Welcome to Cisco Systems' Second Quarter and Fiscal Year 2013 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'll like to introduce Melissa Selcher, Senior Director, Analyst and Investor Relations. Ma'am, you may begin.

Thanks you. Good afternoon, everyone, and welcome to our 92nd quarterly conference call. This is Melissa Selcher and I am 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 a 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 will be referencing both GAAP and non-GAAP financial results. The matters we will 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 reports on Form 10-Q and 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.

Mel, thank you very much. As we exit Q2 FY13, we continued to be pleased with the traction of our strategy, our value proposition to our customers and the execution of our company and our partners. We delivered another quarter of solid profitable growth with record revenue of 5% and record non-GAAP earnings per share of $0.51, up 9% year-over-year. In my recent conversations with global business and government leaders, the tone is cautious, optimism. I am not suggesting that optimism would translate and lead into immediate GDP growth. But there is a bleak, weaken move to a world driven by opportunity, not scarcity, and that technology will play a very large role in that opportunity. Cisco’s strategy delivering integrated architectures that address the top business opportunities and the biggest market transitions is differentiating us from our peers, and will help enable us to achieve our goal of becoming the number one IT Company in the world. As I translate these observations to this quarter, I have five key takeaways. First, our execution on our financial model is very solid, with record revenues, earnings per share, net income and non-GAAP operating income. Gross margins continue to be very stable, expenses are growing inline with revenue growth and operating margins are strong. Second, we continue to drive strong results in most of the key technology transitions. The transition such as datacenter, cloud, virtualization, mobility and video had very solid results in the quarter in what remains a challenging economic environment. We continue to invest in a market transitions that we believe will drive our next phase of growth. Notably, the Internet of Everything of everything and programmable networks where we continue to lead the market with our execution on our Cisco ONE portfolio. Third, our services business continued the solid growth…

Thank you, John. In Q2, we continue to execute on our strategy of driving profitable growth, which contributes to increasing shareholder value over the long-term. At our financial analyst conference, we discussed our focus on innovation, portfolio management and operational discipline and we believe you are seeing the results in that focus. While we continue to operate in the challenging macroeconomic environment, we’re pleased with the discipline and execution of the company with total revenue, a record $12.1 billion, up 5% and non-GAAP earnings per share of $0.51, up 9%, delivering our fifth straight quarter of growing earnings faster than revenues. Our non-GAAP EPS include a $0.01 benefit related to a tax item I will discuss in more detail later. In terms of our business momentum, we saw product revenue growth of 3% with total product book-to-bill of slightly less than 1%. With total revenue globally, we had 9% growth in the Americas and 8% in APJC while Europe’s macroeconomic challenges continued resulting in a decrease of 5% for EMEA. Our services business continues to be a competitive differentiator for Cisco and in this quarter, we grew services revenue 10% with consistently strong and industry leading gross margin. We continue to manage our overall business as a portfolio both in terms of top line growth as well as profitability. With any portfolio, there are areas of strengths both in the technology area as well as across the region and also areas for improvement. The growth drivers that we laid out at our Financial Analyst Conference continue to drive our business. Specifically, we are seeing our datacenter, wireless, video and services business driving growth. For datacenter specifically, where we entered a different margin profile business for Cisco, I am pleased with the ability of our team to manage the levers of…

Thank you very much Frank. I'll now provide some additional detail on the performance and trends we are seeing in our business and in the market. I'll first walk through our portfolio 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 increased 3% this quarter with increases in both fixed and modular. We continue to see strength in our Nexus data center switching, growing more than 20%. In the Campus we demonstrated our continued innovation with availability of the Catalyst 3850. The industry's first solely converged wired and wireless platform. We do see the overall switching market as relatively flat and expect continued macro and government spending challenges to remain headwinds for this segment overall. The stability of our switching gross margin continues; Gary real nice job, by you and Frank on that. Our next generation routing strategy remains solid, with our architectural approach and strength in mobility and video providing differentiated long-term value. In this quarter, total revenue for next generation networking, the routing segment declined 6%, driven by the timing of some large deals and challenging environment in a few key geographies such as Europe and China. We saw continued momentum in the edge with the ASR 9000 growing comfortably about 30% year-over-year. And SP mobility strengthened by the strong ASR 5500 adoption going again in the upper teens. Wireless continues to be one of our fastest growing business; with revenue growth of 27%; the fifth consecutive quarter of record revenue for our wireless group. With the portfolio completely refreshed, we experience strong growth across the board. SP Wi-Fi growth continued to be extremely strong with this segment more than doubling year-over-year, where a few years ago, we were tamely behind in wireless. We…

