CommScope Holding Company Inc (COMM) 2008 Q2 法說會逐字稿

Good afternoon. My name is Christa and I will be your operator today. At this time, I would like to welcome everyone to the CommScope second quarter 2008 earnings release. After the speakers remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Mr. Armstrong you may begin your conference.

Thank you. Good afternoon, and thank you for joining us on this call.. Frank Drendel, CommScope's Chairman and Chief Executive Officer; Brian Garrett, CommScope's President and Chief Operating Officer; and Jearld Leonhardt, CommScope's Chief Financial Officer, join me on the call. 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 the actual result to differ materially from those currently expected. For a more detailed description of factors that could cause such a difference, please see the press release we issued today and CommScope's filings with the Securities and Exchange Commission. 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, or otherwise. Also, please note that all dollar figures and percentages are approximations. After we review second quarter results and Frank makes some closing comments, we'll open the lines for questions. Jearld.

Thank you, Phil. This afternoon I will review our second quarter results, and before turning the call over to Frank, I will also cover our current outlook for the third quarter of 2008, as well as the full year. Today, Commscope announced second quarter results for the period ended June 30, 2008. This is our second quarterly conference call, after making the transformational acquisition of Andrew Corporation, which we acquired in late December, 2007. We reported second quarter sales of $1.1 billion today, and net income of $40 million, or $0.50 per diluted share. The reported net income includes after-tax charges of $23 million for restructuring and acquisition-related costs, $18 million for the amortization of purchased intangibles, $3 million for purchase accounting adjustments related to inventory, and the benefit of $4 million related to the settlement of tax audits. Excluding these items, adjusted second quarter 2008 earnings were $80 million, or $1.00 per diluted share.

Sales more than doubled on the year-over-year basis, as a result of the Andrew acquisition. Sales increased 2% on a combined basis; that includes Andrew's actual sales for the second quarter of '07. The year-over-year sales growth was primarily driven by increased international sales, which was positively affected by changes in foreign exchange rates. North American sales declined year-over-year, due to lower domestic wireline and broadband sales, and due to the divestiture of the satellite communications, or Satcom product line in the first quarter of this year. Excluding the favorable impact of changes and foreign exchange rates of $35 million, and adjusting for the divestiture of the Satcom product line, sales growth was 1% year-over-year on a combined basis. Sales increased 8% from the first quarter of 2008, which reflected positive international seasonal trends, as well as a modest sequential sales improvement in North American sales.

Antenna, cable, and cabinet group, or ACCG segment sales, increased 7% year-over-year, to $500 million, primarily due to strong international sales as wireless operators continued to invest in expanding and upgrading their networks. Increased domestic wireless sales in the quarter, were offset by lower sales to wireline operators. Wireline product sales declined mainly due to slower deployment of legacy DSL networks, buyer customers, and due to the effect of lower average selling prices as expected for integrated cabinet solutions. However we continue to see opportunities wireline carriers upgrade and build next generation networks. We have expanded our cabinet portfolio with a new line of cabinets for fiber to the premise applications, as well as fuel cell solutions, or stand-by power for wireless cell sites.

We continue to experience strength in our wireless business across all major regions. Particularly in emerging markets. For example, sales to customers in India and Africa, grew by more than 20% year-over-year in the quarter. We believe the emerging market demand is driven primarily by 2G coverage needs for voice systems and services. And more mature market's demand is being driven by capacity needs, as carriers deploy 3G networks capable of handling increased data rates.

For enterprise segment sales rose 2% year-over-year to $243 million, driven by higher international sales volumes. Despite a challenging North American market and tough year-over-year comparisons, due to an exceptionally year ago quarter, we delivered solid enterprise results. Operating income in quarter grew 14% sequentially, supported by double digit international sales growth, and continued expansion in the data center market, as well as the shift towards higher performance solutions. Sales in the quarter of our SYSTIMAX GigaSpeed extend ten gigabyte per second copper solution increased substantially year-over-year. While we have seen a year-over-year slowdown in domestic spending, we expect ongoing data center strength and believe that enterprises will continue to upgrade their local area networks to handle bandwidth-intense applications, such as video conferencing, collaborative software, IP-based security platforms and intelligent buildings.

