Aviat Networks Inc (AVNW) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Harris Stratex Networks conference call. At this time, all participants are in a listen-only mode. Later we will open up the call for questions. Instructions for Q&A will be provided at that time. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to Mary McGowan of The Summit IR Group. Ms. McGowan, you may begin.

Thank you for joining us today to provide second quarter fiscal year 2009 financial results for Harris Stratex Networks. On today's call is Harald 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 relating to projections of earnings and revenues, business drivers such as the transition to IP infrastructure, the timing and capability of new products, and continued network expansion by mobile and private network operators. These and other forward looking statements involve assumptions, risks, and uncertainties that can 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 on the Investor Relations section of our company website, which is www.HarrisStratex.com. Now I would like to turn the call over to Harald Braun.

Thank you, Mary. Good afternoon, everyone. Let me first provide you with some highlights from our second fiscal quarter. Then I will turn the call over to Sally to discuss the financial results in detail.

I am pleased to report that we achieved revenues of $191 million in our second quarter, in line with the guidance that we confirmed on January 7th. On a non-GAAP basis, gross margin was 30%. Net income was $11 million with earnings per share of $0.19. By segment, North America revenue was $65 million, international revenue was $121 million, and network operations revenue was $5 million. We were able to maintain a strong cash position, ending the quarter at $99 million and a positive operating cash flow of $13 million. Our book to bill for the quarter was under 1. This is a further indication of the effect of the global economy on the timing of orders in our pipeline. Once again we demonstrated strong demand for our product platforms and services solution as revenue momentum continued with a year-over-year sales up 5%. This was achieved in the face of a very difficult global situation. Later in the call, I will provide comments on our markets and update our strategy for growth and further information on the actions we are taking to protect and strengthen our business.

Before I turn the call over to Sally, I would like to bring to your attention to a management change, for those of you who may have missed the press release issued earlier today. Our CFO Sally Dudash will be leaving the company effective February 13th after serving as CFO since the company's formation in 2007. Sally has contributed to the company's growth over the last two years at both the financial and strategic planning levels. On behalf of the entire company, I would like to express my gratitude to Sally and wish her well. While we search for a permanent replacement, Russ Mincey, the company's Global Corporate Controller, will be acting as Interim Principal Financial Officer. He has more than 25 years of experience in financial management, including supply chain distribution, cash management credit and collections, SEC compliance, and Sarbanes-Oxley oversight. Russ will also be joining us for the Q&A session of this call. Now let me turn the call over to Sally to give you the full financial details for the quarter. Sally?

Thank you, Harald, and good afternoon, everyone. Let me start with a review of the GAAP financial performance of Harris Stratex Networks for the quarter ended January 2nd, 2009.

Second quarter revenue was $190.9 million, and we reported a net loss of $315.4 million or $5.37 per share. This was a result of charges that totaled $327.1 million composed of the following -- $301 million impairment of goodwill and other indefinite-lived intangible assets; $20.8 million increase in deferred tax valuation allowance; $3.8 million amortization of purchase related assets; $1.1 million restructuring charges; and $400,000 stock compensation expense. In January 2009 we determined that based on the current global economic environment and the decline of our market capitalization, it was likely that an indicator of goodwill and other indefinite lived intangible asset impairment existed as of the end of the second quarter of fiscal 2009. As a result, we performed an interim review for impairment of our goodwill and other indefinite lived intangible assets. The results of this review were a $279 million charge to write down all of our goodwill and a $22 million charge to write down a majority of our indefinite lived intangible assets. We also recorded an increase in deferred tax valuation allowance of $20.8 million, based on our assessment of the future recoverability of our deferred tax assets. We will not be required to make any current or future cash expenditures as a result of these charges and they do not impact our financial covenant compliance under our credit arrangements or our ongoing financial performance.

Now I would like to present the details of the quarter on a non-GAAP basis. We believe the supplemental non-GAAP financial results reflect the basic operating results of the company and will facilitate comparison of our results across reporting periods. Please refer to our website for complete GAAP to non-GAAP reconciliation tables.