Thank you John. Let me now provide a few comments on our guidance for the third quarter fiscal year '13. Let me remind you again that our comments include forward-looking statements and you should review our recent SEC filings that identify important risk factors and understand that actual results could materially differ from those contained in the forward-looking statements, and that actual results could be above or below our guidance. The guidance we are providing is on a Non-GAAP basis with reconciliation to GAAP. For Q3 FY '13 we expect revenue growth to be in the range of 4% to 6% on a year-over-year basis. This assumes that our divestiture of Linksys product line which has been approximately 1% of our product revenue process made quarter and will no longer be contributing to our top line. For the third quarter we anticipate non-GAAP gross margin to be approximately in the range of 61% to 62%. Our non-GAAP operating margin in Q3 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 21% in the third quarter. Our Q3 FY 13 non-GAAP earnings-per-share is expected to range from $0.48 to $0.50 per share and we anticipate our GAAP earnings in Q3 will be $0.08-$0.11 per share lower than our non-GAAP EPS. We have modeled into our guidance cautious optimism assuming continued strength in US commercial and US enterprise, early signs of stability in parts of Europe, reacceleration in many of our top emerging countries continued execution in our growth markets and continued leadership with our service providers. We do see some risk with the political and economic landscape in the US, Europe and Asia, but we believe our momentum supports this tradition. We do encourage you to be conservative in your models this quarter and next. Other than those quantified items noted previously there were no other significant differences between our GAAP and our non- GAAP guidance. This guidance assumes no additional acquisition, asset impairments, restructuring and tax to 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 to an explicit public disclosure. Thank you. And John back to you.

Thank you Frank. Well done. As a reflect on Q2 FY ‘13, I am pleased with our execution as a company. We continue to deliver on our commitments to you, our shareholders, to our partners, and to our customers. Each of us as Cisco employees take pride in our record revenue with growth of 5%, non-GAAP gross margins of 62.3%, non-GAAP expense growth of 5%, $3.3 billion in cash from operations and 9% growth in non-GAAP earnings per share. Looking forward, most of the market trends are playing to our strengths and made our most important strategic investments. First in the data center, we are seeing our momentum translate into significantly increasing deal sizes and opportunities. Just as an example a major enterprise customer after they put in their pilot systems and are now moved into production, with $3 million with us in the data center in one year, and just 1.5 years later, $35 million was their run rate. UCS is becoming a preferred platform for business critical applications. One quick point is, what we have done with our partner, SAP and their using on the UCS platform, where scenarios that took days or run in seconds with 30% to 35% less cost. Second in mobility, we are seeing CapEx spend move rapidly from wireline to wireless or mobility. And Cisco has the only portfolio in the industry that brings together wireless LAN, mobile edge, mobile backhaul, small sale, and SP Wi-Fi to address the cloud and BYOD proliferations. Third on video; NDS is helping driving our business in the cloud, moving from set-top boxes to more valuable and profitable software and service offerings. And fourth, we are very well positioned to capitalize when accelerated growth returns in our top five emerging countries. We have built a strong foundation…

Absolutely, thanks John. We’ll now open the floor to Q&A. We still request the analysts please ask only one question. Operator please open the floor to questions.

Thank you. Our first question comes from Amitabh Passi with UBS. Amitabh Passi – UBS Securities LLC: Hi, thank you, can you hear me.