Broadband segment sales of $164 million were essentially flat year-over-year,. While international sales increased, the North American market continues to reflect the slowdown in residential construction and somewhat cautious spend big major MSOs. However, broadband sales did increase 21% sequentially, due to a modest improvement in spending. as well as normal seasonal trends. Broadband results for the quarter reflect restructuring charges of $22 million, related to the planned closing of the Jaguariuna, Brazil, and Seneffe,Belgium facilities, which we announced during the second quarter. Broadband results for the quarter also include product warranty charges of $3 million, related to an isolated manufacturing defect. Excluding only the restructuring charges, broadband operating income, more than doubled sequentially.

Our Wireless Network Solutions, or WNS segment sales, decreased 5% year-over-year to $185 million. WNS results include sales related to the Satcom product line, which was divested in the first quarter of 2008. Satcom revenue was $3 million in the June 2008 quarter, however, as a result of transition services, but was $23 million in the June 2007 quarter. Excluding Satcom revenue in both periods, WNS revenue grew 6% year-over-year. The WNS segment was positively affected by international wireless operator investment, in the deployment of new wireless networks, and coverage solutions in developing countries. We are particularly pleased with the operating improvement in the WNS segments. Excluding specialized, we approved WNS results from an operating loss of $1 million in the first quarter, to an operating profit of $12 million in the second quarter of 2008.

Overall for the company, customer orders booked in the second quarter of 2008 was $1.1 billion, down 2% from the year ago quarter on a combined basis, but up 3% sequentially. Our book-to-bill ratio was 1.0 times for the quarter. Gross margin for the second quarter of 2008 was 28.6%, and includes $5 million for purchase accounting adjustments related to inventory, as well as $4 million of intangible amortization reflected in cost of sale. Excluding these items, gross margin would have been 29.4%.

SG&A expense for the second quarter of '08 was $132 million, or 12% of sales, while research and development was $34 million for the quarter, or 3% of sales. Total amortization of purchase intangibles for the quarter, including amounts and cost of sales, was $29 million. The amortization relates primarily to the Andrew acquisition. Operating income in the second quarter of 2008 was $98 million.

Excluding purchase accounting adjustments, intangible amortization, acquisition-related expenses, and restructuring costs, second quarter adjusted operating income, was $154 million, up 37% sequentially. On a comparative basis year-over-year, adjusted operating income rose 32%, primarily due to improved performance from the ACCG enterprise and WNS segments, somewhat offset by weaker broadband performance. Excluding special items, operating income for the segments was, beginning with ACCG, $85 million, or 17% of sales; enterprise, $43 million, or 18% of sales; broadband, $14 million, or 8% of sales; and WNS, $12 million, or 7% of sales.

We are also pleased to announce that CommScope's integration activities are ahead of schedule, and the company remains confident that it can achieve or exceed its merger-related cost reduction targets. As previously disclosed, in excluding one time transition costs, we expect total merger-related savings of $90 million to $100 million in calendar year 2009. We expect $50 million to $60 million to be achieved in calendar year 2008. The total cost savings are expected to come from a combination of procurement savings, the rationalization of locations, stream-lining overhead, integration of infrastructure, and building upon best practices in technology and manufacturing.

In addition, CommScope recently announced plans to consolidate certain antenna and cable production, within its ACCG and enterprise segments into other existing facilities. The the changes that is, some of which are subject to employee consultation processes now underway, would affect facilities in England, Scotland, Australia, and the Czech Republic, and are expected to result in the net reduction of at least 85 employees across the country.

In total, though more than 700 existing jobs would be affected by these planned actions, with a majority of these positions potentially relocated to other existing company locations. When plans are finalized and approved later this year, the company plans to provide expected savings and costs from the consolidation. The savings from these new initiatives are incremental to the previously announced synergy range. The company expects to incur restructuring charges to support the changes, but also anticipating significant benefits from the actions undertaken when fully implemented by late 2009.

Now before I turn to cash flow and balance sheet items, I want to mention an issue that may create greater variability in our result , namely increasing international sales. CommScope is experiencing robust growth in emerging markets as it continues marketing it solutions globally. For the first time in our history, sales outside the U.S. represent more than half our total sales, with international sales rising to 54% of total company sales for the second quarter of 2008. Now we're pleased with this growth and believe that the geographic diversity is one of CommScope's major strengths. International sales growth has helped mitigate the affects of the slowing United States economy.

