AudioCodes Ltd (AUDC) 2007 Q4 法說會逐字稿

Greetings and welcome to the AudioCodes fourth quarter 2007 earnings conference call.

At this time, all participants are in a listen-only mode.

A question and answer session will follow the formal presentation.

(OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms.

Andrea Costa of Global Consulting Group.

Thank you.

You may begin.

Thank you.

I'd like to welcome everyone to the AudioCodes fourth quarter and full year 2007 earnings conference call.

Let me begin the call today with a brief Safe Harbor statement concerning AudioCodes' business outlook or future economic performance, product production 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 and 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 its customers' products and markets, timely product and technology development/upgrades and the ability to manage changes in the market conditions as needed, possible disruption from acquisitions, the ability of AudioCodes to successfully integrate the products and operations of acquired companies into AudioCodes' business and other factors detailed in AudioCodes' filings with the Securities and Exchange Commission.

AudioCodes assumes no obligation to update that information.

In addition, during the call we will refer to non-GAAP net income.

We have provided a reconciliation of non-GAAP net income to our net income according to GAAP in our press release and on our website.

Joining us today from AudioCodes we have Shabtai Adlersberg, Chairman, President and Chief Executive Officer, Nachum Falek, Vice President Finance and Chief Financial Officer, and Ben Rabinowitz, Vice President and General Manager of Session Border Controllers and Media Server Business Lines.

I would now like to turn the call over to Shabtai Adlersberg.

Mr.

Adlersberg, please go ahead.

Thank you, Andrea.

Good morning and good afternoon, everybody.

I would like to welcome all to our fourth quarter 2007 conference call.

With me this morning are Nachum Falek, Vice President Finance and Chief Financial Officer, and Ben Rabinowitz, Vice President and General Manager of the Session Border Control Business.

Nachum will start by presenting a financial overview of the quarter.

I will then review the business highlights for the quarter and then turn it to Ben to cover the trends in the Voice over IP market and developments in our business.

We will then turn into the Q&A session.

Nachum?

Thank you, Shabtai, and good morning, everyone.

Before beginning the financial overview of the quarter, I would like to note that the following discussion will include GAAP numbers and pro forma numbers.

Our fourth quarter pro forma results reflect adjustments for the following two non-cash items - stock-based compensation expenses which totaled $1.8m in the fourth quarter of 2007 and amortization expenses relating to the acquisition of Nuera, Netrake and CTI, which totaled $600,000 net of taxes in the reported quarter.

Full reconciliation of the pro forma results discussed on this call to GAAP results is currently available for view on our website and in the press release issued yesterday.

Getting to our quarterly results, in the fourth quarter revenues were $42.8m, which represents 6% increase from the last quarter.

As a percentage of our revenues, sales in America accounted for 55%, Europe 25%, Asia Pacific 13% and Israel 7%.

We had one customer above 10%.

Our top 15 customers accounted for 49% of our revenues, compared to 51% in the previous quarter.

In terms of revenues by business groups, in the fourth quarter our Technology business group accounted for 32% of revenues, compared to 35% in the previous quarter.

And our Networking business group accounted for 68% of revenues, compared to 65% in the previous quarter.

In the fourth quarter of 2007 pro forma gross margin was 58.1%, similar to the third quarter pro forma gross margin.

On a GAAP basis, gross margin was 56.4%.

Our total pro forma operating expenses increased from the third quarter levels to approximately $21.4m in the fourth quarter of 2007.

On a GAAP basis, operating expenses for the fourth quarter were $23.4m.

Headcount increased this quarter by 11 employees, which brings us to a total of 688 employees.

Pro forma net income for the fourth quarter was $3.6m or $0.08 per share.

GAAP net income for the fourth quarter was $1.4m or $0.03 per share.

Short-term and long-term cash balances were $143m, compared to $134m last quarter.

The increase in cash balances is a tribute mainly to a positive cash flow from operation and financing activities, which were offset by a negative cash flow related to investment activities.