Yes we can Amitabh, you sound very smart. Amitabh Passi – UBS Securities LLC: John, I just want to ask you about a few of your segments or end markets in particular security collaboration, routing and even service provider video excluding India, I mean all these segments seem to be flatted on year-over-year. Just trying to understand better, is it simply function of demand, pricing you could just maybe shed some more color there.

Amitabh, you probably about six or seven questions, is there one specific area, that you would like to deal with whether it’s service providers or security or video. Amitabh Passi – UBS Securities LLC: May be security if you can just tough on that.

Sure it’s a great one. If you watch our security business was just up 1%, in the areas where we still an architecture and let’ use the U.S. get accounts or the enterprise accounts or even commercial our security business grows well. But when we go through our partners on a global basis, it’s a much more complex film, so I think what you’re going to see is do over the next period of one to two years, as with our new leadership under Chris Young is doing a super job, we're going to move more and more to time this security pieces together in architectural approach, and as we moved away space list an area where there is security or video or collaboration, our general sales force Rob had to pick that up, and candidly we lost a little bit of momentum in the process. So in terms of security, I think it is a complex architecture of sales, we wanted to be, and I think you will see us improve on that over the next 1 to 2 years. Let me give you one more since you were so nice. On the service provider segment as a whole, our relationship with service providers are just excellent, it is just lumpy. And just to give you a war story, we had one order Rob, that you and I both call the local county come in on a Saturday at the end of Q1. If that said that had been booked on Monday, this quarter would have gone in single-digits instead the first quarter grew in mid-teens. Now think I might have misspoke on the call, Q1 a year ago actually through business by the way in terms of total bookings 13% in Q2 in fiscal year '12 business by about 7%. I might have said 17. So putting that into perspective those comments however made on service provider are referring to Q1 this year and Q2. We are really in good shape here and if you watch service providers spend and as you would expect I have talked to many of the top CEOs in our service provider customers more and more the dollars are moving to mobile, so our ability to combine fixed and mobile uniquely together is extremely strong and portfolio architecture time together is unbeatable. So I am comfortable with where we are, U.S. service provider I think will be very solid. I have a lot of confidence in Michael Glickman and the team there, and in terms of whether you are at AT&T or Verizon or Sprint, Comcast or Time Warner we never been stronger position than we are really tough our competitors loss accounts. Nice way of saying, we will get our fair share of skin plus.

Thanks Amitabh, next question.

Our next question comes from Brian Modoff, with Deutsche Bank. Brian Modoff – Deutsche Bank Securities, Inc.: Hey, John yeah kind of continuing on that service provider line, but the operators in the U.S. except for Verizon and all ranching up there spending this year, you’ve got some of the cable operators as well, some improvements in China, Japan and even Europe perhaps not worsening, how do you see that overall evolving through the year. And then second you got strong, you just brought into sale, you only need IP access point, you’ve got a full on mobile operating offering, what are you doing on that?

It sounds like you've been talking to a couple of few years that we have been calling on, if you watch the service providers as a whole, are more moving more and more their spending as I alluded in the first comments, more into wireless but they want an architectural play, their plans are – and their plans are like all of our customers plans, they are going to watch to see what happens, they're going to watch to see if there is a hesitation in the economic, was any government missteps which I think personally we'll probably manage through, and they will balance their spending throughout the year, and as you indicated most of the service providers are recently optimistic on increasing their CapEx spending this year, and even those that may not are often spending more in the areas where we're strongest, which is the mobility side of the house. I'd be surprised, if you don't see us get our fair share of spending in this area and more, but just using the U.S. service provider as an example where we have a great team, it's just as lumpy, and no matter team motto like using those words, but we grow mid-teens, one quarter flat the next, 7% the next and so, I think we will achieve these service provider CapEx spend growth plus in terms of our growth rates, and I am hard pressed to say competitors that has more than a product or two, that comes out as architecturally, are you aware of any, Rob?

I think that’s accurate John.

Thank you Brian.