Additionally, the shift in geographic mix of taxable earnings has also helped us reduce our overall tax rate. Excluding special items, our overall tax rate for the second quarter was about 30%. This reduction compared to the expected statutory rate of 35%, boosted diluted earnings per share by about $0.07 in the quarter. However, along with these positive impacts comes increased exposure related to foreign currency exchange rates, as well as higher accounts receivables, due to the higher DSOs associated with international sales. Our second quarter results somewhat reflect the more volatile nature of our increasing globalization.

Now with that background, I will now turn to cash flow and balance sheet items. Net cash provided by our operating activities was $42 million for the quarter, which reflects a significant increase in accounts receivable, resulting from the higher international sales. Total appreciation and amortization expense was $53 million for the second quarter, while capital expenditures in the quarter totaled $11 million. As we look ahead, we expect operating performance to be stronger in the second half of '08 than in the first half of the year. However, economic conditions and rising raw material costs remain a concern.

So for the third quarter, we expect sales to rise to $1.08 billion, to $1.13 billion, up modestly year-over-year on a combined basis. And adjusting up and, therefore adjusted operating income to rise to $150 million to $170 million, excluding the restructuring and transition costs, as well as purchase accounting adjustments related to fair value write up of inventory and intangibles, which of course result in increased charges for inventory and amortization. This adjusted operating income range represents growth of 19% to 35% from the adjusted combined basis in the year ago quarter. We have updated calendar year 2008 guidance, based on actual results and our current outlook.

We expect revenue of $4.15 billion to $4.25 billion which is slightly better - - a slightly tighter range, compared to our previous guidance of $4.1 billion to $4.3 billion. We raised calendar year adjusted operating income range slightly to a new range of $540 million to $580 million, excluding restructuring and transition costs, as well as purchase accounting adjustments. This operating income target assumes that the company will be able to successfully recover costs that are associated with the rising raw material costs we have seen. Our previously adjusted operating income guidance was $525 million to $575 million for the year.

Now we expect an overall tax rate of 31% to 33%, based primarily on the assumption of stronger international income. This is lower than our previous guidance of 34% to 36%. We expect 81 million weighted-average, fully diluted shares outstanding. We expect full-year cash flow from operations of approximately $500 million, reflecting higher accounts receivable. And we expect capital expenditures of $60 million to $70 million for the full year, compared to our previous estimate of $80 million to $90 million, and we continue to expect significant cash and non-cash restructuring costs.

Overall, we are very pleased with our second quarter performance, and assuming relatively stable business condition, and currency exchange rates we believe we're in good position to achieve our 2008 goals. We have a strong global portfolio and continue to expect the ongoing global demand for bandwidth to drive the need for infrastructure solutions, even in uncertain economic times. We will continue to focus on executing our integrating strategy, delivering the synergies we outlined, and positioning the company for long term profitable growth.

We recently announced new global manufacturing changes, that we believe will provide significant additional savings, once they are completed in late 2009. Now, I will turn it over to Frank Drendel for

Thank you Jearld. Thank you very much for joining us today on the call. I want to congratulate all the CommScope and Andrew employees for an outstanding execution on the second quarter. The teams continue to generate substantial performance improvements and a great execution. The adjusted operating income rose 30% year-over-year. The teams are continuing to deliver the synergies and cost reductions that we targeted, and we have a great team of managers and industry-leading products.

Overall, I am very, very pleased with this quarter's performance. I think we continue to show the effective integration of CommScope and Andrew as one company better together. I continue to believe that we will meet or exceed the synergy plans for the year, and create a long-term profitable growth company. And with that operator, we will turn it over to the callers.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of George Notter with Jefferies.

Hello, George.

Hi, guys thanks very much. I want to ask you a quick question on top line. You know, you tightened the reins here. You were at 4.1billion to 4.3 billion. I think going back to last quarter, you guys had suggested that, depending on how the pricing increases are flowing through to customers, they flowed through well, you could kind of push people towards the higher end of that range. Here you're tightening that range. I guess I am trying to figure out what the new guidance implies about the success you're having or not having on passing pricing increases through to customers.

