Aviat Networks Inc (AVNW) 2009 Q1 法說會逐字稿

Thank you for standing by. Welcome to the Q1 2009 Harris Stratex Networks Earnings Conference Call (OPERATOR INSTRUCTIONS). I would like to turn to conference call over to Mary McGowan of the Summit IR Group. Please go ahead.

Thank you for joining us to provide the first quarter fiscal year 2009 financial results for Harris Stratex Networks.

On today's call will be Harold Braun, President and Chief Executive Officer, and Sally Dudash, Vice President and Chief Financial Officer. During this conference call we may make forward-looking statements regarding our business including statements related to projections, earnings and revenues, business drivers, transition to hide IB infrastructure, timing and capabilities of new products and continued network expansion by private and network operators. These and other forward-looking statements involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements. For more information please see the press release and filings made by the company with the SEC. These can be found in the investor relation section of the company website which is www.HarrisStratex.com.

I will turn the call to Harold Braun.

I would like to provide highlights from our September quarter, then I will turn the call over to Sally Dudash to discuss the quarter in detail. I am pleased to report that we achieved record quarter revenues of $196 million in September, our highest level since the merger. We also posted record net income of $5.6 million on a GAAP basis. On a known debt basis, gross margin was 30.8%. Net income was $11 million,(Sic-see press release) and earnings per share were $0.19.

North American revenue was $61 million, International revenue was $131 million, network operations revenue was $3.4 million. We maintained a strong cash position for the quarter at $97 million and posted positive operating cash flow. Once again, we demonstrated strong demand of our product portfolio and service solutions as revenue momentum continued year over year, up 14%.

We saw very strong growth in Africa which is up 25% year over year, strength in this region came from existing major customers who continued to expand their network infrastructures. This region is on track for another year of growth in fiscal year 2009. We also saw solid growth in Asia Pacific. This was driven by a rollout in a key customer and Australia coupled with sales through the number one global provider in the Phillipines.

North American remains steady with a 9% year over year increase. We continue to see steady orders and revenues for mobile and private sectors in this region. Following record setting bookings last quarter, we are pleased to see continued momentum in August. Our book-to-bill ratio is more than 90% going into the second quarter. This volume, exceeding that of the year-ago period. Later in the call I will provide comments on our market and our strategy for growth.

Let me turn the call over to Sally Dudash to give you the full financial details of the quarter. Sally Dudash?

Thank you, Harold Braun, good afternoon, everyone.

Let me start with a review of the GAAP financial performance at Harris Stratex Networks for the quarter ending September 26, 2008. First quarter revenue was $196 million and we reported net income of $5.6 million for $0.09 per diluted share. We believe supplemental nonGAAP financial results reflect the basic operating results of the company and will facilitate comparison of operating results across reporting periods.

Our nonGAAP income statements exclude amortization of purchase related assets, restructuring, and stock compensation expense. Please refer to our web site for complete GAAP to nonGAAP reconciliation tables. For the first quarter of fiscal 2009, these nonGAAP charges totaled $8.2 million and are composed of the following -- $3.8 million amortization of purchase related assets, $3.3 million restructuring charges, and $1.1 million stock compensation expense. The following discussion is based on nonGAAP results. All comparisons with prior periods have been adjusted to reflect the restatement of our financial results.

Restated pro-forma tables for fiscal 2007 and fiscal 2008 have been posted to our web site. By segment, North America microwave contributed $61 million of revenue in the first quarter, 12% higher than Q4 of fiscal 2008, and 9% higher than the year-ago period. The International microwave segment contributed $131 million of revenue, up 5% higher than Q4, and 20% higher is and the year-ago period. By geography, Africa contributed $66 million in revenue, 37% higher than Q4 of 2008 and 25% higher in Q1 of 2008. Russia contributed $37 million in its seasonally slowest quarter, 34% less than Q4 of 2008, but 13% higher than the year-ago period and revenue for the rest of the world was $28 million, 35% higher than Q4 and 18% higher than Q1 of last year.

The network operation segment contributed $3.4 million in revenue in the quarter compared to $7.1 million in Q4, and $6.5 million in Q1 of last year. Gross margin was 30.8% in the quarter. In line with expectations, compared to 30.6% in Q4 of fiscal 2008, and 28.9% in the year-ago period. Total operating expenses were $45.4 million, or 23% of revenue. This compares to $51.2 million in Q4. In Q1, OpEx included costs for outside professional services and legal and accounting fees in support of the restatement process.

