Welcome to the Cisco Systems Fourth Quarter and Fiscal Year 2017 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 Marilyn Mora, Head of Investor Relations. Ma'am, you may begin.

Thanks, Mark. Welcome everyone to Cisco's fourth quarter fiscal 2017 quarterly earnings conference call. This is Marilyn Mora, Head of Investor Relations and I'm joined by Chuck Robbins, our CEO, and Kelly Kramer, our CFO. By now you should have seen our earnings press release. A corresponding webcast with slides, including supplemental information, will be available on our website in the Investor Relations section following the call. Income statements, full GAAP to non-GAAP reconciliation information, balance sheets, cash flow statements and other financial information can also be found in the Financial Information section of our Investor Relations website. Throughout this conference call, we will be referencing both GAAP and non-GAAP financial results, and will discuss product results in terms of revenue and geographic and customer results in terms of product orders, unless stated otherwise. All comparisons throughout this call will be made on a year-over-year basis unless stated otherwise and the full year revenue and non-GAAP comparison has been normalized to exclude the divested SP video CPE business from our historical results. The matters we will be discussing today includes forward-looking statements, including the guidance we will be providing for the first quarter of fiscal 2018. They 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-K and 10-Q which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. With respect to guidance, please also see the slides and press release that accompany this call for further details. As a reminder, Cisco will not comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. With that, I'll now turn it over to Chuck.

Thank you, Marilyn, and good afternoon everyone. As you know it's only been seven weeks since we last spoke at our Financial Analyst Day and our overall outlook remains consistent with what we outlined at that time. In fiscal 2017, we continue to execute well against our vision of delivering customers a highly secure intelligent platform for their digital business. We managed our business through a dynamic environment and at the same time delivered significant innovation to further accelerate the next phase of our transformation. In Q4, we generated revenue of $12.1 billion and non-GAAP earnings per share of $0.61. For the full fiscal year revenue was $48 billion and we delivered non-GAAP earnings per share of$2.39. We drove strong margins and record operating cash flow for the year. Our results demonstrate solid execution against our strategic priorities. Accelerating our pace of innovation, increasing the value of the network and delivering technology in the way our customers want to consume it. In June, we announced a new era of networking with the launch of the Network Intuitive. This is an example of the industry leading innovation Cisco is providing to its customers. The Network Intuitive is a new intent-based network that creates a fully integrated intuitive system that is designed to anticipate actions, stop security threats in their tracks and continue to evolve and learn over time. We're applying the latest technologies such as machine learning and advanced analytics to operate and define the network. From a security standpoint, the new network enables our customers to detect threats in encrypted traffic with unprecedented accuracy using Cisco's encrypted traffic analytics and intelligence from Cisco's Talos cyber intelligence unit. We have created the only network that is designed for security while maintaining privacy solving a previously unsolvable problem. Our new Catalyst 9000…

Thanks, Chuck. I'll start with a summary of our financial results for the quarter and full fiscal year followed by the Q1 outlook. This quarter played out generally as we expected and as we indicated in our guidance in our last call. We executed well, drove solid profitability, strong cash flow and we continued to deliver on our strategic growth priorities. Total revenue was $12.1 billion down 4%. We continued to focus on driving margins and profitability with strong non-GAAP operating margin of 31.5%. Non-GAAP EPS was $0.61 down 3% and operating cash flow was strong growing 5% to $4 billion. For the full fiscal year, we had revenue of $48 billion down 2% with product down 3%and services up 3%. Non-GAAP operating margin was a record $15.2 billion expanding to 31.6% of revenue up 0.6 points. Non-GAAP EPS also a record with $2.39 up 1% percent and we generated record operating cash flow of$13.9 billion up 2%. Let me provide some more details on our Q4 revenue breakdown. Total product revenue was down 5%. Switching declined 9%driven by weakness in Campus partially offset by growth in the ATI portfolio which was up 38%. We saw good initial traction of our new intent-based networking portfolio of the Catalyst 9000 family of switches. Routing was down 9% driven by weakness in enterprise access, we did see a spending cause related to our acquisition of Viptela that we will integrate into SD-WAN portfolio. Collaboration was down 3% due primarily to a decline in Unified Communications Endpoints partially offset by continued growth in conferencing. Deferred revenue grew 4%combined with the unbilled deferred the two were up 16%. Datacenter declined 4% with the continued market shift from Blade to Rack. However, we did he solid traction of our hyper converged offerings HyperFlex. During the…

