CommScope Holding Company Inc (COMM) 2005 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CommScope second-quarter 2005 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Monday, August 1, 2005. I would now like to turn the conference over to Mr. Phil Armstrong, VP of Investor Relations. Please go ahead, sir.

Good morning and thank you for joining us on this call. Frank Drendel, CommScope's Chairman and Chief Executive Officer; Brian Garrett, CommScope President and Chief Operating Officer; and Jearld Leonhardt, CommScope's Chief Financial Officer, join me on the call. Please note that during this conference call, we may make forward-looking statements regarding our financial position, plans and outlook that are based on information currently available to management, management's beliefs and a number of assumptions concerning future events. Forward-looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors which could cause actual results to differ materially from those currently expected.

For a more detailed description of factors that could cause such difference, please see the press release we issued today and CommScope's filing with the Securities and Exchange Commission, particularly Exhibit 99.1 to CommScope's periodic reports. And in providing forward-looking statements, the Company does not intend and is not undertaking any duty or obligation to update these statements as a result of new information, future events and otherwise. Also, please note that all the dollar figures and percentages are approximations.

After Jearld Leonhardt reviews second-quarter results, we will open the lines for questions. Jearld?

Thank you, Phil, and thanks to everyone for joining us on such short notice this morning. We decided to accelerate the announcement of our results because we believe that the market has some incorrect assumptions regarding our second-quarter performance and our 2005 outlook. So today, CommScope announced second-quarter results for the period ended June 30, 2005.

The Company recorded second-quarter sales of $337 million and net income of $16 million or $0.25 per diluted share. The reported net income includes previously announced after-tax charges of $1 million related to the organizational and cost reduction initiatives at the Omaha, Nebraska manufacturing facility. Excluding this charge, adjusted earnings were $17 million or $0.27 per diluted share. Our operating income performance exceeded the high end of our previous guidance, and we're pleased with our ongoing progress.

Sales for the second quarter of 2005 increased 8% year-over-year, primarily driven by improved international sales, price increases and response to higher raw material costs, and stronger Carrier segment sales.

Our Enterprise segment sales rose 10% year-over-year and sequentially to 174 million. Second-quarter Enterprise sales reflected strong international sales growth, higher prices and a positive shift towards higher-end solutions such as SYSTIMAX GigaSPEED XL and GigaSPEED X10D, which is a revolutionary copper cabling system capable of supporting 10-gigabit ethernet.

We continue to expand our global leadership position in the enterprise market as GigaSPEED X10D won numerous projects in the second quarter. Our wins included the Calamos Asset Management Investment Company in the U.S., Alliade Group's corporate headquarters in France, SIG Real Estate in the Netherlands, Vimta Labs in India, among others. During the second quarter, Underwriters Laboratory completed independent witness testing of the GigaSPEED X10D solution at our SYSTIMAX labs. We believe that this witness testing of our solution was the first of its kind for 10G.

UL confirmed that the GigaSPEED solution complied with the Alien Crosstalk requirements as stated in the performance documentation. Minimizing Alien Crosstalk, which is the coupling of signals between adjacent cable links or channels, is crucial to successful 10G transmission. GigaSPEED X10D was also tested in a stringent six-around-one configuration that is representative of worst-case installation conditions. We believe that GigaSPEED X10D is the only solution in the market to achieve this level of performance.

GigaSPEED X10D complies with the latest IEEE 802.3an specifications for 10GBASE-T and complies with the latest cabling channel specifications in TIA and ISO for Category 6A, New Class E.

While the acronyms may be confusing, they are important. In simple terms, we believe GigaSPEED X10D is the most advanced UTP solution available on the market. This technological leadership is valuable because it helps drive sales of proprietary higher-margin solutions, which had a favorable impact on our product mix and to our second-quarter operating performance.