DSO came in at 54 days, compared to last quarter's DSO of 68 days.

Our guidance for 2008 is as follows.

On an annual basis, we forecast revenues for 2008 to be in the range of $180m to $185m and non-GAAP earnings per share of $0.34 to $0.37.

We also estimate our GAAP earnings per share to be in the range of $0.12 to $0.15.

I will now transfer the call to Shabtai.

Thank you, Nachum.

I'm very pleased to report record quarterly and annual revenues.

In addition, this third quarter of consecutive growth in revenues represents a return to an earnings level that starts approaching our long-term financial model.

Let me touch shortly on some of the fourth quarter 2007 financial highlights.

On a quarter-by-quarter basis, revenues grew 6%, net income grew above 30%.

Our Networking business, which is our key business, reached a level of 68% of sales in the fourth quarter of 2007, growing above 10% quarter over quarter.

Operating income grew nicely, to a level of 8% compared with 6.4% in the third quarter of 2007.

We had good execution on OpEx control.

Operating expenses grew only 2.7% to $21.4m versus $20.9m in the third quarter of 2007.

We have witnessed strong cash flow from operational activity.

All in all, we added $9m.

Cash balances, as Nachum mentioned, grew to $143m.

We've been able to keep headcount growth to only about 1.6%.

Now, to the full year.

In 2007 our Networking business sales crossed for the first time the $100m mark.

Just to remind everybody that we started that Networking business back in 2002, where we [had recorded] less than $3m.

So in less than six years we have grown to a $100m business.

This is the third year in a row that our Networking business is growing more than 30%, a very steady growth.

With the Voice over IP market exhibiting nice growing prospects of between 20% to 25% in 2008 and beyond, we are confident in our ability to continue to grow the Networking business around the same level of 30%.

At the same time, we have witnessed a decline of 20% in our Technology business in 2007, which brought overall Company revenue growth to just 7.4%.

We are confident that that will change in 2008.

Most of the Technology business decline was in the first and second quarters of 2007, and as of the middle of 2007 Technology business is now stabilized and is right now, fourth quarter, above 30% of sales.

We are confident that we should be able to maintain a very similar behavior in 2008.

Therefore, we do believe that decline in the Technology business will not have any further major effect in 2008 compared to 2007.

As to the 2008 plan, all in all, as Nachum mentioned, we plan revenue growth to be around 15%.

Earnings should approximately double and we intend to grow our market share and expand our play in the Networking business.

All in all, just to give you a very rough idea about the plan, assuming Networking will continue to grow 25% to 30%, consisting about 70% of our business, and we do believe that Technology business will either be flat or will witness a very small decline.

In terms of the market that supports that type of growth, while the overall telecom market is changing dramatically, we do see a decline in growth of wireless networks.

We do see some issues for the large NEPs to grow the business.

We do see applications taking over infrastructure.

For AudioCodes that has a limited effect.

We believe that that environment and that dynamics of the market does create opportunities for small, specialized companies that will deliver products to the system integrators deploying networks.

All in all, the Voice over IP market is very healthy.

These days it's about $2.5b to $3b a year and grows about 25% annually in the coming year and beyond.

Just to remind everybody, our business is centered primarily around media gateways and media gateways do consist roughly 50% of the overall market.

Trends in the market, they do support our growth or we do see increased trend in deploying next generation networks and in going into Class 5 replacements, which means voice over broadband, fixed mobile convergence, all those applications do push Voice over IP needs to be included.

There's a strong consolidation trend in the market among the large players and among the small ones.

All in all, that creates for AudioCodes a very comfortable competitive landscape.

With the advent of IP networks, we do see the need for Session Border Controllers and we do believe that with our leadership in the Voice over IP media gateway market and our last acquisition of a Session Border Control company we should be able to combine the two and be among the leaders in that market.

All in all, when we look more deeply into details into our markets, we do focus in our marketing to two segments.

One is the mid-density media gateways that is total about $320m in 2007.