Thanks Kelly. And thanks again to all of you for joining us today. As we've discussed many times in the past, we're working on a multi-year transition and while I'm confident with our progress it's clear there's more for us to do. In Q4, we made ongoing progress generating 31% of our total revenue from recurring offers and growing 50% in deferred product revenue related to software and subscriptions to $5 billion. I'm optimistic about our future, the direction we're headed, and how we're transforming Cisco for the future. We are well positioned to succeed in a cloud and digital ready world where the network is one of the most strategic assets for our customers. Looking forward to fiscal 2018, as I said earlier, you can expect us to do the following. Execute against our strategy and invest in priority areas to drive profitable growth and enhance shareholder value. Leverage to power the network to maximize our opportunities and differentiation in existing and new markets. Drive relentless focus on innovation, creating continuous customer value across every element of our portfolio and drive the right consumption models for our customers and accelerate our shift towards more software and subscription revenue. Marilyn, now I'll turn it back to you for questions.

Thanks Chuck. Mark, let's go ahead and open the line for questions. And while Mark is doing that, I'd like to go ahead and remind the audience that we ask you to ask one question, so that we have plenty of time for others in the audience to ask their questions today.

Thank you. Our first question is from Ittai Kidron with Oppenheimer. Your line is open.

Thanks, and appreciate the color around the software and the current metrics, very helpful. I guess just a couple from me. Just an easy clarification. Kelly, you haven't mentioned the number of Cisco ONE customers, we'd love to get that? And -- the question itself Chuck, switching has had a little bit of a difficulty I think three out of the four quarters was down quite substantially actually on year-over-year basis. As we look into 18 how do you think about that business in the year, it that another year of transition to where the portfolio through for example your most recent announcements will go for a potential pause and update and learning curve where that business could still be prone to declines or we should finally see some better results in that category?

Ittai, I am shocked you asked a switching question.

Let me answer the easy one first.

I've given up on the data center business.

Well, I have an easy answer. In Cisco ONE we have over 20,000 customers now at this moment.

Perfect. That's great.

Okay. So Ittai, let me touch on the switching situation. First of all, the results we saw this quarter were not a surprise to us, if you think about our guide last quarter we anticipated this and we also knew at the time that we're going to be making the announcement in June about the new platform. And so, we anticipated these results. Now anytime we do a major platform announcement particularly in switching there is a period of time where our customers pause because they want to understand what this means. So, we did see a pause and we actually anticipated it. But we saw great traction with the new platform. As I said earlier, just in the four weeks where we closed the quarter we had 200 customers that embraced this new architecture and purchase a new Catalyst 9000 platform. And as I said in the opening comments, the great majority of them also opted for the advanced software subscription the goes on top of it and we've had a lot of conversations over the last two years as to whether we could really drive a subscription business on our core switching platforms. And what we see is that at least early indications are that we can do that. So, we talked about our data center business, the ACI portfolio again record quarter growing 38%. And then if you look at what we lost in the Campus, typically what we see is these are three-year cycles to transition these platforms. But this is also not a typical platform transition, this is not speeds and feeds only. We brought forward some incredible innovation in this platform and if you think about not only the actual product itself but the solutions that we announced around automation which really gets at the operating expenses that our customers are incurring to manage their infrastructure. You look at one of the key drivers of why customers move to the cloud, it was because of the complexity in the cost of their private infrastructure. So, the ability to go drive significant cost out for our customers while managing this stuff over the next few years we think is a huge difference from a normal transition. And the other is the fact that we launched encrypted traffic analytics which is our ability to determine when there's malware inside encrypted traffic without decrypting it. And that's an innovation that only Cisco can actually deliver and both of those pieces of technology or what are included in that advanced subscription which is what tells us that the customer see tremendous value in that subscription. So normally, we see three years, it's very early and we would like to believe that we can accelerate that based on the incremental innovation that's being delivered as part of the platform, but let's see how it goes over the next quarter or two.

Thanks Chuck. Mark next question please.

Our next question is from James Suva with Citigroup Global Markets.