George, this is Brian, good afternoon to you. To date the success of the price increases that we announced in the April time frame, largely have gone well. The impact in the enterprise market and digital broadband, I will say largely won't be felt until the current quarter. And, I will also say in wireless it has been difficult from a global perspective.

But, in entirety, I think we're pretty well pleased with the response that we have gotten. Maybe counter to the nature of your question, is we continue to see the potential for rising costs, in the second half of the year, and the discussions for further price increases are on the table currently, inclusive of fuel charges that were transportation charges that we're bringing into selected markets. So if you contrast that with your question about the top line, I think we contrast that, George, with Jearld's comments about increasing international content in our business, and there is a higher degree of uncertainty I think in our international business.

And I will also say, depending upon the market segment, as we move through the second quarter, North America has not continued to respond favorably, as favorably certainly as it did in the first quarter. So, you have a mix of inputs that get us to the guidance that we have for H2.

Got it okay. So, sounds like I have to net all those factors out mentally, in terms of how it translates into your full-year guidance. Just switching gears on the cost synergies side. I think last quarter you guys gave us a number, $9 million in Q1 cost synergies. I guess that annualizes to $36 million. I guess I am trying to get an updated number on that through Q2, and how does that compare with the 50 to 60 guidance for the - -

Well, Q2 - - the number was slightly north of $15 million. So that gets to you to - - the performance in that quarter, was at a $60-plus million run rate. So, we have got confidence in delivering our $50 to $60 million numbers that we committed to at the outset.

I will say that, the one thing that happened in the quarter is, the largest bucket that we continue to talk about is supply chain. That bucket continues to grow. The other thing that happened in the second quarter was the impact of changes that we made in our distribution centers, and freight management globally. You know that category - - the new category, if you will, that hit in the second quarter, is now the second largest category in the total pile of synergies. And expectations for that are to continue to grow throughout the year. So, it is really that results that brings us to our pleasure and confidence in terms of what is happening and creating synergies between these two companies.

Okay. One last quick follow-up. So given that you are ahead of plan for the year on synergies, or let's say already having near exceeded or exceeded the plans for synergies, I guess I am trying to understand how that feeds into your operating income guidance, the 540 to 580 for the full year, it seems like - -

Depending upon what numbers you want to pick. I mean, the good news is that operating income in the second half is going to be up $25 million, $30 million, that's over half.

Well, you know, looking at mid-points in the range, George, we're raising revenue guidance, second half over the first half. And we're actually raising operating income guidance, more than revenue. So that implies that our margin is going to actually improve in the second half of the year, which is very consistent with all the things I think we have said before. So we're very pleased with the outlook that we're continuing to improve our operating performance, given the challenging economy broadly that is out there.

George, we reviewed this in depth. Everything in the plan, Brian's team is hitting on, or had a a plan. Our capital expenditures are at or below plan. All the matrix of running the business are at or better than what we expected at the beginning of this transaction.

The issue we are facing is a very uncertain world wide market. We're just trying to keep within the range of what we feel is what our current look is at the market. The cost, the price increases, we're managing all those materials, very, very well. And we're getting the price increases and we're not afraid to put additional price increases into the market. But looking at the global economic situation and just trying to be as cautious as we can.

Right, thanks very much. I will pass it on.

Okay, George.

Your next question comes from the line of Amir Rozwadowski with Lehman Brothers.

Good afternoon gentlemen.

Good afternoon, Amir.

Wanted to delve in a little bit into the enterprise side of the business. Seems as though we have seen a tick down in year over year growth in Q2 versus Q1. Could you give us a little bit further color there? What are the factors, and in particular, have you seen short of a shift in the demand landscape?

Well, the big part of enterprise this year is really softness in North America. You know sequentially the business has done very well. And you know, a lot of concern coming into the year of what's going to happen throughout the course of the year. You know, the fact that we have got 15% top-line growth, sequentially from the first quarter, I think speaks well to the diversity and the robustness of the segment for us. But, there is no doubt that our international part of the business is performing at top line, much better than North America.

So that being said, if you look at the project activity that is going on globally, and the one thing I will say about our enterprise business, one of many, is that it is advantaged by an enormous direct sales organization, some 400 people that support this. And, with that scale you can reach a lot of activity. And if you look at what they have done in terms of the creation of new project opportunities, they have been able to grow that in excess of 200 over the level in the first quarter. So, activity in terms of projects are not slowing down in the enterprise space, they are expanding.