Turning to the broadband segment, sales were $110 million, down 2% year-over-year but up 2% sequentially. Broadband sales have been relatively stable since mid-2004, when the Company's largest domestic broadband customer completed and made their upgrade of this network. During the second quarter of 2005, we completed a broadband cable manufacturing facility in China and began commercial production there. We are excited about having a manufacturing presence in the Asia-Pacific Rim area and believe that this facility will enhance our market presence and customer service in the APAC region.

Carrier segment sales rose 24% year-over-year and 22% sequentially to $54 million, primarily due to strong demand for wireless products and integrated cabinet solutions, or ICS. With regards to wireless products, sales and profits have improved and we continue to make progress communicating the Cell Reach value proposition to domestic and international wireless carriers. The ICS business strengthened primarily due to rapidly expanding domestic carrier construction projects, or DSL, and fiber-to-the-node applications. Assuming that these trends continue, in conjunction with ongoing cost reduction, we now believe that ICS can remain profitable and attain attractive operating margins.

With regard to ExchangeMAX, sales increased modestly from the first quarter and operating losses were significantly reduced. During the quarter, we simplified the ExchangeMAX product suite and announced price increases for certain products. We believe that these actions will help us further improve ExchangeMAX performance.

Total international sales rose 18% year-over-year to $114 million or 34% of total Company sales, primarily due to enterprise growth. Sales increased in all regions around the world, with particular strength in Europe. Overall, external orders booked in the second quarter of 2005 were $345 million for an overall book-to-bill of slightly above one times. Broadband and carrier book-to-bill were above one times for the quarter. Enterprise book-to-bill was slightly below one times for the quarter, and we expect some seasonal slowdown in Europe in the third quarter.

Gross margin for the second quarter of 2005 rose to 26.3%, up from 23.3% in the first quarter of 2005. Gross margin increased nearly 300 basis points sequentially, primarily due to the positive impact of higher sales prices, a favorable sales mix and ongoing cost reduction initiatives. Gross margin in the second quarter of 2004 was 23.1%, but after excluding purchase accounting adjustments, the Company's adjusted gross margin for the second quarter of 2004 was 23.5%.

Total SG&A for the quarter was $54 million and was relatively stable sequentially, but decreased as a percentage of sales from 17% in the third quarter to about 16% of sales in the second quarter of 2005.

Research and development expense was $8 million or about 3% of sales for the quarter. CommScope's industry-leading R&D teams continued to spearhead innovative developments in cable, connectivity, apparatus and cabinets. We expect to deal upon this legacy of innovation and intend to work diligently to protect our extensive patent portfolio.

We recently settled our patent infringement suit against Ortronics Inc. The suit had related to CommScope's patent, which is substantially directed to Category 6 connectors that have improved crosstalk performance as a result of time delay multistage crosstalk compensation. As a result of the settlement, the further sale of or Ortronics' Category 6 products will be licensed from CommScope under a royalty-bearing arrangement.

Connectivity Solutions Manufacturing, Inc., or CSMI, an indirect wholly owned manufacturing subsidiary of CommScope, has essentially completed the implementation of the organizational and cost reduction initiatives at its Omaha, Nebraska facility that was announced in October 2004. During the second quarter of 2005, the Company recognized $1.5 million in pretax net restructuring costs, primarily related to process improvement costs and impairment of excess equipment. Overall, excluding the possible impairment of real estate, we expect the total CSMI October 2004 restructuring costs to be $17 million, which is below the original 20 to $25 million estimate.

During the quarter, CSMI also entered into an agreement to sell a vacant 410,000-square-foot warehouse and approximately 42 acres of land at the CSMI manufacturing facility in Omaha. The sales price for the building and land is $10.5 million. Closing is expected in early 2006 and is subject to customary closing conditions.

In part, due to CSMI's efforts, the Carrier segment made significant strides in the quarter and was slightly profitable in the month of June. While CSMI still has work ahead to become globally competitive, we remain encouraged by its ongoing progress.

Operating income more than doubled sequentially to $25 million or 7% of sales for the second quarter of 2005. Excluding the special charges related to restructuring costs at the Omaha facility, operating income was $26 million or nearly 8% of sales for the quarter.