In that market we have been ranked number four by leading research companies such as Synergy, Infonetics.

We do capture these days close to 11% in the third quarter of 2007.

That is a substantial growth from just [6.6%] about a year ago.

We do play also in the low-density media gateway market, which totaled about $160m in 2007.

Here we capture number three in the ranking.

We are right up with Cisco and Huawei and we do capture around [13%].

Our focus in 2007 and 2008 has been primarily on the [access penetration] and on the CPE device business.

We do have a balanced business.

We sell both to the enterprise and the service provider markets.

We have a balanced go-to-market approach.

We do sell in the enterprise market both direct and through distribution channels.

We have mentioned many times in 2007 our collaboration with companies such as Microsoft and a few more OEMs that we cannot mention yet.

At the same time, we've expanded our business in the service provider market and going direct on a global basis.

We are working in 2007 and 2008 to expand our success in Voice over IP to a broader multi-service play by taking advantage of our leading Voice over IP.

We are adding functionality to it and Ben will mention that in a moment.

So the focus for us in 2008 would be on CPE devices, on Session Border Controllers and on mid-density media gateways.

One key activity would be to integrate the Session Border Controller functionality into our CPE and media gateway product lines.

We do intend to add multi-service capabilities, such as and in security and in data, pushing growth in video and to enable third party applications.

In terms of our technology focus, we will give priority to IP-to-IP connectivity.

We will invest substantially in building security in the Voice over IP networks and we'll invest also in wideband coding.

We do believe that bringing high quality, high performance voice and quality into the network will increase the use of these in various applications.

At the same time, we will continue to invest in technologies we already are working on, such as our media gateways, transcoding, video and others.

In terms of our activity in the fourth quarter, we've seen good momentum in the service provider market in the second and third tier markets.

At the same time, we've been working very closely in the enterprise market with a few leading OEMs and a few solution partners.

All in all, 2008 should be a good year for us because we believe we are positioned good, both in terms of strong demand in the market, which is growing at least 20% our market share.

We have a very comfortable competitive position.

We know how to deal with other players.

We partner with the larger ones.

We have mature leading and competitive products and technologies.

We have developed very strong brands.

AudioCodes' media gateway brand is very strong among all the service providers.

And in the enterprise space we have developed partnerships with leading OEMs and with solution partners with much better global sales for full coverage.

We have added more sales offices in Latin America, in Asia Pacific.

We also made some restructuring to our North America sales force, so we believe we'll be much more effective there.

And we have improved our distribution network in 2007.

All in all, coupling that with our proven, strong execution track record, we believe that 2008 should be a very strong year.

And with that, I'll turn it over to Ben.

Okay.

Thanks, Shabtai, and good morning and good afternoon to everyone on the call.

As Shabtai said, we continue to see positive trends as Voice over IP continues to enjoy growth rates of 20% year over year and we continue to gain market share.

In our go-to-market execution, we are expanding our partnerships with system integrators of tier two and tier three service provider incumbents.

We help network equipment providers, or NEPs, integrate solutions into tier one service providers and enterprise customers.

We've developed new partnerships with large application companies, such as Microsoft, that are taking a more leading role in telecom.

And we have established a strong distribution model to reach enterprises.

All of these go-to-market achievements and trends play well for us.

Synergy Research forecasts carrier Voice over IP will grow 21% year over year and within this market low to mid-density media gateways will also grow at a 21% clip year over year.

For synergy in revenue, AudioCodes nearly doubled its market share in mid-density media gateways in 2007.

In ports, which is a good indicator since unlike other players we do not sell direct but rather through NEPs and local systems integrators, our market share in ports sold more than doubled in 2007.

Infonetics also reports that Voice over IP equipment will grow 20% year over year in 2008, and ranks AudioCodes number one in ports and number two in revenue from mid-density gateways.

SBCs are obviously taking share of the overall Voice over IP equipment market and with our continued investment in SBCs, both as standalone and within our planned converged platforms, we expect these emerging products to contribute to our long-term growth objectives.

