Ceragon Networks Ltd (CRNT) 2007 Q1 法說會逐字稿

Good day, everyone. Welcome to the Ceragon Networks Limited first-quarter 2007 results conference call. Today's call is being recorded and will be hosted by Mr. Ira Palti, President and CEO of Ceragon Networks, and Mr. Tali Idan, CFO of Ceragon Networks.

Today's presentation will include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause Ceragon's actual results to be materially different from those expressed or implied by such statements. For additional information regarding the risks associated with Ceragon's business, please refer to Ceragon's annual report on Form 20-F and Ceragon's reports filed with the SEC. Web users can visit Ceragon at www.Ceragon.com to read the complete forward-looking statement language.

I will now turn the call over to Mr. Ira Palti, President and CEO of Ceragon. Please go ahead, sir.

Thank you for joining us today. With me on the call is Tali Idan, our CFO. We're very pleased with Q1. It was a very strong start to 2007. We again achieved record revenue, record net income, as well as very strong bookings. The results of the excellent momentum from direct and OEM business in Q1 and having better visibility, we are revising upward our revenue growth target to about 30% for 2007 compared to 2006.

Regarding the OEM business, on our last call we told you to expect lower OEM business in Q1 due to the disruption in ordering related to the integration process of Nokia Siemens. Although Nokia provided lower revenue, they continued to be a 10% customer and resumed the typical ordering pattern in Q1. Also during Q1, our discussion with Nokia confirmed that the pause was temporary and removed the uncertainty concerning their intentions by indicating that for the foreseeable future they plan to continue to use our solutions.

Revenue from our other OEM partners grew, and OEM revenue accounted for about 25% of total revenue in Q1 compared with around 33% of the total during the second half of '06.

In addition to better visibility, we are optimistic because all major industry plans continue to work in our favor. High-capacity backhaul requirements represent a major issue for all types of operators. Data services are growing rapidly, and applications such as mobile TV, video sharing and location-based services will quickly surpass voice as the largest source of revenue on mobile networks. Both bandwidth intensive data applications, combined with subscriber growth, are resulting in enormous increase in demand for more bandwidth and more backhaul capacity.

As we move toward 4G, the debate about which access technology will play the largest role continues. All these technologies of mobile WiMAX, LTE or UMB are intended to enable operators to deliver mobile broadband, meaning high-speed broadband services directly to people instead of buildings. For example, in this quarter a significant customer in the US was Nextlink, part of XO Communications, which builds a WiMAX network.

One thing that everyone agrees on is this. Whether it is WiMAX, LT or UMB, the common theme is migration to an all-IP network, which means huge potential growth in IP wireless backhaul, as well as the need to replace existing networks.

Meanwhile, there's another strong growth story happening in emerging market countries, particularly Asia-Pacific. Related to improving teledensity and eliminating the digital divide by making cellular voice and Internet connectivity available to more subscribers. Operators are also increasing the backhaul requirements. For example, [ID Mobile] in India and digital in the Philippines rapidly expanding the mobile backhaul networks using our equipment.

Municipal and community networks, including public safety applications such as traffic control, video surveillance and first responder communications are also growing using WiMAX or meshed Wi-Fi technologies like Kansas City Operation Green Light Traffic Management Program. And, of course, other private and government networks that have always been part of our business are growing as well.

The signal common denominator (inaudible) is the growing requirement for high-capacity backhaul with an eventual position to IP, which will further increase our available market. Based on our latest market research, we believe the combination of more capacity and the shift towards IP will take our total served market from 1.5 billion to date to 3.5 billion in 2010.

We believe we're best positioned of any of our competitors -- large or small -- to address this event and continue to increase share for several reasons. One, our leadership in IP. We're leading the way in migration to IP backhaul. We were the first to introduce a native ethernet solution, and we currently offer the (inaudible) data rates in the market. We understand better than anyone that IP is about more than just microwave links; it is about networking capability. We have unparalleled know-how and flawless transmission integration with other network elements such as routers and switches, [packet ware allocation] and quality of service issues with a special context of wireless systems.

Two, the flexibility of our solutions. Our portfolio of high-capacity solutions is more extensive than any of our competitors. The transition to IP will not happen overnight, and we are the only specialized vendor offering both pure native ethernet solutions, as well as a multiservice solution combining native IP and native PBM on a single platform.

