AudioCodes Ltd (AUDC) 2002 Q3 法說會逐字稿

Good morning.

My name is

and I will be your conference facilitator today.

At this time I would like to welcome everyone to the AudioCodes' third quarter 2002 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers remarks there will be a question and answer period.

If you would like to ask a question during this time, simply press star then the number one on your telephone keypad.

If you would like to withdraw your question, press the pound key.

Thank you, Mr.

.

You may now begin the conference.

Thank you.

This is

of Thompson Financial Global Consulting.

I would like to welcome everyone to the AudioCodes' third quarter 2002 earnings conference call.

Let me begin the call with a brief safe harbor statement concerning AudioCodes business outlook for future economic performance, product introductions and plans and objectives related thereto and statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters.

These are forward-looking statements as that term is defined under U.S.

Federal Securities law.

Forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements.

These risks, uncertainties and factors include but are not limited to the effect of global economic conditions in general, conditions in AudioCodes industry and target markets in particular, shifts in supply and demand, market acceptance of new products and continuing product demand, the impact of competitive products and pricing on AudioCodes and it's customers products and markets, timely product and technology development, upgrades and the ability to manage changes in the market conditions as needed and other factors detailed in AudioCodes filings with the Securities and Exchange Commission.

AudioCodes assumes no obligation to update that information.

Joining us today from Audio Codes we have

, Chairman, President and Chief Executive Officer and we have Mike

, Chief Operating Officer and Chief Financial Officer.

I would now like to turn the call over to Mike.

Mike please go ahead.

Thank you Eric.

Good morning everyone and thank you for joining today's conference call.

I will review the quarterly financials and give guidance for the fourth quarter and then I will turn the call over to Shabtai, who will review the business highlights for the quarter, following which we will have a brief Q&A session.

Now for the financial highlights.

In the third quarter, revenue was 7.2 million dollars which represents an 8% increase from the second quarter of 2002, this in line with the guides that we provides for the third quarter.

Gross margin increased to 53% from last quarters 48%.

One extreme is a one time sales written off inventory.

Operating expenses decreased 2% from Q2 02 levels to 7.6 million dollars.

Audio Codes reported a net loss of 3.3 million dollars and 9 cents per share.

Audio Codes closed the quarter with 254 full-time employees at an increase of 2 employees versus the previous quarter.

Cash balances for this quarter were 116.3 million dollars compared to approximately 120.8 million dollars last quarter. 4.5 million dollars options in cash balances.

It attributed to a negative cash flow from operations of approximately 2.4 million dollars compared to 3 million dollars last quarter.

Investments and capital equipment were 500,000 and the company used approximately 1.9 million dollars to fund it share of repurchase programs.

DSO's?? were 37 days at which is below last quarters 52 days.

Our guidance for the fourth quarter is as follows, based on our current visibility, we expect revenues to remain flat in comparison to Q3, and we forecast a loss per share of 9 and 10 cents in the fourth quarter.

This is based on approximately 38.2 million shares.

Now I will turn the call over to Shabtai.

Shabtai?

Thanks Mike.

Good morning everybody.

What I would like do, is basically go where the

quarter.

First and foremost this is our fourth consecutive quarter where we worry about revenues growing.

This is in evidence to our educational plan to basically return to

and diversity by the end of next year and of year 2003.

We saw performance achieved in certain key parameters, of current revenues, we had narrowing losses.

We had successful launch of the system for our client and I will get to that, that's a major highlight in this quarter.

We have been able to control our expenses.

We have continued building before on new personal base and we have focused substantial reservice on including

.

We are very much encouraged that a growth of 44% over the same quarter a year ago.

Looking at our investment, it is the same investment we have done in R&D and product development.

Even more rich, and more mature feature rich product folio and in face of weakening competition.

We believe that we should be able to maintain at least the same growth rate for the next full quarter going forward.