Indeed, we believe when selling to contact centers, large enterprises, small/medium businesses and tier two and tier three service providers a portfolio of standalone and future converged solutions will give us an edge in serving our customers various POP and (inaudible) requirements.

In the enterprise space, Synergy Research is forecasting IP telephony to grow 34% in 2008, with media gateways growing 20% year over year.

We expect further penetration of best-of-breed deployment with SIP trunking and SIP applications such as unified communication.

Of course, the big news on unified communication this past quarter was Microsoft's launch of OCS, which benefits us as a partner by supplying our CPE media gateways.

The value chain that we serve is becoming more complex with ISPs, distributors, local and global system integrators, NEPs and VARs all having a role.

Partnering within this value chain to serve enterprises and service providers on a global basis is something that takes years to establish and creates barriers of entry.

Indeed, we have an effective distribution channel and our recent channel conference in Israel attracted complete ecosystems from around the world, including customers and partners such as Freenet, the number two IP in Germany, Swisscom, Vodafone, StarHub and Google.

We are also seeing NEPs reduce their product development that is focused on Voice over IP infrastructure.

Many NEPs will no longer invest in new media gateway platforms or continue their DSP investments because they focus more of their R&D in applications, LTE, WiMax and management systems, and focus their OpEx on bulking up for system integration opportunities.

We're also seeing them less and less in the tier two and tier three and the competitive server provider space.

We are expanding our relationships with NEPs on the enterprise side, providing solutions for small/medium businesses, large enterprises and institutions and government agencies, including the military.

In terms of fixed mobile convergence, it seems to be taking longer than originally hoped, although we saw nice progress last year with dual-mode handset deployment and a key enterprise win with a wireless NEP.

So with the momentum of (inaudible) plays, we expect that most of the FMC market will remain in the trial phase in 2008.

We do believe FMC represents an important long-term opportunity.

And with players like Apple with iPhone, Google with Android and Verizon opening up its walled garden on cell phones, we anticipate a lot more innovation that will drive the need for security, be it packet inspection, more real time interactive IP/IP connections, more IP connectivity to legacy MFTs and PBXs, which will mean in the future more sales of media gateways, security gateways, including solutions CPE and SCC.

Our growth opportunities in current sales are also nicely distributed.

Remember, we report numbers based on channels, not end-users.

We have achieved a nice balance globally to protect us from the ups and downs of any particular market.

In addition, some markets like Southeast Asia are just now deploying Voice over IP, so the growth opportunities remain promising.

In conclusion, with our technologies CPE, media gateway, media server, SBCs and security gateway products we are addressing our channel and customer challenges, securing key design wins and gaining market share in a growing market.

And now I'll turn the call back to the operator for Q&A.

Thank you.

Operator?

(OPERATOR INSTRUCTIONS).

Our first question comes from Carter Driscoll with Stanford Group.

Please state your question.

Good afternoon, gentlemen.

Thanks for taking my call for my question.

My first question results from the Microsoft relationship.

Have you seen any acceleration in the deployment of the exchange server?

You talked most recently about really the impact more heavily in 2009 than 2008.

And then I have a couple of follow-ups.

Yes, so at this point we're definitely getting deployed in quite a few verticals, but it's still very early in terms of to speak of a ramp up.

So it looks very promising.

It's nicely distributed in terms of the types of customers and the size of customers.

But again, it's -- this is definitely more a 2008 and 2009 story, as we've said before.

Okay.

Could you talk generally about what you're seeing?

You mentioned one thing, that the March quarter seems to be getting off to a good start.

Specifically in the enterprise side, you've seen weakness from some of the other equipment and component vendors.

What gives you confidence that you're going to continue to buck the trend and that you're not going to face some of the budget squeezes that might be coming down the pipe?

Yes, we haven't seen weakness and we're comfortable in terms of our discussions with our customers and what their needs are.

So we're not seeing it.