Now, I will say, Amir, that you know the number of big projects, projects that are bigger than $5 million, or $10 million, contrasted to prior years, is probably down. But with this large sales organization, globally positioned, what it means is, they are picking up larger numbers of smaller projects.

So if we look at sort of the year-over-year or the sequential growth trends, previously you had commented that, Brian that potential for growing that business in the range of 8% to 10% this year, how should we think about that given, now that we stand sort of halfway through the year?

Yeah, you know, I think I am going to look pretty funny when we get to the end of the year to be honest with you Amir. I really, North America has been softer than my expectations. The international part of the business is growing double digits. And is certainly living up to our expectations, but the part that is disappointing is North America and quite frankly, the U.K. The U.K. is another one of a our very strong markets and, that particular part of AMEA has been softer than the anticipation I had earlier in the year.

10G activity I will tell you still remains strong. Again, back to the project focus, globally, the things that we see happening in a number of projects in 10G and I-patch continue to strengthen. And the result of that is that margins, when you look at the operating margins of the business, they continue to perform very strongly on a year-over-year basis, in light of what looks like adversity, in the North American market. The long term picture for this market continues to be robust.

Amir it's Frank. Clearly if you look at our performance, compared to any of our competitors in those first two quarters, we're doing very, very well. Especially at the high end. And the 10G and the high tech part of this thing continues to grow at double digit rates. So again, overall, I think our position in this whole infrastructure is as best as it can be. We just have to get a little more strength in the markets.

That is very helpful gentleman, I appreciate that. If I may, switching gears quickly, in looking at the wireless spending landscape, we have seen a fair number of carriers, particularly the North America report, fairly healthy first half CapEx trends. How do you view the purchasing environment for the back half of the year, given the number of bills that you're involved with.

Well, I think that it is going to be mixed depending upon what product line we're speaking of, Amir. Largely, when we came into the year, we started off with a very strong run rate on a year-over-year perspective in North America. And we projected essentially flat performance throughout the remainder of the year. When you look at what happened in the second quarter, in North America, it was a mix of activity. We actually had a little bit of softening in the tower space, in terms of cable and antennas, but that was contrasted by just thermonuclear demand for back haul, for microwaves. So, you're seeing quite a diversity of activities in the North America wireless segment.

Amir, clearly the carriers in North America are really looking strictly right now at enhancing capacity. While they decide on their long term decision on LTE versus YMAX, or whatever 4G network they will deploy.

Remember also, sir, you have Sprint basically out of the market right now, while they recapitalize and look at that time what they are going to do. You haven't seen the closure of the Clearwire YMAX bill, so all of those, possibly towards the end of the year, but certainly in '09, are very strong indications of how that should look.

That is very helpful. I will pass it along to someone else. Thank you very much.

Thank you.

Your next question comes from the line of Kim Watkins from JP Morgan.

Good afternoon everyone. I just wanted to dig a little bit into the Wireless Network Solutions margins. Looks like a pretty substantial improvement there. Can you talk about some of the moving parts, specifically the power amplifier business and the filter business, and how those are trending versus your expectations, and also where you are in terms of the decision process, as to whether or not these are are businesses that you think you can improve to acceptable levels or perhaps divest.

Kim, I will say relative to my expectations, I am immensely pleased. Eddie Edwards heads that team, and they have done an extraordinary job year to date. Mixed activities, within, again, within WNS, the WIG, or the in-building coverage business, continues to perform very, very well, top line growth and excellent operating margins. The filter business was profitable in the quarter, which was quite a turnaround from historical perspectives. Part of that, obviously was just operational focus. The other part of it clearly volume helps, and they had good volume in the second quarter.

So, the remaining issue as we go through the year and into '09 for filters, is really what is the volume outlook for this business, and in getting the business scaled, can we scale the business competitively to that volume. So there has been no decision as it relates to filters, but I will say the outlook right now is certainly much better than it was two quarters ago, outlook in terms of the retention of that business.