By segment, North America microwave contributed $65 million of revenue in the second quarter, 5% higher than Q1 of fiscal 2009 and 2% higher than the year ago period. We continue to see steady revenue in both mobile and private sectors in this region. The split between mobile and private orders for North America in the quarter was 41% mobile and 59% private. The international microwave segment contributed $121 million of revenue, 7% lower than Q1 of fiscal 2009, but 9% higher than the year ago period. By geography, Africa contributed $51 million in revenue, 25% higher than Q2 FY '08. EMER, which comprises Europe, Middle East and Russia contributed $48 million in revenue, 50% higher than the year ago period. And revenue for the rest of the world was $22 million, 42% less than Q2 FY '08. The network operations segment contributed $4.9 million in revenue in the quarter compared to $6.5 million in Q2 of FY '08.

Gross margin was 29.6% in the quarter compared to 30.8% in Q1 of FY '09 and 30.9% in the year ago period. The decline in gross margin was caused by a higher mix of services revenue in the quarter that drove unfavorable absorption of factory overheads. This is not a trend we expect to continue in future quarters.

Total operating expenses were $41.7 million in the second quarter or 22% of revenue. This compares to $45.4 million in the prior quarter, where we incurred higher outside professional services fees. On a year-over-year basis, total operating expenses declined 3% as we achieved savings from facility closures in Canada and South America as well as headcount reductions.

Operating income was $14.8 million for the quarter compared to $15 million in the first quarter of fiscal 2009 and $13.2 million in the year ago period. Net income was $10.9 million or $0.19 per share. Our pro forma tax rate was 24%, which is lower than last year's rate of 26%. The lower pro forma rate is attributable to increased volume of international revenue flowing through our Singapore international headquarters. Our cash tax rate is expected to be 6.5%. Employee headcount was 1,395 compared to 1,412 at the end of Q1.

Moving on to the balance sheet, we were very pleased to see our cash balance including short term investments improve to $99 million at the end of Q2 compared to $97 million at the end of Q1. Net cash, which we define as cash less third party debt, was $89 million at the end of Q2 compared to $87 million at the end of the prior quarter, as third party debt remained at $10 million in the quarter. Operating cash flow for the quarter was $12.5 million.

Inventory and unbilled costs increased by $12 million in the quarter and turns declined from 4.6 to 4.2. Inventory increased as a result of building new product inventory in anticipation of shipments to a key account that is under contract, but now delayed for delivery for one to two quarters. There was also some delay in revenue recognition on shipped products as a result of the delivery and acceptance terms, which we expect to clear next quarter. Accounts receivable decreased by $15 million, and DSO improved from 96 in Q1 to 87 in Q2.

Depreciation and amortization property plant and equipment and capitalized software was $6.1 million for the quarter. CapEx for the quarter, including capitalized software, was $4 million. We continue our initiatives to decrease DSO and improve inventory turns and in general focus on cash conservation over the next several quarters.

Now I would like to turn the call back to Harald to provide you with a market and business update.

Thank you, Sally. Given the challenging business environment worldwide, I was very pleased that we were able to deliver solid results for revenue, earnings, and cash generation. I will provide further color on the second quarter, but first I will elaborate on some balance sheet items.

During quarter two, we applied particular focus on accounts receivable, aging, and collections. I have set imperatives for my staff and will continue to monitor this area very closely. We also began to realize OpEx improvements on the cost reduction actions previously taken in Canada, Brazil, and US facilities. In this economic climate, we need to balance expense management with our desire to strategically invest in our long term future. To that end, we have created a program to strategically reduce spending and enable us to support our long term growth initiatives.

In line with our overall growth strategy, the cost reduction program will be executed in a phased approach over the next six to nine months. These cost reduction initiatives will include optimization of our productivity and collaboration across all functions; improvement in the overall efficiency of our business operations; alignment of investment in R&D with a focus on innovations and solutions towards our long term growth strategies; reduction in professional consulting services, travel, and other discretionary expenses. Our long term goal is to implement a sustainable cost management program that will act as a road map to greater performance and increased market leadership.

