CommScope Holding Company Inc (COMM) 2009 Q3 法說會逐字稿

Good morning and welcome to the CommScope third quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) . As a reminder, ladies and gentlemen, this conference is being recorded, today, October 27, 2009. Thank you.

I would now like to turn today's conference over to Phil Armstrong, Senior Vice President of Corporate Finance. Mr. Armstrong, you may now

Good morning and thank you for joining us on the call. Joining me today on the call is Frank Drendel, Chairman -- CommScope's Chairman and CEO; Brian Garrett, CommScope's President and Chief Operating Officer; Jearld Leonhardt, CommScope's Executive Vice President and Chief Financial Officer; Eddie Edwards, Executive Vice President and General Manager of Wireless Network Solutions; and Bill Gooden, Senior Vice President, Controller and Principal Accounting Officer. 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 on 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 results 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, the 10-Q we filed this morning, as well as other filings with the Securities & Exchange Commission. In providing forward-looking statements, the Company does not intend, 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 the dollar figures and percentages are approximations and that detailed reconciliations of GAAP to adjusted results can be found in the press release we issued today and it is posted on the website. After we review third quarter results and our outlook, we'll open the lines up for questions. And please note, during the question and answer period, please limit your questions to one topic and if you have follow-up questions, please step back into the queue. With that I'll turn it over to Jearld Leonhardt. Jearld.

Thanks, Phil, and good morning. Before we get into the details, I plan to briefly talk about what we're seeing in the global marketplace. As we indicated last quarter, we did not expect a rapid recovery in business in the third quarter. While the fundamentals for the global wireless services remain solid, economic uncertainty continues to impact communication infrastructure spending and exacerbate the short-term volatility related to service-provider project spending. However, we did expect the business environment to become more stable, which is what we saw. One of the key reasons that our sales have stabilized is that business enterprises and service provider customers, both wireless and wire line. continue to use increasing amounts of bandwidth.

Ongoing wireless subscriber growth in emerging markets and advanced mobile devices and wireless applications have created rapid growth in mobile broadband uses and traffic, which creates an ongoing need to invest in communications infrastructure. This dynamic business environment creates many challenges and we appreciate our employees efforts and sacrifices as we continue to balance short-term priorities of driving down cost with our longer term priorities of enhancing our global market position and developing solutions for next generation networks. As we discuss our third quarter results, our primary focus will be on the sequential performance because we believe this will provide a better sense of the current status of our business. For the third quarter of 2009, we reported sales of $750 million and net income of $46 million or $0.45 per diluted share.

The reported net income includes after-tax charges of $15 million for the amortization of purchased intangibles and $2 million in restructuring costs. Excluding these special items, adjusted third quarter 2009 earnings were $63 million or $0.61 per diluted share. Sales declined 29% year-over-year to $750 million, primarily due to the declines in volume across all segments and geographic regions, as the global recession negatively affected capital spending by telecommunication providers and created a slowdown in commercial and residential construction. Now as anticipated enterprise and broadband sales increased in the typically seasonally strong third quarter. However, overall sales declined 4% sequentially, primarily due to a slowdown in project oriented wireless network solution sales, which we will discuss in a moment. The net impact of changes in foreign currency was not a major factor in the overall sales in the quarter.

It negatively affected year-over-year sales by about 1%, while it positively affected sales by about 1% on a sequential basis. Total customer orders booked in the third quarter of 2009 were $719 million and our book-to-bill ratio was 0.96 times for the quarter. Antenna, cable, and cabinet group, or ACC, segment sales declined 2% sequentially to $316 million, as lower base station antenna sales in the Asia Pacific and North American regions offset increases in the sales of cable and microwave products. Overall global pricing in ACCG remained essentially stable sequentially. Regarding base station antennas, sales were negatively affected in the third quarter by uneven carrier project spending. However, in the fourth quarter we expect sales to improve and benefit from the positive mix of more sophisticated multi-band antennas.

We have recently introduced SmartBeam, our next generation base station antenna technology. SmartBeam antenna systems can increase sufficiency of existing sites and improve network quality by optimizing the antenna beam based on the predictable customer traffic loads. We are also particularly pleased to have made progress during the quarter in communicating the value proposition of our Helix 2.0 FXL solution for wireless base stations. This aluminum cable provides a light-weight cost-savings design for operators. Global trials initiated with carriers and OEMs in 2008 and early 2009 have begun to materialize in to approvals and orders, which we believe will continue to drive the demand for XL products. Wireless Network Solutions, or WNS segment sales declined 33% sequentially to $120 million, due primarily to lower sales in China for the select 3G projects, as well as short-term volatility associated with large wireless projects in the North American, Europe, Middle East, and Africa regions.