We do believe that our new design we must make this quarter, will allow us to use that momentum despite very severe slowdown in the

market and I refer specifically to the

states of

enterprise, some of our sales in the

states have been adversely affected and we suffer from that.

Otherwise we would have been more successful this quarter.

And so the more encouraging point in all that is that we really saw growth in

mainly made in product lines that we view as strategic to our future.

As I've mentioned before,

is our ability to control our expenses while expending the investment in our product line.

We have implemented a company-wide voice reduction that's allowed us to contain our expense.

Then we've been able to continue our flow of new products to the market.

This quarter we have announced a new mid-size media gateway, the 5,000 series that will be targeting the cable, the voice-over few wire line and in the future, also the wireless space.

We've announced a new product for us, which is the

that will allow basically to offer a network solution that's, we will be able basically to control and manage a substantial number of gateways located in different facilities around the network.

Then we have announced a new board with more dense, more density and more capacity, a petri-board, 672 channels, basically allowing us to treat more of that solution in the North American market.

But more than all I think this quarter we've seen very nice launch of system product side.

This is the first quarter where out of the quarterly revenue systems, which is a level of 10 percent and above.

Basically we've seen systems side, one system went into the cable space and we have announced with Erickson in Europe, in one such application.

We then saw few systems to the wireless enterprise space and then more notably, we've sold wire LAN application media gateways at the value of $500,000.

All in all, that's about 10 percent and that's very encouraging, remembering that we have set forth as the target to reach a level of 25 percent consistent in year 2003.

Going more into all the systems of our systems specificity, this has been in the cable space, our first quarter in the market and have been very successful.

As we have mentioned we have deployed one such solution in Switzerland together with Erickson.

Then we have been working substantially with another system integrator to get to the

and all in all we are involved right now into a pilot projects in Europe.

We offer those initial air codes will bear fruit next year.

The wireless space, basically involves two areas, one which is the 3G area.

The other one is wireless for enterprise application.

We have nice development in the enterprise wireless space in the

, working with some of the

companies in that space.

And then we have focused the 3G area mainly in China.

We believe that China will be among the first regions to take advantage of the capabilities of 3G

substantially for world services.

We are trying to work here in

direction.

One is to go and work with

manufacturers in China and try to create partnerships and joint venture there.

The other one is we are working with T1 OEM both in North America and Europe trying to get into their product solution

to other countries.

In that activity we basically are in a evaluation stage of

us to make the decision and we hope that in few months that we'll see some of the decision making

.

So to summarize our activity in systems space we have won an initial pileup in the

.

Those two

solution main in Europe.

We have momentum.

The selling could be building up in the

area and mainly to China and then we have some activity in the wireless enterprise space.

We need to remember still that we do see continued slow down in the carrier spending and still once

sees into market timing both are keeping the flow is good for.

We may be seeing some delay of one to two

going forward.

Other items, in the market, we definitely see substantially lower cap acts into the carrier space in 2002.

It is just quote some numbers from

research quote published at the end of the second quarter.

Spending in that segment fell from about 807 million down to 424 million, which is 60 percent reduction.

That explains much of our inability to grow revenues in such a stage.

That has severely affected our sales in that area, mainly the modem business line.

One more fact,

to the fact that China has been -

to the China, substantially weaker this quarter.

This first two quarter 2002.

We do know that there is some slow down in the Chinese market too.

So all in all in the carrier space they are prospective of both quarters that there are basically no major high-density gateways

of deployment and visibility in that space is not that good.

On the other end, we do see the enterprises which

market is holding up very nicely.

Again, according to

we should expect this year growth between 12 and 15 percent.

Some of the leading

in that space or PBX networking and distribution call center application and we are focusing our efforts on substantially towards those specific application.

One nice surprise this quarter has been the fact that we do see new application developing in the defense market and taking to the fact - consideration the fact that budget in that space has not been

that much.

We got at least to see some new potential building forward in that market.

We are encouraged by the growth of ourselves in the U.S. market.