Thanks Brian. Next question please.

Our next question comes from Ehud Gelblum with Morgan Stanley..

Ehud, how are you doing? Ehud A. Gelblum – Morgan Stanley & Co. LLC: Are you there?

Yes, we are. Ehud A. Gelblum – Morgan Stanley & Co. LLC: So I appreciate it. Couple of quick ones. First of all, can you give us a sense as to how big NDS was in the quarter or service provider video may have done without it. Looks as if you do compensate for an estimate of NDS that service provider video may have been a little weak, but I don’t know and I don’t have exact math to do that. Also Meraki, can you give us a sense as to how much that contribution was or due to accounting, I am guessing that maybe it didn’t have much contribution, they may have some deferred revenues, just to understand how that impacted, because your wireless is growing in good section, I just wanted to make sure we had a clean number on wireless looks like? And then from the comment on the Americas, is that getting tougher, is that why the gross margin was down or is competition of America is actually doing fine overall and we shouldn’t really worry about gross margin fluctuations in the Americas?

Hi Ehud. We are trying to hold the questions to one. So I am going to comprise and answer two, and chat all of our peers to one in terms of the direction. In terms of service provider video, yes, 20% of the business growth was in NDS. If you look at service provider video, the Americas, then Asia Pacific, Japan, and China actually had good growth. Europe, we are walking away from low volume, very poor margins set-top box business. So they were down dramatically. And I mean dramatically year-over-year in terms of the numbers. In this quarter and candidly a little bit last quarter Rob, if I remember right. So you are going to see a transition where it make sense, set-top boxes where we can make good margins, and the customers buying an architecture and if it’s purely a bid that is on very, very poor margins, we are not even going to bid and that’s what you are seeing in terms of results. So actually I am really comfortable with where we are in terms of our video strategy and service provider, and this is the type of thing Gary and Rob you are doing great with the teams and I want to give a lot of credit to Martin and Jasper, and the field teams as well, that we are focused on profitability as much as we are just roll of dollar growth. And I like the way this transition is playing out. So again I think this substantiates the direction in which you’re seeing us move more and more including our acquisitions into the cloud software recurring revenue streams et cetera and you know with Meraki. It will be a slow ramp up because it is deferred revenue, since off a small base. So it’s very small for the next couple of quarters, but I really like the margin, I love the team there. Really good, love the concept, but it’s impact this quarter and next quarter are very small, you’re right on that. Next question, please?

Our next question comes from Mark Sue with RBC Capital Markets.

Hey, Mark. Mark Sue – RBC Capital Markets: Thank you. Hi, John. Just I mean the clarification the 46 revenue guidance, if I look at the trends in Linksys, it’s really – would that be really 5% to 7% revenue guidance or would you classify that in the environment, it’s not really yet on the GAAP, but it’s off the break. And then just on the question on the cash generation which is now greater than 2X your dividend and buy back, what’s the inclination for Cisco to be not only a dividend payer but also a dividend grower?

Okay. Combination on it, let me get the second one, you get the first one Frank or you want to reverse them.

Any one.

Okay. I’ll get the second one. In terms of our growth, we’re completely committed to giving and back as our shoulders deserve over 50% of our cash generation. We want to see what happens in the tax regulations, and then candidly I don’t have a really disposition this. We’re going to turn to our shareholders and say what you want us to do? Do you want a share buyback or do you want it in terms of dividend. We clearly would not have started our dividend payments, if we didn’t over time anticipate them going longer, but I think we all want to see what happens to tax policy here and then as that becomes clear they might turn to our shareholders and ask you what you want us to do. In terms of the first question, Frank.

Mark as far as the guidance for Q3, I gave 46%, that 46% growth off of the base from Q3 of ’12, the other comments that I made as it relates to Linksys; Linksys is approximately 1% of revenue, so it’s kind of approximate slightly below $100 million. We are going to close that transaction most likely mid-quarter, and so we will not have mostly half more that revenue for the back half of the quarter. So we have to kind of take that into consideration in the guidance. So that guidance assumes that we are not including that additional revenue, so that will move out with the acquisition and the growth would be remaining at 46%.