As we look to the second quarter, our expectation is the total operating expenses will be comparable to the first quarter. Depreciation and amortization of property, plant and equipment and capitalized software was $5.6 million. CAPEX for the quarter including capitalized software was $5.4 million. Operating income was $15 million compared to $5.9 million in the fourth quarter of 2008, and $14.3 million in the year-ago period. Net income was $11.2 million, or $0.19 per diluted share. We expect our pro forma tax rate for fiscal 2009 will be 24%, which is lower than last year's pro-forma rate of 26%. The lower rate is attributable to our increased volume of international revenue flowing through our Singapore International headquarters. Our cash tax rate is approximately 4%.

Employee head count was 1,412 compared to 1,421 at the end of Q4. Moving on to the balance sheet, Harris Stratex Networks's cash balance including short-term investments was $97 million at the end of September compared to $98 million at the end of June. Operating cash flow for the quarter was $4 million. Net cash, which we defined as cash less third-party debt, was $87 million at the end of Q1, down from $89 million at the end of the prior quarter, but improved compared to $63 million as of Q1, fiscal 2008. Third-party debt increased by $1.2 million to $10 million in Q1 as we retired our existing debt and replaced it under our new credit facility.

Inventory and unbilled increased by $14 million in the quarter and turns declined from five to 4.6. The increase was caused by the timing of billings on large system projects which should normalize as the year progresses. An increase in new product inventory in anticipation of future sales, and the timing of revenue recognition on shipped products as a result of delivery and acceptance terms, which we also expect to clear within the next several quarters. Accounts receivable decreased by $5 million. DSO was 96 for Q1, reduced from 101 in Q4 of fiscal year 2008, and 108 in the year-ago period.

We continue our initiative to decrease DSO and improve terms and focus on cash conservation over the next several quarters. Now, I would like to turn the call back over to Harold Braun to provide a market and business update.

Thank you, Sally Dudash.

I would like to lead with an updated view of our wireless market. The gross drivers are fundamentally still in place. There is ongoing expansion of basic services in developing countries and they roll out of 3G network services especially in rapid adaptation of smart phones with more intensive data occupations. Our value proposition in mobility networks remains fundamentally strong. Our customers measures in terms of the ability to provide back home versus other solutions or in terms of total cost of ownership of our network solutions.

Sometimes we are measured on the basis of lowering long-term OpEx especially compared to these line solutions. The latter solution has to cope with significant cost expansion to go along with capacity increases. Our solution doesn't. For these reasons, we believe the growth in network data and the pressure, will assure us of viable market opportunity in broadband networks for the long term. As you know, building mobile wireless network infrastructure is a capital intensive business and our customers often require access to capital. This is clearly a higher risk factor in the present economic climate.

But we are not seeing any significant impact to our revenue opportunities at the present time. With our private networks business which is comprised of state and local governments, private enterprise and utilities, among others, here are some risks given the potential of budget cutbacks or delays under the current economic conditions. We have received assurances from customers that projects in our backlog are fully funded and not at risk. However, we are preparing risk analysis profiles of key customers and key regions to better anticipate shifts in wireless spending. We believe this analysis will enable us to take timely actions to mitigate our risk when necessary.

In previous calls, I indicated I would also provide updates on our growth plans and strategies. As you may recall, these gross pilars are, number one, solutions for movement back home. Number two, an expanded portfolio of network services, especially professionally managed service categories. Number three, using VyMax as an opportunity to forge opportunities, and number four, site management.

This includes security and surveillance, as well as power management and efficiency solutions to lower overall OpEx. We intend to execute our growth strategy and build on early momentum. Our future growth initiatives are all based on developing new solutions to reduce overall network costs and as such, as well, aligned with our long-term customer needs. With regard to our portfolio strategy, we have embarked on the development of a new common microwave platform for all of our IP applications. This will build on our position, which has already been well established with the eclipse product. We will augment this with a number of new technology elements that will strengthen our position in Internet applications as well as address all of our global back home requirements. New products from this program will begin to appear within the next 12 months.

The strength of our future product development growth has becoming increasingly important part of the qualification programs. Our customers need to look ahead to IP, migration and capacity expansion requirements. They are making near-term product selections with a view to the future. The feedback on our technology from key customers and customer targets has been very positive. Let me return to a discussion of our business in the first quarter. We posted strong results in Africa. One of the leading gross infrastructure buildouts, in Africa, have continued to expand the network infrastructure and continue to select Harris Stratex Networks as their partner.