Can you talk about the progress in the cable market and what's your relationship with Nortel, if that's changed materially since the last quarter?

No, our relationship with Nortel is very good with the cable companies.

Obviously, our gateways are part of their solution that they sell on to the MSOs.

And the relationship, both directly with the MSOs as well as working side by side with Nortel, remains as it was last quarter and it's a good relationship.

And then just one question for Nachum.

Were the expenses affected materially by the exchange rate at all?

A little bit on the fourth quarter but we are using hedging, so at this point it wasn't affected, at least not in the fourth quarter.

Okay.

Thanks, gentlemen.

I'll pass it along.

Thanks.

Our next question comes from Ittai Kidron with Oppenheimer.

Please state your question.

Hi, guys.

Congratulations on a good quarter.

Nachum, can you give us a little bit more color on your '08 guidance, what are your expectations for gross margin in the year?

Yes.

Without getting into details regarding the forecast, as I mentioned, in terms of the revenues we are expecting to do an increase of 15% to 17%, which will bring us to $180m to $185m in revenues.

Gross margin should be at current level, but probably we are taking into account that they might be a little bit down, a few basis points.

And then again, as I mentioned, in terms of the EPS, $0.34 to $0.37.

Okay.

Well, I'm just trying to reconcile those comments with how your OpEx needs to grow.

And Shabtai, you've mentioned a lot of plans for development and investment in R&D for the year.

How do you expect OpEx to grow and how many people you're planning on adding to your headcount through the year?

Yes.

Basically, when we've done our plans and budgets end of last year, we took into account we were basically starting from our financial targets and basically planning all our investments in R&D and product development from the targets you are -- that we just gave out.

So everything is currently calculated into our budget and we do believe that we should be able to do both continued investments and meet those targets.

Okay.

And lastly, with regard to session border controller, can you give us a little bit more color of your expectations?

You mentioned three areas of where you expect to see growth next year, CPE, session border controller and mid-density, with the SBC being integrated in those products as well.

How much of business do you expect to get from that product as a standalone product versus an integrated feature into your other platforms?

Yes.

So we don't break out, obviously, our revenue by product.

We -- our confidence in our ability to growth the business year over year, we're investing in the business and we're looking to leverage the technology throughout our product line.

So I think if we do those things and execute, it will become increasingly important to our business going forward.

Okay.

Thank you.

Good luck.

Thanks.

Our next question comes from Vivek Arya with Merrill Lynch.

Please state your question.

Good evening.

This is actually [Dan Furlan] calling in for Vivek.

My question is last quarter I believe you gave guidance for operating margins of 10% by mid 2008.

How far along are you in your cost-reduction initiatives and do you still see 10% operating margins by mid 2008 as a reasonable goal now that your operating margins, I believe, are up to 8%?

Yes, so we got this quarter to 8%.

We [detailed] that 10% as the target probably, because we didn't mention exactly in which quarter.

Hopefully, we'll get there in 2008.

It's very hard to say exactly in which quarter.

Okay.

And one more question.

Technology segment revenues continue to decline.

What are you guys doing to shore up the segment and hopefully grow market share?

Yes.

Basically, we do believe that in the last two quarters of 2007 we have been able to stabilize that trend.

We have new customers continuing to deploy our products.

So we -- based on input we have until now, we do believe that we should not feel any more decline in 2008 when we combine our blades and the chip business.

We do believe that we should be either flat or witness a very small decline, but not anything that should affect the overall performance.

Okay.

Thank you.

Thanks.

Our next question comes from Irit Jakoby with Susquehanna Financial Group.

Please state your question.

Hi.

Thank you.

Again, congratulations and a good quarter, Shabtai, Nachum and Ben.

I have a follow-up question.

Shabtai, you mentioned that you were seeing 30% or 40% growth in the Networking business.

Is most of it attributable to the enterprise or to second and third tier service providers?

So actually the nice split between the two, the growth comes from CPE devices and low and mid-density gateways.

We have made some investigation in the fourth quarter 2007.

