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`
`We make sales to distributors which we refer to as two-tier systems of sales to the end customer. Revenue from distributors is recognized based
`on a sell-through method using information provided by them. Our distributors participate in various cooperative marketing and other
`programs, and we maintain estimated accruals and allowances for these programs. If actual credits received by our distributors under these
`programs were to deviate significantly from our estimates, which are based on historical experience, our revenue could be adversely affected.
`Allowances for Receivables and Sales Returns
`
`The allowances for receivables were as follows (in millions, except percentages):
`
`Allowance for doubtful accounts
`
`Percentage ofgross accounts receivable
`Allowance for credit loss—lease receivables
`
`Percentage ofgrass lease receivables
`Allowance for credit loss—loan receivables
`
`Percentage ofgross loan receivables
`
`October 26,
`2013
`
`July 27,
`2013
`
`245
`
`4. 5 %
`237
`
`6.2 %
`93
`
`5.1 %
`
`228
`
`4.0 %
`238
`
`6. 3 %
`86
`
`5.2 %
`
`The allowance for doubtful accounts is based on our assessment of the collectibility of customer accounts. We regularly review the adequacy of
`these allowances by considering internal factors such as historical experience, credit quality and age of the receivable balances, as well as
`external factors such as economic conditions that may affect a custom er’s ability to pay and expected default frequency rates, which are
`published by major third—party credit—rating agencies and are generally updated on a quarterly basis. We also consider the concentration of
`receivables outstanding with a particular custom er in assessing the adequacy of our allowances for doubtful accounts. If a major customer’s
`creditworthiness deteriorates, if actual defaults are higher than our historical experience, or if other circumstances arise, our estimates of the
`recoverability of amounts due to us could be overstated, and additional allowances could be required, which could have an adverse impact on
`our operating results.
`
`The allowance for credit loss on financing receivables is also based on the assessment of collectibility of customer accounts. We regularly
`review the adequacy of the credit allowances determined either on an individual or a collective basis. When evaluating the financing
`receivables on an individual basis, we consider historical experience, credit quality and age of receivable balances, and economic conditions
`that may affect a custom er’s ability to pay. When evaluating financing receivables on a collective basis, we use expected default frequency
`rates published by a major third—party credit—rating agency as well as our own historical loss rate in the event of default, while also
`systematically giving effect to economic conditions, concentration of risk and correlation. Determining expected default frequency rates and
`loss factors associated with internal credit risk ratings, as well as assessing factors such as economic conditions, concentration of risk, and
`correlation, are complex and subjective. Our ongoing consideration of all these factors could result in an increase in our allowance for credit
`loss in the future, which could adversely affect our operating results. Both accounts receivable and financing receivables are charged off at the
`point when they are considered uncollectible.
`
`A reserve for future sales returns is established based on historical trends in product return rates. The reserve for future sales returns as of
`October 26, 2013 and July 27, 2013 was $134 million and $119 million , respectively, and was recorded as a reduction of our accounts
`receivable. If the actual future returns were to deviate from the historical data on which the reserve had been established, our revenue could be
`adversely affected.
`
`Inventory Valuation and Liability for Purchase Commitments with Contract Manufacturers and Suppliers
`
`Our inventory balance was $1.5 billion as of each October 26, 2013 and July 27, 2013 , respectively. Inventory is written down based on excess
`and obsolete inventories determined primarily by future demand forecasts. lnv entory write-downs are measured as the difference between the
`cost of the inventory and market, based upon assumptions about future demand, and are charged to the provision for inventory, which is a
`component of our cost of sales. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent
`changes in facts and circurn stances do not result in the restoration or increase in that newly established cost basis.
`
`We record a liability for firm, noncancelable, and unconditional purchase commitments with contract manufacturers and suppliers for
`quantities in excess of our future demand forecasts consistent with the valuation of our excess and obsolete inventory. As of October 26, 2013 ,
`the liability for these purchase commitments was $169 million , compared with $172 million as of July 27, 2013 , and was included in other
`current liabilities. Our provision for inventory was $18 million and $34 million for the first quarters of fiscal 2014 and 2013, respectively. The
`provision for the liability related to purchase commitm ents with contract manufacturers and suppliers was $30 million and $14 million for the
`first quarters of fiscal 2014 and 2013, respectively.