Further demonstrating the sequential volatility we expect significant improvement in WNS sales in the fourth quarter and remain excited about our longer term opportunities. As we look ahead, we expect to benefit from increased deployment in use of the mobile location-based services in North America. We recently announced innovative new technology and launched GeoLENs , our next generation of solutions that enable location capable networks. GeoLENs helps communication carriers support customer demand for location based applications. It enhances their ability to address regulatory requirements, such as E-91 emergency services, and commercial opportunities, such as 411 information services and other new Smartphone location-based applications. The proliferation of new frequencies and the increased efficiency of our power amplifier technology have also accelerated interest in our industry leading, integrated amplifier products, such as remote radio heads.

These integrated power amplifiers provide high power, high efficiency solutions that enable flexible deployment options, as well as make it easier for wireless carriers to change frequencies as they transition towards 4G technologies, such as LTE. Our Enterprise segment sales rose 8% sequentially to $178 million in the seasonally strong third quarter. We saw modest improvement in global corporate information technology spending in the quarter and believe the enterprise market has begun to stabilize, even though we did see continued destocking in distributor channel inventories, though at a slower rate compared to the last several quarters. We do expect to see a seasonal decline in enterprise sales in the fourth quarter. Over the last three years enterprise sales declined an average of about 16% from the seasonally strong third quarter to the seasonally weaker fourth quarter.

This year that typical decline could be muted since the inventories are at historic lows and the economy appears to be slowly recovering. We are optimistic over the longer term, because enterprises need to upgrade their local area network infrastructure and data centers to handle expanding bandwidth requirements for data-intensive applications, such as collaborative software, video conferencing, as well as inbuilding wireless applications. We are confident that we have the leading technology portfolio to support these increasing bandwidth demands, especially in light of our recent introduction of the full SYSTIMAX 360 enterprise offering. This offering has been a major area of focus for our R&D teams for the past two years. It provides enhanced features, upgradeability, the best in class performance for copper, fiber, and wireless applications as well. We believe that this expanded offering uniquely addresses our customers' physical infrastructure needs, both in the data center and in the office.

Our broadband segment sales rose 16% sequentially to $137 million in the seasonally strong third quarter. Sales rose in all major product groups and across all geographic regions, as cable operators maintain and upgrade their networks to compete with satellite and wireline carriers. In the fourth quarter we expect broadband sales to reflect both seasonal volume declines as well as lower prices for certain products. Gross margin for the third quarter of 2009 rose to 32.6% and included $4 million of amortization of purchased intangibles. Excluding this item, adjusted gross margin would have been 33.1%. Now despite lower sales volume, adjusted gross margin rose year-over-year due to cost-reduction efforts, including facility closures, reduction in staffing, and the suspension of certain incentive bonus programs for employees. Adjusted gross margin also rose slightly sequentially. SG&A expense for the quarter was $103 million and was up slightly sequentially.

SG&A expense of -- declined year-over-year, primarily due to cost-reduction efforts, including the elimination of incentive-based bonuses for employees. Operating income was $91 million in the third quarter, compared to $74 million in the second quarter. Adjusted operating income, which excluded amortization of purchased intangibles and restructuring costs, were $119 million and was down slightly sequentially. Adjusted operating margin for the quarter was 15.8%. We were particularly pleased with the operating performance of the enterprise and broadband groups in the quarter. The enterprise team consistently posts strong results as it builds upon its industry-leading SYSTIMAX intelligent network infrastructure solutions. Through proven innovation, performance, and global support, the enterprise team continues to facilitate mission critical, high bandwidth in emerging business enterprise applications globally.

The broadband margin continues to benefit from cost reduction and plant consolidation actions conducted over the past year. Broadband's strong operating performance in the quarter also reflected higher year-over-year sales prices and the benefit of suspension of incentive-based cash bonus programs. As I mentioned earlier, we do expect selected sales prices declines and higher raw material costs in the fourth quarter, and as a result expect broadband operating margin to decline from the third quarter level. Interest expense declined $11 million year-over-year to $26 million, primarily due to lower outstanding debt balances. Our effective income tax rate for the quarter was 29%, which was lower than we had expected. The income tax provision for the quarter included combined benefits of $7 million, related to the completion of prior U.S. and foreign income tax returns, the resolution of various income tax uncertainties, and the settlement of certain U.S. and foreign income tax audits.