Now let return to a business review of the quarter. In Africa, we posted our second consecutive quarter of 25% year-over-year revenue gains, which was a solid performance. This region remains one of the leading growth areas for wireless infrastructure buildout. Operators here have continued to expand the network infrastructures and have continued to select Harris Stratex as their partner. In the region that includes Europe, the Middle East and Russia, Q2 sales increased 50% year-over-year as key customers in the Middle East took deliveries for significant network expansion roll outs. We previously announced a large contract in the Middle East, but shipments have not yet started. Additional customer requirements are resulting in an upgrade to the network design. We now expect to make shipments in our June quarter.

In North America, sales increased slightly year-over-year. Revenue drivers include work on several large system integration projects, three of which were a large system integrator, a leading US carrier, and a major local government. Permitted projects and budget spending seems to be remaining on track. Harder to predict is the timing and approval of budgets for new projects, and so we remain watchful. The March quarter is seasonally the slowest in North America. Order intake has also declined due to consolidation in the mobile carrier segment. One encouraging trend is the increasing requirements for wireless IP network solutions. We see this in both the mobile and the private sector in North America. Timing, however, remains uncertain.

Our renewed focus on Asia Pacific implemented six quarters ago continues to deliver encouraging results. Our tier 1 customer in Australia and our tier 1 operator in the Philippines continued the rollout of their 3G mobile networks. In Malaysia, we have a significant new customer win.

For some time now, I have spoken to our product strategy aimed at a common microwave platform. This strategy will reduce the number of products required to support our worldwide customer base and will build on our position and carrier ethernet applications. We are adding key features to enhance our solutions and maintain a leadership position in the IP mobile [backhaul] market.

New products from this program will begin to appear around the middle of 2009. The growth in microwave IP application is a specific target for us driven by the success of our Eclipse product platform. In quarter two, on a trailing 12 months basis, 38.4% of our product sales were IP applications. This is up from 28% in quarter three of fiscal 2008 when we started measuring this category. We remain confident that we will exceed 50% of product sales by the end of fiscal year 2009.

We continue to lay the groundwork for our strategy with network services as customers look to optimize their investments. We are having early success as we continue to build out our operations and refine our networking capabilities, which is a key differentiator. Network services remains a cornerstone for our growth [pillar] strategy.

We have made significant progress in the development of our end to end 4G wireless networking solutions. During the quarter, we successfully have completed a field trial for a government federal rule broadband initiative in South America. We will be also showcasing a complete 4G wireless networking, including IP wireless backhaul, at the Mobile World Congress in Barcelona, February 16 through 19.

Our energy and security growth pillar is generating a lot of interest with key customers in Africa. We are now entering into proof of concept, centered on site security and efficient energy solutions. These all overall future growth initiatives are based on developing new solutions to reduce overall network cost, and are aligned with our long term customer needs. We are encouraged by our customer feedback. We will continue to invest in these growth strategies and position ourself for the market's turnaround.

Our call is not complete with a discussion of where I see wireless [data] market going. Despite the current global situation, we still believe this is the industry to be in. We are not immune to the economic issues facing our customers, but we do believe our growth drivers remain fundamentally in place and that our variable position is very timely. We continue to see and to capture opportunities as developing countries expand their wireless infrastructures. We see the stress to networks that telecom operators are experiencing as more intensive data applications drives the role out of 3G network services and our customers are increasing their requirements for mixed mode as the transition to IP continues. This is an area that is a key differentiator for Harris Stratex.

To be sure, the gauging factor for all of these positive elements is the global economy. We do not believe that the opportunities are diminishing. However, the timing of these opportunities is more difficult to forecast for our customers and for us. In market conditions such as these, our variable position is more compelling. Customers typically measure us in terms of the relative CapEx for wireless backhaul versus other solutions. Sometimes we are measured on the basis of lowering long term OpEx, especially when compared with lease line solutions. The latter solution has to cope with significant cost expansion to go along with capacity increases. Our solution doesn't. As a result of our risk profile analysis coupled with widely reported news articles, we are proceeding cautiously in Europe and Russia. These two regions are experiencing the greatest difficulty with their economies. We are fortunate to have a strong market position in Africa, which remains a high growth area. However, we are aware of currency issues in various African countries and are watchful of its changing risk profile.