Three, our continuous cost reduction program. Significant (inaudible) price decline is a characteristic of our market. We have the R&D capabilities to engage in continuous product innovation and operational cost reduction initiatives to stay ahead of the curve. This ability to maintain our favorable cost structure distinguishes Ceragon from several competitors and enables us to capture market share, particularly in emerging market where operators are very price sensitive. We are also putting a lot of effort into increasing production capacity and shortening delivery times in response to demand.

Four, our global presence in channel relationships. Our size, global presence and extended reach via our partners enables us to serve high-growth emerging market opportunities with full capabilities, which is difficult for smaller competitors to match.

Looking ahead to the rest of this year and beyond, we see accelerating growth in WiMAX, as well as continued strong growth from cellular, especially in emerging market regions. We expect to continue to build our OEM relationships, which could eventually account for 50% of total revenue, and we expect our constant attention to cost reduction to enable us to continue to grow (inaudible) profit faster than revenue.

Before I turn the call over to Tali, I would like to acknowledge Scott Sweetland for the outstanding contribution he is made to Ceragon over the past seven years. Scott, who is our President of Ceragon Inc. in North America, needs to reduce travel in order to spend more time with his family. So he has accepted a position with BAE Systems located near his home in New Hampshire. We understand and support Scott's decision and wish him all the best. Assuming Scott's position will be Paul Obert of US VP Sales. The transition is seamless because Paul is a long-time industry veteran and has been working closely with Scott for the last two years.

Now I will turn the call over to Tali.

Thank you, Ira. Q1 revenue growth exceeded our expectations and increased 59% to $33.9 million compared to $21.3 million in Q1 of 2006. On a GAAP basis, we reported a net profit of $2.6 million or $0.09 per diluted share, which included $390,000 of equity-based compensation. Non-GAAP net income grew 190%, reaching a new record of $3 million or $0.10 per share compared to a $1 million or $0.04 per share in the first quarter of 2006 and up sequentially from $2.7 million or $0.09 per share in Q4 of last year.

Turning to the Q1 revenue breakdown, revenue from cellular operators grew sequentially and accounted for 44% of total revenue in Q1, up from 42% in Q4. Revenue from fixed operators, mainly WiMAX, grew dramatically and accounted for 34% of the total compared to only 22% in Q4. Revenues from private networks, which tends to be lumpy because of government business, returned to levels typical of recent quarters and accounted for the remaining 22% of total revenues.

The geographic mix in Q1 was as follows. Asia-Pacific was the strongest region accounting for 43% of total revenue, a major increase from Q4. Europe, Middle East and Africa, which was strong in Q4, made a smaller contribution in Q1 and accounted for 34% of total revenue.

Similarly, North America made a smaller contribution in Q1 than in Q4 and accounted for 16%. Latin America accounted for the remaining 8%.

Due to the growing importance of IP, beginning this quarter we will disclose the split between the IP and SDH-related revenues. In Q1 IP solutions accounted for 24% revenue and SDH for the balance. Going forward, we expect to see a general upward trend toward more IP with some quarter to quarter fluctuations.

We have two 10% customers in Q1, both of them OEM partners. In Q1 our non-GAAP gross margin was about the same as the prior quarter. Q1 non-GAAP operating expenses represented about 28% of revenue, which is about the level we expect to maintain during the rest of the year.

During the quarter we were cash flow neutral, and the cash balance at the end of the quarter was $29.5 million. DSOs were 78 days. The increase in inventory relates mainly to higher amount of products at customer sites before being recognized as revenue. Finished goods accounted for about 70% of total inventory where more than half of these finished goods were already at customer sites. Our strong momentum continues with a book-to-bill ratio of over one this quarter, despite some seasonal weakness in booking, which is typical to Q1.

As Palti mentioned, based on better visibility from Asia-Pacific in our OEM business, we are targeting revenue growth of about 30% for all of 2007. Longer-term our goal continues to be a sustainable annual growth rate of 25% and a net profit margin of 10%. Near-term we expect revenues in Q2 to range between 34 and $36 million.

Now we will be happy to take your questions.

(OPERATOR INSTRUCTIONS). Rick Church.

Great results, guys. Congratulations. Just, on the OpEx comment, you said that you expect to maintain this level. Do you mean the 28% revenue level so it will grow with revenues?

Yes, this is our expectation, to maintain about 28% of revenue as operating expenses.

Okay. And, on the OEM commentary, you said that you would hit 50% at some point. Did you mean during some quarter in 2007 OEM would be 50% of revenue?

No, we said long-term, so long-term is usually beyond 2007 I would say two or three years.

