Aviat Networks Inc (AVNW) 2004 Q4 法說會逐字稿

Good afternoon. My name is Comer (ph) and I will be your conference facilitator. At this time, I'd like to welcome everyone to the Stratex Networks fourth quarter and fiscal year 2004 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. (Operator Instructions). Thank you. Ms. Laukkanen, you may begin your conference.

Thank you everyone for joining Stratex Networks today to discuss financial results for the fourth quarter and fiscal year 2004. Chuck Kissner, Chairman and Chief Executive Officer and Carl Thomsen, Chief Financial Officer, will review the results for the most recent quarter and our business outlook, followed by a Q&A session.

During this conference call, we may make forward-looking statements regarding our business and the wireless industry in general, including statements relating to our market share, future revenues, margins, operating expenses and net income or loss; balance sheet improvements, DSOs and inventory turns, backlog, 2004 form taxes, anticipated introduction, performance, market acceptance and financial impact of new products, in particular, the eclipse product; revenue generated from license exempt products, breakeven and profitability and future results of operations and cash usage. It is important to note that these forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those results stated in such forward-looking statements. These risks include the risk of increased competition, continuation of further tightening of global capital markets for telecommunications and mobile cellular projects, economic and political instability in the Middle East and other markets in which we compete and in which our product are manufactured. For a further discussion of these risks, as well as risks relating to our business in general, we refer you to the disclosure under the head "Factors That May Affect Future Financial Results" in form 10-Q for the fiscal quarter ending December 31, 2003, filed with the Securities and Exchange Commission on February 13, 2004, as well as disclosures contained in our other SEC filings. The press release will be furnished to the SEC as part of a form 8-K and. We will make this information and a webcast replay of this presentation available on the investor's web page for a twelve-month period.

In addition, please note that the date of this conference call is April 28, 2004, and any forward-looking statements we make today are based on assumptions that we believe to be reasonable as of this date. We undertake obligation to update these statements as a result of future events. Lastly, this conference call is the property of Stratex Networks, Inc., and any recording, reproduction of rebroadcast of this conference call without the express permission of Stratex Networks is strictly forbidden. I now turn the call over to Carl Thomsen, Chief Financial Officer.

Thank you, Laura, and welcome to those of you who are listening in on this call. This has been an exciting quarter at Stratex with first revenue recognized on our CLIPS product and significant progress that we made on a number of fronts, particularly 18 percent sequential increase in orders, 10 percent sequential increase in revenue, higher-than-expected product margins, stronger than expected conservation of cash and improved DSOs.

Excluding one time charges, which I will address later, our results for the quarter were in-line or better than our expectations across almost all key metrics. Backlog continued to build and ended the quarter at 59 million. This is the fourth sequential increase in backlog and reflects the order pipeline momentum that we discussed in the past couple of conference calls.

First, I will review the orders received during the quarter. By geographic area, orders in the Americas were 12.6 million; in Europe, Middle East and Africa region, 37 million and Asia-Pacific, 10 million, for a total of 59.6 million of orders. And by product line, our mid-capacity products, primarily the XP4, was 33.8 million, the Altium was 4 million, DXR was 6.2 and our new Eclipse product was 8.3 million. In addition, services amounted to 7.3 million, again, for the 50.6 million in orders. Overall order bookings as I mentioned were up 18 percent compared to this third quarter and represent the fourth consecutive quarter of increasing orders. Orders are up almost 50 percent compared to the 40.2 million that we received in the fourth quarter of last fiscal year. Orders that you can see were particularly strong for the XP4 products with several major networks, which are being expanded. And of course most importantly, orders for Eclipse are rapidly increasing. Eclipse orders clearly gained momentum with 8 million in Eclipse orders in the fourth quarter, compared to 4.5 million in the third quarter and 2.8 million in the second quarter. We're exiting the quarter with over 12 million in backlog for Eclipse product. In addition to the major Eclipse software release we announced in the fourth quarter, we will be releasing additional significant features in Q1 that will enhance the overall Eclipse product offering even further. Chuck will comment on these during his discussion. Orders in the Americas are beginning to improve and the Middle East/Africa sector continues to provide a significant portion of our business.