Now, I'll turn to cash flow and balance sheet items. Net cash generated by operating activities in the second quarter of 2005 was $36 million. Total depreciation and amortization expense was 15 million and included 3 million of intangible amortization and deferred financing fee amortization of less than $1 million. Capital spending for the quarter was $5 million. The June 30, 2005, long-term debt, including current maturities, declined to $304 million and was 39% of our booked capital structure.

CommScope ended the quarter with 187 million in cash, cash equivalents and short-term investments.

In summary, we had an excellent quarter. We've maintained price discipline, generated profitable growth and delivered on cost reduction commitments. As you may recall, nine months ago we announced a major organizational and cost reduction initiative at the CSMI facility. We stated that this initiative would be substantially in place by midyear 2005. And I'm pleased to report that we have delivered on this cost reduction commitment. Carrier segment operating losses were down by more than 50% sequentially and we achieved modest profit in the month of June.

Looking ahead to the third quarter, we anticipate continued progress. We expect sales of 335 to $355 million, which reflects higher prices year-over-year and modest volume growth for certain products. We are monitoring copper costs and do expect higher costs in the third quarter. However, we believe the higher sales volumes and ongoing cost management will somewhat mitigate the impact of higher material costs.

Overall, we expect an operating margin of 7 to 8% of sales in the third quarter, excluding special items. We have also updated our calendar-year 2005 financial outlook, primarily due to the improved enterprise profitability, effective cost reduction and a more favorable outlook for Carrier segment performance. For calendar-year 2005, we now expect sales to grow to 1.3 to $1.35 billion and operating margin to expand to 6.0 to 6.5% of sales, excluding special items.

Please note that this full-year guidance reflects an anticipated seasonal slowdown in the fourth quarter of 2005. Our previous calendar-year 2005 guidance was sales 1.2 to $1.3 billion and operating margin of 5.0 to 5.5%, excluding special charges.

Now, I will turn it over to Frank Drendel for some comments.

Thank you, Jearld, and thank you to our long stockholder group out there. We took the unusual move to announce these earnings early, given the fact that our stock was receiving some pressure on Friday due to the fact that some of our competitors announced differing results. I'd like to point out that CommScope is a very unique company in the fact that we serve some of the same markets that our competitors do, but in a special presentation and mitch (ph) to the last mile. And although we do have copper concerns, we have been effective in raising prices and offsetting some of those costs.

So again, I want to thank all those people who have stuck with us on Friday and the concern, and now we will open up to questions from the audience. Operator?

(Operator Instructions). Steve Kamman, CIBC World Markets.

Well, I'm certainly surprised this morning, but a good surprise. Appreciate your doing it. Want to do a couple questions. One, in terms of the royalty, has that shown up in the margins or revenues now, and/or when should we be looking for it and what would be the impact of the royalty payments on the settlement on the intellectual property?

The (technical difficulty) in the second-quarter performance, and obviously, we don't disclose the terms of these agreements, but the one that we announced in the quarter is not the first. It's one of several that we have concluded in the last three quarters, and it's part of an ongoing number of licensees as we add to that list over the next couple of quarters. So, it will have some bearing in future quarters, but it is not reflective in the numbers you saw for Q2.

And I'm assuming that's pretty much pure margin? Any -- just any sort of sense on impact dollarwise?

I'm not the financial guy, but it flows all the way to the bottom, to my understanding.

Yes, Steve, I mean, most of the cost has been incurred around the licensing programs already.

Steve, it's Frank. I reviewed this this morning with our legal people, and the 2005, we've already have an additional 31 patents issued. And we have patent applications pending for another 68. So, we continue to push what we said we were going to do, is protect our intellectual property and build our business around this last mile proposal based on intellectual property. So you're correct, we have expended all the expenses in doing this, and now we're beginning to see some revenue or some earnings impact.