We have seen quarter-to-quarter growth of 20 percent in second quarter in a row.

We are progressing in our systems agenda in the Europe market, developing that with the T1 OEM's there.

As I mentioned before, we've enjoyed some nice growth in the four

in terms of wireless enterprise applications and that's about the message relates to the original technology line and more specifically in our sixth product line.

We are introducing new products that support 24 channels.

We are enjoying new designs in this area and again we have seen the fact that we provide feature rich software and good support allows us to maintain our market sharing and that's it.

That's pretty much covers, my summary of the quarter.

Okay, we will go now to questions and answers.

We will start the Q&A session at this time.

At this time, I will like to remind everyone in order to ask a question, please press Star then the number 1 on your telephone key pad.

We will pause for a just a moment, to compile the Q&A roster.

Our first question comes from Tad Jackson.

Hey Shabtai, hey Mike, how are you?

I am okay.

Thank you.

A few questions for you with regards to sales mix.

One could you give us the geographic breakdown, two could you give us kind of the breakdown systems, subsystems, check technology, and three could you give us the breakdown between enterprise and carrier and then if you could, sort of juxtapose that with the second quarter.

Thanks.

Okay, the first question is the geographic breakdown, so the United States was 42% this quarter.

The Asia Pacific region 41%, Europe 7% and Israel 10%.

The sales by product line, as I have mentioned before system sales 11%, subsystems which is board modules and outer line media gateways, 67%.

Kip said 17% and other 5%.

Regarding the division between carrier and enterprise.

Do I have anyone to comment on that?

It's very difficult to we really do not advise that specifically in our products.

Simply because when we sell boards, some of them go to the carrier systems, some of them go enterprise application.

We may in the future try to segment those, but at least at this stage, we really do not have good visibility.

All I can say, if I need to attribute now, so I would say that out of the 11%, 8 went to the carrier, 33 went to the enterprise.

It's pretty more difficult...all our alliance cannot mitigate, we will definitely go into enterprise application and as far as chips are concerned, again, my

is more into the enterprise application, but we will try to do, probably going forward is put the label up on those

write the segment down as to carrier and enterprise.

Okay.

Congrats on the quarter.

Our next question comes from Barry

.

Hi Schacti and Mike.

First can you talk about when you think about your systems strategy and potential

.

From a timing standpoint, when do you think you're going to have more visibility about potential announcements of being corporate in a large OEM voice-over package strategy?

And then second question, and this is for your

, if you could just touch on the op ex going forward and what you think the impact of that seven percent reduction will be.

Can we take the op ex lower from here?

And then final question is just on the flat sequential revenue guidance, it seems as if, based on your tone, things have deteriorated a bit throughout the quarter and that's why you're giving flat as opposed to maybe up five or six percent.

Is that correct?

Thanks.

OK, let me answer the first question.

We really are in a difficult position as to announcements.

Usually up to our

for us to allow us to name them.

So in fact it's pretty difficult for me.

All I would be able to say is that we have won a contract; however what I can tell you is that right now, as I've mentioned before, we have already won design wins at one of the T1 OEM's, with our low-end system product.

We have a continuous, actually, a full converging discussion and negotiation with another very big T1 OEM on integrating some of the system product in various product line

, and we should be able to see through from that starting from the second quarter next year.

Then nice surprise for us was the fact that with another T1 OEM, our product has been into their tenders when they went to several service providers around the world.

So we have been included in more than three or four such tenders.

So again, when would be able to name those OEMs, difficult question to answer.

We do have progress and we will actually have to wait for them to allow us to name them.

We have mentioned of course, after this quarter we have mentioned Erickson this quarter, but our is really more substantial than that.

OK, the, regarding the op ex, as you can see in the last few quarter,

is constantly bringing down the op ex.

We're now at a level of about 7.6 million due to the wage cut during the quarter.

On the one hand expenses will go down more than what we see today, but it will be mitigated slightly by the fact that we still are increasing the amount of employees.