Now we'll turn to cash flow, the balance sheet and liquidity measures. Cash flow from operations remains strong and nearly matching the second quarter's record level. In the third quarter cash flow from operations was $138 million. Over the last 12 months we have generated record free cash flow of $416 million, which is $470 million of cash flow from operations less $54 million of capital spending. That's on a trailing 12-months basis. We achieved these records by controlling costs, delivering solid operating margins, and managing both working capital and capital spending effectively. Capital spending in the third quarter was $7 million. Now at September 30, 2009, total debt outstanding was $1.5 billion or about 51% of booked capital structure. Net debt, which is our -- by our definition that is total debt outstanding,less cash and cash equivalents, was about $950 million at the end of the third quarter.

Now while 2009 has been a very challenging year, we are pleased to have delivered solid gross margins and operating margins, as well as strong cash flow from operations, which further strengthened our balance sheet. Looking to the fourth quarter, we expect to see stronger global wireless spending, as upgrade activity accelerates in certain markets and as wireless operators invest in infrastructure to handle bandwidth intensive applications and wireless subscriber growth. We expect these strengthening wireless sales to be somewhat offset by seasonally lower enterprise and broadband sales in the fourth quarter. Specifically for the fourth quarter of 2009, we expect revenue of $740 million to $790 million, adjusted operating income in the range of $95 million to $115 million, excluding amortization of purchased intangibles and other special items, and a tax rate of 34% to 36% on adjusted pretax income.

So overall we are pleased with our operating performance and we believe we have enhanced our competitive position in a tough environment. We are also pleased to see signs of stabilization in our markets. We also believe we have a good opportunity to post stronger sequential sales in the fourth quarter, which is unusual from an historic standpoint. Global wireless subscriber and mobile data traffic remain robust. Ongoing consumer demand for new wireless services and broadband capabilities continue to drive the need for new infrastructure around the globe. We believe that we have positioned CommScope well in all of our served markets, particularly for advanced, next generation technologies. We expect ongoing ways of spending for 2G, 3G, and 4G services globally for higher speeds in the data center and to the desktop, and for broadband services to the home.

When the economy rebounds we intend to be even stronger operationally, competitively, and financially, so that we can grow revenues at above market rates and continue to drive long-term shareholder value. Now before I turn it over to Frank Drendel for his comments, I wanted to recognize Bill Gooden, who is here with us today, who on November 15th will be stepping down from his role of Senior Vice President and Corporate Control, having served in that and similar roles for CommScope now for nearly 31 years. Bill joined us in 1978 and lead CommScope as Controller and Principal Accounting Officer throughout most of his career here. During this period our sales grew from $18 million to more than $4 billion. Throughout his career, Bill has demonstrated leadership, integrity and commitment, which enabled CommScope to maintain strong fiscal control during periods of rapid growth and changing business conditions and numerous transactions as well.

We certainly want to publicly acknowledge Bill's significant contribution to CommScope and wish him much enjoyment in his coming retirement. Mark Olson, who is also here today, will succeed Bill as Senior Vice President, Controller and Principal Accounting Officer. Mark has been with CommScope since the Andrew acquisition and has played a key role in the integration of the Andrew businesses. Before the acquisition, Mark was Andrew's Corporate Controller and Principal Accounting Officer, having joined Andrew Corporation in 1993. We are pleased to have Mark assume a greater leadership role in the Company. Mark is an exceptional leader and we look forward to benefiting from his experience and capabilities and insight. Also, Phil Armstrong's role is also expanding to now include treasury activities with a new title of Senior Vice President of Corporate Finance. Phil, who most of you know, will continue to lead CommScope's Investor Relations and Corporate Communications functions as well. Now with the organizational announcements complete, I would like to turn it over to Frank Drendel for his comments.

Thank you, Jearld, and Bill, congratulations. Thank you for 31 years of great service to CommScope. You have been a partner of ours for a long, long time. Regarding the third quarter, I would like to thank all of our employees for the outstanding performance that they generated in this quarter. Again, this is an unusual period we're in, but we continue to see our strength and improving conditions. If you look at our gross and operating margins continue to increase even despite lower sales. Our Andrew solution team has been chosen for the wireless coverage and capacity for five South African stadiums for the World Soccer Cup, similar to the Dallas Cowboy stadium, which we just completed. We continue the introduction of key new solutions, SmartBeam antennas, SYSTIMAX 360 enterprise solutions worldwide.