I would say one more thing to Frank's comment, is for the last year, we have had from an historical perspective what I would consider extraordinary legal expenses. But the expectation to the extent that there is so much activity that it will be, at least from the current perspective, will be ongoing.

Okay. And then any chance with the higher copper prices, higher commodity prices still seem to be marching upwards. Any likelihood to get your comments on the possibility of a price increase in the second half of the year per last year, or do you think pricing is pretty stable as it is?

You know, we're pretty aggressive on pricing, as you know. I would say that certainly in our two leading markets, in Enterprise and Broadband, we are historically the leaders in pricing. And so moving forward, I would expect more of the same. To the extent that we think it's appropriate, we will move on price.

And I might add to Brian's point. We have given up some slight market share in order to maintain the integrity of the pricing moves. So, we're obviously aware of these commodity costs. We're a very substantial buyer of these commodities. We're at the 60 million pound plus in copper per year. So, we watch it on a daily basis. But, again, fortunately for us, some of our markets are more accepting of these increases based on the position we have in those marketplaces and the patent position we have on the products.

Okay. And then also a question on the questions on China -- when does that facility really kick in and can you just sort of walk us through the next couple of quarters in terms of how that flows into the numbers, either on the cost side or the revenue side?

In the second quarter, Steve, it made a very small contribution to revenue. Costs will continue to rise as employment rises, but obviously, revenues will be increasing at a higher rate than employment. By the end of this year, end of Q4, we should be at the rated output of that equipment that we've installed.

Okay, and then just a last question on the -- obviously, congratulations on tightening up the ExchangeMAX, the cabinets in the Carrier business. Where do you think you are on that, or any further room to run there, or is that sort of stabilized at this point?

I would say from a cost perspective, we always have more opportunity to take costs out of the business. And that will be an ongoing subject for us. We announced price increases largely -- large price increases in ExchangeMAX cable for all orders effective June 1. Again, it would have little to no impact on the second quarter, should have some impact in the third quarter, and substantially all sales in the fourth quarter should be at the higher pricing levels.

As it relates to our cabinet business, we are in an excellent position at present; the opportunities from a market perspective are substantial. And again, the opportunities that we have as a result of cost reduction I think will continue to improve that business.

Larry Harris, Oppenheimer.

Congratulations on the results. Very strong indeed. What is your current outlook in terms of capital expenditures for this year? Are we still looking at a number below 30 million?

I think our prior discussions have been 25 to 30 million, Larry. Current outlook would be at the top of that range, still within the range.

And, you know, your cash position continues to move higher. Any thoughts right now regarding acquisitions?

Well, we were fortunate to get our performance and the position we have in some of these marketplaces, we get an opportunity to look at a lot of opportunities. And we will continue to look at those opportunities. There's nothing current on the horizon, but clearly, the consolidation continues in this business and we want to be one of the consolidators.

I understand. All right. Thank you.

Jeff Beach, Stifel Nicolaus.

I will congratulate you on a nice quarter as well. Frank, in North America, or U.S., right now has a pretty good economy. Europe is soft. And yet, when you look at the Enterprise sales, you cite strong international, which includes Europe sales. No mention -- maybe I missed it; there's a lot of details here -- on North America or the U.S., but I'm hearing from Anixter that project activity is picking up in the U.S. -- should make a difference for you guys. Can you talk about a little bit more about the U.S. market that's unfolding and the European market that's unfolding looking out into '06 the best you can?

Well, I'll take the first part and let Brian comment on -- he just visited the top customers. But basically we saw an acceptance early of our advanced technology in Europe before we did in the United States. And for whatever reasons, the Europeans are more accepting of the X10D technology at a higher pace. They take a lot longer view of facilitization, as you know. When they build a building, it's supposed to last 100 years, and I guess we have more disposable building sites here. So you saw the strength, though, for us in Europe and the rest of Asia on these projects. We also are seeing a great deal of improvement in the inquiry rate, but haven't converted that all to sales yet. It that basically correct, Brian?