I had mentioned during the first part of the conference call, we did increase employees this quarter by two employees and we'll be increasing also in the fourth quarter, the number of employees in the company.

So that will increase expenses, even though net, I think total op ex will go down in the fourth quarter.

Regarding guidance, as you know, in the last year, AudioCodes has adopted a policy where we take our backlog for the quarter and use that perimeter as the main perimeter to decide whether guidance will be, and based on the current backlog, we decided to give guidance, which is flat.

Take into account that what's happening in the environment, the telecom environment, telecom space is quite difficult.

The fact that we're increasing revenue up till now is a substantial issue for us and the fact that companies are

and we're staying flat is also an achievement.

We hope though that we'll be able to do better than the guidance, but of course the guidance is what counts at the moment.

OK, and just one last question on the customer mix, can you just give a little color around customer mix?

There were any 10 percent customers that largest customers as a percentage of revenue?

Thanks.

First of all, there is no 10 percent customer.

Every single customer mix is a fact that just like last quarter the top 15 customers comprised 68 percent of our revenue.

Which is good for our

quarter and it's a good number.

It's a very good customer base.

OK.

Thank you.

Your next question comes from

.

Hi.

Thank you.

Hi Shabtai, Mike.

Hi

.

Just regarding your guidance, you're guiding - I believe I understood that you're guiding for roughly a flat operating expense, flat revenues but EPS seems to be growing.

Is that because of gross margins should be coming down in Q4?

Gross margins

be coming down in Q4.

We think gross margins will be the same or better.

I think we've - on one hand we take into account that our expectations are going down.

On the other hand we have an increase in the amount of employees scheduled for next quarter.

So, net, I think we'll go down but not as much as expected based on the

we did and expect that we're doing it at the moment.

That's on that part.

On the revenue line that we're guiding flat simply because the visibility is low.

Doesn't mean that there isn't a possibility of doing better, but simply we want to be conservative.

And based on the low visibility at the moment we want to be conservative and careful and cautious.

OK.

Just wanted to understand the answer you give to the question before me.

You're basically saying that you're using your backlog to provide guidance.

Does that mean your visibility right now for the guidance you're providing is very high?

And can, you know, quantify how high it is?

Yes.

We have a 50 percent backlog at the moment so we're deciding guiding flat which is

and sales will possibly 7.2 million.

I have half of that in backlog.

OK.

And finally when do you - what's your - what would your operating break even at the operating line?

What kind of revenues can you generate?

What revenue level do I need to get to break even?

At the operating line, yes.

Yes.

It's pretty close to $14 million.

Close to 14, great.

Thanks a lot and good luck.

Thank you.

Your next question comes from

.

Hi.

Good afternoon.

Most of the questions have been asked, so just a couple of additional ones.

Can I - given the slow down that you've been talking about especially over the last, seems to be, the last quarter.

Did you say that the break even point with the sales be second half of next year?

Yes.

I think Shabtai mentioned during his opening statements that we're still very strong on our guidance regarding next year, that we are trying to target internally and externally that second half of next year we'll break even.

Is that more likely to be Q4 now than Q3?

We said second half.

We didn't give a specific quarter, but definitely, you know, give or take a quarter we could miss.

But in general we want - by end of the year we want to break even.

OK.

And you mentioned a couple of contracts, or you've announced other contracts at

.

Can you give some sort of indication of if you're seeing revenues from that yet or is that something which we'll see next year?

And how that's going?

I think both the ramp ups and those new product lines that designed in will ramp up in 2003.

OK.

And lastly I can understand that OEM bills are actually being enclosed and that you farm out some because the OEM is an national plan to this stage, or are you still working on closing these bills?

What we can say is that we are in both of them in very advanced stages.

They are not close yet, but we do feel that while we are

closure of those agreement, we feel confident that we should be able to be in that position in the next few weeks.

Could those OEM still market, still designing in your product from that day of marketing?

We believe so, yes.