On the revenue side, by product line, the revenue for the mid-capacity products were 20.2 million, Altium was 6.1, DXR was 8 million and we had the first Eclipse revenue, which totaled 3.3 million during the quarter, and then also services of 6.6 million for a total of 44.2 million in revenue. By geographic region, the Americas were 7.2 million, Europe, Middle East and Africa was 31.6 million and Asia-Pacific, 5.4 million, again, for the 44.2 million in revenue. This 44.2 million in fiscal Q4 as mentioned is at the high end of the guidance we gave at the beginning of the quarter, which was 40 to 44 million. The revenue level was due to the solid bookings during the quarter and our ability to convert these new orders to revenue.

Of course, we are pleased that we were able to record Eclipse revenue during the quarter. It was over 12 months ago that we first forecast that we would have Eclipse revenue prior to the end of fiscal 2004. Attaining this Eclipse goal is the result of dedication of our employees worldwide. Coordination between engineering, manufacturing and our contract manufacturers was outstanding and directly or indirectly, all of our employees worldwide anticipated in this new product introduction and we're proud of their accomplishment.

We also saw an increase in the new license-exempt product line revenue, and while it is still a minor part of the overall revenue, it is meeting expectations that we set at the time of the acquisition and is contributing to the bottom-line results on a stand-alone basis.

Gross margins for Q4 were 17.3 percent, above our expectations. This is the first quarterly sequential increase in margins and over a year. As is typically the case, the shipments of our new product Eclipse had higher production costs during this initial rollout phase. Based on the relative pricing stability we've recently seen, as well as the impact of Eclipse, we're expecting that gross margin percent will increase in subsequent quarters as volume picks up for all products and for Eclipse. However, the next two quarters as we view as prior to this production startup phase, so margins will improve gradually over the next several quarters, likely 1 to 1.5 percent per quarter.

Operating expenses, excluding restructuring charges of 5.5 million, increased in Q4 compared to Q3 due to two major factors. One is higher R&D expenses as we put extra effort into the Eclipse product during the manufacturing, startup and completion of key design, and secondly, higher sales and marketing expenses due to the improved orders and the marketing efforts for the rollout of Eclipse.

R&D expense was 4.9 million, up from 4.4 million in the third quarter. This increase primarily due to engineering and material costs related to prototype builds. And SG&A expenses were 11.5 million in the fourth quarter, compared to 10.9 million in the third quarter. During the fourth quarter, we also recorded a restructuring charge of 5.5 million. The majority of this charge, approximately 4.6 million, is related to the estimated additional net costs of our long-term facility leases. When we outsourced our manufacturing function two years ago, we estimated the potential sublease income we'd receive from these facilities that we were vacating. Although we have successfully leased a portion of this space, due to the significant excess space available in Silicon Valley and in Seattle and the extended downturn in the economy, our actual results of subleasing space to date, we have reevaluated these reserves and concluded that an additional amount is required.

In additional, we implemented a small reduction in workforce during the fourth quarter, primarily in the operations area in San Jose and recorded the severance costs related to this reduction.

Other income and expense was a net expense of 0.4 million in Q4 compared to net expense of 0.2 million in Q3. This small increase is primarily due to financing costs related to discounting of some receivables. For our tax rate, excluding a write-off of deferred tax benefits, recorded an income tax benefit of $100,000 in the fourth quarter of fiscal 2004 due to the profits in foreign subsidiaries as we adjusted the worldwide tax liability for the full-year to $200,000. Due to the number of foreign subsidiaries the Company has around the world, we have tax expense for the year, but it is slightly lower than we had estimated in the prior quarters.

In addition, during the fourth quarter, we wrote off the deferred tax asset that we had been carrying on our balance sheet for several years related to our foreign subsidiaries. It now appears unlikely they will be able to realize the benefit of this in the foreseeable future. Net loss for the quarter, excluding restructuring charges of 5.5 million and the deferred tax asset write-off of 1.9 million, was 9.4 million, or 11 cents a share. On a GAAP basis, including these items, the net loss for the quarter was 16.8 million, or 20 cents a share.

Let me discuss the balance sheet status. The cash balance of $50 million at the end of the fourth quarter of fiscal 2004 was higher than the expectations we set at the beginning of the quarter. Although we lost $16 million in the quarter, the restructuring charges were for the most part non-cash charges. The cash balance was benefited from good receivables collections and extended terms granted by our key suppliers. I expect cash usage in the first quarter to be between $6 and $8 million due to the continued losses that we are projecting.