In a few moments, we will open up for Q&A. But first I would like to comment on our near term outlook, the actions we are taking to strengthen and protect our business, and our guidance. We believe that overall demand of our backhaul solutions and services also remain relatively strong. However the weakening global economy is creating forecasting and timing issues for our customers. This in turn inhibits our visibility. Given our diminished visibility, we will be providing quarterly guidance at the revenue level, and directional guidance on gross margin, operating expense, and EPS.

As we enter our historically softest quarter, our expectation for quarter three revenue in fiscal year 2009 is in range of $150 million to $170 million. To provide investors with a framework for other non-GAAP Q3 operating performance metrics, we are planning for the following. Gross margin is expected to improve to the Q1 level or slightly higher. Total operating expenses are expected to be comparable to Q2 levels, and EPS is expected to be lower on lower sales.

In a market that is increasingly unpredictable, we do have aspirational goals for the company. While we have demonstrated that we can be profitable and generate cash with a 30% gross margin, our long term -- the overall long term outlook is to improve gross margin approaching the 35% level and achieve double digit operating income. As I outlined in the beginning of my remarks, our near term objective is to have a laser focus on cash management and to continue to generate cash at this revenue level. We are looking forward to updating you in the quarter ahead as we enhance our product portfolio to maintain our competitive advantage. We have confidence in the value proposition we offer our customers. Our outlook for 2009 and beyond remains positive. At this point, I would like to open the line for questions. Operator, poll for questions, please.

Thank you, sir. (Operator Instructions). One moment please for our first question. Our first question comes from the line of Blaine Carroll with FTN Equity Markets. Please go ahead.

Good evening, everybody.

Good evening.

Sally, I want to start with wishing you luck post February 13.

Thank you.

Question on the quarter, how booked are you for the midpoint of that revenue guidance range?

I can answer that, Blaine. We are within our normal range of 60% to 70% of our revenue in backlog in the third quarter, as we generally are every quarter. I think we might add to that that that turns business is getting tougher and tougher with the economy the way it is, purchase orders are tougher for some of our customers to close on, financial closes are getting harder. But we felt it important that we stick in the 60% to 70% backlog as we look forward to the quarter.

Okay. Fair enough. And it's nice to see the operating expenses coming down, Sally.

Excuse me?

It is nice to see the operating expenses coming down.

It is.

Blaine, on the backlog I think that 60% to 70% what Sally mentioned I think is in line with our expectations, right. So that is in line. And of course you know that we had programs in place, and we put that now into a more company-wide program to reduce our operating expenses. We did already something in the last quarters and now we see some results.

Okay. Harald, when you said the operating expenses in the March quarter will be similar to the December quarter, did you mean an an absolute basis or on a percentage of sales basis?

I think we are going to do that on an absolute basis. That was our calculation.

Okay. And then Sally -- on the charges, were all of them noncash charges?

There would be a small amount inside the restructuring that will be cash, but the rest is noncash.

Okay. And then, last one, Harald, one thing you said -- and I know you don't want to give guidance beyond March -- but typically March is seasonally the lowest quarter. And when we have this pushout in the Middle East from that big customer, do you expect March to be the low point of the year?

I think so. First of all, I think the macro economic environment as I said in the script is beginning to show now, and it is really unpredictable for us. And I think it would not be prudent for us to go to get more visibility here. That's number one. And number two, what with we see when we shift the Middle East contract to the right, I guess it will be the lowest quarter.

Do you think March will be the lowest quarter?

Yes, the Q3 quarter.

Thank you.

Thank you, sir. Our next question comes from the line of Steve Ferranti with Stephens Incorporated. Please go ahead.

Good afternoon. Thanks for taking the question. First question I had was really regarding the mix of business between mobile and private network in North America. Seems -- I was sort of surprised I guess by the skew toward private networks there. Is that mostly government application or can you give us some more color in terms of where you are seeing the strength there?

State and local governments. Also system integrators would be another part that would be in that number. We have seen this skew before. It is not -- 60/40 is about as wide of a spread as we have seen. Over time it does tend to even out at the 50/50 level. So, that would be additional color on that.

That's right. But you see here also, Steve you see also some directional statements right from mobile operators. They are really watching their spending. And that is one thing. The other thing is also we have are a consolidation in the industry to one major situation, the Verizon Alltel situation. So therefore I think it is explainable that we have more private sector revenues than mobile operators.