Okay. And the WiMAX strength that you are seeing, is that with more than one customer, or could you talk -- just give us some more color on geography and size of deployments you are seeing?

We think WiMAX deployment worldwide, they are small. None of them are large deployments. We see operators trying the technologies, buying for frequency, trying and building network in all regions. It is not a single region. We have customers for WiMAX both in US, Europe and the Asia-Pacific region. None of the deployments are still large.

Okay. Great. Thanks a lot, guys. Nice job.

Matt Robison,

Great quarter. Can you talk a little bit about why deferred revenue was up so strong, or is it just the usual sort of ebb and flow of the timing of things? Is there one new job in particular, anything like that?

I agree that deferred revenue grew more than before. As a matter of fact, even doubled this quarter as compared to the previous quarters. It comes mainly from the fact that we have more I would say projects or customers in which we install as well as provide equipment. And this is, as I mentioned before, one of the reasons for the increase in our inventory. Because we have more inventory at customer sites waiting for revenue completion until we install the equipment. So these customers are also paying for us a portion of the payment, and this portion appears in deferred revenue.

Okay. Sure. Should we expect this shift to continue, or is it just -- I was asking, the question of timing -- is it --?

I think it is a trend. It is coming mainly from Africa and Asia. And you can see, we have growing business from Asia, so I expect this type of business to grow as well as the deferred revenues.

Have you -- with the activity looking like it's going to decrease in India with BSNL now, I did not think you guys had anything going on with that carrier in the past? Have you seen any signs that you're going to be able to participate there?

Like all customers of Nokia and you know that Nokia, one, is number two on BSNL after Motorola dropped out, we're in discussions with Nokia. I think it is too early to tell yet how will they design the network. What will be the proportion of SDH versus PDH versus the lease [mine] because BSNL is the fixed operator in India, and they have a lot of infrastructure in the ground. So the network design is not there yet. But I think we have a chance for that as well.

Okay. And can you give us your headcount in the quarter?

Headcount was the same as in the previous quarter, 285.

Okay. And it does not look like you made a payment in March to the chief scientist.

No, we did make a payment of $2 million.

Oh, $2 million (multiple speakers)

Without this payment, we could have been with a positive cash flow of $2 million.

Great. Okay. That is good to know. I will let somebody else go.

Irit Jacoby.

Great quarter. I just wanted to follow-up again on the OEM purchase direct growth margin. Could you just discuss if OEM gross margins were up versus the previous quarter, and what about the rest of gross margins, and what is affecting the dynamic?

Well, OEM gross margins are lower than the direct sales. We have not specifically disclosed what they are. They also different depending on the region where the OEM sales are taking place. So, in Asia, in particular in India, the margins are even lower. This quarter I should point out that although the portion from Asia-Pacific grew, the overall gross margins stayed about the same. This is mainly because of our continuous cost reduction of the product.

Okay. Thank you.

Kevin Dede.

Merriman. Congratulations. Let me add my congratulations on the call. I was curious really, you mentioned IP versus SDH being a 24/76 split; is that the IP-MAX product versus the 1500P?

In general, I think the way you can look at that, that is IP-MAX versus the 1500P.

Just another question on OpEx. 28% going forward -- is that the combination of R&D and SG&A on an operating basis?

Yes. Again, it is an overall estimation around 28%, but this is over estimates for the rest of the year.

Very good. Okay. Thanks for taking the questions and congrats again on a nice job.

Daniel Meron.

That is a very strong quarter. If you can provide us with a better sense on gross margin, how this should look for the balance of the year? Also how do you expect cash flow for the balance of the year? And the last one if you can provide the comparable numbers for the IP versus SDH split? Thank you.

Okay. As far as gross margin, I think we have said before that we expect gross margin to stay around the level of Q4. I think we said 35, 36%, and I still feel comfortable with this 35/36% for the rest of the year. Again, we will have a larger proportion from Asia on one hand, but we are continuously reducing the cost of the product on the other hand.

So this is our view of gross margin for the rest of the year. Mind you that there are so many factors there that it may fluctuate. It depends on the mix and the geographic mix and the size of the deal and the direct versus OEM and other factors.

The question, the other question was related to -- remind me?

Cash flow.

Cash flow. We expect cash flow to be positive this year. Overall I expect 2007 to be positive.

Any metrics around that number?

Well, it is difficult to say. There are fluctuations from quarter to quarter. There are some quarters in which we will pay the amount that we owe to the chief scientist. There are some quarters which we pay more than others, but I think the overall trend will be positive.