I was really pleased with the growing acceptance of our aluminum technology and the FXL technology during this quarter. And clearly our record cash flow, or near record cash flow of $138 million was also an outstanding achievement in this quarter. During the quarter we received 58 new patents, which brings our total patents worldwide to about 3,300. If you look at CommScope long-term no one, in my opinion, is better strategically positioned to be the best of the best. We have the best team, we have the best execution in the marketplace, and the power of bandwidth expansion continues. In the end, ladies and gentlemen, it's all about bandwidth and we are the bandwidth providers. And with that, Phil, we're turn it over for questions and answers.

Operator, just want to remind people that during the Q&A please limit your questions to one topic. And if you need to ask several follow-ups, step back in the queue. With that, operator, we will open it up for questions.

(Operator instructions). Your first question comes from the line of Amir Rozwadowski with Barclays Capital.

Thank you very much and good morning, gentlemen.

Good morning, Amir.

In looking at sort of your fourth quarter guidance for sequential growth, certainly it seems as though there is some level of indications coming from the marketplace that in the area of wireless we should see a pickup in business. I was wondering if you could give us a little bit of color in terms of perhaps geographically what you are seeing in terms of demand trends. And if we look at sort of the larger wireless OEMs, certainly their businesses are expected to be down sort of in the single digits sequentially and there seems to be a disconnect with how much your business has been down thus far this year, and so should we expect some level of catchup spending in terms of your businesses sort of catching up to where the market trends have been? Thank you very much.

Good morning, Amir. Brian Garrett. Amir, I don't know if catchup is the right word. I will say that, particularly in the wireless space, the third quarter represented a low for us, from a sequential quarterly basis throughout the year. We are seeing strength in both India and China for a variety of reasons, both with the carriers and with the OEMs. And in North America, I think you know well, there's -- there are a number of carriers who are projecting a stronger fourth quarter in terms of capital spending, which we agree with and anticipate participating in. If we looked at the course of activity over the third quarter, we did see strengthening in revenues and margins in the September period versus the average for the quarter. So we think we've got momentum going into the fourth quarter reflected in the guidance that we have given in revenue.

Great. Thank you very much for the color.

You bet.

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

Hi, could you just give us a sense on the bonuses that you did not pay this year, will you be paying those next year and can you give us kind of a rough range that that is so we can get our numbers more actuate?

Yes, this is Frank. I certainly hope so. I think all of our employees have sacrificed. They have worked very hard to continue to build the corporation. We certainly have the capacity to fulfill the needs of the customers and I'm sure as we get through the planning process, the Board will reconsider that. As to an exact dollar, Jearld, do you (inaudible) any of those.

Well, a couple of things in that regard. First -- first, your bonus programs are incentive -- are performance based plans, our annual incentive plan, as it is called. So historically we have set, I think, demanding targets for that, so any -- the payoffs next year, hopefully, if they come will be based on the success of reaching those targets. In 2008 we paid out about $30 million, I think, in annual incentive compensation. So target performance levels I would say for 2010 would be -- would be a higher number than that. So -- so perhaps in the -- as high as the $40 million in SG&A related costs. So we also have had a salary freeze in place this year and we do expect that salaries will be adjusting next year as well. So both of those factors though should -- should be taken into consideration, I think, in consideration of modeling for next year, if that's your question.

Yep, great. Thank you.

Your next question comes from the line of Steve O'Brien with JPMorgan.

Hi, good morning, and thanks for taking my question. Could we talk a little bit again about China and -- and the pace of wireless demand? Does it come back as soon as the fourth quarter or are we looking into 2010 there? And then, I guess, more broadly, on the 4G upgrades, it seems like you listen to come of the carriers and they don't expect to be increasing their CapEx budgets for 4G. So how does CommScope kind of drive revenue growth there, if it's really just coming out of their 2G budgets to switch from 2G spending to 3G spending to 4G?

Yes, Steve, Brian Garrett again. The picture in China -- both China and India in the quarter was a -- was a situation where the third quarter represented a low period in the year and so -- I mean, we -- you're question is about China, but we -- we have got a like situation in India and India is, quite frankly, a larger market for us. So both China and India our expectations are for revenue expansion into the fourth quarter. The issue -- and we may ask Eddie to put some color in there as well regarding WNS. The proposition for, specifically, LTE in North America, I suspect was what you were addressing in the second part of your question. Yes, I think our expectations are very modest in terms of what 4G will contribute to the revenue line in 2010. The businesses -- all of the CommScope businesses in wireless have positioned themselves very, very well in terms of approvals and -- and trials for LTE, but revenue numbers will be modest. There's no question there. Eddie (indiscernible)?