We are continuing to see new opportunities in this area in mobile back haul applications as well as other vertical market opportunities. Our renewed focus on Asia Pacific implemented five quarters ago is beginning to deliver encouraging results. Two of our original targeted Tier One customer accounts have quickly moved forward in implementations, driving stronger sales to the region during the quarter. Our eclipse mobile solution was well positioned with our selective customer targets. It has gained acceptance for 3G network rollout, with respect to this migration capability for all ethernet applications. In prior calls I have discussed the higher gross, microwave high applications. If it is a specific target, this technology is driven by the success of our product. On a 12 months basis, 34% of our products came from this category, up from 31% in the prior quarter.

We also remain confident that product shipment in this category will exceed 50% by the end of fiscal year 2009. We operate in a highly competitive markets segment. We don't expect that to change. It is often based on the strength of our product line, our track record for innovation, our speed of delivery and our deep customer relationship. However, we believe that product only companies are vulnerable in this segment, and we have demonstrated that we can better protect our long-term customer position by packaging the right blend of network and support services, supply chain logistics and project management. We recognize that our current mix of services is putting some pressure on our overall gross margin. Our decision to accept this margin pressure is strategic. It helps us to bring new key accounts and helps us protect our position in existing accounts.

Overall, this is an area of focus both in terms of our competitive capabilities and getting the blend of services and products where we need to be. In a few moments we will open for Q and A, but I want to comment on guidance and near term also. Our expectation for the second quarter of fiscal year 2009 revenue is a range of $185 million, and $195 million. This guidance reflects the strength of our bed rock and our current view of worldwide economic conditions. We expect that our operating performance metrics for Q2 should be in line with Q1. This slightly lower earnings, in line with revenue guidance. We believe the GM percentage will improve, but modestly. We also expect to incur additional restructuring charges between $2 million, and $5 million.

In summary, I am pleased with our first quarter of fiscal year 2009 in which we achieved record revenue and net income for the company. We continue to make progress on improving our internal processes for the company. Our value proposition in mobility networks remains strong and we see the growth of our business as still in place. Our outlook remains positive for 2009.

At this point, I would like to open the line for questions, operator, please call for questions.

[ OPERATOR INSTRUCTIONS ] First question comes from the line of Blaine Carroll of FTN Midwest Securities. Please go ahead.

Thank you. Hello, everybody.

Hello, Blaine.

If we can look at the revenue for a minute, all your different geographies put up good growth year over year and on a sequential basis. The guidance of the 185 to 195, what areas of your market are making you nervous on that projection? Is it realistic that we will be down sequentially in the December quarter which is typically a strong quarter?

In some areas we have programs in place, definitely in Europe and Latin America, we put some emphasis on that. There are some RFPs coming up for major tier one customers. We see something going on but it is not close. That is very close look into this region and in Latin America also. I would not say they are troubled, but we have a different focus on that.

We are watching that. There is another region where we have an emphasis -- Where we actually focused -- That is in Russia, India and China, that is the particular strategy in this region. I wouldn't be so concerned. I don't see this as a major impact for the last calendar quarter. Again, the strongest region, where we see some good momentum coming up and our deals which I announced last time did come in the third and fourth quarter. I'm looking forward to a good second time of the year.

Would you be up sequentially in the March quarter? Typically that is a historically weak quarter.

In line, that is what we at we expect.

In line meaning flat?

It would be flat.

How booked are you for the December quarter? What was your turns business during the September quarter?

As we look into the December quarter, it is fairly comparable with quarters in the past. We talked to between 60%, and 70% backlog going into the quarter, that is what we currently see for December as well.

And you talked about gross margin improving modestly. Can you define improve modestly?

I would say -- I told you I did guidance in the next quarter, the December quarter. It is hard for me to stay at the moment, but a slight improvement. I am not comfortable to give you a percentage on something like this at the moment.

But north of 31% sounds good?

Around.

Okay. I will pass it on. Thanks.

Next question comes from the line of Stephen Ferranti of Stephens Incorporated.

Stephen Ferranti of Stephens Incorporated, thanks for taking the question, nice good job on the quarter.

Thank you very much, Stephen Ferranti of Stephens Incorporated.

Question for you on the region you reported, fairly diverse region. I was wondering if you could give us additional color on what sub regions were up and which were down?