Hi, thanks so much on the opportunity to ask questions. It's Jim Suva here from Citi. Last quarter, I believe you gave a little bit of commentary or a bit of a pause in the federal government spending and also on Europe. It appears is that still continuing or has it taken a step up to improve or deteriorate a little bit and how should we think about that? And does the Europe have any impact on Brexit? Thank you very much.

Hi Jim. Thanks for the questions. Since you outlined, I'll just quickly cover sort of all the headwinds that we talked about in Q3, I'll give you a quick update on all that's including and the two that you asked. First of all, we talked about Mexico last quarter which is generally in the same state it was last quarter. We didn't see any significant change and again that's largely driven by service provider weakness due to regulatory transitions as well as geopolitical dynamics and after renegotiation etcetera. Emerging countries were slightly better but there is still just tremendous uncertainty and disparity between performance in those countries and service provider is generally the same as it was last quarter. The two that you asked about in particular, we did see some shifts in US federal. I would say in Q3, we had of real lack of clarity around budgets. In early May, we began to see obviously the clarity with the continuing resolution and the way the dollars get released in federal were in like the fourth phase based on how they prioritize release in those budget funds. So, we saw some improvement not where we'd like there to be but we saw some improvement particularly late in the quarter and obviously in federal we're going to be facing the same issue again in 90 days at the end of September as we try to get another budget resolution passed. But you can see on a global public-sector perspective, you saw our orders last quarter were minus four, this quarter they were plus two and that was clearly a big part of that was the improvement we saw in the US federal business. On the UK, if you go back to Q3, we talked about it being significantly down and one of the primary drivers was the headwind created by currency. In Q4, what I'll tell you is that headwind from currency remained, it did not ease up. However, our teams did a really amazing job and we saw significant improvement in our enterprise and commercial business in the UK. And if you look at the overall performance in EMEAR, you can see that the strengthening in the UK for us actually helped achieve the result at the EMEAR level. I'll say one final thing and UK while enterprise and commercial we saw a good uptick. Service provider remained about the same.

Okay Mark, let's go ahead and take the next question.

Our next question comes from Pierre Ferragu with Sanford Bernstein & Co.

Hi, thank you for taking my question. I'd like to get a sense for how you see like your near-term trend in the business. If I look at your revenue guide for next quarter, so we have seen slightly down year-on-year, but sequentially the kind of revenue change you are guiding for is actually probably better than the average seasonality for Q1 of the last year. So am I right, thinking the environment, you see the environment, the business environment slightly improving sequentially after this quarter, this weaker quarter you were anticipating. So that's on the revenue front. And then on the margin front, I think like from the top of my mind, you probably didn't beat in your gross margin guidance range for like eight or nine quarters in a row or something like that. And your gross margin came in slightly down sequentially, and you are guiding for slightly lower operating margin next quarter than what the consensus is anticipating so if you could give some perspective on what's happening at the gross margin level, relatively small movements that I am sure you can give us some visibility on where are the drivers there? Thank you.

Yes, Pierre. Let me give you a little color on the revenue question and sort of the business conditions and then I'll let Kelly talk about the Q1guide as well as the margins. In general, I think if you just look at our order rates that we released today, we went from negative four last quarter to flat in Q4. I'm sorry from Q3 negative four to flat in Q4. So clear that we saw improvement there. I will tell you that across the customers segments, just so you have some visibility, I think we showed the high-level numbers, I'll give you a little bit of a double click. On the enterprise side, we didn't see a lot of variability around the world in the performance there. Commercial, every region around the world improved from Q3 to Q4, public sector every region improved from Q3 to Q4 and SP we had weakness everywhere. So that's just sort a little color on the orders that we saw in Q4. Kelly, you want to talk a little bit about the revenue guide and margins?

Yes, sure. On the revenue guide, as you know Pierre we call it like we see it and as Chuck mentioned the bookings being much better in Q4 than Q3 it certainly helped a lot. And I'll just mention that we are starting off with a strong backlog with our backlog being up 3%and we have good momentum as we go in the quarter. So, we feel good about the revenue call for Q1. As I talk about margins, yes, our margins for Q4 were in the range, but we definitely saw our product margins go down 2 points year-over-year and it really comes down quite simply that 3 points. The one and the biggest impact by far has been the increase of memory pricing and DRAM specifically for the overall business that accounts for more than half of the 2 points decline. The second point that's really impacting that is an overall productivity. Whenever you have large part of the portfolio, our largest business unit down 9% like switching which is also a very profitable business. It impacts your ability to get cost savings in that quarter so that was the second biggest driver and then we just had a third driver but to a much lesser extent was a slight uptick in pricing erosion.