Yes, I guess if you look from the -- from Q3 to Q4 in China for WNS, Q3 was hurt by the -- by phase II not happening as anyone has expected and that is beginning to shift in the fourth quarter. A lot of the -- a lot of the inventory that we had in place has left our warehouses now. We're also seeing, I think you asked about 4G LTE, we're seeing production shipments today for the United States. Currently we are shipping production units and production volumes for -- for the early rollouts for one of the U.S. carriers. Well in the other side of 4G and WiMAX we're -- we're in production runs also in remote radio heads in Asia. So we are for that segment of the business, we are seeing growth relative to what Q3 was and we do expect that to continue into -- into next year.

Great. Thanks.

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

Yes, good morning.

Good morning, Jeff.

Can you talk a little bit more about pricing trends in the market? There's been a -- a pretty good move up in copper and aluminum. They may continue to go higher. I heard commentary about a squeeze in the fourth quarter in broadband with lower prices in some products. Can you just expand the raw materials, the -- you have a lag to catch it, but what your expectations are ahead here over the next, say, couple of quarters?

Yes, Jeff, we saw in spite of expanding margins, we did see commodity increases in the third quarter. We had, I think, an aluminum impact of some $0.10 a pound and a larger number in copper. And the outlook right now is that we will yet again see higher commodity costs in the fourth quarter. And as we have always done, we'll continue to monitor commodity costs. If we think that it's going to be a protracted period, we will raise pricing in the marketplace, but we will probably continue to watch commodity costs for the remainder of this quarter before we make any decisions early in the coming year.

And can you comment about broadband in the fourth quarter?

Well, we have -- we have announced in selected geographic markets price reductions in the third quarter, so we will have -- we know we'll have lower pricing in the fourth quarter, Jeff, for some products in some geographic markets.

All right. Thank you.

You bet.

Your next question comes from the line of George Notter with Jefferies.

Hi, guys, thank very much. I wanted to ask about the top-line here in Q3 and specifically the WNS division. Coming into the quarter, I would have assumed that the softness in India and China was embedded in your top-line guidance, the 750 to 800. You hit the low end of the range, obviously. WNS seemed to be the biggest piece of the disappointment. I guess I'm trying to understand what exactly surprised you here in Q3 about the WNS division? Thanks.

George, this is Eddie. We had a -- we had a big miss in -- in China with -- with almost no deployment of product into the 3G applications with our OEMs, both -- both Chinese and Europeans. Also impacting the quarter is -- is we had revenue realization, I guess, and we have a lot of project business in my segment, so some of those projects were not realized in Q3, but -- but have been substantially completed and will be recognized in Q4. So we're going to see a -- a significant jump there. So it's -- it's -- it's not -- it's not where we wanted to be, but it's, I think as we said before, given the -- the customer base that we serve here in the active products, as well as the project-based business that we're in, both in our GeoLENs business as well as our WIG business, we're going to see volatilely from time to time.

I'm sorry, how big were those projects and is the trigger for revenue recognition next quarter just the simple completion of those projects, or are there specific features or other obligations you have to convey to the customer?

We don't talk about the projects in specificity, and -- but as to how you realize revenue, we have milestones in some cases. We have acceptance by the customer, sign-off, a piece of paper in some other cases.

Obviously this is what we expect to, as you said, that we -- or you would expect that some of the programs will be -- reach the point where they can be recognized for revenue. It's quite a normal situation in our WNS business, all of the project-related business, and sometimes the timing just doesn't quite square up with our quarterly reporting.

George, I -- George, I would summarize it by saying timing is always an issue and to the extent that the third quarter was an underachievement relative to our expectations in the third quarter, it really leads to large expectations that will fall on the -- at fourth quarter timing.

Got it. I'm sorry. How big were those projects?

George, we didn't comment on the size of any specific project.

George, these are normal cycles that we will go through in this Company. As long as the cycle is bigger each quarter, that's what you want to look forward to. That's the part that is important to understand. We'll have these periods where we will get sign-offs. The projects continue to use our equipment. The most important thing, as for our investors, is we see no indication of us losing market share.

Got it. Okay. And then one quick follow-up, just on China and India, could you give us a sense for how big those markets are now as a percentage of your revenue stream? I know it is a little complicated given the OEM channel, but any help would be great. Thanks.