Evenly distributed. Last time we put out that there is one particular region which we see-- I will give you the numbers. This is in Saudi Arabia, and we are expecting to turn that to revenue in our third and fourth quarter. That was pretty positive on the second half. That is a big project and there are some delays. We will take a little bit in the second quarter but we see the majority turning over in a third and fourth quarter. That will come. The region is not in balance anymore because this is a huge one. I couldn't say that it was evenly distributed. There is not one project that sticks out.

It seemed like it took a little bit of a dip sequentially. I didn't know if that was due to any specific subregion.

No specific subregion. But this quarter all the time, all the time, application, Ramadan, these are the reasons.

Okay, very good. On the flip side, North America was pretty strong, as strong as it has been in some time. What do you see in the North American market? There has been some anecdotes, speculation about carriers deferring spending where possible. What are you seeing?

To address this complex situation, and the turmoil in the credit market, and some economic crisis worldwide, we recognize that and we take actions. The actions are the following.

We decided to do a risk profile analysis for all of our key customers and take a look at that, evaluate them, see where we are, whether they are possible impacts and when we have that transparency, we provide, at least for us, it's very important, to see if we can define risk mitigation programs. Particularly North America, that could be, by the end of this calendar year, maybe they spend the budget they allocated and we don't see a big impact, but it could be an impact next year that made the cut back or postpones projects. That's what we are anticipating. For this year, I don't see a big impact but let us finish our risk analysis, our risk profile analysis and we will have some more questions. At the moment it remains fine and strong but the impact is in the beginning of the year and budgets may be postponed or cut back.

Can you categorize, Harold within North America, how much of that was private networks versus carrier business in the first quarter?

Do we have the numbers?

We don't have that statistic, Stephen but we are seeing pretty steady business in North America across both sectors in the past quarter.

Okay.

Nothing sticks out.

Can you even put a ball park split on it? Is it 50/50? 80/20? Any color you can give?

I would say closer to 50/50. It was not skewed. It is not typically skewed any more than 10 points off of 50.

Okay. Fair enough. I guess one last one from me for Sally. Can you just talk about your targets going forward for DSO, inventory turns and payable turns?

Sure. I have mentioned that a minimum for this fiscal year, we would like to see did DSO get to 90 so take at least 10 days from where we ended last year. Our inventory turns, we would like to see up towards six. They were at five as we ended last year. We had a little decline in this quarter but nothing that we saw as permanent. Payable days are coming down. Everyone is looking and our vendors are looking to insure payments are made on a timely basis so we ended our year last year with payable days. I have the statistics, about 60, I believe. 59. We hope to keep them comparable to that this year although in the first quarter they went down a few days.

Thanks. One last house keeping question, were there any 10% customers in the quarter you could identify?

We had one in Africa. That is not atypical for us.

Thanks and congratulations again.

Thanks.

Our next question comes from the line of James Faucette with Pacific Crest Securities.

Thanks very much. I just want to asked a question as it relates to your evaluation, looking at your customers. From what I understood what you were talking about, that none of your customers had been modified their budgets and spending plans based on the current credit crunch. But I am wondering how you see them dealing with the extreme changes in exchange rate and how you are having to deal with that, for example, a customer in Australia and the Australian dollar has depreciated the US dollar by half, in just a period of a few months. Wondering what pricing pressures that may put on and what you are seeing in customers's reaction to those changes and what we should expect to see?

With regards to our foreign exchange trading, we are not seeing any issues on not being able to close contracts or customers not being able to close contracts yet. We are seeing some delay in a lot of processes we need to run through major financial institutions, just because the banks have got a lot of other things, and it's a very volatile trading market. We deal with strong banks for FX that have not had issues through this timeframe. Banc of America is one of our Prime banks, BNP. We have not seen yet any issues in closing these contracts. Maybe a little slower.

What about on a go forward basis? Just to take an example, in Australia, four or five months ago they were looking at spending 100,000 Australian dollars on a project, now, they would be looking at 140, 000 Australian dollars.

Harold made a point of this assessment we are doing on the CapEx spending profile by Market and customer. For that, among other reasons, to see what trends we might see with our customers, due to any number of things, which regards to the impact on their spending profile. We have kicked that off, and I will let Harold say a few words.