All right. Next question please.

Our next question is from Steven Milunovich with UBS Securities.

Great, thank you. On the security side, you said at the Analyst Day you expect low to mid-teens growth. You did talk about strong orders today, but the revenue growth was much less. I think you cited some legacy products, holding things back. Do you have confidence that the reported revenue is going to get back into the double digits consistently?

Yes, Steve. So first, I'll say on the security. I have zero concerns about the business, this is a revenue timing issues. Our orders were, they were some of the strongest, we saw some of the strongest order growth in the quarter as we've seen in the last two years. So, it's simply a revenue timing issue, it funny if you go back to Q4 2015, the first call I did there was concern about our security revenue at 4% and at the time our deferred software was going 26 and this time we had 3% revenue but our deferred software was gone 49. So, the strength in the business, I'm still comfortable with. Kelly any comments on it?

I think you said it well and it's literally just timing. We and uptick to come back there in the next quarter.

Okay. Let's go ahead and jump to the next question please.

Our next question is from Vijay Bhagavath with Deutsche Bank.

Yes, good afternoon. Hi Chuck, Kelly.

Hi Vijay.

Yes, hi. My question is on what feedback and commentary you are hearing from your sales team, your customers, channel partners in this new model to purchase products like the Catalyst 9000 the subscription being is - hopefully you get this with security feature attached. And then the next part of the question is the demand for the subscription model primarily coming from the US market customers or are you -

Hi Vijay. Can you speak up a little bit, it's a bit hard to hear you.

Okay. So, I think the question is what commentary you are hearing from your customers and channel partners of your sales team on purchasing the new product which is the Catalyst 9000, the software has security features with subscription model and…

Vijay, speak up just a tad bit higher there. We still have.

Can you guys hear me now?

That's much better.

Yes, much better.

Yes. So, I think the first part of the question is the commentary from your customers on purchasing new products with subscriptions model. The second part of the question is the demand for the subscriptions model primarily coming from US customers or are you seeing overseas demand as well for subscriptions based purchasing? Thanks.

Okay. So, I'll answer the first part. I think Kelly, I have an instinctive answer on the second part but she probably has a mathematical answer. So, what we are -- first or all I think that when you look back at what we announced probably I think back was seven weeks ago so must've been eight weeks ago or nine weeks ago we announced the actual Network Intuitive. It was probably one the most significant launches we've had in almost a decade. And what I would tell you is there's a lot of emotional momentum right now within the employee base with our customers with our partners with our sales organization about the innovation. And specifically, your question, I think that what we always knew was that when we attempted to introduce a subscription model on a switching product we knew that we had to bring innovation that was -- that had such a high return for our customers that they would not have a problem buying it in that model and that's what we've seen. When you look at the automation platform that we're going to -- that we're delivering to our customers we're going to continue to enhance over the next several years and you look at the security capability that frankly only Cisco with our understanding has a network and with our threat intelligence that we get from Talos and with our ability to build silicon they can actually make that happen. I think our customers are actually quite pleased with the innovation and so far, we've seen a high correlation with that to the advance subscription. So as far as the geographic issue, Kelly?

Yes, I mean as far as the geographic it's following very closely with our natural split. We definitely have more in the Americas, but we have a very healthy pipeline in Europe as well as a APJC. So, it's getting traction everywhere.

Thanks for the question Vijay. Mark, let's go ahead and take the next question.

Our next question is from Timothy Long with BMO Capital Markets.

Thank you. Just wanted to check in on the web scale client base. How did that trend in the quarter and you can also address the kind of the switching and routing competitive environment there, it seems like white box really not taking off with some of your competitors having good traction? So, if you could just update us on progress with that large customer base? That's great, thank you.