Yes, I would -- I would bracket both of them in the $150 million, $200 million range.

Great. Thank you.

Your next question comes from the line of Amitabh with UBS.

Hi, thank you. Can you hear me.

Sure, Amitabh.

Hi. My first question just had to do with margins, particularly if I look at enterprise and broadband, I believe you have posted sort of the highest level of margins again and I know you talked about some reversals going forward, some pricing pressure, just wondering if there's any guidance you can give in terms of how we should think about, quote unquote, normalized margins. Does enterprise sort of go back into an 18% to 20% range. Is that the right way to think about it. And then broadband can you hold that amove the mid-teens level? You've certainly had two very impressive quarters there?

Well, Amitabh, it was an extraordinary quarter and both -- both the businesses that you discussed have grown sequentially from the beginning of the year in both revenue and operating margins, so they are performing very, very well. Yes, I -- there will be a pullback in the fourth quarter for a variety of reasons and our expectation will always be to keep our enterprise business in the upper teens and if you look back over the last two or three years, we have had difficulty in getting our broadband business into double digits and expectations going forward is to -- is to keep that business segment in the mid-teens if at all possible.

Got you. And then may I ask just one more on the balance sheet?

Sure.

Just very quickly, I guess this is for Jearld. Jearld, 2Q, 3Q, again, very strong cash flow generation. Just wondering, as we look further on into 2010, would you consider further delevering your balance sheet? Would that be like a sort of a priority and it is fair to assume you could maybe take another $200 million, $300 million of debt down or just your thoughts around the use of cash now that you are building up on your balance sheet.

Sure, thanks, Amitabh, for the question. We will expect, certainly, to pay some debt in 2010 . We do have something called an excess cash flow sweep and since cash flow this year has been relatively strong, we think that will generate the need minimally to pay debt probably close to the $200 million range in the first quarter. Beyond that, I wouldn't be surprised to see some additional delevering going on, not -- perhaps not at that 92, but wouldn't be surprised to see some additional debt reduction over the course of 2010. And we did have a good cash flow quarter with -- with a little growth anticipated in the fourth quarter. We probably won't be quite as strong cash flow in the fourth quarter would be my expectation now, but -- but should be a great cash flow year. Cash is returning to very strong levels and we will use cash for de-leveraging as well as looking for strategic

Got you.. Thank you.

Your next question comes from the line of Mike Walkley with Piper Jaffray.

Great, thank you. Just -- just want to follow-up a little bit on the operating margins, specifically on the WNS business. With it sounds like a recovery coming in Q4 if you are north of, say, the 150 or in that 150 to 180 range of the prior quarters, would we expect operating margins to return back to where they were, say, in the first half of the year, or is there some kind of mix we should think about as it relates to margins in that division?

I think it will be very similar to the first half of the year.

Okay, great. And just -- just on the tax rate of 34% to 36%, is this the same rate we should think about for 2010?

Well, we're little early for 2010 guidance. In 2009 we have done some repatriation. At this time I'm not expecting to continue that process and that should help us beneficially in tax rates in 2010 if we're not repatriating quite as -- quite as heavily as this year. Of course, what might happen legislatively is something we'll all have to watch as well.

Great. Thank you.

Your next question comes from the line of Steve Ferranti with Stephens Inc.

Hi, guys, just a quick follow-up on the WNS margin question. To what -- I understand you had some mix issues impacting margin in the September quarter, but I guess to what extent does that say anything about margins within some of the other businesses within Wireless Network Solutions, I'm thinking base stations, subsystems in particular. Does that suggests that maybe those margins may be weakened a bit during the quarter.

I think it is more a function of volume than it is of margin erosion. This is a highly fix-cost oriented business, especially in those two businesses that you talk about. And as we said before, it's a -- volume is our friend and our enemy and so in the third quarter we saw in the segments in China where -- where amplifier business the OEMs were strong, we saw a slippage there and so that is really what goes to the bottom-line.

Would it be fair to say standard gross margins are holding very well?

Yes, I think you see very little movement in what the standard margins are. So it's really about absorption of purely overhead.

Yes.

We've taken -- we've taken that business -- today what we're selling 75% of it didn't exist in January. So we have totally restructured the offering of that business into a higher value-added product. Spent the money in R&D to develop a future for the business.

Okay, makes perfect sense. Just one quick follow-up. Jearld, maybe you can remind us of what a normal seasonal pattern is in the March quarter and any thoughts on deviations from normal seasonal in this coming March?