That is exactly why we kicked that program off this risk profile analysis and talked to our major customers and key customers, and seeing what did you plan? Is the rollout there? Are they expanding more to make the rollout happen? And what we see so far, we talked -- I was traveling for the last 2 1/2 weeks and I was attending a major conference the last two days, worldwide tier one carrier on the sea level, we conducted a lot of interviews there, and it looks like the spending level of what they want to do, the strategic elements of their plan for the year don't change. That is interesting for me see that they stick to that strategy. And this huge demand of band width required from smart phones. I don't mention all the smart phones out there so it's increased by the weeks now that there exists demand there and they are executing their plans. I don't see a big risk but let us make a profile analysis. In direct discussions with the customer, these questions take shape and we take an analysis and have the mitigation program in place. There is the reason we're doing what you are asking.

That is very reassuring. Not to belabor the point, but when you say these sea level executives are going to spend the same amount as they had planned, are you saying they will spend the same amount they planned in local currencies or U.S. dollar terms?

At the local currency and the amount of dollars. I want to reassure, that program, what you planned is still alive? Is the budget still there? That, so far, looks good. We have to see -- We have a little bit in the currency issue, how do we deal with that? That will be the next question. We are not at that level able to discuss the exchange rate.

That is very helpful, thank you.

Next question comes from the line of Kevin Dede with Morgan Joseph. Please go ahead.

Hi guys this is Jim Warren for Kevin Dede, congratulations on a nice quarter. A question about pricing. Are you seeing anything happening to pricing for high-capacity, low capacity radios given the economic environment?

No. I don't see the impact yet on that. he pricing pressure, I said that in my script, the pricing pressure at the moment comes from the competition and the offerings and how you package it. That is a very fierce competition. From the economic crisis, I could not pinpoint one deal or something to the economic crisis at the moment.

In terms of the competition, have you seen any change in the landscape?

Same as I pointed out last time, same level, same competitors and I don't expect that to change, and I don't expect major confrontations, other than the next couple months or quarters. We have to deal with the same competitors but it will be very hard going forward. The deals get bigger and suddenly everybody is there. It is very hard. That is business.

Can you comment a little about the progress on your radio development?

As I said, I am very pleased. When I started and we did the analysis, I saw many platforms, very good features. In the meantime, we have taken actions, aggressive actions to get to one product line and the second workshop with all the world wide leaders, R and D leaders, he has this in place, and it comes together nicely and as I pointed out, they have a clear understanding of the road map, a clear understanding of what we provided on this common IP enabled platform. I'm very pleased to see that. We have to break it down, when particular features come out, we have that breakdown and that is what we are discussing with the customer, the customer demands. For me, it looks very positive. I am very happy with this progress.

That is good to hear. Also, how are buildouts in India going? Are you involved in a lot there in terms of as far as how that breaks in?

That is an area I pointed out. The first question I got, the regional situation, we really have concerns, we see something happen, we have good regions, some areas, from the beginning, I discussed the region, we split the world into five regions. In India we have a special program going, that is what the company did when I was not there. I mentioned that in my script. They really put a focus on that focused strategy carries the same thing is what we do in India, China and Russia. There is a focused strategy, and we'll see where especially where gross strategy can be applied. The region heads for epex are doing a fantastic job. They get us to that focus strategy and we will be executing the strategy. There are some areas we have not satisfied, we would like to go over but now I see the progress and the strategy has to be presented by the end of the year. The goal in executing that, this market, you cannot ignore it. On the other side you have to be careful. I just came from a conference where we had some discussion with some number one Indian incumbents and providers, very good discussions with them. There is something going on. Everybody knows what the output is in this country so we have to be careful.

So you have been there for a couple quarters now, just wondering if you are seeing a change in culture or if you are seeing the sense of urgency and also if new compensation structures have been adopted yet?

I've been here a little more than half a year. As I said, we had a strategy alignments, strategic direction definition, then accordingly, we could the organization in place that is coming along very well, I am traveling a lot to the customers , I'm coming from my second worldwide trip, talking to major customers in the U.S. and Europe and Africa, and I see the strategy coming together very well. The Organization is building up. The least of my worries is the culture because to get the people aligned to one strategy and we have the foundation program, the unity program, the modified program in place, to get us to one process and one toolset base, that is counting along very well. Reviewing that half year, the area of strategy, organization, and fixing the basis with tools and processes is coming into place. And of course with that is the cultures that will change. I just had my letter of this week to tell them we have our principal values and mission statement out, now we have to live it. That portion of the process that is done. Now, we have to embrace it. So that comes together. I see a lot of changes in the first half year. On the other side you have other challenges. We are addressing them. That is very important to analyze, to see where we are and address it and put it on the table and address

Thanks a lot, good luck going forward.