Yes, thanks Tim. So, we were together seven weeks ago, the story here hasn't changed significantly as I've said in the past. We have reengaged in a very big way. I will tell you that we've had some wins, we actually had the press release that I talked about in my earlier comments with Microsoft about running their OS on our cloud silicon switches and we continue to make traction with these customers. As I've said, we're looking at each of them very individually as to what it is they need and we're also looking at broad base partnerships with them not only for their own infrastructure but as they realize that the importance of having this multi-cloud capability and the ability to run not only applications in a central public cloud but be able to run portions of those applications out at the edge of the network is leading to a very complimentary partnership that we're talking about with all of them. So, I would say that not a lot has changed in last seven weeks but we're still continuing to make solid progress and I'm optimistic.

Thanks Chuck. Let's go ahead and take up the next question.

Our next question is from Tal Liani with Bank of America Securities Merrill Lynch.

Hi guys, I have actually two questions but it's about margin and cash. You touched on this a little bit but you knew about memory pricing when you enter the quarter I think when you gave the guidance, still product gross margin was weak. What was the delta, what was weaker than expected during the question that drove gross margin down? The second question is cash repatriation, if it doesn't happen. You already now have $70 billion in cash, but only $3 billion in US. So, do you consider plan B for bringing the cash to US or any other use for the cash?

Alright. Hi, Tal. So, on the memory, we've talked about memory for the last three quarters and now we start to see this as a headwind initially in Q2 and it's just gotten progressively worse. I think it's very much public information that the prices continue to climb and in this scarce supply environment, our supply team has done a great job securing supply for us but those prices continue to be at market at that price that goes forward. So, it's continuing to be a moving target and again, as I will say to the guide our gross margin ended up in the range of our guide. So those are just some of the variables as we go forward. As I look forward I think, we expect the memory pressure to continue on in the near term and we're taking that into account as we give you guidance going forward for Q1. On the cash, yes. We have $3 billion of cash domestically. We've been able to - we've been accessing commercial paper, we increased that a little bit this past quarter and we've been able to access and get access to capital to take out debt if we need to as we go forward because again, we are continuing to ensure we have the flexibility we need, whether it's for strategic M&A or to continue with obviously our dividend and share repurchase. So, we don't see any issues with that going forward and we'll continue to be as efficient as possible as managing our cash and any debt we need to take out.

Thanks for the question Tal. Mark, let's go and take the next question.

Our next question is from Paul Silverstein with Cowen & Co. Your line is open.

Thanks. Just two clarifications from Kelly and then a question. The clarifications being, Kelly you mentioned the tick up in price erosion. Does that mean below 3% and then the other on the switching commentary can you give us a datacenter switching growth all in beyond just the ACI portfolio and what the Campus switching was. And the real question is looking at the dragon growth from the shift to subscriptions what was…

Paul? Are you on mute. Yes, let's go ahead and take the next question.

Okay. Our next question is from Rod Hall with J.P. Morgan Securities.

Yes. Hi, guys thanks for the question. I wanted Kelly maybe, get you to comment on the inventory movement. The inventory is up quite a bit this quarter. I am assuming that might be forward purchasing in memory and then I assume that might protect your margin looking forward. But I wonder could you confirm that and if it is the case, that it's memory how long are you protected, how long are you hedged? And then also Chuck maybe going back to that carrier order volume. Could you just maybe dig into where you're seeing weakness in orders in the network can you help us pinpoint that or is it more broad and related to product slowdown that's kind of generally from a part of the network where is that sluggishness materializing? Thanks.

Yes. So, Rod on the inventory, you're correct. A large majority of the inventory increase is driven by memory advanced purchases. So that protects us in for a large portion but we also have been as I mentioned in the lack -- we've also been securing and committing to our purchase commitments for even more access to supply that also will ensure that we have the supply albeit perhaps at higher prices if they continue to rise. But the bulk of the inventory going up, the $400 million is memory and then there is also a little bit of just inventory built up as we continue just to execute our revenue in Q1.

Hi Rod on the second part. Thanks for asking about the service provider business. I think we have characterized it as, it's less about different portions of the network and it's really about the disparity across large customers. As I said in the last couple of calls, we literally had some very big customers that were growing double-digits and others that were on the opposite side of that. So, it really is more of a customer variability issue then it is a single place in the network infrastructure that is causing a problem. And that's what we've seen for several quarters and again some of it is based on regulatory issues and geopolitical dynamics others are based on consolidation going on in a certain part of the industry. So that's kind of the color as to how I see it. Hopefully, that's helpful.