`
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`If there were to be a sudden and significant decrease in demand for our products, or if there were a higher incidence of inventory obsolescence
`because of rapidly changing technology and customer requirements, we could be required to increase our inventory write-downs, and our
`liability for purchase commitments with contract manufacturers and suppliers, and accordingly our profitability could be adversely affected.
`We regularly evaluate our exposure for inventory write-downs and the adequacy of our liability for purchase commitments. Inventory and
`supply chain management remain areas of focus as we balance the need to maintain supply chain flexibility to help ensure competitive lead
`times with the risk of inventory obsolescence, particularly in light of current macroeconomic uncertainties and conditions and the resulting
`potential for changes in future demand forecast.
`
`Warranty Costs
`
`The liability for product warranties, included in other current liabilities, was $492 million as of October 26, 2013 , compared with $431 million
`as of July 27, 2013 . See Note 12 to the Consolidated Financial Statements. Our products are generally covered by a warranty for periods
`ranging from 90 days to five years, and for some products we provide a limited lifetime warranty. We accrue for warranty costs as part of our
`cost of sales based on associated material costs, technical support labor costs, and associated overhead. Material cost is estimated based
`primarily upon historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment.
`Technical support labor cost is estimated based primarily upon historical trends in the rate of custom er cases and the cost to support the
`customer cases within the warranty period. Overhead cost is applied based on estimated time to support warranty activities.
`
`The provision for product warranties during the first quarters of fiscal 2014 and 2013 was $240 million and $162 million , respectively. If we
`experience an increase in warranty claims compared with our historical experience, or if the cost of servicing warranty claims is greater than
`expected, our profitability could be adversely affected.
`
`Share—Based Compensation Expense
`
`Share-based compensation expense is presented as follows (in millions):
`
`Three Months Ended
`
`October 26,
`20 13
`
`October 27,
`2 01 2
`
`Share-based compensation expense
`
`$
`
`309
`
`$
`
`306
`
`$
`
`3
`
`Restricted stock units are valued using the market value of our common stock on the date of grant, discounted for the present value of expected
`dividends. Restricted stock unit awards with market-based conditions are valued using a Monte Carlo simulation. See Note 14 to the
`Consolidated Financial Statements.
`
`The determination of the fair value of employee stock options and employee stock purchase rights on the date of grant using an option-pricing
`model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. For employee stock
`options and employee stock purchase rights, these variables include, but are not limited to, the expected stock price volatility over the tenn of
`the awards, the risk-free interest rate, and expected dividends as of the grant date. For employee stock options, we historically have used the
`implied volatility for two—year traded options on our stock as the expected volatility assumption required in the lattice—binomial model. For
`employee stock purchase rights, we used the implied volatility for traded options (with lives corresponding to the expected life of the employee
`stock purchase rights) on our stock. The selection of the implied volatility approach was based upon the availability of actively traded options
`on our stock and our assessment that implied volatility is more representative of future stock price trends than historical volatility. The
`valuation of employee stock options (granted in prior periods, but for which expense was recognized during the period presented) is also
`impacted by kurtosis and skewness, which are technical measures of the distribution of stock price returns and the actual and projected
`employee stock option exercise behaviors.
`
`Because share-based compensation expense is based on awards ultimately expected to vest, it has been reduced for forfeitures. If factors change
`and we employ different assumptions in the application of our option-pricing model in future periods or if we experience different forfeiture
`rates, the compensation expense that is derived may differ significantly from what we have recorded in the current period.
`Fair Value Measurements
`
`Our fixed income and publicly traded equity securities, collectively, are reflected in the Consolidated Balance Sheets at a fair value of $42.9
`billion as of October 26, 2013 , compared with $42.7 billion as of July 27, 2013 . Our fixed income investment portfolio, as of October 26,
`2013 , consisted primarily of high—quality investm ent—grade securities. See Note 8 to the Consolidated Financial Statements.