And then the last one for me, the IP versus SDH split in previous quarter or for 2006 as a whole?

I would say 2006 about 30, 33% was IP.

Okay. And then just to follow-up, who do you see as your strongest competitor in IP, the [Jabon Wave], anybody else that we should be looking at?

Right now the key players in the IP space which have systems is us leading the pack, the product coming out from [Traffic Service], which is not native Internet product. They do IP over T1/E1, and there's a product from Dragonwave, which does only IP and does not do TDM and cannot do the mixture in a native mode.

Those I think are the 3 major players. Although, if you look at all the very large vendors, they I would say cook up solutions from a few boxes to provide something to the customer. It is not cost effective, but they will come up with something so they can provide a solution.

Okay. Thank you. Congratulations on the good work and good luck going forward.

Larry Harris.

If I could add my congratulations here. In terms of the strength that you are seeing in Asia, you mentioned, of course, India, you mentioned contract in the Philippines. Are there any other countries where you are seeing particular strength in Asia?

We see strength in all of the I would say Southern region of Asia, all the -- in all countries. Starting with India and crossing all countries all the way to the Philippines. We see a lot of strength in mobile networks in China, but those are not using wireless backhaul. So we see our strength in all of Southeast Asia mainly.

Understood. And in terms of the change in sales this quarter in EMEA, was that just sort of how the shipments and orders went, or are there any trends there that accounted for the change this quarter?

EMEA was a little bit weaker this quarter than in previous quarters, but I don't expect it as well. On the strength, it is there, and the outlook to Asia what we saw was a very strong quarter from Asia-Pacific.

Absolutely, absolutely. All right. Well, thank you very much.

Ehud Eisenstein.

Could you please give us a little more color on the trends going on in the United States?

And the second question is, what is the effect, if at all, of the Israeli currency on the business?

Who is speaking please?

[Jonathan Chrysman] on behalf of Ehud Eisenstein from Oscar Gruss.

All right.

I will answer you about US trends, and I will lead Tali take you on the currency issue. US trends are continuing to be the same as we talked about in the last few quarters. We have a strong business in the US which continues to be strong around the private enterprise segment, and we are continuing to see a lot of activity from carriers for doing a lot of backhaul to the mobile operators to customers like FiberTower and others that we have in the US.

I know there's a lot of talk in the US around WiMAX deployments. We start seeing some of those, as I mentioned. One of those is Nextlink with XO, which we are involved in. I know there is a lot of talk about Sprint projects, which we are in discussions with them. And I expect that also to be an advisor in the US. US fibers are exactly the same as the rest of the world, but leading with data-centric applications both on the mobile and other networks, which cause a huge requirement for increased backhaul.

Let me answer about the currency situation. I mean the dollar is weakening as you all know. The Israeli shekel is strong. The Israeli economy is strong. Currently the ratio between the Israeli shekel and the dollar is a ratio that we have not seen for many, many years as far as the strength of the Israeli shekel. Of course, we pay a large portion of our salaries in shekels, and when we measure it in dollars, it creates a higher expense than we projected before. This is what happened in Q1, may happen in Q2, may happen even later on if the rate will stay. But we don't know what the rates will be.

So I would say our best guess is already included in the 28% guideline that we gave for the rest of the year. We said we believe expenses will be around 28% of revenues, and we were trying to measure also the strength -- to include the strength of the shekel in these estimates.

Scott Berry.

I would love to add my congratulations, but it seems kind of superfluous. I will just say that I am not surprised, and I knew you had it in you. Great quarter.

A question about the rise in inventories. It seems like a fairly steep rise. The first is, do you expect inventories to stay roughly at this level going forward? And if not, do you expect sort of a bubble in the second quarter as you book revenue for some of this kit that is already on customer sites, or will it be more seasonally distributed throughout the rest of 2007?

Yes, we do see a trend of more projects in which we also provide installation services coming mainly from Asia, as well as from Africa. So I would say that this trend will probably continue to impact our inventory. I certainly hope it will not increase, but I cannot guarantee that this will not.

The rate of recognition is becoming kind of a regular rate. We recognize some, and we get new business which replaces the inventory that was recognized. So I am afraid we continue to see such a level.

Okay. And then kind of a follow-up on that. You mentioned that Nokia has resumed normal seasonal I guess ordering patterns. Is there a backlog leftover from fourth quarter where they did not really place any orders that a lot will hit in the next quarter or two?