Okay. Thanks Chuck. Next question please.

Our next question is from Paul Silverstein with Cowen & Co.

Chuck, Kelly, Marilyn can you hear me?

Yes, we can hear you now.

It is a good telephone, just in the interest of full disclosure.

We thought your question was going to be hard and you came back.

No. Go ahead.

I'm just kidding.

So, let me ask a question and two clarifications. The question being what was the drag on growth from the shift of subscriptions this quarter and can you talk about what your product segment growth will look like on a normalized basis i.e. adjusting for the shift in subscriptions. I am aware that wireless win and collaboration have been the two places where insecurity where it's been first implemented but can you talk to us about what the growth will look like on a product line basis correcting for that? And the clarification, Kelly you mentioned that took up in price erosion; was it still below 3% and can you tell us what the decline in campus switching was? What it was the all-in growth rate of data centers, not just ACI but taking account the 7,000 or whatever are the products in that? Thanks a lot.

Yes, sure. So on the shift, first, it's not much different than we told you, it's basically about 2% between the 1.5% and 2% and you hit the -- obviously, it's security impacts the most, collaboration has always been that way and that just could change robust if you retain the security be impacted, wireless would be impacted and now with fiscal one really ramping up and added hundreds of millions of dollars out of the balance sheet, that would have and impacted -- well, and that what is the piece that will accelerate even more as we get more attraction on the catalyst 9,000 switches platform. So it's kind of across the board, in terms of data center overall, so if I look at switching and switching being down 9%, the bulk of it was campus switching and that was over double-digit; so that was the biggest drag. Data center switching all in was basically flattish.

And price decline?

And price decline, yes, it is -- you're talking about a year-over-year rate impact?

Yes.

Yes, so it is below the 3% and you can see that in the K.

Thank you.

Thanks, Paul. Mark, let's go ahead and take the next question.

Our next question is from Simon Leopold with Raymond James & Associates.

Great, thanks for taking my question. I wanted to see if we could maybe double click down on the security business in light of the headlines we've heard in the security space over the last couple of months in terms of attack. I think of the case of nuance highlighted employing Cisco and I recall your discussions in the past about the need for security to be an architectural solution and not a point solution. So it sounds like the market is moving towards the pitch you've made and it's made sense for a long time, I'm just trying to see if you can help us quantify the outlook for your security business if you see an inflexion point of the business moving more towards the solution sales and point products versus what we've seen in the past. Thank you.

Thanks for the question, Simon. The short answer is yes. And what's happened is, if you -- if you think about how our customers are building their IT infrastructure or how their IT assets are being deployed, they are in a massively distributed mode and they are trying to navigate and manage technology assets spanning from the public cloud to connected vehicles, connected mining operations, all the way back to their private data center over to SaaS applications, so the architecture of sort of hair pinning all that stuff back to a central point in the enterprise is not going to be sustainable. Therefore, we see our customers transitioning to a fundamentally new architecture that's enabled by the network and that's why they are moving to the security architecture because as I said, our teams have built this strategy where you have to deploy security everywhere which is at the endpoint in the network in the cloud. And I think as it relates to some of the attacks, I don't remember the number exactly last quarter or the quarter before relative to our threat -- new threat customers that we have, the Amp customers, but I believe the 7,600 discussed this quarter was a pretty significant increase over what we saw during a quarter over the last two quarters and I think that's probably related to not only the architectural buy-end that our customers have but also the fact that that solution was pretty resilient during the recent ransom ware attacks.

Okay Mark, let's go ahead and take the next question.

Our next question is from Jeffery [ph] with Nomura Securities International.

Yes, thank you very much. And I would like to dive into the service provider outlook a little bit if we could. It sounds as though we understand that things aren't perfect around the world for you. My question is how much of where we are in service rider, do you consider to be cyclical? And how much of this is structural? I mean do you think that we should see the service provider orders be in that 1% to 3% growth range that you've highlighted for the overall business? Thank you.