This coming March? Well, again, we're -- we're not providing any guidance about 2010 revenue certainly at this point and hopefully we'll be able to do so perhaps early in 2010, but we -- the seasonal trends usually are the second and third quarter are strongest, sometimes one is a little stronger than the other, and the weaker ones are January or first quarter, rather, and the fourth quarter. So with the first quarter typically the weakest, so -- and again, what we're seeing this year is due to trends in the wireless business primarily. We think we may overcome that traditional fourth quarter weakness looking ahead for our fourth quarter this year.

Okay. Thanks. Good luck going forward, guys.

Thank you.

Your next question comes from the line of Shawn Harrison with Longbow Research.

Hi. Two brief questions on the cost structure. Just getting back to the SG&A, should we expect that to be essentially flat here in the fourth quarter versus the third quarter? And then second, if you could speak of just any additional cost savings that you have coming out of the model, be it in the December quarter, in the March quarter either from Andrew related restructuring activities or other in process restructuring activities with the legacy CommScope business?

Yes, I'll take on the SG&A. At present time wouldn't expect that we would see a lot of change in the -- in the SG&A, although some -- some of our expenses if revenues are up a little could be a little higher in the sales area where we do have sales incentives that are still in place. Could be working there and -- but wouldn't expect anything extraordinary. Of course the end of the year there is final true-ups of certain accruals and that sort of thing. That could -- can create a little volatility there, but since we do not have incentives in place for now, we wouldn't expect, perhaps, as much of that. And, so --

Additional costs.

Yes, additional costs, yes, Phil?

Yes, we have got, obviously, an ongoing culture of cost reduction that will continue, but I think, Shawn, we have got the major manufacturing benefits.

Yes and we're on track, or actually ahead of plan of where we wanted to be relative to our public statements regarding synergies. In the fourth quarter we'll pick up some incremental amount, probably an additional $3 million to $4 million over the -- over the third quarter rate as a result of the merger synergies.

We have been on track or ahead of that plan since the merger took place and congratulations to all of the employees. It's an outstanding accomplishment.

Thank you very much.

Your next question comes from the line of Simon Leopold with Morgan Keegan.

Thank you very much. Just wanted to get a clarification first on the -- the pro forma earnings per share calculation, make sure I have got the add-back and share count right on that based on the net income of $61.3 million.

You should be adding back the convertible debt, because you have got that in the share count of about 106 million shares. You should be adding back about $1.7 million related to the net-of-tax cost of the convertible debt.

Okay, and -- .

And shares outstanding should be about 105.7 million.

Okay, I'll have to check my formula, I'm coming up with $0.60 not $0.61. I'll circle back with you on that. Bigger-picture question, you made a comment in the prepared remarks regarding wireless, talking about uneven spending patterns in antennas and you sound very optimistic about the fourth quarter. Could you go into a little bit more color in terms of what is going on in the wireless market in that on one hand we hear about strong subscriber growth in emerging markets and quality issues in mature markets due to capacity, and my impression is that carriers are spending perhaps more on backhaul and so I'm trying to get a handle on the timing of -- of the recovery in your wireless business and the sustainability of the pattern over multiple quarters, not just into the fourth quarter.

Let me take it, it's Frank, let me take a little stab at the broad market. You're correct in the backhaul. What has happened is our fiberoptic cable sales clearly indicate that the carriers, both cable TV carriers, are releasing backhaul capacity to the wireless carriers and the wireless carriers are enhancing and reinforcing their backhaul. Adding site capacity without the capacity to handle it back to the switch makes no sense. So if you think about the trending, my view is that that's where this make-ready has been taking place, both at the tower site and at the backhaul. The part that will begin to affect us is on the tower and up the tower as you add the capacity to the antennas, down cable and all of that material. So the spending will skew itself at the beginning of this quarter and into 2010 on the products that we serve.

And do you think of this fourth quarter pattern as lasting multiple quarters or should we expect a lumpy pattern where we'll get some big quarters and some bad quarters sort of alternating?

Well, I think this is always going to be a build to order business. I think you have to understand that CommScope is positioned such that we can fulfill 95% of our quarter -- input within 12 weeks. And most of the time within six and faster. So the reason we're so fast at cycling is we can handle the customer input. Now looking out, I personally think that next year is going to be an outstanding year for our particular product lines, but there will be ups and downs of these carriers around the world go from -- think about it, China and India are just beginning, the two. You've got two to three LTE WiMAX, each one of these technologies is moving through around the world if at a different stage of completion. So for us the question has to be, and for you as an investor, who is best prepared in the world to feed that supply chain? And we are. We can react faster than anybody. We have the best products.