Okay that's great, thank you very much.

Thanks.

At this time, I would like to remind everyone in order to ask a question, please press Star and then the number 1 on your telephone key pad.

Our next question comes from

.

Hello, good afternoon Shabtai and Mike.

where markets just really aren't wrapping up for me.

Mike you mentioned some increase, some future increase in head count.

You are just specifying on the growth areas you plan on increasing the

.

And Shabtai, you also mentioned some defense application that you are starting to get involved with.

Can you provide us with some more color on that?

Okay, on the head counts, I...the

increased head count in the last year where head counts increased by 10% from Q3 01.

When seeking a head count, always in the R&D marketing, and sales and marketing, and those are two areas that we increase the head count.

We are investing a lot of expert and resources in pushing out the new product and new system products.

The systems initiative and we are investing in the sales force to push those products down to the market.

As far as the intense application, I believe that we are witnessing in the last few months that there is growing recognition in that phase, there is

for our communications and

converge infrastructure for data invoice, picking up essentially in those place, essentially because they are built to scale up and

harsh conditions, so we have seen mainly

helping you primarily for data applications in

in use by those

.

All of a sudden being perceived that an infrastructure that would allow them to expend their voice communication capabilities and that is...we have seen certain product already, so this is

as we see in several places in the world.

Okay, that you very much and the good numbers for this quarter and good luck for the future.

Okay.

Thank you.

Your next question comes from

.

Hi Shabtai, hi Mike.

Good numbers.

My first question is regarding the burn rate for next quarter, what should it be?

As I said before, the burn rate

should be around...the cash flow, I'm sorry.

I think what the greatest thing this quarter is the fact that from operating reasons we burnt 2.4 million dollars worth of cash compared to 3 million last quarter.

And based on that, I think we can guide that the burn rate would be between 2.5 million to 3.5 million this quarter.

Second question is regarding the trial with Erickson, what's the next phase on this trail and when do you expect to see revenues from this corporation?

OK, what happened was that we have had a very successful field trial with Erickson in that space, and working with that operator, that operator has got few more location in Europe where he operates the same switch.

So that allows us basically to expend it for a successful trial.

We believe that we will see continuation of that on the fill smaller base this quarter, but we do believe that in 2003 that will be expended.

Again, we do not view this as a substantial project for us, but it's the first implementation of our voice-over IP cable solution meeting telecom, central office performance.

That's key to us and that's where we see that trial with Erickson.

OK.

Thank you.

Your next question comes from

.

The subject that I brought up with you all before I'm going to, unfortunately have to bring up again is the buyback and the rate of utilization of the cash.

At the rate that you bought back stock in the third quarter, you essentially used one percent of your cash.

So you have a four percent annual rate in terms of cash utilization to buy back stock.

You stock's trading at an enormous discount to cash, even close to half of cash per share, 40 percent discount going back and fourth.

You probably could not get an opportunity better than the on you're having now in terms of the market's fear of owning Israeli's stock, the market's fear of Telco equipment, the general lack of interest in small cap, tech, and Telco.

What are you all waiting for?

Why does he only work at a four percent annual rate of cash used to buy back shares?

How is there a better investment out there than your own shares?

Why only $1.8 million in the third quarter when the market was literally giving away your shares to you?

I just don't quite understand why it's such a small rate.

I would think you'd be using 10 percent of your cash per quarter, you know, much less one percent.

So I'd like to understand why that is, and the only conclusion I can have is you have no real faith in your business, in which case, why not just fold up tent and liquidate the company.

Either you're going to buy back your shares because they're giving them away and you have faith in the long-term value of your enterprise, or you don't, in which case, sell the assets to someone who does have faith in the future and return the capital to you owners.

I don't understand and I'd like an explanation.

I think it's actually much simpler than you foresee.

The two types, the two ways of doing it.

One way is a tender offer where you can offer to buy back the company where you're suggesting ...

