable doing it again, and as I said earlier, this didn’t speak up on a sweet note, it’s coming for well and you’ll see us address it through strategic partnerships, partnerships where we compete and partner at times you see us address it to internal start-up, see us address it to spin-in an acquisition, and it’s a firm and the play out. The nice thing is and this is the advantage of not being the big incumbent and this is largely new Greenfield trust to be going into in the direction, and if you think about Cloud and you think about virtualization, it is more network centric than any things been done. you got to know the network in this, and while there’s always a chance we’ll be wrong, I think we’ll be three to five years from now and saying, it was about the network and the structure.

Next question, please.

Thanks. Our next question comes from Brian White with Topeka Capital.

Hey, Brian. Brian J. White – Topeka Capital Markets: Yeah. Hi, John. The cloud market, 50% growth phenomenal and as we look forward, I’m wondering if there’s any other pieces to the puzzle we need to add here specifically, storage big data and what type of use cases, are you seeing in the most success in the storage market, is it in the Cloud market, is it more with enterprise customers and more with carriers?

Okay. Mel’s give me the signal that that’s the one we’re going to kind of end on in terms of our last question. so we delivered to you all being done by 3’o clock as we said we would on it. In terms of the cloud, the numbers and thank you for the complement of 50%, it was actually even better 90% revenue and 58% on the orders. And it does speak to a market where we’re just starting to get penetration and while we have very good share versus the market, the server growth and our blade servers as well, all other growth is going as opposed to back and that’s where our strength clearly is. In terms of the use case board, we’re getting a lot of use and Rob, I’m going to ask about how service providers are going to do that, and some of the things we do with hosted unified communication to you in a second. I’ll take the enterprise piece. The enterprise piece, when you look and we’ve done our own surveys and we’ve looked at some outside surveys, we’re getting the vast majority of the true production clouds in the enterprise space, bid office Cisco and our partners and our win rate there is extremely, extremely good. Service provider sits even better, because very often they consider to close the incumbents in the data center actually competitors and Rob a little bit about both what we’re doing from a positioning perspective and a little bit, how they’re using more than just in their service provider space.

So I think across our portfolio, John the number one used case is private cloud. We’re seeing obviously the move towards converged infrastructure playing very well for our strengths with UCS and the partners we have. The trend is our enterprise customers are looking for more benefits from automation and actually taking the benefits of virtualization even further. Second most popular used case is for cloud providers where they’re looking at provisioning and management as the number one area of focus. One of our used cases is extremely strong, it’s our own call control, call manager operating as a hosted collaboration solution where we have dozens of service providers delivering call control as an enterprise class application from those centralized data centers. The third used case is massively scalable data centers which we’re winning in and you’ve mentioned that before about our position there and the strength we’ve seen and some of the innovations we’re bringing in those areas. And then obviously there are multiple used cases that exist across the board. But those are the three that we’re focused on, we’re winning in enterprise cost apps, we are seeing Microsoft and SharePoint and other applications, we’re seeing SAP and Oracle in our virtualized environments. And actually I think our strength is that we are bringing this infrastructure to enterprise class applications and matching service providers trying to drive services for business apps.

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Thanks, John. Cisco’s next quarterly call which will reflect our first quarter FY ‘13 will be on Tuesday November 13, 2012 at 1:30 pm pacific time 4:30 eastern time. We will hold our annual shareholders meeting on 30 November, 15. Downloadable Q4 and FY ‘12 financial statements will be available following the call, including revenue and gross margin by geography and revenue by product categories. Income statements, full GAAP to non-GAAP reconciliation information, balance sheet and cash flow statements can be found on our website in the Investor Relations section. Click on the Financial Reporting section of the website to access the webcast slides and the documents. Again, I would like to remind you that 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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