Total accounts receivable decreased $900,000 in Q4 to 34.3 million and DSOs were 70 days, compared to 79 days in Q3 as a result of excellent collection efforts. I expect that DSOs will continue to be in the 70-80-day range in Q1. Inventories increased 5.8 million during the quarter to 33.1 million and inventory turns were 4.9 compared to 5.70 at the end of Q3. The increase in inventory was related to finished goods that were in transit to customers at the end of the quarter related to deferred revenue that is dependent upon installation acceptance, and in some cases, related to payment terms.

In addition, Eclipse inventory is increasing during this production startup phase. I expect inventory turns will continue to be in the 5 range over the next several quarters. Our total liabilities increased 16.6 million compared to the third quarter due to the accruals related to the restructuring charges, plus an increase in accounts payable as a result of revised payment terms from several suppliers.

I will now give you a forecast for the first quarter and second quarter of fiscal year 2005, which we're just entering. As always, forecasting future financial results is challenging, but we were certainly encouraged by the total backlog at the end of the fourth quarter and the Eclipse orders that we have received. We're expecting revenue to increase in both the first quarter and the second quarter. As the Eclipse product phases into full production in fiscal year 2005, we are anticipating that margins and overall financial results will steadily improve. At this point, we believe revenue in fiscal Q1, which ends June 30th, will be in the range of 45-47 million. While it is difficult to project out beyond the current quarter based on the order pipeline and backlog and customer interest in Eclipse, we're providing additional guidance for the second quarter. We believe revenues for the second quarter will be in the range of 46-49 million and will continue to grow from that phase.

Product margins should also increase as I mentioned in the first quarter and second quarter buying 1 or 2 percent per quarter. We will see the real benefit from Eclipse margins later in the year as we go into full production and release our lower cost versions in the second quarter. Operating expenses are projected to be somewhat lower in the first quarter than in the fourth quarter.

We're not changing our bottom-line outlook from Q1 from what we provided on last quarter's conference call and expect we will report a net loss for the current quarter of between 7 and 11 cents a share. For the second quarter fiscal year '05, I expect to see an improvement to the loss of 5-8 cents per share. We continue to expect to return to profitability by the end of fiscal year '05. Our cash balances are substantial and our cash usage is declining. We also of course has a $35 million 2-year credit facility available to supplement cash position if it happens to be needed.

In summary, our primary objective near term is the completion of the successful rollout of our new Eclipse product line, the improved overall business outlook, the first Eclipse revenue and the positive trend in recent Stratex orders supports our plan to return to profitability. I would now like to turn the call over to Chuck Kissner for an operational summary and comments on the Company's plans going forward.

Thanks, Carl. I'm going to make a few comments about the market that we're selling into, some more detail on the Eclipse rollout and our business outlook, and then we will go to questions.

In terms of the market, those of you who have been following us may recall that nine months ago or so, we indicated that the network planning, the network operator interest and our quoting activity was warming up and it looked like demand was going to be picking up. And we have now seen several quarters of consecutive growth, and that is reinforcing the projection that the spending and our positioning, we're on an improving trend. There are three drivers for this from the business we're getting. One, new networks for data transmission, the second is new networks in developing countries and the third is capacity requirements increasing in developed networks.

These capacity requirements are being driven by higher minutes of usage and the layering of data applications on top of existing networks. Based on the current network planning for the networks that we're exposed to, the market for our stuff, our wireless transmission equipment, is continuing to strengthen because of these trends.

In our case specifically, the introduction of the Eclipse nodal transmission system is positively influencing demand obviously. In Q4, Eclipse did become real to our customers as it began commercial shipments and this influenced new orders for both the Eclipse and for our other products. The Eclipse orders that Carl mentioned at 8.3 million were up about 85 percent from the prior quarter. This is exactly the kind of response we were looking for from customers. Pricing is still very competitive, but as Carl indicated for the second quarter in a row, it seems to have at least relatively stabilized. Our gross margins took a positive turn for the first time in several quarters, and that is a combination of price stabilization, but also product mix. And this occurred despite relatively significant startup costs that we anticipated and occurred associated with the Eclipse production.