We think we are roughly at 60% service provider, 40% enterprise.

So it is spread nicely among the two segments.

And within the enterprise sector, are your revenues concentrated mostly in the U.S.

or is it fairly distributed?

Okay.

So again, we did some checking into that as well.

Although we do report that in the fourth quarter we had 55% of sales into the Americas.

Since we're selling into several OEMs which are located in the U.S.

and/or Canada, we basically have done some analysis that shows that, all in all, we are exposed about 40% to the U.S.

market and the rest of the 60% is in fact from the international markets.

Okay.

And finally, how cyclical do you feel that your enterprise market is?

Do you feel that you would be in a sensitive -- in a discretionary spending environment?

How exposed do you think you are?

Again, we do sell through some strong leading companies that sell on a worldwide basis, not only in the U.S.

So we do believe we have not seen today any change in demand and it's still premature to determine whether we'll see such ones.

We do not feel, at this stage, that we have an exposure.

It's not -- our sales are not concentrated in a specific segment, such as financing or others.

So all in all, I think it's been -- especially in the international markets, we do not think that we will see a change.

And how much of it we will see in the U.S.

is still yet to be seen, but we have no signs of it yet.

Okay.

Thank you.

Thanks.

Thank you.

Our next question comes from Troy Jensen with Piper Jaffray.

Please state your question.

Congrats on the nice quarter, gentlemen.

A couple of quick ones here for Nachum.

Linearity in the quarter, DSO's dropped 14 days.

I wonder if you could help us out with how the linearity looked.

Yes, so DSO went down and it was a good sign, good indicator for the quarter.

In general, I would say that we are expecting DSO to be a little bit lower than 70 in any given quarter.

This quarter the quarter was more linear, meaning less back-ended than the others.

So obviously DSO, and you can see it as well on cash; the cash balance says it all.

So we had a good quarter in terms of both cash and DSOs.

Got it.

And then you guys announced a 4m share buyback during the quarter.

I'm just curious, your net cash position is $23m excluding the convert.

Would you guys be okay with returning all 4m shares and taking it on the net balance or is there any net cash position you guys think is a trough kind of level?

Yes.

If you look into past quarters, you can see that we are generating cash on a quarterly basis, right now at a level of about $4m a quarter.

This quarter has been much stronger but we do believe that we should be able to maintain that going forward.

And we are again taking into account the share price, our cash balance and our ability to generate cash, and I think we should be able to perform that buyback consistent with all those parameters.

Got it.

And Shabtai, just one last follow-up for you.

You talked a lot of about mid-density gateways.

I know in the past you guys have launched some high-density gateways.

So what's the traction been with you guys in the tier one of the high-density market?

We basically took a decision about 12 or 18 months ago that we would focus really more on the mid density and we do not plan to participate in the high density.

Also, I think market dynamics is such that as the network gets more and more distributed the need for high density still remains in a fairly small part of the network, would be cable network also.

But all other parts of the network mid-density gateways do consist of a nice portion.

So we do not plan to go to the high-density space and we do believe that that would enable us to partner with larger companies, using our mid-density gateways in their complete network solution.

Got it.

Keep up the good work, guys.

Thanks, Troy.

Our next question comes from Ted Jackson with Cantor Fitzgerald.

Please state your question.

Thanks.

Hi Shabtai, Nachum, Ben.

Hi.

Okay.

A couple of questions.

One is, Nachum, if you could just tell me what not amortization and depreciation but just straight depreciation was during the quarter.

Well, I don't have it in front of me, but as I remember it was $800,000 amortization.

I can -- obviously it's in our report, so maybe we should take it offline.

Okay.

Next is in the third quarter call you all had mentioned that you had some shipment delays in the Networking business that, I would imagine, had come through and helped you a bit in the fourth quarter.

And so my question is would there be any chance of maybe a little more pronounced seasonality in your business in the first quarter of '08, as a result of maybe a little more 'oomph' in the fourth quarter because of those delayed shipments?