Thank you Mark.

Great, next question please.

Your next question comes from Simona Jankowski with Goldman Sachs. Simona Jankowski – Goldman Sachs: Hi, thank you, hi John.

Hi, Simona, how are you doing? Simona Jankowski – Goldman Sachs: I’m well, thank you. Wanted to ask on the switching business I think you said it was up 3% year-on-year, which was a little bit better than expected, but you also made a comment about that being slightish, I just want to make sure understand that comment, what’s that into next quarter or for the entirety of the year, and how would you put that in context with the 10 gig upgrade cycle that seems to be underway?

If you look at the overall market today and we are modeling for today, we obviously have our hash market share in government and space and U.S. Federal government. As you are aware and we do very well in Europe enterprise and if I’m remembering off the top of my head, Mel, I think Europe Enterprise was down 10% in terms of total enterprise business there. So Simona what we are saying is in this current market including the benefits when we get some really hot products, the Nexus plan with 10 gig and others was a good example which grew well over 20%, that does balance part of our traditional business. So we are modeling switching in the short term at flat, in terms of it. Now it doesn’t mean that one will be a year out, but for this quarter and next quarter, it’s going to be a little bit wavy and we’re just building our model, and our guidance assuming that will be flat. We do believe that as the market comes back at hovering starts to increase, as you begin to get more balance on a global basis, enterprise becomes more confident. We get federal governments around the world spending more then that will be an entirely different scenario in terms of switching volume. Simona Jankowski – Goldman Sachs: Okay. Thanks Simona.

Our next question comes from Tal Liani with Merrill Lynch.

Hello, Tal. Tal Liani – Bank of America Merrill Lynch: Hello, can you hear me?

Yes we can. Tal Liani – Bank of America Merrill Lynch: Thank you. My question is, I think it’s the favorite topic for you. It’s more about the environment, the last two conference calls there was a feeling that there is – we’re coming out of a slow down than there is a hint of recovery and you mentioned few areas every quarters of things that might get better are getting better. This quarter, I look at numbers, the order numbers, and I look at their commentary, you seem to be a little bit more cautious with your commentary. How would you describe the environment? Are we seeing some hints of recovery, are we seeing the end of the kind of slowdown? Is this quarter was better than the previous quarter or was it – or did it turn down again this quarter. I am just trying to understand the environment across these subsectors? Thanks

So, Tal maybe answering it first and then company statement and then coming down very specific. Our business by month during the quarter was pretty much what we usually get each of the Q2. Rob we would like to see another point or two of order growth but that would have been a very, very good quarter, and it was inline with what we expected with that type of balance. In terms of the areas, we know there is some tremendous barriers out there and some of the them I respect awful lot, the finance committee that really believe we are in for economically challenging times, especially in Europe and the U.S.; that’s not what I am hearing from the majority of my customers and that’s not what we saw in our business. So starting with U.S., our U.S. enterprise and commercial growing at 9% and there both have been steady up turns in terms of their direction and candidly as Rob study expectations for next quarters will – it is almost always an indicator two to four quarters they opt GDP growth and it usually does proceed back to the quarters, numbers both on the upturn and downturn within that. Even if Rob if we say half of their growth is due to selling architectures and taking share of total expense and selling better their business community and candidly growing collaboration security if I remember in double digits, because their architectural sales is supposed to pinpoint products, while the other half is being on steady increase as well. The other area is Europe and I have realized I am in the vast minority on this queue. Don’t look at Europe as one Europe, look at as four pieces I alluded to earlier. We are seeing some early signs of…

I think John, those points are all very valid but I think the most important thing is let's watch US enterprise and commercial markets, let's see how we do in our top five emerging countries, those are all indicators as to how we see that, those economies begin to grow and those are pretty important parts of our growth engine.

I think the key takeaway tale is cautious optimistic. Tal Liani – Bank of America Merrill Lynch: Thank you very much.