Thanks very much.

Next question comes from the line of Greg Weaver from Invicta Capital. Please go ahead.

Nice job getting the ship pointed in the right direction. Sounds like from your commentary that things are moving along. Can you give us a little color on how bookings have been so far this quarter?

Yes. I'm just coming off of a business review meeting with Sally. We have some good reporting established in the next couple months, transparency is good, there are some areas to work on, the COO has taken actions with our CFO office and CTO office. We have a good transparency, Sally, and it is coming along good. I don't see an impact at the moment from the macro economic situation. At the moment it looks good. We have some tasking to do, we have every day our sales regional call but it is coming along. I am not worried. Sally do you have some other color there?

Our revenue guidance is in line with what we are seeing from a booking perspective and our typical turns business, none of that is any different yet than we have seen in the past but we did guide our revenue at a slightly lower range in Q1 which is a tremendous quarter for us revenue wise, we beat anything we had ever done, that was an exceptional quarter for us on the revenue line.

The backlog, I pointed out is good. It's coming together but there is always work to do.

Did shipping of the product in the first quarter strain your operations or supply chain such that you weren't as efficient as you would have liked to have been?

his quarter I took the liberty to visit our warehouses and organizations and wanted to see in person the progress and what they did. The processes are in place, the tools are there, and I visited also our apartments and of course it was all in check and in line with our COO office. We have some work to do there, as we mentioned in the last call, we put our new logistics center in Amsterdam and I visited that two weeks ago. I checked it out and I am impressed. There is a lot of work to do, we just established that. would color it with we are on the right track, a lot of things to do, but it comes together. So I'm encouraged, let me put it this way.

Okay. You mentioned there were some time items in the quarter in terms of audit expenses.

he specific item I called out was one that I had discussed in our last call and that is that we did expect and would incur additional costs for professional services to complete the restatement process, which we completed at the end of September. That process combined with professional services and legal costs, was just over $1 million dollars.

Looks like you trimmed sequentially on the R&D side of things. How do you see your SG&A inflated by the cost you referenced but I am surprised in terms of the current quarter, that we'll be looking at it to be flat again. Can you help us to understand on the SG&A side, what is going on?

I can. There are two factors I will point to, that are contributing to the guidance that we gave for OpEx The first is we have increased our bad debt provisioning to be more conservative in light of the credit market situation, and we do expect in the short term, that will have an impact on our OpEx. The second is that we have accelerated our spending on system improvement projects, due to our desire and need to accelerate the visibility into operational trends in many natures, inefficiencies in the business, so that we can have a better way to put remediation plans in place when we need to. So we have decided to accelerate some of that spending over the next several quarters. Those are two of the factors that have contributed to the guidance that we gave.

That is helpful. Can you help me understand in terms of the bad debt provisioning? Is it a catch-up future?

It is not catch up, just looking to the future, probably being a little more conservative on assessment of aging, given the situation in the markets. We felt that was prudent.

Harold, you mentioned in the past couple calls about the trailing 12 months IP revenue mix. Maybe I missed it.

We were 31% in the prior quarter, and now we have 34%, so a 3% increase. I mentioned that in my script.

Sorry I missed that.

t's up and as you imagine it is very important to me, how important our IP is. Wherever I talk to customers, to quote this conference where I was, we consolidate from Sunday to yesterday evening with a lot of industry captains in the world. It is mind-boggling what is going on in the communication industry especially in the wireless area, especially driven by what I said all the time in the last half year, by smart phones and the amounts of data. Everyone is talking about data, data growth. And on the earnings calls from Verizon and others, you see that that come into play. That is very handy for us. That is where we are working in this area. Very important and everything is based on I T.

A related question, there are a number of tier ones RFP's, can you give us a sense of the magnitude of opportunity which this explosion of data?

The magnitude in terms of dollars?

Correct. How big are these relative to what you have been working on historically?

It varies between 20 million and 100 million.

Per opportunity?

Yes. That depends of course on TI because there are some very big ones. In Europe, there are two in North America. The biggest thing is in Europe in North America. Very encouraging, we are making tremendous progress, I cannot say anything but there are some letters out already. That is interesting to see how we proceed.

Any sense of the timing when these might come through?