So, yes, we mentioned that on the third quarter.

And I think that you can see it when you're looking at the cash balance and you're looking what we have sold, that we began the fourth quarter, it was very strong.

It wasn't -- it was more linear than usual, so you can see it within the linearity in the quarter.

All in all, we didn't give any specific guidance for the first quarter, but so far we are feeling very good about it.

Well, I'm not wanting specific guidance.

I'm just curious that, given that you might have had some unusual strength in the fourth quarter because of those timing issues, that perhaps the first quarter, relative to the fourth, might be -- I don't want to use the word weaker, but might not show the same type of growth trends that you've historically shown.

Okay.

So basically it's true that you know if you look back a few years, usually first quarter tends to be weaker than the rest of the quarters in the year.

This year we do not see any change in the backlog and the behavior of deals and sales in the first quarter that is changed from the fourth one.

So we do have a very strong beginning of the first quarter in 2008.

Also, we may feel some seasonality.

We don't think that would be anything in our business.

Okay.

And then going actually and touching back onto I think it was Carter Driscoll's question on exchange rates.

So you are hedged -- you were hedged in the fourth quarter and haven't seen much of an impact.

How long does your hedging that you have in place go out to?

Is there any concern or anything that we should focus on as we look out more into 2008?

So we are hedged into 2008 as well, obviously not for the entire year and not for the entire Israeli shekel exposure.

But I can say that you wouldn't notice any significant influence, let's say, between one quarter to another.

It won't be more than $200,000 or $300,000 quarter over quarter.

And as we already mentioned, we took that into account when we gave the guidance on the EPS front.

Okay.

And then my last question and that has to do with the two new large enterprise OEMs that you had mentioned in the third quarter call.

And I know you haven't announced them, but I wondered if you could give us some discussion with regard to developments with those OEMs, progress, when we would expect to perhaps see them start generating some revenue for you, things along those lines.

Yes.

So with one of them, actually, we went through some very intensive market introduction phase and our product has been lately basically declared GA.

So we do believe that we will see increasing revenues from that OEM in 2008.

With the other one, since like our collaboration goes on very well and we are being presented with more opportunities with that OEM, all in all, I believe that at that time, with such a company having difficulties to focus their strength and to focus on that relatively small for them, small segment, I think that offers for us a lot of OEM opportunities.

And we already felt, in the last few months, some projects from a player that we have not dealt with before but are now much more open to work with us because they look to outsource more of their mix for the network.

Thanks.

Actually, I missed one last question and that was just going into the FMC market.

Your -- a lot of your exposure into UMA has been through Motorola and I was curious if you could give an update on the Motorola relationship.

And then also, Motorola's been making a relatively aggressive push into WiMax, which in and of itself, you could make a case, represents an FMC opportunity.

Do you have any exposure through Motorola into their WiMax efforts?

Thanks.

One is in terms of our FMC play.

We are -- it's a distributed exposure.

So Motorola [for us is not], but it's certainly far from being the only player that we have.

Our relationship with them is good.

We don't really comment on specific programs that we're working with Motorola but we are in various programs within Motorola.

Does that answer your question, Ted, or --?

No, but I have a feeling that's all I'm going to get, Ben.

Thanks.

(OPERATOR INSTRUCTIONS).

Our next question comes from Eric Kainer with ThinkEquity.

Please state your question.

Thank you very much.

First topic is really about the converged SBC media gateway platform.

I wonder if you can talk a little bit about the timing, where the demand is coming from there and channels to market for that product.

Okay.

So a couple of things, one is in terms of actual timing you'll have to wait because we eventually will make some -- or a couple of announcements about that.

The demand is from various types of sectors.

Certainly, if you look at the lower end, converging more capability for products that go into small/medium businesses obviously makes sense, and then we have different verticals and larger customers that see some of the benefits.

So we believe in this market you'll see both standalone and converged solutions and we feel unique in that.