Which, by the way, I must interrupt you, that's exactly what

this year, so, and they were advised by Goldman Sachs, which is a relatively prestigious organization and they bought back I think about 35 percent of their shares in the open market.

So that's something that's easily doable.

It's been done by one of your peers.

And I agree.

I followed that, but I'm saying what we have done so far is using the buyback mechanism, which has its constraints, I'm sure you're aware that legally doing a buyback through the market has its constraints regarding the amount you're allowed to buy.

It's based on the volume restrictions and time restrictions during the day and it has to be during times when it's a supply and not demand for the stock.

And therefore, we were very, actually very aggressive this quarter in buying back stock compared to previous quarters and we did, I think, almost that maximum that we could in buying back stock.

So I don't think your mark, actually, consequentially what happened.

I think it's more a technical constraint than anything else.

Obviously you can always come back and say you should approach it from different angles, I think is what you're saying.

It's OK, but it doesn't lead to the conclusion that you got to from the amount that we got back this quarter.

This quarter bought back 887,000 shares.

We did that through the mechanism of buy backs with some of those

that you mentioned and we did it, almost, to the maximum that we could based on the exchange that the SEC allows.

Oh.

You brought up the concept of a tender offer.

What are we waiting for?

That's something we discuss at the board level and then we can bring up and we can see what they say.

But why hasn't it not been done yet?

I mean, that's a very simple cop out saying that we're going to go talk about the board level and I guess pre-Tyco you could get away with comments like that.

But what I'm asking you now in this call in front of your other shareholders is, that your tender offer is not a foreign concept to you all.

Your stock's been trading in the dumps now for almost a year.

Why haven't you launched a tender offer and bought back your shares?

Do you not have faith in the long-term value of your company?

Listen.

I was in the - I visited my shareholders in the summer.

I was both in the United States and in London and not one shareholder even brought that issue up.

Everybody agrees in the company the way it capitalizes the moment and therefore they don't have backing from my other shareholders.

In the company I don't think it's an issue.

Well with all due respect to your other shareholders, I can't tell you what your motivations are but tell me what the rationale would be for why a shareholder would be opposed to your buying back stock at an enormous discount to cash.

Walk me through the logic.

Your bleed rate is not such that it would disallow you from doing this.

So the fact that your other shareholders haven't brought it up, doesn't really mean much to me.

And once again, with all due respect, most of your other shareholders probably have lost a fortune on their stocks.

I'm not so sure about their judgment.

Yes.

This is Shabtai here.

I think we have, you know, if you watch what we have done in the last few months and the last few years, you've seen that we invested substantially in the company.

When everybody laid off people around, we incurred employees from less than 200 to 260.

We have invested in products and development.

So, getting to a conclusion that we do not believe in the faith of the company is something that absolutely

to where we are.

Another thing to tell you is that some of the shareholders have different views than you.

We are in bad times.

We need the money.

Nobody knows when this climate in the market will change.

And we think we want to have the money, the ability to look for companies to look for opportunities and finance them.

And therefore, it is pretty obvious that about 90 percent of the shareholders or more, I don't know how much of shareholding you have but different opinions than you.

Well, based on upon the holder list I have of one of your top five shareholders at this point for starters, and if I have to file 13 deed to prove that I will.

And secondly there must be a common ground between buying back using four percent of your cash per year and buying back with 100 percent.

Can't you use 40 percent of your cash and start a tender offer?

Why is - you're basically not buying back any stock.

You bought back $2 million worth of stock.

Who cares?

Why even bother?

I don't understand.

Again.

I think we have explained that we have worked within the limitations of what the law allows us.

You've already told me you could launch a tender offer.

So you can't have it both ways.

Either don't do any buy back or actually do one that's going to have an effect upon your company's capital structure.

I mean, I don't know - I don't understand who it is you think you're fooling here.

You have this token buyback and then you tell me that you can't buyback anymore because of buyback rules and then you tell me that your shareholders -- these geniuses that probably paid $10.00 for your stock -- they're telling you that they don't want you to buyback stocks.