So the key element here is, we're operating at at least 25% below capacity, proven shippable capacity that we have done in the history before 2008, so if this thing turns and the margins we're producing on 25% less capacity or sales, you're going to have an outstanding performance. For me I want to continue to position the Company for the strong balance sheet, best technology, best service levels, and when these customers start ordering, we'll be there to take care of them.

Thanks a lot, Frank.

Operator, we'll take -- I think we have time for about two more questions.

Okay. Your next question comes from the line of Blair King with Avondale Partner.

Yes, hi. First, Bill, congratulations on your retirement, it sounds good.

Thank you, sir.

I would rather talk about than a follow-up on Frank's last comment. Frank, I think you had mentioned that -- did you just mention you are running at less than 25% below full capacity?

Yes, if you look at our sales and our historical sales, it is very obvious that we have had sales that were 25% higher than where we're running.

Okay.

I'm just saying is that if you look at the fact that our capacity of proven shipments that we have done before versus where we are today and still very profitable. Tremendous cash flow. Excellent margin from the team. We have the capacity to respond on fairly short notice to the orders that would be coming forth from these customers. So, actually -- .

Okay. And just a follow-up to that just broadly. When you look at the enterprise segment and your ACCG segment, enterprise seems to be trending higher and the ACCG segment seems to be trending, at least sequentially over the past couple of quarters, sort of flat to down a little bit.

No question, but I think (multiple speakers).

So, obviously there is something going on there and I'm wondering if you can just talk about the dynamics outside of the economy and where you see the trajectory of those two segments heading maybe over 2010.

Well, let me -- before I hand it to Brian, who working on them, but let me tell you about how I view it in the sense that in the ACCG you'd had that great buildup in the cabinet business for AT&T when they were doing wireline, it had nothing to do with wireless, when they were doing their wireline operations for fiber-to-the-curb and fiber-to-the-home. That program continues but they have pretty much gone through the initial build-out phase. If you look at AT&T and Verizon and the other carriers, they haven't even begun to move to whatever you want to consider 4G, LTE or whatever it is, but they are certainly in the planning stages of that. And there's no question that everybody that's using any one of the cellular carriers' phones today is getting more drops and blocks and lost signals. Your system is not working as efficiently as it has before. So there can't be much doubt in anybody out there's mind that this will need some reinforcement.

But I think that the issue is is that they have to have the make-ready, the backhaul, and everything else prepared before it starts. Now enterprise is improving faster. ACCG, in my mind, has made a major move broadly with our aluminum strategy. We have had more traction in this quarter around the world than we have had ever before in the aluminum cable traction, which will offset any of these concerns everybody has about copper long-term. So, in my 30-plus years in telecommunications and 15 years on a cellar carrier board, I have never seen a hand like this for whether it is going to take to get cellar at these rates and the speed of capacity in the future. So I'm really bullish about this Company in the next two to five years.

That's great. Thank you very much.

Your final question comes from the line of Anthony Kure with KeyBanc.

Good morning, gentlemen. Just wanted you to hit on maybe a longer term questions in regards to your exposure and maybe outlook for WiMAX. I understand that the Clearwires of the world are a much smaller on a scale basis relative to the bigger carriers, but wanted to get your take on that build-out as it -- as they are moving through North America here. Thanks.

Anthony, I think the impact, certainly in North America, is going to be minimal just because of the scale or lack of scale of WiMAX in North America. Our participation in that particular technology today is -- is really more about backhaul than it is cable or BSA. We have -- we've done very well with that account in technology in our microwave antenna product and we'll continue to.

Okay. Thank you.

Okay.

Ladies and gentlemen, at this time we have reached the allotted time for our Q&A session. I would now like to turn the call back over to management for closing remarks.

Well, I want to thank all of you. I think we had an outstanding quarter. We continue to perform at much reduced sales rates than we have historically, excellent margins, excellent cash flow, none of us could do this without our strong employee base and our technology around the world. So I want to thank all of our partners around the world for their performance. And I want to thank all of you for investing in CommScope. I think we have a real future. And Bill, congratulations again.

Thank you.

And operator that wraps up the call today.

Ladies and gentlemen, this concludes today's third quarter earnings release conference call. You may now disconnect.