Specifically with regard to Eclipse, we've announced the commercial shipment status in mid-January, so we were two weeks into the quarter. And during the course of the quarter, that production ramped. Shipments for Q4 on Eclipse largely were for systems that had the straightforward transmission backhaul functionality. Subsequent to the end of the quarter, the next software release was made available and that begins to introduce some of the advanced networking features of Eclipse.

You're probably aware that the heart of the system, the Eclipse system, is the nodal processor package; we call it the Intelligent Node Unit, or INU. During Q4, we shipped 329 INUs into nine countries, and that basically sees that capability into a number of networks. Providing the wireless transmission connections for those, we also shipped 494 radio interfaces that we call ODUs. Ninety percent of the shipments were for commercial deployment. The software licenses provided with the INUs that were shipped last quarter can be upgraded in the future by the network operator to allow higher transmission speeds.

On the units that we shipped in Q4, these additional software licenses could be purchased in the future. And if they did on these specific systems, they would allow an additional 50 percent capacity on the systems that we shipped. There were also 11 trials and the demos were shipped during the quarter. Certain of these trials tested the initial networking capability of Eclipse. And this led to the commercial release of software with this networking functionality early in the current quarter, Q1 '05.

There is another release and scheduled for Q1 with several other new features and we do plan to make a software release announced the sometime later this quarter that describes the functionality of these new releases and describes some of the delivery systems that we're using for customer management of these software products.

The production of Eclipse hardware did make good progress during the quarter and the production stability is running well ahead of prior products that we've introduced to the market past years. And that has been the result of some very high emphasis on manufacturability and design and the shifting of many of the functions of the radio parts into signal processing, as opposed to the analog RF processing of the past.

We have discussed before a feature called liquid bandwidth that is an Eclipse feature that actively manages IT traffic and also manages the mixing of TDM, voice and IP traffic. That is continuing to generate very significant interest and we expect a significant number of pending orders to require this very unique capability. This is an ideal feature for operators that want to overlay IP traffic through existing networks without having to install separate facilities and constrain themselves because of the difficulty that they have predicting growth in the packet-based services.

The bottom line is we're absolutely delighted with Eclipse, its progress and the reception we're getting with customers and so we're in a very aggressive ramp-up process. There are also a substantial series of new feature developments that are underway right now. So with a stable platform, we're continuing to be confident about the expansion of Eclipse in the fiscal year that we just entered.

Now a bit about the outlook going forward. First as a baseline, obviously, it has been a tough and also an exciting year that we just completed, to say the least. Restructuring the cost space, improving the working capital utilization, winning business, completing acquisition and most of all, introducing what we think is a company-altering new product line, were all strategic moves and they all were completed successfully. I'm very proud of the people of Stratex Networks for taking on this challenge and meeting it. Clearly, we would have preferred to do all of this and return to profitability sooner. However with all of these investments and accomplishments in place as we start the new fiscal year, we do have a solid plan that continues to be executed to gradually return to profitability and more sustainable profitability as Eclipse continues to ramp up. And by making such fundamental changes to both the Company and what it offers to its customers, we very firmly believe we've created a much more sustainable financial model going forward. As I said last quarter, we're on track to achieve profitability by approximately the end of the fiscal year, assuming current market conditions. There are indications that conditions are improving, but we prefer not to factor that into our thinking at this time. So with that, I would like to now open it up to questions for both Carl and for me.

(Operator Instructions). Dale Pfau, CIBC World Markets.

Congratulations on the Eclipse, and particularly the orders on the Eclipse, guys. A couple of real quick questions here. Where do you think margins can get to on the Eclipse product itself, Chuck?

We're not talking about product-specific margins. But we said that with Eclipse at the majority of the revenue in the Company, we believe we can achieve blended gross margins between 35 and 38 percent. And that is a combination of Eclipse and other products in our service offerings. Eclipse obviously is higher than that. That is how we achieve those margins.

Okay. And real quickly on pricing pressure, it's great you're seeing some stability, even though there's still some pricing out there. Can you give us a little bit of a metric -- do you think that -- did units grow faster in the past quarter than the pricing or -- give us a metric there so we can understand how to deal with the combination of the two -- increasing demand and the price pressure in the market?