So which one is it?

You know I'd really like to have that discuss in a more -- maybe in a face to face situation.

And I'm not sure that you're representing the majority of shareholders.

I'd be very pleased to talk with you, but I think what we're doing at this

our abilities and our intentions are the best of the company.

And I definitely invite you to, you know, visit with us or we will visit with you.

But again, I think we're doing -- we believe in the company.

Everything we do in the market, in the company, in everything that we do is a belief in our strength in our future.

And we definitely encourage you to discuss other ways with us, but we at this stage are pleased.

We don't think that

is the way to go.

All right.

Well, your actions do not coincide with your comments, by the way.

If you truly believed in your business you would not be buying back $2 million, which is an insignificant amount.

You'd be actually buying $10 million back per quarter.

That would still -- if you bought back $100 million worth of stock, you'd still have $80 million left in the till with the

rate that you're showing right now that could hold you over for years!

Your excuse is not valid and it's unacceptable.

And if someone is accepting that then I feel sorry for them because they're not thinking logically.

So I look forward to speaking to you offline about this.

But we are not going away.

We'll just keep buying the stock that you're not buying and if we have to force some kind of a change, we will.

OK.

Thank you very much.

At this time I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad.

Your next question comes from

.

Hi, good afternoon, gentlemen.

Shabtai, in your comments in the press release you mentioned the trends of some of your competitors existing the business.

Can you just give some more color in who's been existing?

And also, whether you feel that your

partners are also are connected to this

?

Right.

Well, we have a few examples here.

One of them in the cables space.

We are -- when initially entering the cable space we've seen

leave that market.

is not existing today.

Same goes with

, which is in the

ATM space.

We do have more information about companies in the space approaching us, basically, for

in the

which we need money, by the way.

And we are looking for those.

Obviously, some of the

in that space feel they cannot survive in that market for longer and therefore have closed

.

from many of those companies.

But we have another two companies approaching us this quarter.

for them.

And then in terms of the commitment as far as the area and companies?

I'm sorry?

Just in terms of the commitment of some of your

partners to the markup.

Because I think this will loosen and make some comments during the quarter.

I just wonder if you've got certainty that your partner's also committed to the markup?

Yes, we do see continued investment in this space.

Obviously, not all of the companies for their own simple reason and their different sources would continue investing it, but think it's a general concern with companies and industry analysts investing in that space that we are here at point of no return in terms of the fact that the technology really offers advantages and benefits that the previous technology does not offer.

So other than those rumors that you have mentioned regarding Lucent, we really have not seen even one other OEM stepping out of that market.

As a matter of fact, we're working in the Fareast and in the Fareast you do see new companies established.

China is a good example to that, a few new setups, all investing in that space.

We definitely see those

continuing and growing.

Unfortunately, not in the current market condition as best as could be, but definitely in the broadband active market and in the telephone infrastructure market.

OK, I just had one final question.

You're talking of break even sometime the second half of next year, obviously it seems quite strong revenue growth.

Are you basing that on specific tenders that you see in the market, the fact that revenues will go up so significantly?

Several indications of that.

A, you will believe that one or two of the deals that we are engaged right now with T1 OEMs will come into implementation.

We should be able to see it starting second quarter of next year.

Then we have a very successful year in 2002, although it's not reflected in the revenues in terms of design wins, so we have new customers building for us in the enabling technology space that started a design, completed it are in the first stages.

So guidance with it to the market, and we believe that the infrastructure of customer base that we have built and the portfolio that we have created will allow us to increase those sales at least by 40, 50 percent next year.

OK.

Thank you and good luck.

Thank you.

At this time, there are no further questions.

Mr. Lilo, do you have any closing remarks?

Yes, thank you for joining the conference call and we'll speak to you again next quarter.

Thank you.

This concludes today's AudioCodes third quarter 2002 earnings conference call.

You may now disconnect.