That makes sense. And I guess along those lines, what are you seeing from some of the US carriers in terms of I guess their acceptance or their actions toward embracing wireless backhaul, perhaps more than they have in the past? I mean we had been hearing about some RFQs and RFPs floating around. Is there any color you can give us there? Are you chasing some of those opportunities?

Yes. We are not only chasing these opportunities. We have competing and I have to say we are doing very well. I am very encouraged with our platform and the acceptance of our platform and we are very encouraged also that the industry is adapting now IP technology. This is a very good trend, and even on the consolidation side and the merger which I just mentioned, there's one portion of the merger -- they just freeze their spending. But I am very, very optimistic going forward that this part of the merger will again spend money and all indications for us tend toward IP. And this -- very encouraging signs. So and -- not only on the mobile operators, we see them now also on the private side. So we are getting there.

Okay. Great. That's helpful. And then I guess one last one for me, Harris just hosted their conference call. Obviously they're looking at strategic alternatives for you guys, they said that they would be moving the financial results from Harris Stratex into discontinued ops. They expected by the end of I think the March quarter that something might happen there. What is your -- can you give us any sense for what's going on there? And number two what is your sense of how this will impact your business going forward in terms of will it enable you to do things that maybe you weren't able to do while Harris was a majority owner?

I would say first of all we are fully engaged in the process. So that's not one side is doing things without the other in the know. So we are really in a handshaking discussion here and we know what's going on. Of course we want to achieve the best for company. And I am feeling that, I am engaged in that, and I think that it is very good. And I think what is coming out for us is of course what we are perceiving here is a positive outcome and I think that what I am seeing so far. And I think we are a couple of weeks away from knowing which way it is going. We are influencing it, working with the parties ,and I think we are doing the right thing from what I can see today for the company -- both sides doing the right thing for Harris Stratex.

Okay. Thanks for the color and good luck going forward.

Thanks very much.

Thank you, sir. Our next question comes from the line of Rich Valera with Needham and Company. Please go ahead.

Thank you. Good evening. I'm not sure if you gave this, because I missed the first part of your prepared remarks. Did you give a book to bill for the quarter?

We did. We said less than 1.

Great. And then can you put any numbers around the slippage of the Middle East project, any sense of how large that was or how big of an impact that might have had on the March quarter?

Rich, I think we did in one earning call I disclosed the amount, I think the total business amount. It was a $60 million deal. And I would not like to split that into quarters.

Okay.

But it is a significant deal for us. And the situation on the customer side -- they're doing all the right thing, all for the right reasons. And we see also if everything goes in the right direction there that there's a positive outcome for us with additional opportunities and we see a slippage here to the right. But it has nothing to do with the economic crisis. It has nothing do with the banks or financing or something. It is all good, it is all positive. I would say it is green light. But it is a significant contract with a significant margin.

If you had to make a guess at this point, when do you think that might closes? One quarter slippage or could it be a multiquarter slippage?

I think we have seen signs already from the other quarters, but we can make it up with other projects. So we see now a solid slippage to the right. I would say visibility at the moment is one, but you never know. It is a Middle East contract. That's all I want to say and it is a redesign of the network, and I -- the visibility which we have today is a quarter.

Right. And how about the general bookings outlook excluding that one large contract? Would you say it is -- it sounds like you are saying the demand is pretty good, but there's a lot of uncertainty in some areas around financing perhaps. But how would you characterize the overall bookings outlook beyond the March quarter?

I think, again as I said the visibility is pretty limited, right. But what we are seeing -- let's say the Middle East contract we just discussed. Over that we see actually, we see, we would see a positive outlook. But I am not 100% sure whether we get back to the level which we anticipated and I would not say that after the quarter or two this macro economic crisis is bouncing back. I think we have to weather the storm a little longer. Therefore, it is very clearly for me to have particular actions taken in the cost reductions and also particular actions taken on the balance sheet. We are very -- we are closely watching the balance sheet items and I think that is to prepare for a couple of more quarters. So -- but I think as we said before, anticipation is that the third quarter would be some of the lowest, and I remain positive on that what I see from the customers and upgrading and what I said earlier -- renovating the network so that demand is there.