Yes, I think that's accurate. Hopefully, there's -- kind of responding to Anixter's comments, we would repeat that, Jeff. We expect to see some strengthening in the pipeline in the second half. But you know, on a year-to-date basis, the North American market has not been particularly strong. Europe, in dollars, certainly our largest region of growth, is coming off a prior-year '04 that quite frankly was a lackluster year for Europe. So maybe what we're seeing in Europe is more recovery than total growth.

And then, the other region I would comment on is Asia-Pacific, which is experiencing large growth. I would say it's largely as a result of our focus on that region. We've put a substantial effort in terms of sales and marketing dollars in the region, and we're getting an excellent response to it.

Steve Fox, Merrill Lynch.

First, a question, Jearld, on the charge. Where was that coming out of by segment?

The restructuring charge? It is split between the Carrier and the Enterprise areas, where restructuring activities in Omaha would be, Steve.

Okay, and then, Brian, looking at the Enterprise margins, you mentioned some of the reasons behind the significant improvement in those margins. Is that a sustainable rate for the rest of the year, or where you think the operating margins for enterprise should be in the second half?

I think we're sustainable, barring something extraordinary, in the copper segment. But no, I think it's sustainable. SYSTIMAX should be getting stronger in the second half of the year, which will float margins additionally. See no -- other than copper, see no substantial threats to the current performance levels.

The ExchangeMAX pricing will start to take hold, too.

Yes, on the ExchangeMAX side. That's correct.

But just specifically with Enterprise, you think 12%-plus margins are reasonable going forward?

I do, and I would target an ability to sustain that for the year and we will talk about '06 at a future date. But yes, I don't think it should be considered extraordinary.

And then what assumptions are you guys baking in for copper and aluminum into the guidance?

Well, in the copper area, our expectation is pretty much at the July rates. Okay? And in aluminum, over the last three months in particular, we've seen softening in that particular commodity and see no reason at present for aluminum to make an upward run in the second half of the year.

And then my last question would just be on the Carrier side. Could you talk a little bit about what kind of incremental margins or how can we look at the improvement in profitability going forward for the cabinet business? It seems, obviously, you've turned a big corner there, but how do we model it going forward?

Well, the big story for cabinet is going to be volume. As Jearld outlined, we're very pleased with the results of the lean initiative, the cost reduction initiative that we launched in December of last year and concluded here in the second quarter. The real story is going to be revenue. And I will say that it's an area of complexity at the moment, but only to say that the number is going to be growing substantially. We've had tremendous interest in our product by the wireline carriers -- essentially all of them who are deploying fiber-to-the-node, and we're going to be cast in the second half of the year to produce as much as we can physically produce. So what that number ends up being is not totally clear at the present.

Marcus Kupferschmidt, Lehman Brothers.

I just want to ask a couple of different questions. In terms of maybe the China broadband facility, could you talk just a little bit about plans to basically use it today to replace volumes where you are importing product to China today versus plans to increase market presence? I mean, I think you've talk a little about each one in the press release, but kind of wondering if you could give us a sense of how much roughly speaking the sales you expect in the next six months or year could be supporting each two of those initiatives?

Our priority one, Marcus, is for that facility to service Asia-Pacific. And so I hope when we get to the end of the year I can tell you 100% of its output went into the Asia-Pacific region. And the reason is that over the last -- certainly the last five to eight years, we've lost share in the broadband markets in Asia-Pacific largely because of service and then price, and so the focus of that facility is for Asia-Pacific. To the extent that we have available capacity to serve other geographic markets, obviously we will do that.

Sure, but I believe you have some sales today in China, so I was thinking you guys -- if I'm right, you guys import product to China for that today, correct?

We import product into China; that's correct.

We export from the U.S. to China.

Remember, the facility we have is in an export zone. And so other than -- so it will be taxed and tariffed -- sales into China will be taxed and tariffed just as if they came from the U.S., and they of course will be advantaged by shipping costs. But it's, again, largely designed to service regions in Asia-Pacific and I will say outside of China.