`
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`As described more fully in Note 9 to the Consolidated Financial Statements, a valuation hierarchy is based on the level of independent,
`objective evidence available regarding the value of the investments. It encompasses three classes of investments: Level 1 consists of securities
`for which there are quoted prices in active markets for identical securities; Level 2 consists of securities for which observable inputs other than
`Level 1 inputs are used, such as quoted prices for similar securities in active markets or quoted prices for identical securities in less active
`markets and model-derived valuations for which the variables are derived from, or corroborated by, observable market data‘, and Level 3
`consists of securities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair
`value.
`
`Our Level 2 securities are valued using quoted market prices for similar instruments or nonbinding market prices that are corroborated by
`observable market data. We use inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are
`obtained from independent pricing vendors, quoted market prices, or other sources to determine the ultimate fair value of our assets and
`liabilities. We use such pricing data as the primary input, to which we have not made any material adjustments during fiscal 2014 and fiscal
`2013 , to make our assessments and determinations as to the ultimate valuation of our investment portfolio. We are ultimately responsible for
`the financial statements and underlying estimates.
`
`The inputs and fair value are reviewed for reasonableness, may be further validated by comparison to publicly available information, and could
`be adjusted based on market indices or other information that management deems material to its estimate of fair value. The assessment of fair
`value can be difficult and subjective. However, given the relative reliability of the inputs we use to value our investment portfolio, and because
`substantially all of our valuation inputs are obtained using quoted market prices for similar or identical assets, we do not believe that the nature
`of estimates and assumptions affected by levels of subjectivity and judgment was material to the valuation of the investment portfolio as of
`October 26, 2013 . We had no Level 3 investments in our total portfolio as of October 26, 2013 .
`
`0ther—than—Temp0rary Impairments
`
`We recognize an impairment charge when the declines in the fair values of our fixed income or publicly traded equity securities below their
`cost basis are judged to be other than temporary. The ultimate value realized on these securities, to the extent unhedged, is subject to market
`price volatility until they are sold.
`
`If the fair value of a debt security is less than its amortized cost, we assess whether the impairment is other than temporary. An impairment is
`considered other than temporary if (i) we have the intent to sell the security, (ii) it is more likely than not that we will be required to sell the
`security before recovery of its entire amortized cost basis, or (iii) we do not expect to recover the entire amortized cost of the security. If an
`impairment is considered other than temporary based on
`or (ii) described in the prior sentence, the entire difference between the amortized
`cost and the fair value of the security is recognized in earnings. If an impairment is considered other than temporary based on condition (iii),
`the amount representing credit loss, defined as the difference between the present value of the cash flows expected to be collected and the
`amortized cost basis of the debt security, will be recognized in earnings, and the amount relating to all other factors will be recognized in other
`comprehensive income (OCT). In estimating the amount and timing of cash flows expected to be collected, we consider all available
`information, including past events, current conditions, the remaining payment tenns of the security, the financial condition of the issuer,
`expected defaults, and the value of underlying collateral.
`
`For publicly traded equity securities, we consider various factors in determining whether we should recognize an impairment charge, including
`the length of time and extent to which the fair value has been less than our cost basis, the financial condition and near-term prospects of the
`issuer, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.
`
`There were no impairment charges on our investments in publicly traded equity securities and fixed income securities in the first quarters of
`fiscal 2014 and 2013 . Our ongoing consideration of all the factors described previously could result in additional impairment charges in the
`future, which could adversely affect our net income.
`
`We also have investments in privately held companies, some of which are in the startup or development stages. As of October 26, 2013 , our
`investments in privately held companies were $884 million , compared with $833 million as of July 27, 2013 , and were included in other
`assets. See Note 6 to the Consolidated Financial Statements. We monitor these investments for events or circumstances indicative of potential
`impairment, and we make appropriate reductions ir1 carrying values if we determine that an impairment charge is required, based primarily on
`the financial condition and near-term prospects of these companies. These investments are inherently risky because the markets for the
`technologies or products these companies are developing are typically in the early stages and may never materialize. Our impairment charges
`on investments in privately held companies were $1 million and $10 million for the first quarters of fiscal 2014 and 2013 , respectively.
`
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`Goodwill and Purchased Intangible Asset Impairments
`
`Our methodology for allocating the purchase price relating to purchase acquisitions is determined through established valuation techniques.