Sure. And on gross margin, it is fairly impressive that you're suggesting pretty meaningful uptick on gross margin in March on $30 million -- nominally less of revenue, so it's not a lot of sensitivity to volume, interestingly. What is driving that? Is it purely a mix issue in the March quarter that has you expecting a higher gross margin?

I think -- Sally, you can also answer that. I said it earlier that deal what we are shifting to the right has significant revenue impact and also significant margin impact.

So that's after Q3. For Q3, Rich, I think it is one is we do believe the mix will normalize again, but that was not -- this happened, has happened to us a couple of times where we have seen the services mix go up. But it will normalize. And two, the specific actions we are taking on cost reduction, we do have ways we can lower our operational costs for some savings. And they are underway under our reduction program. So that is how we are can can see the ability -- not huge, but the modest improvement even on the lower revenues. Okay. Thank you, Sally. I thought [he asked for them].

It seems like what you are saying is you feel gross margins are -- I know I'll put words in your mouth, but minimally sustainable around that 31% level, barring some significant mix shift toward service that can happen here and there.

Yes.

Yes, that would be --

That's my -- that is our take today, and of course the aspirational goal is higher. That is all depending on our product strategy as well to go to a full IP solution, and I think that we will take a couple of quarters but I think we are going to be in the right direction there.

Sure. And this is probably looking out much further than you want to at this point, but I will give it a shot anyway. At this point do -- you had a quite strong start to fiscal '09, and obviously probably won't be quite as strong of a finish at least as through the March quarter. Do you think as you look at fiscal 2010, that that could be a flat year which would in some ways be a victory given probably the lower trajectory you would start the year at -- or is that just too far out to even -- ?

I think, Richard, it is too far out for us to predict since we see almost weekly changes in the worldwide economy and also in our business. But, therefore we do the risk profile analysis. We had that done. We had a full assessment. We are dating that up now on a monthly basis. I almost have to do it on a biweekly basis to update our risk profile. But we have mitigation strategies in place. We know what is going on. We have customers call to our major customers, so we know exactly which direction they go. Fiscal year 2010 is a little far out to make some predictions, but at one point in time the economy is bouncing back and the wireless industry or mobile broadband industry will be the first off for investments.

True.

As the demands are there. So that is the good news. The other portion -- what I wanted to stress also in the script was that despite the fact we have limited visibility and despite the fact that maybe we have some changes in the industry, we will execute our strategy. We believe our strategy going from IP mobile backhaul to 4G and 5G is absolutely necessary to do, and we believe it would be a fault and a mistake if you would not invest in the future and prepare for the market's turn around.

Great. And one final one, Sally, is the -- from the tax rate perspective, do you see it remaining in the -- I think you have been around 24% to 25%. Is there anything that would change that going forward?

Possibility to lower it, but right now we think 24% is a good figure to use.

Thank you very much.

Thanks, Rich.

Thank you. Our next question comes from the line of Ilya Grozovsky with Morgan Joseph. Please go ahead.

I'm having a tough time reconciling the overall macro environment for carrier customers and your ability to -- accounts receivable.

We have difficulties to understand you.

Can you hear me? Can you hear me?

That's better.

Okay. Sorry. I'm having a difficult time reconciling your ability to reduce DSOs in the quarter with better collections amongst your customers and the overall macro environment and your customers' sort of lack of their own visibility and the ability to raise capital and any -- and the other issues that they're having. How are you able to have better collections this quarter?

Well I think it comes back to the basic order intake. We are seeing issues with our customers clearly in finding the CapEx to invest. So that manifests itself more in us not getting an order than it does getting an order that isn't going to get paid. And that the second is the focus we have placed on it. We have a very heavy focus on our balance sheet right now given the environment. We have many people in our team working on our collection efforts, and that has helped us a lot. This was a great result for this quarter. So it is, it is something we hope to be able to maintain.

So do you believe that DSOs will trend down from here or flat or -- ?

Well, we hit our target. This quarter. So we said 90 days was the target this year and we hit it. So, I think we have set more aggressive goals internally, but I think at the end of the day, if we could keep it at this level and be able to generate the cash we have, we would be very satisfied.