Thanks (inaudible), next question please.

And our next question comes from Sanjiv Wadhwani, of Stifel Nicolaus & Co. Sanjiv Wadhwani – Stifel Nicolaus & Co.: Thanks, John actually just a follow up almost to that question, so a few quarters in a row now that your order growth has kind of decelerated, but given your guidance may be some stability, comps getting easier, I don’t know if you care to comment on this, but would you talk about some order growth acceleration in terms of product orders for this current quarter?

I think mathematically you have to. And if you watch, the comps are easy as you said, but put it different way I think we’re down to a new normal, now we’re looking to growing off that level. So what Rob and I watched is particularly a sequential growth in terms of orders. As you would expect given this quarter in this conference call, Rob and I have gone not one level deep but probably about four levels deep with everyone of the key sales leaders in the road from India, to China to Latin America, to Middle East each of areas and our pipelines in all of them are slowly accelerating, not at the pace we want to see and clearly there will be some hits and some misses because sales teams by definition not only the order is lumpy but some will not hit their expectations, but I would say, overall the pipelines are looking good, we are clearly modeling order growth returning to positive growth on it. It doesn’t mean we’ll always be right, but it feels pretty good and I think our inspection, Rob, was pretty good when we exercised the team and confidence is pretty good. Sanjiv Wadhwani – Stifel Nicolaus & Co.: That’s right.

Great. Thanks Sanjiv. Next question please.

I think our next question comes from Simon Leopold with Raymond James. Simon Leopold – Raymond James: Thank you. I wanted to first see John, if you could clarify two comments you made to see if they are actually the same comment. You talked about service provider being lumpy, in the prepared remarks you talked about the routing business being lumpier. I want to confirm that really what you’re attributing this to is service provider is being lumpy when they purchase routing. And then in terms of what I wanted to see if you can dive into, with more specifically on the service provider wireless market, since it seems like that’s the favorable area for CapEx and you don’t provide radio base stations. If you could give us a little bit more color on your exposure to service provider wireless in terms of what products are in there, how big a contribution that is and what kind of growth rates you’re experiencing for service provider wireless. Thank you.

Got you, more than fair. The actual combination of all of the above, it’s not uncommon for us to receive $100 million order from a service provider in given quarter and that might be half the orders Rob for the whole year, in terms of a build out. And that isn’t just limited however to routing, obviously our UCS business and service providers and our data center cloud business is very good. Our hosted collaboration in communication business, good opportunity and so we are across the board on them, so well the majority of our router is basically high end routers are sold into service provider and it’s 35% of our business. There is an awful lot of the service provider business. On the next call, I’ll be having an answer on what percentage is routing versus otherwise. But I think you almost assume that routing isn’t even the majority in the service providers. In terms of the wireless side thank you giving me that slow pitch down the middle of the plate. It is the area, we made the furthest progress on. In the wireless LAN, the hot spots if you will on that capability good 27%, the mobile edge the 5500 which we are winning in vast majority of router jump balls and actually our competition is struggling in this pretty well grew in the high teens. In terms of service provider, Wi-Fi what we saw was year-over-year growth of 100% and what we watch is more than number of accounts hence we have, because these start up small and grow larger. Small sales you’re going to continue to see some invest in, our growth there is extremely good, and you began to tie these architectures together and turn back to back all in this environment, and our…

Okay. We will assume that is yes.

Next question please.

I think our next question comes from Rod Hall with JPMorgan. Rod B. Hall – JPMorgan Securities LLC: Yeah, thanks for taking my question guys. Couple of quick ones. Hi John. Just on EMEA gross margin, it was up a little bit sequentially and I just wonder if you could talk a little bit about that and services gross margins were up and products down. So you think it was driven by services or if you can give us any color on what’s going on there and I just wanted one of the big – I guess global currency trend now on Japanese yen deprecation and I just wonder if you could talk about what the impacts might be for you guys on business if that continues to incur and it seems like Japanese government is indicating. Thanks a lot.