`Goodwill represents a residual value as of the acquisition date, which in most cases results in measuring goodwill as an excess of the purchase
`consideration transferred plus the fair value of any noncontrolling interest in the acquired company over the fair value of net assets acquired,
`including contingent consideration. We perform goodwill impairment tests on an annual basis in the fourth fiscal quarter and between annual
`tests in certain circumstances for each reporting unit. The assessment of fair value for goodwill and purchased intangible assets is based on
`factors that market participants would use in an orderly transaction in accordance with the new accounting guidance for the fair value
`measurement of nonfinancial assets.
`
`The goodwill recorded in the Consolidated Balance Sheets as of October 26, 2013 and July 27, 2013 was $23.8 billion and $21.9 billion ,
`respectively. The increase in goodwill for the first quarter of fiscal 2014 was due in large part to our acquisition of Sourcefire. In response to
`changes in industry and market conditions, we could be required to strategically realign our resources and consider restructuring, disposing of,
`or otherwise exiting businesses, which could result in an impairment of goodwill. There was no impairment of goodwill in the first quarters of
`fiscal 2014 and 2013 .
`
`We make judgments about the recoverability of purchased intangible assets with finite lives whenever events or changes in circumstances
`indicate that an impairment may exist. Recoverability of purchased intangible assets with finite lives is measured by comparing the carrying
`amount of the asset to the future undiscounted cash flows the asset is expected to generate. We review indefinite-lived intangible assets for
`impairment annually or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Recoverability of
`indefinite-lived intangible assets is measured by comparing the carrying amount of the asset to the future discounted cash flows the asset is
`expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the
`carrying value and the fair value of the impaired asset. Assumptions and estimates about future values and remaining useful lives of our
`purchased intangible assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry
`and economic trends and internal factors such as changes in our business strategy and our internal forecasts. There were no impairment charges
`related to purchased intangible assets for the first quarters of fiscal 2014 and 2013 . Our ongoing consideration of all the factors described
`previously could result in additional impairment charges in the future, which could adversely affect our net income.
`Income Taxes
`
`We are subject to income taxes in the United States and numerous foreign jurisdictions. Our effective tax rates differ from the statutory rate,
`primarily due to the tax impact of state taxes, foreign operations, research and development (“R&D”) tax credits, domestic manufacturing
`deductions, tax audit settlements, nondeductible compensation, international realignm ents, and transfer pricing adjustments. Our effective tax
`rate was 21.4% and 20.5% in the first quarters of fiscal 2014 and 2013 , respectively.
`
`Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe
`our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is
`reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the
`closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts
`recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for
`income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net
`interest and penalties.
`
`Significant judgment is also required in detennining any valuation allowance recorded against deferred tax assets. In assessing the need for a
`valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income, and the feasibility
`of tax planning strategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will
`adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is
`made.
`
`Our provision for income taxes is subject to volatility and could be adversely impacted by earnings being lower than anticipated in countries
`that have lower tax rates and higher than anticipated in countries that have higher tax rates‘, by changes in the valuation of our deferred tax
`assets and liabilities; by expiration of or lapses in the R&D tax credit or domestic manufacturing deduction laws; by expiration of or lapses in
`tax incentives; by transfer pricing adjustments, including the effect of acquisitions on our intercompany R&D cost-sharing arrangement and
`legal structure‘, by tax effects of nondeductible compensation‘, by tax costs related to intercompany realignments; by changes in accounting
`principles; or by changes in tax laws and regulations, including possible U.S. changes to the taxation of earnings of our foreign subsidiaries, the
`deductibility of expenses attributable to foreign income, or the foreign tax credit rules. Significant judgment is required to determine the
`recognition and measurement attributes prescribed in the accounting guidance for uncertainty in income taxes. The accounting guidance for
`uncertainty in income taxes applies to all income tax positions, including the potential recovery of previously paid taxes, which if settled
`unfavorably could adversely impact our provision for income taxes or additional paid-in capital. As a result of certain of our ongoing
`employment and capital investment actions and commitments, our income in certain countries is subject to
`
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`
`reduced tax rates and in some cases is wholly exempt from tax. Our failure to meet these commitments could adversely impact our provision
`for income taxes. ln addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service (IRS)
`and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy
`of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse
`impact on our operating results and financial condition.