Thanks.

To build on that, I think that our very, very clear focused effort on the balance sheet, focused effort with the team -- the team did a terrific job, and up front and also in the front office and back office to collect and to also to see that we get DSOs down. We have an absolute focus on that. We have the right people working on that. We hit our goals. Of course when you hit a goal, then of course you want to make it even more aggressive. That's what we're doing going forward. I think we can be better or maintain at least a level.

Okay. Thanks.

(Operator Instructions). Your next question comes from the line of James Faucette with Pacific Crest Securities. Please go ahead.

Thank you very much. I actually wanted to follow up on the last question. Obviously you guys have done a very good job with collections to this point. And I guess my question is looking forward, have you received indications of customers looking for some type of vendor financing, whether in the form of extended payment terms or other? And if in anticipation of that potentially coming, how should we think about what your reaction is likely to be, particularly given that it seems like the other overall equipment suppliers are likely to at least provide some sort of vendor financing? That's my first question.

My second question is if you could look at geographically where you think that credit issues may be the biggest concern for your customers? And then finally, looking at the Middle East, I know you indicated you had the one pushout there, but looking at other customers in the Middle East, have you seen other indications that region may be slowing? And I guess I am particularly concerned about the correlation with the falling oil prices to spending in that region. Thank you very much.

Okay. Good. So, Sally, you take the first and I take the second?

A three part question.

Yes.

Okay. Let's see if we can remember them. The first part on financing. This has been our approach to our customers for a long, long time. We do not provide extended vendor financing. What we can do with our customers is work -- we have many, many banking relationships. We have pretty deep expertise in finding structured financing for customers, export credit agency financing for customers. We have the ability to source products. Because we are so dispersed globally, we can source products from many different countries, and take advantage of export credit agency backing. And we are actively working those channels and more actively than we used to. So you are absolutely correct there is desire out there for extended payment terms for vendor financing. And our approach to that has been the same as always is -- we will help you find a structured deal, we will get you very good rates, but we stay within our credit limitations that we have had for a long time. So that is number one.

On -- let me just speak briefly to the second question about spending and then I will let Harald take it. Clearly, the devaluation of currencies against the US dollar in some of our major markets is impacting our customers' ability to come up with money for their projects. And that has been reflected in the forecast and guidance that we are giving in that we see that trend. There are currencies out there that are struggling and they're in some of the markets where we do a lot of business. So it is a watch item for us and we are trying to the best of our ability to work with customers to help them structure ways to execute their projects where we can.

So to that -- I think to the regions, it is fair to say that we don't experience in that at the moment in our region, even though we have -- James, we have Europe, Russia, and Middle East in one regional set up. We actually don't experience that in the Middle East. But I would say it is fair to say that we experienced this situation in Africa, and also this currency exchange rate. They are troublesome. We have to watch that. That is the way our customers are looking for financing, customers looking for different payment terms, customer looking for creative dealmaking. There are some responses. We can help here and there. We have to think about -- we have some strategic customers in this region. Of course we want to help them and the area in which we are allowed to work in. We will be sitting down and trying to help them.

Up to now, I would not say that we have in Africa any financing going on, but we have -- we are working on that and we have from some customers some requests now. And we can clearly see that that comes because of the economic environment. But I would say Africa would be the number one country. On the other side, we see strong buildouts on infrastructure. Of course, some of our strategic customers are in this region. We absolutely need to sit down with them and need to be creative in how can we help in our borders. That's one. The other areas are pretty much -- of course Russia is the same situation in terms of huge network buildouts, more or less, that stopped. We will see how we can help and of course how the operators there will either consolidate or find new sources and new capital structures to themselves. That is an area we are very limited to help. So that would be the two areas which we are watching. But not in the Middle East.

That's great color on those items.

Thank you very much. Ms. McGowan, I show there are no further questions at this time. Please continue.

Thank you all for joining us on this call and the webcast. We are planning to attend the Thomas Weisel Partners Technology and Telecom Conference in San Francisco on Monday, February 9th. We hope to see many of you at that event. Thank you and good day.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using ACT teleconferencing. You may now disconnect.