Now, it gets to the short list, you are going to contract negotiations, it can take a while. Everything between the next two, and four months, something like this, we have some signs and some outcome, some results.

Okay, great, thank you.

[ OPERATOR INSTRUCTIONS ] Next question comes from the line of a follow-up question from Stephen Ferranti of Stephens Incorporated. Please go ahead.

Thanks, just a quick follow-up on the previous line of questioning. Some of the RFPs you talked about, in the US, can you give us some sense, are these carriers that have existing wireline networks, are these carriers that might lack their own wireline network? And if you are seeing some interest from carriers with their own wireline network, what drives them to begin looking at microwave? That has typically been a technology that has lagged a little bit in the U.S.?

It's a hybrid, they have both. Wireline and wireless.

Would these opportunities be upgrading capacity of existing microwave links, or would these be perhaps replacing T1 lines with higher capacity microwave lengths?

That is an encouraging thought, there is a mix -- We are going to go -- We need to expand because of the data growth and make it more cost efficient, these substitutions, we need to go to IPtransition to a different technology. That means migrate and go to IP. When you have a solution which allows both in the same product, this is very useful. I think that is what we do.

Right. Would it be safe to say, based on the activity you are seeing, we might see microwave increase its presence in to US market, so to speak?

We had a discussion on that. That is what we would love to see, what we need to see compared to the rest of the world. I see signs now since the RFP is out, I see signs in that direction. These carries of course, internally, because they are hybrid, in their own house, they are cannibalizing their business. This is a little touchy for them but I see it happening. It needs to happen and I see it happening. It is an encouraging thought. In the rest of the world it is already happening and we are all waiting and happy to see that in the US also.

Great, that is encouraging, thanks.

Next question is from the line of Rich Valera with Needham and Company.

Thank you. Sally, cash flow from operations, did you give that number?

$4 million.

Thank you. The tax rate, you mentioned you are expecting 24% for the year. Is that how we should think about your longer-term tax rate as we look at fiscal 2010?

I would for now. We have some opportunity to lower it but for now, 24% is a good metric.

Looking at OpEx, thanks for the color on the near-term, but how should we think of it longer-term as a percentage of revenue or an absolute dollar amount? There was sort of a presumption that we are dealing with elevated levels and at some point you would see this drop off or maybe not? I want to get your sense of how we think about that, longer-term?

Right now we would like to hold that discussion for another quarter. We saw about 23% of revenue for the year last year in the OpEx line, we saw about the same in Q1. Based on the revenue guidance, it may be a little higher but it is not far out of that range in Q2. But we have also discussed some investments that we are making. What I would like to do is let us get one more quarter and see where we are with some of these initiatives and when we come back at the end of Q2, have a better feel for that.

Okay, that is helpful. Harold, this has been discussed in various different ways, but you mentioned in some of your comments that you felt quite good about the second half of your fiscal year, and I wanted to get more color on that. I know part of its is based on the backlog which was based on the big bookings quarter a quarter ago. Part of this is part of the roll-off of the backlog, but what else at else is there? Is there a pipeline of deals that could close over the next quarter or so that will drive that as well? Just wanted to understand your optimism for the back half.

That is correct. talked about the big deal, going into the third and fourth quarter, in the Middle East, that is a big driver. There are also, some projects which are very encouraging, about to close. And then we would see already revenue takes from this project coming into play. There are a number of those but there is also one big one. We will take a look at that. That could help in the second quarter. A couple of smaller -- In the second half. A number of smaller ones. The deals coming together with existing customers, expansion and with new customers. That is an interesting picture. That is the basis of my optimism.

Okay.

And it helps to talk directly to them. I took another couple of weeks to travel around the world and talk to a major tier one customers and what I am seeing and hearing and how it is changing, it is all about what I said before, the deep customer relationships, the speed of delivery and innovation. It comes together and talking about the four growth areas, that resonates I am happy about that.

Okay, that is helpful, thank you.

At this time there are no more questions. I would like to turn the call back over to Mary McGowan for closing remarks.

Thank you for joining us on this call on the webcast. We're planning to attend several investor events over the next several months. These include the AE a classic financial conference on Nov. third and fourth, the UBS Global Technologies and Services Conference on November 18th, the Stephens Fall investment conference on November 19th and the Needham Growth Stock conference on January sixth through eighth. We hope to see you at those events. Thank you and good day.

That does conclude the Q1 2009 Harris Stratex Networks Earnings Conference Call. You may now, disconnect.