The power amp business, Kim, has good news and bad news. The traditional power amps for OEM applications are doing very well, exceeding our expectations, but that is outweighed by, what I would say, under performance relative to expectations in MCPAs. And that was the product line that was specifically directed - - its value is specifically directed to North American carriers in the '08 period. And our single largest opportunity in North America has elected to delay that, so we have got a mix of activity as it relates to power amps, and I will just continue to say we're in a study mode. My commitment to all of you was to sort that subject out over the course of the third quarter, and we're still in that mode.

Okay, fair enough. So is it safe to say that the power amps were still unprofitable this quarter?

That's a fair assessment.

Then I just wanted to switch over and talk a little bit about the cabinet business. It sounded like, from the commentary and the results, that that might have been a little bit weaker than expected, particularly on the DSL side. Can you just talk about what you're seeing there and what you expect for the remainder of the year?

Well, DSL is going away. One of the big providers of DSL, of course is AT & T. And the DSL provisioning particularly in Bell south, was their only high bandwidth solution. Now with the deployment of light speed, high speed data is integral to the whole light speed perspective, so DSL as a subject in North America is largely going away, and that is consistent with our expectation. And so when you start making comparisons, of what the performance was in the second quarter this year, with the second quarter of prior years, you have got a substantial hurdle to replace what was happening with DSL in '07.

You know, if you look at specifically what is happening in light speed, I think what you read, likewise in terms of AT&T announcements no one is blinking at AT&T. Their plans for deployment are being executed, and nothing that I know suggests that the second half will be any different than the first half. If you look at the number of units that we have sold in the first half of this year, they are consistent with the number of units that we sold in the first half of last year, which I think speaks to strength. And then if you do a comparison quarter-to-quarter, I will tell that you the number of units in the second quarter this year are down about 5% from the same period, prior year. Some part of that I think clearly as a result of share loss, which we have also anticipated.

Okay. That's really helpful. And just one other more housekeeping question. Any 10% customers this quarter?

Yeah we had a couple. I think Anexter was there, and I am trying to think if Alcatel hit our list or not this quarter. Phil is doing a quick check here.

They were close. There were a couple that were close Kim. Anexter was 10%, Alcatel and the other likely (inaudible), Nokia were in that range. I don't think they crossed the line, but still in that 8% to 11% range.

Okay, great. Thank you very much.

Our next question comes from the line of Jeff Beach, with Stifel Nicolaus.

Congratulations.

Thank you, Jeff. It was a good quarter.

A lot of my questions have been asked already. A couple of things. On the wireless businesses, this would be, I guess, both the part in ACCG and WNS, looking at the international, are you looking at a strengthening trend, looking out through the end of this year into next year, maybe you can tell that by the book-to-bill ratio, but I am curious as to whether there is an acceleration occurring world wide in the wireless.

Well, our book-to-bill wouldn't get us into next year.

Never has.

And, because you know we don't like back log. I think you know that story. It's difficult to see a growing strength, to be honest with you, in the second half. There is tremendous demand right now, particularly in India, and in the wireless segment, and we're responding to that. And the same for Latin America. We're responding to that as best as we can, with incremental capacity in the second half. And there is real potential for growth in the second half of our wireless business over the first half. And, quite frankly, that's where we see the most strength as a comparison sequentially into the second half. It's just that things are so strong right now, it is hard to anticipate what is going to happen in '09. And we have not addressed it yet to be honest with you, so Jeff, I will not comment on '09.

Okay. Second, - -

Jeff, just on a moment though, taking the international part out of it, if you stand back for a moment and look at the billed requirements for 700 megahertz, all those licenses that have been granted and paid for, if you look at both Verizon and AT&T's cash statements, we're making large payments on those frequencies, I think if I am correct they had at least, in some cases, a two and most cases a three-year build. So, at some point in the cycle within foreseeable future there has to be some additional domestic build-out to catch up with what is happening in the rest of the world.

All right. Looking at the cost reductions, you said 15 million a quarter, you're at 60 targeting 90 to 100 looking out into next year, is there one segment, ACCG, that will be the biggest beneficiary of all that or is it spread out over other segments.

I think clearly, just because of one, the scale of the business, it would have to be ACCG, they are half of the corporation. And if you look at the activities that were engaged, ACCG is more often involved. So clearly biased segment. They will be the largest beneficiary.