We'll be able to address both of those types of needs for customers, some of whom will want both converged and standalone, depending on their networks and their deployments.

Okay.

Thanks, Ben.

The next question is really about the wireless space.

I wonder if you can tell us a little bit about the demand that you're seeing there versus the cable and telco markets.

Are you seeing relatively more pickup there or is that on par for where it's been the last several quarters?

It's definitely starting to move in the right direction, but it's a very slow-moving ship, I guess is the way to view it.

But obviously the opportunities for Voice over IP and wireless are immense.

And obviously positive things like EV-DO Rev-A, etc., are being deployed, which enable Voice over IP to occur.

So the trends are good.

We are in some good projects.

And we think as the years go ahead, we'll see more and more IP in wireless networks.

Any view as far as when or if that might be as important a vertical for you -- or as important a market for you as any of the wired markets?

Well, it'll be a long time until it matches on the revenue side compared to what we have on the wireline side, but we are in some very good projects that do generate revenue for us today.

So it is moving in the right direction.

Okay.

Last question from me is about China.

Can you tell us what you see there and how important that market is to your development?

China is not a big market for us.

Traditionally, Asia Pacific has been about 12%, 13% of our revenues.

China is about a third of that.

We do conduct business there, but it's not a material part of our business.

All in all, conditions in the market, in that market, are fairly [regular].

Thank you.

Good luck.

Our next question comes from Ziv Tal with Oscar Gruss.

Please state your question.

Hi, guys.

This is Jonathan Kreizman speaking on behalf of Ziv Tal.

Great quarter.

My question is more kind of an overview outlook question.

Maybe if we could -- if we were seeing the cable operators and the wireless progressing maybe slower than the industry expected, could you maybe detail a little more on what the setbacks are for the ramp-up of this segment?

Thank you.

Well, on the cable side we don't see any effect.

We've been playing in cable for -- especially when you include the Nuera acquisition in terms of what they were able to do in cable.

It's been a few years already of deployments that continue to go forward.

So we certainly see, especially from a North American standpoint, good deployment, and also globally that cable companies are playing in Voice over IP and, in general, voice over broadband continues to occur.

I think with wireless it's a much more complex network, since you're dealing with the radio spectrum and being able to support Voice over IP over it.

And when we talk about wireless, we're not talking about the backbone side where there is some Voice over IP and ATM.

We're talking more on the radio side.

And that will eventually occur, based on our discussions with customers.

And, again, like I said, we're already in progress there.

I see.

Great.

Thanks.

Our next question comes from Carter Driscoll with Stanford Group.

Please state your question.

Thanks, gentlemen.

Just a couple of follow-ups.

One is you talked about repositioning the CTI Squared applications.

Could you give me an update on that?

And then I have a question more generally.

Have you guys ever considered getting into the residential gateway market, especially as you're starting to see a lot of OEM interest on femto cells or voice over WiFi and whether that's an opportunity you would ever consider?

Right.

So I'll take the latter one first.

Generally, we do focus on the enterprise, sometimes also in the SMB market.

It's true that our technology and proficiency could be put to work to come up with residential gateways.

At this stage we've not made such a specific plan yet, but we do not rule that out.

On one hand we are in a process that allows cost reduction for our media gateway platform with a very low number of channels, like two and four ports.

And at the same time we do have a huge amount of technology that has been developed for the larger ones.

So we do not preclude the possibility that we will do that, but at this stage we do not have any specific plans.

As to CTI Squared, we have basically [told] the Company to change its marketing and sales strategy.

We do focus now on marketing an entry, low-capacity product.

We do market through our global sales force into third tier service providers.

And we hope that in 2008 we'll see some change in the level of our revenues there.

Thanks very much, gentlemen.

Thank you.

Ladies and gentlemen, there are no further questions at this time.

I will turn the conference back over to management for closing comments.

Okay.

Thank you, guys.

Thank you for attending our conference call today.

We look forward to see you in our next conference call.

Thank you all.

Bye, bye.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you all for your participation.