`
`Loss Contingencies
`
`We are subject to the possibility of various losses arising in the ordinary course of business. We consider the likelihood of loss or impairment
`of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss, in determining loss contingencies. An
`estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss
`can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted
`and whether new accruals are required.
`
`Third parties, including custom ers, have in the past and may in the future assert claims or initiate litigation related to exclusive patent,
`copyright, trademark, and other intellectual property rights to technologies and related standards that are relevant to us. These assertions have
`increased over time as a result of our growth and the general increase in the pace of patent claims assertions, particularly in the United States. lf
`any infringement or other intellectual property claim made against us by any third party is successful, or if we fail to develop non-infringing
`technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results, and financial
`condition could be materially and adversely affected.
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`RESULTS OF OPERATIONS
`
`Revenue
`
`The following table presents the breakdown of revenue between product and service (in millions, except percentages):
`
`Revenue:
`
`Product
`
`Percentage of revenue
`Service
`
`Percentage of revenue
`
`Total
`
`Three Months Ended
`
`October 26,
`2013
`
`October 27,
`2012
`
`Variance
`in Dollars
`
`Variance
`in Percent
`
`9,397
`
`$
`
`77.8 %
`2,688
`
`22.2 %
`
`9,297
`
`78.3 %
`2,579
`
`21.7 %
`
`$
`
`12,085
`
`$
`
`11,876
`
`$
`
`100
`
`109
`
`209
`
`1.1%
`
`4.2%
`
`13%
`
`We manage our business primarily on a geographic basis, organized into three geographic segments. Our revenue, which includes product and
`service for each segment, is summarized in the following table (in millions, except percentages):
`
`Revenue:
`
`Americas
`
`Percentage of revenue
`EMEA
`
`Percentage of revenue
`APJC
`
`Percentage of revenue
`Total
`
`Three Months Ended
`
`October 26,
`2013
`
`October 27,
`2012
`
`Variance
`in Dollars
`
`Variance
`in Percent
`
`7,316
`
`60. 5 %
`2,933
`
`24. 5 %
`1,836
`
`15.2 %
`12,085
`
`$
`
`7,023
`
`59.2 %
`2,841
`
`23. 9 %
`2,012
`
`16. 9 %
`11,876
`
`293
`
`92
`
`(176)
`
`209
`
`4.2 %
`
`3.2 %
`
`(8.70%
`
`1,3 %
`
`Three Months Ended October 26, 2013 Comyared with Three Montlrs Ended October 27, 2012
`
`For the first quarter of fiscal 2014 , as compared with the first quarter of fiscal 2013 , total revenue increased by 2% . Within total revenue
`growth, product revenue increased by 1% , while service revenue increased by 4% . Our total revenue reflected growth in our Americas and
`EMEA geographic segments, while revenue declined in the APTC segment.
`
`Across our geographic segments, product revenue for most of our emerging countries experienced a decline. The emerging countries of Brazil,
`Russia, India, China, and Mexico (“BRICM”), collectively experienced a 12% product revenue decline, with the decline across all of our
`customer markets.
`
`From a worldwide customer markets standpoint, we experienced product revenue growth across most of our custom er markets except in the
`service provider market, where we experienced a product revenue decline across all our geographic segments.
`
`We conduct business globally in numerous currencies. The direct effect of foreign currency fluctuations on revenue has not been material
`because our revenue is primarily denominated in U.S. dollars. However, if the U.S. dollar strengthens relative to other currencies, such
`strengthening could have an indirect effect on our revenue to the extent it raises the cost of our products to non-U. S. custom ers and thereby
`reduces demand. A weaker U.S. dollar could have the opposite effect. However, the precise indirect effect of currency fluctuations is difficult
`to measure or predict because our revenue is influenced by many factors in addition to the impact of such currency fluctuations. We do believe
`that there may have been some negative indirect effect on our revenue and business momentum in certain of the emerging countries where
`there was depreciation of the local currency relative to the U.S. dollar although such indirect effects are difficult to measure as noted.