I can't speak for the whole market. I think for us, our ASPs remained relatively constant during the quarter.

Okay. And if we look forward, Altium was a little bit weak in the quarter. Is that a seasonal issue? Do you think that Eclipse was cannibalizing Altium? Do you expect Altium to go away? Where are our trends here?

Clearly, the first thing you will see go, and it's happening now, would be Altium compared to Eclipse. They are cross-elastic. And then the next thing that will start to go is the XP4. So it's not a loss of business, it's a cannibalization, or cross-elasticity.

One final question on the competitive landscape. We've seen at least one competitor come out and offer to the market something that appears to be a clone of Altium, although it appears to be considerably weaker in terms of its feature set. What else are you seeing in the competitive landscape to Altium out there, Chuck?

We're seeing a number of things come out that are software upgradeable -- microwave radio. So that is similar to that feature of Eclipse, but it obviously isn't Eclipse. It's not nodal-based. We've seen a couple suppliers come out with nodal-based architectures. However, they are not equivalent to Eclipse. One is strictly the lower capacity end and it doesn't offer some of the other network IP features that Eclipse has.

The other nodal-based system really, as far as we can tell, is a node that has microwave radios attached to it. So from a cost effectiveness point of view, we are probably in very good shape. Also, it doesn't have a lot of the features that we have. But just let me put some perspective on it. Although nothing exactly like Eclipse is out there right now, one of the things I think that will help us in the long run is, if there are alternatives to Eclipse that carry forth that nodal architecture, I think that helps our customers who might be on the fence about building a network this way. And there's certainly some, especially established networks, larger customers. I think they like to have somebody else to compare to or they want to have an alternative source of supply. So I think as some of these credible manufacturers start rolling things out in the next 6, 9, 12 months that at least architecturally have some similarity, I think that is going to be some help to us.

Great, thanks guys.

Brian Modoff, Deutsche Bank.

Hi, guys. Can you hear me alright? Can you give me a run-down on the orders again, please? I did not get them -- the orders by product line?

Sure. The orders by product line for the mid-capacity, which is primarily the XP4, is 33.8 million. Altium was 4 million, DXR product family was 6.2, Eclipse was 8.3 and services were 7.3 million.

In terms of looking at the next couple quarters on the revenue side, kind of not a lot of growth there relative to this quarter. Looking at the strength of your backlog, are you guys being conservative here? What are you thinking?

We're not being conservative on our outlook. There's some customers that placed, when they get in the queue for Eclipse and some that are starting to place orders with longer delivery schedules. And so that added certainly to our backlog during the quarter.

Brian, one other aspect is -- because we have been moving the Company into network buildouts and value-added solutions, we are tending to take on contracts that had longer visibility associated with them.

Okay. Can you give me an idea of what you're expecting Eclipse to be over the next couple of quarters, (indiscernible) revenues?

We do expect in the next quarter to get to the 5 million level or so and we're not giving a forecast on that right now.

Okay. Thanks.

Todd Allen, Kenny Securities.

Congratulations on a good quarter, guys. You've been talking a lot about the return to profitability. Could you give us a sense at what quarterly revenue run rate you would expect to be EPS breakeven, and also cash breakeven? And could you speak to overall burn expectations?

We are expecting the breakeven to be in the 55-60 million range, in terms of revenue. And we basically said our cash burn is pretty equivalent to our losses for the quarter, as were -- depreciation about equals our other cash usage. So it is pretty close to that. And we have been managing the balance sheet in terms of inventory turns and DSOs pretty closely. So we would not expect to see a big increase in those, in terms of absolute dollars.

Okay. One other question. Could you comment a little bit as to applications? For example of, the mix of (technical difficulty) that are going into mobile networks versus data networks? And maybe one step further, if you could compare how traditional product sales went along those lines compared to Eclipse?

The initial orders for Eclipse have been -- the majority have actually been so far to new clients, so we've added a number of customers. And I think actually about 63 percent of the customers in Q4 were new customers for us. Most of that of the volume is going into mobile networks. However, there's a large portion that have an IT traffic component to them, either as an overlay on an existing network or a separate network that is handling IP traffic. So if you look at our traditional business, it's -- as you would expect, people who are familiar with this who are mobile operators tend to be buying this first because we have a lot of credibility. But the take-up rate on data is much higher than our traditional business. And so if you try to project that forward, I expect what you're going to see is two years out from now, I would not be surprised to see the data part of the business because of Eclipse to be 5 or 10 times higher than where it is today for us. So there's definitely a shift that will be occurring.