And last, you had mentioned enterprise up against tough comparisons in the U.S. Can you give us an idea of, if you were able to factor out some of the strong comparisons last year, give us an idea of what the growth rate is, in North America and, maybe internationally, enterprise.

That would clearly just be a guess, Jeff. I don't have a way of backing those big numbers out. Clearly it would be single digit type of numbers, something in the neighborhood of 5% in North America. And our international experience year to date is north of 10, so there is quite a disparity between the two.

As I mentioned in earlier comments, I am encouraged by the sequential performance. The fact that this business, in this environment, without the benefit of price increase in the second quarter, grew 15% sequentially, and to me that tells me, at least on a going forward basis from the beginning of '08, this market segment is not slowing down.

Last question. I don't believe it has been asked, but the lower cabinet sales in North America in the second quarter, do you see that trend continuing ahead?

I am thinking of the numbers. Again, the second quarter of last year was the peak quarter in terms of numbers of units, in cabinets. And it will be a big number for us again in this year. But, there is not an expectation for a big uptake in the number of cabinets in the second half of the year, relative to - - for the Q2 run rate.

All right. Thank you.

Yes, sir, thank you.

Christa, anyone else.

Your next question comes from the line of [Amidad Paxy] with UBS.

Hi, can you hear me.

Yes.

Thanks. My first question was just a clarification. You know you guys raised the midpoint of your operating income guidance from 550 to 560. I just wanted to make sure the new, revised upward targeted does that include the incremental benefit you expect from your recently announced footprint in rationalization, or would that all be incremental to your new target.

No, it is not. I mean the additional plans that we have that were under review with the counsel is not inclusive in these, it is added to it.

And we really don't expect, [Amidad], to have any significant benefit from those, just-announced actions this year. So that's a 2009, 2010 subject.

There will be some traction early in the year, but it will take the entirety of '09 to complete the list of activities.

Got it. Okay, thanks. And Brian perhaps for you, despite decelerating trends in the enterprise segment you guys have continued to hold operating margins at a fairly healthy level, in that 17% to 18% range. If memory serves me well, I believe 2Q, '07 had some one-time benefits, so that 20% perhaps was not representative of last year. Oblige me for a minute and let's assume your enterprise sales end up sort of flat year-over-year 2008 over 2007, or perhaps slightly down. Do you have enough leverage in your control to keep margins in that 17% to 18% or, do we need to start worrying about sort of negative leverage to a large degree, if indeed we see some slight decline in sales?

Well, my expectations are not further to be declined, but I will accept your premise for discussion. And, the one thing that works to our advantage is the ongoing shift, in terms of level of product, or the mix of 10G, or the mix of Category 6 or the mix of I-patch. I mentioned prior the level of activity, that we see increasing level of activity, in those high performance, higher margin products. It is always difficult to anticipate mix a couple of quarters out but, my hope is if that was the right word, if we saw some decline in revenue in the second half, it potentially could be offset by improving mix.

And I think also, we clearly have one of the best management teams we have in this company runs that group, and we have the biggest sales force in the world, and so what's out there, we're going to be seeing.

And I will point out, too, the Brisbane closing that was announced, communicated a week ago, that the enterprise business will benefit from the cost improvement there, as that changes, so it is an ongoing challenge of cost reduction and pricing. I think the second half of this year we will see higher raw material costs than we experienced in the first half of the year. That is just a given to where we are right now, and those are significant. As I said earlier, being able to raise our operating income ratio, and our second half guidance in light of 100 basis points or more of raw material costs increases, as part of the challenges that we have, that the current economy is giving.

And again that team is prepared and capable of implementing price increases and making [their own]. The customer base we serve is the best in the world.

Sorry, and did you provide a number for your CAT 6 plus and CAT 6A penetration in the quarter? I think you have given that the last couple of quarters.

In combination I think in the prior quarter, I think we were somewhere between 75% to 80%, and in this quarter, I looked specifically at it, and it was at the 75% range. You know, the 10G sales, they are up 60% or so year-over-year, so again we're at the beginning of this cycle and our expectations are to continue to report strong year-over-year growth in 10G.