Okay, sure. Frank will give you the detail on the gross margin first and I will make some general comments, go ahead on Europe and gross margin.

So Rod, you said Europe, so we had last quarter 53.3 going at 64.9. Primarily that improvement was a much stronger mix of products, and also getting back to the other question that was asked earlier, Ehud had a question similar on Americas. The opposite occurred in America, so gross margins went from 63.6 to 61.8. So we had a bit more in favorable mix, which was high growth in data center in the U.S., whereas in Europe and we had much more favorable comparisons, it was less of a say, SP video from quarter to quarter, and there was more favorability looking at the switching portfolio. So in both situations it would make but in different direction.

And what is interesting and again this is I think the discipline that Gary and Rob and Frank are bringing to the company, and all of us are participating in, is there is as much focus on profitable growth, as there is top line growth. And just repeating the theme and I am going to get into trouble here, Mel, so you’re going to have to look at the data. I answered this question, if I remember my data right our business in service provider, set-top boxes in Europe was off almost $100 million versus in a year earlier and it's because we passed on the deals that were non-profitable. And that clearly is an indication of making decisions on what is right financially and the strategic for you and if we can't establish our value and integrate architecturally within that area then we are not going to bid. And so I think you are seeing our whole company Gary, really focus on profitable the gross margins all is getting measured by the active gross margins everything from discount to how we build our products to, how we felt value to our, to how we sell architectures on it. So really it’s a tough environment, my hats off to Chris Dedicoat, I think he’s had done an amazingly good job in a tough environment really focused on profitable business and profitable growth and like I said, (inaudible) stay for sure, but some already signs in certain key geographies within Europe that’s beginning to turn. In terms of Japan, we got a world class team there and very good and our view is going to be the exact opposite. We are probably going to invest incrementally in Japan. Horizon there and to (inaudible) have done amazingly good job on this. We’ve got great partners in NTT and Softbank coming out of Japan, and the stronger Yen allows them (inaudible) two of our products. And as we go globally with them on selling architecture and products together, it allows us to sell lower products. I don’t think the strong yen will have much effect in our business. It all in Japan maybe the reverse, is that too simplicity.

No, John and I think we actually have done so well in winning market share across the service provider business, but we still have upside amongst those major Japanese enterprise accounts, that’s where we are focusing is, we all now Japan is now turning global. So we have an opportunity to those Japanese companies around the world.

But it’s probably one of the best examples of where we move from a capital provider to a product provider, to an architectural provider, to the most strategic business partner. We’re not the large number of competitors completely don’t have a single major franchise in Japan’s service provider. And we intend to be aggressive and go after the same thing in enterprise, where I think it satisfies growth as long as we’re getting the resources to go after. Rod B. Hall – JPMorgan Securities LLC: And John number there right, in EMEA set top box revenue.

Don’t count us. Rod B. Hall – JPMorgan Securities LLC: I’m not going to bet against you down 45% year-over-year.

So you began to realize when service provider numbers are down, it isn’t the question just down, we deliberately passed those type of numbers on to the service provider number making a material different and we are marking good business decisions on it, and I’m real proud of our team there, however for the Cisco people listening on the team look in computers, we want top line growth and profitability growth. and profitability growth and so we’re expecting each of the groups.

Great. Next question please.

Your next question comes from Tim Long with Bank of Montréal. Tim Long – BMO Capital Markets : Thank you. Just another one on the gross margin front here, it sounds like in the quarter, I am assuming that in the January quarter the data center growth had a lot to do with the decline, but if you could look out into the sequential down for April and even beyond that, we are eliminating some low margin set-top business, we saw Linksys, we’re adding a lot of software recurring revenues business. Are those other actions in the value engineering you’re doing enough to offset the move to data center, can we start first of all, why not up next quarter and can we start to see those gross margin, maybe moving starting to move up in the out course. Thank you.