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`In addition to the impact of macroeconomic factors, including a reduced IT spending environment and budget-driven reductions in spending by
`government entities, revenue by segment in a particular period may be significantly impacted by several factors related to revenue recognition,
`including the complexity of transactions such as multiple—element arrangements; the mix of financing arrangements provided to our channel
`partners and customers; and final acceptance of the product, system, or solution, among other factors. In addition, certain customers tend to
`make large and sporadic purchases, and the revenue related to these transactions may also be affected by the timing of revenue recognition,
`which in turn would impact the revenue of the relevant segment. As has been the case in certain of our emerging countries from time to time,
`customers require greater levels of financing arrangements, service, and support, and these activities may occur in future periods, which may
`also impact the timing of the recognition of revenue.
`
`Product Revenue by Segment
`
`The following table presents the breakdown of product revenue by segment (in millions, except percentages):
`
`Product revenue:
`
`Americas
`
`Percentage ofproduct revenue
`EMEA
`
`Percentage ofproduct revenue
`APJC
`
`Percentage ofproduct revenue
`Total
`
`Three Months Ended
`
`October 26,
`2013
`
`October 27,
`2012
`
`Variance
`in Dollars
`
`Variance
`in Percent
`
`5,533
`
`58 9 %
`2,381
`
`25.3 %
`1,483
`
`15.8 %
`9,397
`
`$
`
`5,314
`
`57. I %
`2,332
`
`25.1 %
`1,651
`
`17. 8 %
`9,297
`
`$
`
`219
`
`49
`
`4.1 %
`
`2.1 %
`
`(l0.2)%
`
`1_1 %
`
`Three Months Ended October 26, 2013 Compared with Three M0flfl1S Ended October 27, 2012
`Americas
`
`Product revenue in the Americas segment grew by 4% . This product revenue growth was across most of our customer markets, led by
`moderate growth in the public sector, commercial, and enterprise markets. However, we experienced a decline in product revenue in the service
`provider market. From a country perspective, product revenue increased by approximately 3% in both the United States and Canada.
`
`During the fourth quarter of fiscal 2013, we experienced some weakness in our business momentum in certain countries within Latin America.
`This weakness continued during the first quarter of fiscal 2014, as product revenue declined by 3% in Mexico compared with the first quarter
`of fiscal 2013 , and we also experienced a decline in our business momentum in Brazil, consistent with what we observed in other emerging
`countries.
`
`El\/[EA
`
`Product revenue in the EMEA segment increased by 2% , led by solid growth in the public sector market and, to a lesser degree, in the
`commercial market. We experienced declines in product revenue in the enterprise and service provider markets. Similar to what we observed in
`our other geographic segments, we experienced considerable weakness with respect to product revenue in the emerging countries within
`EMEA. In addition, consistent with what we experienced in fiscal 2013, we continued to experience weakness within various parts of Europe
`such as Southern Europe.
`From an individual country perspective, product revenue increased by 28% in the Netherlands and 2% in the United Kingdom, partially offset
`by product revenue declines of 16% in Russia, 8% in Germany and 2% ir1 France.
`APIC
`
`Product revenue in the APIC segment decreased by 10% . The product revenue decline was across most of our custom er markets in the APJC
`segment, led by a significant product revenue decline in the service provider market, and to a lesser degree in the public sector and enterprise
`markets. For the first quarter of fiscal 2014, we continued to experience weakness in China with product revenue down 17% year over year, as
`we work through changing political dynamics in this country We also continued to experience declines in many of the other emerging
`countries in this segment, most notably India which experienced a year-over-year product revenue decline of 16%. Other countries which
`contributed to the weakness in this segment included Japan which experienced a year-over-year product revenue decline of 23% driven by a
`reduction in business momentum in the service provider market and Australia which experienced a year-over-year product revenue decline of
`6%.
`
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`Product Revenue by Groups of Similar Products
`
`In addition to the primary view on a geographic basis, we also prepare financial information related to groups of similar products and customer
`markets for various purposes. Our product categories consist of the following categories (with subcategories in parentheses): Switching (fixed
`switching, modular switching, and storage); NGN Routing (high—end routers, mid—range a