Got it. And then just a couple questions. You guys recently announce what I thoughts was a pretty interesting new initiative, the fiber to the home cabinets. Just wondered if you could provide any sort of an update in terms of where you are in terms of customer interest? Could we see any incremental sales this year, or is that again an '09 event? And finally, any update on the adoption of your aluminum wireless coax cables, have we seen any incremental penetration there?

I will take them in reverse order. In terms of the aluminum activity, it is all good news. I won't recite specifics for you but, it continues to grow, in terms its participation in the combined business of legacy Commscope and legacy Andrew. I can say that we have sales and/or field trials in essentially every region of the world. So we're very happy with the strategy. And I think as our position, particularly in China, moves forward, that product in particular is going to play a more and more important role, to our continued success. The other part of the question was - -

Fiber to the home cabinets.

That a new product launch, and I will say it is in a new space, and it is somewhat speculative. The largest consumer of that particular product would be Verizon, for FiOS applications, but clearly we're way late into that market, and we don't have large expectations, specifically as it would relate to Verizon. But I will say, as the (inaudible) and others begin to look more seriously at fiber in the home, they are going to need to enclosures for passive equipment, and we want to make sure that we have got a product line suitable.

It is all part of the larger strategy, much like what we're doing in the cable television space, with Bright Path. You know, there is going to be increasing interest in fiber to the home, we're going to make sure that we're positioned for the hardware into all of these market segments.

Thank you and good luck.

Thank you.

Okay operator I think we have time for about one more question.

Your next question comes from the line of Ken Muth, with Robert Baird.

I know the wireless side you were looking at the Andrew assets. The pricing was clearly an issue there, and you guys have done just a great job with your other part of the business in increasing pricing. This one seems to be a little bit more challenging. Could you just kind of give us some evidence of what has happened in that market place, maybe why it has been a little bit more challenging or the head winds you're seeing?

Well, I wouldn't say that we have been unsuccessful in raising prices. It took a lot of things to take margins from where they were to where they are today. Clearly, operational discipline, product pruning, pricing has been part of that. Maybe you're picking up on my earlier comment. I thought particularly in copper cables from a global perspective, we would have much stronger support in the industry than what we have seen. But that doesn't say we have not been able to raise pricing.

In the WNS part of the business, Ken, pricing has been a big, big part of the equation, and we are moving pricing into those product lines, and it is part evidence why revenues in WNS are not growing as quickly as other parts of our business. So there is no giving back, or giving up I should say, in terms of our insistence on moving pricing into these traditional Andrew product lines.

Just on the pricing again, have you had more than one pricing increase there on the wireless side.

n the wireless side, as it relates to the ATCG business, there has been one, and that was the one that we announced early in the first quarter, effective May.

I know we talked about this before, but I mean you put out the release of it, but the actual execution seem to be kind of basically holding pricing flat. Is that not correct or did you actually get a price increase?

We announced prices in the 5% to 7% range, is my recollection, and we have achieved less than that. But we have made gains.

Okay.

The more important part of that subject, Ken, is the success we're having with the aluminum accretion in taking copper share. Obviously part of the reason we're having trouble with the copper cable price increase, is the competition is looking through the aluminum piece of that. Long term, I still believe our aluminum strategy is excellent.

Could you then just tell us, Frank, what is your - - that historically have been a low contribution of your raw mix of cables.

In the legacy part of our business, Ken, it was 70% to 80% of our production.

No, I'm talking about kind of on the new kind of combined entity though.

In the legacy Andrew basis, it was in the single digits.

Right exactly.

So, we came into this proposition with a dilution of those two numbers, and we have been able to grow it from that point. The outlook in terms of the number of customers and their geographic dispersity in terms of the numbers that are evaluating these products is very encouraging. We will continue to move that number upward.

Okay, and then just the last question on the enterprise side domestically here. did it kind of catch you a little bit off guard about how things have maybe slowed throughout the quarter, or what was your linearity that you saw there?

Things did not slow in the quarter. The sequential performance was up 15%. And so, no. And I spoke earlier about what is happening to the business in terms of new projects and accounts and activities that are happening, so I would take argument about your assessment of the, particularly the North American market, slowing over the course of the quarter.

Okay great, thank you.

You bet, Ken.

With that operator, I think we will call it a day. I want to thank everybody for joining us and all the continued support we're getting from share holders and our employees. And with that, we will call it.

That concludes today's conference call. You may now disconnect.