All right, great. And then in terms of the costs that you've taken out of the Omaha facility right now, I think when you originally announced plans, you wanted to take 20 to $25 million of costs out of that facility. Can you give us a sense of how much you've actually done now and is there any lagging effect into 3Q from what you've done here late in 2Q?

Sure. I think there will be added -- you know, we were on a ramp or a transition, if you will, throughout the entire quarter, and there should be incremental improvement into the third quarter.

Regarding the 20 to $25 million that we discussed in December, the other comment I will say with that was based upon lower volume expectations that we currently have for the second half of '05. So, the expectation would be that we would be at the higher ends of that range, pushing 25 million. There have been some small elements of the project that once we've gotten into it that we've elected not to pursue. But in total, because of volumes, in the second half, our expectations on an annualized basis are to reach that $25 million rate. Does that get where you want to go?

Sure. And then I guess one other question. The ExchangeMAX business -- in the past you've talked about evaluating strategic options, and it sounds like the performance is getting better. Is there any more you can let us know about in terms of the potential strategic options for the business now at this point?

No, there's no further announcements. We have made a tremendous amount of progress. I think we want to see the response to pricing to convince ourselves that the volumes will remain at these substantially higher prices, and that will have a major impact on ultimately whether we're going to be retaining that business for the long-term or not.

And just to clarify, you said on June 1 you raised price on ExchangeMAX and which other product line?

It was largely ExchangeMAX cable, I would say across the board, essentially every SKU we have, and then there were a few apparatus in quantity -- smaller -- there were some apparatus items that we raised pricing on substantially or discontinued supply of.

Okay, you were not referring to the Broadband unit?

That's correct. It was ExchangeMAX.

(Operator Instructions). Alan Mitrani, A.M. Capital.

This is the highest gross and operating margins you've reported in, God, over four-plus years, and in the last 1.5 years, when your gross margins have been moving up, different things occurred to not let you drop it all to the operating line. It seems like you finally got your act together and you're starting to hum here. If we look out a year plus, two years out, I know you don't want to give specific guidance, but are there any barriers that you see in the business that will stop you from getting to double-digit operating margins? Over time?

Well, Alan, let me -- appreciate you following us for a long, long time. None of these things are easy, when you look at the complexity of the acquisitions and the trauma we've taken and the whole telecommunications burn-down. But I think given what's happened to everybody else in telecom, we've been very successful in maintaining positive cash flow and operating discipline through that.

As I look forward, and I think we have the team in place to look at all of our businesses, our position, either absolutely number one and are a very strong number two in everything we serve, and we're finally getting traction in all of these operations and understanding the market, the discipline, what it takes to operate. Clearly, we have some commodity cost concerns, but we have been successful in passing along price increases to more than offset those. So, we will hopefully get to those double-digit numbers sometime in the future. The markets and the businesses are capable of that. They've done it before. And all we have to do is continue to separate ourselves from the competitors, either through intellectual property, the patent position we have and/or the market and patent position in the scale.

Okay. Because as I look back -- I mean, that's great -- because as I look back at SYSTIMAX, it was doing -- it was clearing 17%-plus operating margins easily in '02 and did much higher in the past, even. So I'm going to look forward to you getting back there. One last question. What's your thoughts on capital allocation for the next year in terms of -- you mentioned CapEx earlier in response to Larry's question, but in terms of the rest of your capital and what you're going to do with your cash flow?

Well, we continue to look at -- given the fact that we're having -- fortunately having this curve operational results and our position is increasing in these markets, we will continue to selectively add acquisitions that are add-ons to this Company, and that's our current thought process on our cash reserves.

Alan Bezoza, Friedman, Billings, Ramsey.

Yes, good morning guys, great job. A question on Omaha. I know that somebody asked earlier, but I just wanted to ask a different way. I think in the press release you said that it was marginally profitable in the quarter. As you look over the next two or three quarters, can this business be the same margins as the rest of the Company? In other words, can we get back to normalized Company averages?