Great, thank you.

Sean Slayton, Ferris, Baker, Watts.

Hay, guys. This is actually Matt for Sean. First, I did not catch your revenue and margin guidance for the June quarter, and I have a quick follow-up.

We said the margins would be 1-1.5 percentage pointed above where they are now, so it's sort of 18.5-19 range. And as far as revenue guidance, we said the revenues would be 45-47 million in the June quarter.

Can you say if you -- have you done any work on the channel front during the quarter that we should be thinking about, maybe augmenting the geographic efforts?

In North America, we concluded some channel agreements with the either VARs or distributors, and that is mostly reflecting the increased data penetration and also the license-exempt products. So we're positioning ourselves to do better in the long term, in terms of market penetration in North America and distribution will be a key there. There have been other changes, but those -- from your point of view, I think it would be the most important.

Thank you.

Kevin Dede, Merriman & Company.

Hi, guys. Great job on the quarter. It's great to see a plan come together. So to get back to (indiscernible) question, you gave gross margins ultimate blended. Could you give us a rough guess on what you are assuming the components of that gross margin to be as a sales mix?

75 percent Eclipse and the rest doesn't matter.

Right. Okay. One of your customers is during pretty good with MTN in Nigeria. I was wondering if you could give us your view of how you think that account is going?

Well, MTN is not just Nigeria, of course. We are working with MTN across a number of fronts. And I think from a network rollout point of view, they're doing quite well in terms of picking up market share. So that has obviously both been a blessing to us and also a challenge to keep up, but I think we're doing a pretty good job. We have gotten some definitive and objective feedback from them, in terms of supplier evaluation very, very recently. And while there's always areas for improvement, the feedback is that we are doing very, very well with meeting their demands. I think they particularly have seen the value as well of Eclipse, and I think they will be introducing that into their networks in the near future.

Back to the U.S., Chuck, talk about increasing your work with distributed partners here. I know also that I think that split-mount design is probably being better received. Can you give us an idea where you think your best markets will be here?

I think, based on the convergence of those developments, the products that we're coming out with, in my opinion, the best markets are going to be markets that are IP data trafffic-driven. I think that is a remarkable opportunity for Eclipse and for some of the other things that we're developing. So by the way, I think that is a worldwide phenomenon, but I think that that will be extremely popular in the United States. Because everybody we know of who have existing voice networks is overlaying data on top of them. And the solution we have developed is extremely attractive to them from an economics and a flexibility model point of view. And I think you're right -- the split mount -- splitting the radio part from the indoor portion which we're particularly good at is becoming more popular in the United States. In other words, just as popular -- I think it'll be as it has been in the rest of the world for the last 20 years.

Could you be more specific as who you think your end customers might be and who you think you have the best shot with?

No.

Can you elaborate on who you think your distribution partners might be, and which avenues you think they are going to address and how?

We have a lot of them right now, so -- we have two classifications. One would be the people who distribute telecom-type equipment. People like Sumera (ph), for example are a distributor that is well into the telecom market. And then there is a number of VARS that are dealing with the data market, and there's quite a few of those, and that probably wouldn't be all that useful to go through. But that is a growing list for us as we have been rolling out features and products. And to the extent we would want to announce them, you'll see them in the public announcement. I think it has not done us -- I don't think we have seen that as a particular benefit, nor have they, in terms of announcing it yet. We'd like to all build a little bit more traction first.

Carl, so you have trimmed back a little bit on headcount and your restructuring. Do you think might be push you down below that previous range that you gave us for EPS breakeven?

Yes, in terms of the top line revenue?

Yes.

It could be a little bit lower than that. We said 55-60 million, and it might be a little bit below that, 53 to 57, built in that sort of 55 range to 58 range. Might be a little bit less than we said, but that's sort of is the range. We didn't have that big a reduction in personnel.

Okay, so when we have this conversation a year from now, you should be profitable -- that's what you're saying?