Let me see if I can break this down into three sort of qualitative areas that I think we are focused on that can actually improve the service provider performance over the next three to seven quarters, over the next two years. I think first is, we have increased our presence or relevance in the web scale cloud providers that we've talked about, that's first and foremost. Second is, there are -- there is innovation that we are working on, that we talked a little bit about at the financial analyst conference, it will be coming out probably a few quarters from now that will give us some transition opportunities in some of our platforms. And then finally, I think the other is, there is -- but I would characterize as a combination of some of the macro issues as well as technology transitions, I think you're going to see customers and we're beginning to have discussions with customers, we're thinking about 5G and while we're not in the macro radio space, one of the key things that they are working on or thinking about is, as I add a significant number of new devices at higher speeds and lower latency out at the edge of the network, what is that going to mean for the performance I'm going to need in the core of the network. So I think as we see some of the geopolitical dynamics hopefully settle down but I wouldn't count on that right now but the overall, I think the 5G trend in that transition is the other one that could help us over the next couple of years.

Thanks, Chuck. Let's go ahead and take the next question.

Our last question comes from the line of Mark Moskowitz with Barclays Capital.

Thanks and good afternoon. I just want to follow-up on the gross margin question, a lot of focus today on the call, how should investors anticipate potential margin volatility over the next one to two years related to the transition to the highly attracted subscription model? And then Kelly, can you weigh in on Rev ASC 606 [ph], like when could we see Cisco introduce some guidance around that as well? Thank you.

Sure. So on the gross margin, I think we need to -- we will have an impact on the memory for the next couple of quarters coming up here for sure. I think the public information out there on what's happening with the supply, there are people that think that maybe eased up but you know, it's too hard to call; so I think that's going to be a headwind for us. I think the other parts of gross margin are continuing to --we're executing and managing those well like we always have on the cost savings side and managing price as well. So I think it's really the big question mark and the big headwind is the memory. On the RevRac [ph] change of ASC 606, we will be giving more color on that in our 10-K and kind of give you a feel of what some of the implications will be, so you will get more color in that and we'll try to quantify for you the impact from revenue and bottom line perspective. I will also just reference you back to -- I did have a page in the analyst conference deck laying out what of our offers would be impacted and what wouldn't be, the kind of to give you a feel along those lines as well to help you think throughout that but we'll give you progressively more details starting with RK [ph] coming up during a few weeks.

Thanks, Kelly and thanks Mark, for the questions. Chuck why don't I turn it over to you to wrap it up.

All right, thanks Marilyn, and thanks everybody for participating with us today. I think there are four key messages that I would part leave you with; first is that, this launch that we announced back about 8 weeks ago was the first of what I believe you should expect from us and just an ongoing cycle of innovation, and very positively received by the press, analysts, customers, partners, employees and I said when I took this job we're going to increase the pace of innovation and this is the first wave which you're going to see coming from us. And when you look at the innovation that was introduced particularly around the automation, around the new platform and the innovation we drove in the security capabilities, that's what you're going to see from us going forward. Secondly, I think with the -- our customers in the environments in which they are operating now, the network's never been more relevant. I talked about how they are building out their infrastructure in very distributive ways, they are managing hundreds of thousands of devices today and they have to be ready to manage a million or more by 2020 and I think that that is why this automation and analytics capability and the security built into the network is so important. The third is, if we continue to have our customers looking for us to help them really build out this secured intelligent platform that spans across this multi-cloud environment for their digital business and I think that our security results on the number of new customers embracing the technology I think is indicative of other buying into this new architecture. And then fourth, I would say that the strategy we've laid out, we're executing very well against. We're managing the business through this transition and when you look at the year that we just completed having record EPS, record cash flow, at the same time that we -- this past quarter increased the software and subscription deferred business, 50% to $5 billion, and so I'm very pleased with where our teams are, what our teams are doing, how we're executing and how we've increased the innovation and the response from our customers. So we look forward to talking to you all again next quarter and thanks for joining us today.

Thanks, Chuck. I'm going to go ahead and provide some last closing remarks here. Cisco's next quarterly earnings conference call which will reflect our fiscal 2018 first quarter results will be on Wednesday, November 15, 2017, at 1:30 P.M. Pacific time, 4:30 P.M. Eastern time. Again, I'd like to remind the audience that in light of Regulation FD, Cisco's policy is not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. We now plan to close the call. If you have any further questions, feel free to reach out to Investor Relations Team at Cisco. And we thank you very much for joining today's call.

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