Okay. So Frank kick me whenever you want to take over on this one. If you watch seeing with the common theme, I think many of you were concerned in fair question two years ago about should we maintain our gross margins with the vast majority of the markets not a player, and you’re going to see rapid deterioration, it was the number one pressure on our stock margins. And if you watch what we have done is the reverse. We have gotten very good stability across the gross margin base, you are seeing this in that 61% to 62% guidance, it will go up and down by quarter based on the mix, but you are right we are clearly modeling in continuing good growth dramatically faster in our data center business, and remember UCS is also combined with Nexus. And it is a process I want to be careful but you see it is a little bit lower half of the business Nexus, is a little bit over a third, and when you model those two together you begin to get good gross margins and that's different than our peers. Secondly, and most of our peers when they install servers, they are selling commodity products. Have we re not selling commodity products. We get premiums, we get architectures, we get standardized on, we showed stronger margins there and yes your overall assumption is right, we are moving rapidly to software with A6 both of which get you better margins, 13 of the 14 acquisitions were software, cloud, recurring revenue streams and recurring revenue as one of your colleague said earlier, the good news about it is very predictable. The bad news is when you start from a low base, it takes you a while to get to size where it really becomes material for you, but it’s a nice way of saying I couldn’t be more pleased with the margin stability and well, it’s hard to look out very far in this industry, I like the stability we are seeing in and I see nothing that at the present time is making nervous on that.

And trying to go back to what we cover back in December at the Financial Analyst Conference, we are talking about the long range model. Clearly, Tim I think you too laid out the opportunity from a gross margin standpoint clearly with a focus that we have in value engineering as well as to move to software services which will help margins and then on the other side, you have got the dynamics associated with datacenter as well as emerging market and then also at video when John kind of covers the SP video, so I think, yes I agree with John, we feel very comfortable with stability and that focus that we have in the company, but we are also kind of watching the balance as we look out the next several quarters, several years.

Yeah, it’s one of the things I am most of proud of namely one IT player who is in the market with low barriers to entry, who for two decades has consistently commanded the gross margins we had. And this is some, we will try to doing and I am very proud of the team doing it and it doesn’t mean we are always capable of improving in certain areas and have to improve, but I think in a market with such low barriers to entry, our ability to maintain these gross margins, something we’re very proud off and service Gary, one of the best examples that. Next question please

I think our next question comes from Brian White with Topeka. Brian J. White – Topeka Capital Markets : Hi John, in China when we think about the second half of this year, it sounds like the 4G LTE built is going to kick in, I'm just curious if Cisco will be back in the game in the second half of the year. Also any thoughts on Oracle and Acme Packet and how that may change the competitive dynamic with Cisco?

In terms of time in China, I've been doing business there for 26 years now, I am very patient, that’s very hard on me because I'm not patient in anything else in my life and we always make decisions for the long-term decision process and make it from the position of strength and a win-win approach and we are great partners and we will earn the confidence of the people in China, the businesses there, et cetera as we move forward. I think by the second half of this year if we execute right as the leadership gets established here towards the end of March and as we work through some of the issues, I think you will see us in the game on many of the opportunities and you will see us also start to be aggressive across China, with Chinese partners in terms of how we go beyond just the top 10 cities more towards the top 100 or 200 in terms of the approach. In terms of Oracle and their move, I think what it says is at the center of every major market transition going on that I'm aware of is the network. And so you are going by definition see both our peers, our partners and competitors say what can we do in this network and what role do we want to play. And well as it becomes more important in terms of programmability and intelligence and moving, processing power and storage throughout the networks, we clearly are going to do in security, you will see our peers by definition get into that. But overall we think we’ve gamed up pretty well, what we think Oracle is doing here. Oracle is a great customer, a great customer there and , I think you’ll see us…

Great, thanks John. Cisco's next quarterly call, which will reflect our third quarter FY’13 will be on Wednesday May 15, 2013 at 1.30 Pacific, 4.30 p.m. Eastern. Again, I would like to remind you that in light of regulation FD, Cisco plans to retain its longstanding 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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