That would be very nice, yes.

That's what we're saying.

Great, guys, keep up the hard work.

Thank you.

Mike Walkley, RBC Capital Markets.

This is Neil Schott (ph) from Mike Walkley. Question. I think you said (indiscernible) you were shipping INUs to nine countries. What was that number that you gave?

329.

Do you have a breakout of private networks versus mobile networks that you're seeing, in terms of end customer?

No, we don't have that right now but.

Do you know approximately?

Yes. I'd rather split it between data mobile, would probably the best. Is that the kind of thing you're looking for?

Sure, that's fine.

Something with a data component is about 30 percent or so, and mobile is about 70.

That would be data only that you could possibly have a data under mobile, but you're saying that would be on the mobile side, right?

I'm talking about data only.

Also, just a quick question. If you could give me some commentary on the feedback that you're hearing from clients about the Eclipse during these trials. Is there anything specific that they're pointing out that they are saying?

We have heard -- the feedback we have gotten is that the radio part of it is extremely solid, about the best they've ever seen. It just turns up easily, works right away, tends to be very smooth in its operations and so on. We have had a few networking issues that were identified, but fairly minor during the trials and those changes have been or are being incorporated. I would say the most frequent thing we have heard back is -- can you supply these networking features faster? in other words, can you roll these software features out much faster than what you're doing right now? And so we have a fair amount of pressure to speed up the development process, which actually is running at full speed right now. So I think that is pretty good news for us. We're getting pushed right now for some these features and they seem to have hit the mark.

Great, thank you.

(Operator Instructions). Todd Allen.

Chuck, quickly on the subject of software upgrades that are currently under development. Could you give us an idea -- maybe without specifically telling us what the next one is -- could you give us an ABCD list of what types of software features we might be looking at?

We have features to expand the capacity, so those would be the standard microwave transmission features that expand the architecture of network transmission, for example, putting in self-healing rings made with these intelligent node units. We have the features that surround our data offering. So how they handle mixed-node traffic, assigning quality of service to various traffic nodes for IP and software features that allow some extended networking capability and traffic management capability. We also have other features beyond that that will have additional hardware associated with it, but we have not announced those yet. Those, we'll begin to talk about towards the end of the fiscal year.

Okay, thank you.

Rich Valera, Needham & Co.

Thanks. Chuck, could you just talk about the bookings pipeline and if you see the recent trend of sequential bookings growth increasing or just sort of what the bookings pipeline looks like?

We're going to give you the standard speech here, because there's a lot of standard deviation in bookings. It's very dependent on big deals (indiscernible). I think one difference is that the base business now is steadier and stronger than it has been in a long time, so that helps to reduce some of the variability. But also remember that fourth quarter was our end of the year, so we tend to -- we usually tend, depending on what the market conditions are, to have a strong Q4. I think our view is, in general, if you're going to draw a trend line going forward, we see increasing bookings, mostly driven by the introduction of Eclipse. But quarter to quarter, I cannot say every quarter is going to go up. But Certainly, the trend seems to be that way right now. Does that answer your question?

Yes, that is helpful. Thanks. Carl, just a quick one on the balance sheet. The payables jumped up pretty substantially. Do you think they can stay up there, or do you eventually have to pay them down and use some cash there?

No, we think they will they up there. We did get agreed to extended terms as I mentioned from a couple of our key suppliers, so they will stay in that range.

Great. And Chuck, would you be willing to hazard I guess within a broad range of when you might achieve the majority Eclipse revenue, the 75/25 mix of Eclipse? Is that like maybe sometime in fiscal '06 that that could happen?

Yes. I think what we have said is in the past, what we have said publicly is that the model by which we are basing profitability had about 40 percent Eclipse in it and towards the end of this fiscal year. And the following year -- the ramp was pretty fast after that. And the following year, we would get into the 65-75 percent range.

Great. That's helpful. Thank you.

At this time, there are no further questions.

We would like to thank everyone who took the time to call in and those who are calling in later by listening to the recording on the webcast. FY '04 is a very pivotal year for us. We're proud of what we have accomplished, despite all of the challenges and we're looking first quarter together with you to continued improvements in our financial performance in FY '05. Thank you very much.

This concludes today's Stratex Networks conference call.