Let me correct that or clarify that, Alan. We said that the cabinet business was marginally profitable in the month of June, not for the '04.

I must have read it wrong, then. So, in the Omaha facility then, are you running at would you say Company averages or near, then?

I'm sorry, there -- would you repeat the question, Alan?

In the Omaha facility, as you look at all the restructuring you've done there, have you gotten the business or the manufacturing to where you would like it in this in respect to the rest of the Company? Are you still far behind and you still have a lot more catch-up to do, or are you kind of where you think you're going to be, and how long will it take to get there?

Alan, this is Brian. I think we've got a tremendous amount of opportunities. I mean, if you look at where -- let's focus on the integrated cabinet business because it's clearly the larger percentage of the business, much larger than ExchangeMAX. Margins certainly in the second quarter were equivalent to corporate levels, and as the business grows, its operating margin will contribute substantially. And the other flip of that, really addressing one of the earlier questions, to the extent that we can deal with ExchangeMAX, which is a substantial anchor, that will create additional flow to our operating margins. So, the thought of getting back to double-digit operating margins certainly is not an extraordinary thought.

Yes, that makes sense. You talk about the 10-gig product and you said earlier, Brian, that you may have troubles actually getting to the amount of demand you're seeing. Can you just kind of cover the backlog and maybe the book-to-bill of where that product is -- if you don't want to be too specific, just kind of generalize?

Very early on the -- you're talking just on 10G?

Yes, exactly.

Yes, at the outset, we were tasked to get our production up globally. We were doing well in the U.S. We had the task of getting it up in Asia, our Australia facility and Europe. All of that is behind us. To my knowledge, there are no book-to-bill issues -- there are no capacity or supply issues that are constraining revenue at present.

Alan, just let me correct two things. What we said was that the Carrier business improved profitabilities substantially in the quarter and the Carrier business was profitable in the month of June. I think you had indicated you thought you had heard it was profitable for the full quarter, and I just wanted to clarify that. And the other comment was Brian was talking about ICS and the cabinet business on a ramp-up about possible manufacturing constraints.

No, no, but what was the 10-gig, though? Can you give us -- I know that you don't have any capacity problems, but how big could this be? Is it going to be significant that really drives both margins and revenue in this year, or was it more of a kind of a next-year story? I mean, how big is this relative to your entire backlog, let's say, within the Enterprise business?

Well, you know, relatively small in '05. Expectation -- personal expectation would be 20 to $25 million in its first year of availability.

I would bet you, Alan, that that rate is tenfold what everybody else is doing.

And if you remember the graphs that we had shown at various times about how these new technologies mature, it's largely a five-year cycle of year-over-year growth. And so fortunately, this particular technology, as you would expect, has a very attractive margin assigned to it and has high levels of intellectual property protection. So our expectations is that it will contribute more and more to rising margins as we move forward.

That's helpful. And then lastly, on the cable segment, and as you look towards getting closer to Adelphia and sorting it out with all the property trades, have you seen any slowdown as far as -- Time Warner says that they might be going to Comcast or somewhere going something that might hesitate the spending, because I would expect it on a seasonal quarter to be up a little bit more sequentially.

Clearly, the Adelphia is a continuing story, as you know. You never know which systems are going where, or when they will be completed. So we haven't seen any uptick yet from the Adelphia transaction, and we may be seeing some slowdown as everybody anticipates those trades. But it's stable, and as I said earlier in my comments, we've probably given up some small, medium portion of the market share to protect the pricing in the market, but we're very pleased with that performance and look forward to it being a stable and very attractive business.

Okay, great. Good job, guys.

(Operator Instructions).

Operator, if there are no other questions, I want to again thank those who joined us. I appreciate you coming on the call in such short notice, but we felt it was appropriate to get these results out so there was no confusion in the market. And with that, we will look forward to seeing you next quarter. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.