The business with Nokia is just the opposite of what Tali has mentioned because they do the installation. So we are working with them on the basis of almost very short delivery times of being able to use our capacity and manufacturing capabilities. And I mentioned that we are driving that for shortening delivery times so that what we see is almost turns with the Nokia inventory within the quarter. Very little flow from one quarter to the other.

I was not speaking in terms of inventory per se as I was in the sense that -- let me ask it a different way. Do you think Nokia has backlog with respect to delivering systems to its customers? Because they slowed down orders in the fourth quarter?

A little bit, but I think some of it will be recovered, and we will see some of it being recovered in the next few quarters as well. But not significant from our size. I don't know about their systems, and from our side, I don't see that as being significant.

One last quick one. I noticed a few weeks back General Dynamics announced a win of a piece of government business. Are you guys involved with that?

Not that I am aware of.

Thanks a lot, and once again great quarter.

Tom Schwartz.

Congratulations on a good quarter. I just wanted to maybe follow-up on a couple of things that other people have already asked about. Particularly at the beginning of the call you talked with what sounded like to me renewed content about the Siemens Nokia situation. Can you maybe put a little color on what if anything has changed to make your tone possibly a little more positive or a little more certain?

Now when the Company goes for a major transformation like Nokia Siemens and their merger, a lot of the things that are out there is -- a lot of uncertainty because they don't know how to -- what their plans are. Based on discussions we had, we are looking at Siemens and the management that works with us. We are confident that for the foreseeable future we will continue to see and continue to see the business with them. And that is where my confidence comes from, both from the ordering patterns and from discussions which cover a few quarters out what their plans are.

Okay. And then also on Dragonwave, which has been referred to they were around on their roadshow recently, are we to understand that the situations where they win are mainly all-IP situations? The situations were you win are where there is a mix?

No, we win on IP situations, and we win against them quite nicely on a lot of the bids out there. Because, as I mentioned on the call, I think we have and we believe we have a much better product than they do both in an all-IP situation and mix situation, and we have a full product set also in non-IP situation.

Ray Conley.

Thanks for a great quarter. Could you talk a little bit about what was going on with Motorola in the past quarter?

What was going on with Motorola in the past quarter?

You had mentioned that there were some issues.

The only thing I mentioned around Motorola was referring to a question from Matt Robinson about DSML. DSML is the largest fixed operator in India which issued an RFP for a huge mobile network around $7 billion.

Ericsson is number one on the bid. Number two was Nokia. About nine months ago, nine or 10 months ago, if I remember correctly, Motorola went to the India court to stop the winners there and over the last four or five weeks retracted their orders from the court, and that large build went forward.

The reason I got the question from Matt on this was because Nokia is a partner of ours, which we work with very closely on the high-capacity backhaul. Now it is Nokia Siemens Networks, and they are involved in that bid. And Matt was asking me what will be the effect today of Motorola retracting their old order or whatever it was in India on our getting more business from Nokia in India for BSNL where we're getting a lot of business from Nokia for other customers in India to date.

Got it. Thank you. And is the Nokia business in India related to the initiative that was recently announced for India plans by 2010 to have Internet access for all their citizens?

No, Nokia business is mainly targeted today towards mobile networks in India. And very large expansion of mobile subscribers and increasing the reach of the voice lines to date.

Santosh Rao.

Congratulations. Congratulations on a good quarter. Most of my questions have been answered. Just coming back to Nokia Siemens, in general in your planning and your guidance, have you lowered your expectations for Nokia?

Also, as a follow-up to that, your 50% target, OEM target, percent of the mix, the revenue mix, I am assuming that excludes Nokia going forward. That is it.

First of all, in general we raised the guidance for this year. We took into account the mix and the amount based on discussion that we will have Nokia Siemens for this year and of that mix, which was in line with our expectations earlier on of what we expected for this year. We do have a target for 50% longer-term. I believe that some of that will continue to come from Nokia Siemens.

Joanna Makris.

I'm wondering if you could possibly provide an expectation for IP as a percentage of sales in '07?

And then secondly, if you could comment a little bit about your relationship at FiberTower and potentially how you see your position there relative to NEC at that account?

If you will look at the IP, I think we gave the guidance on -- we did not give a guidance. We gave the number for this quarter, and we gave the numbers for last year. We expect those levels to stay about the same, slowly increasing over the 2007/2008 timeframe.

I think the major jump in those percentages will come when Nokia and UMB type of deployments will start with the mobile network, but that is much further down the road.

FiberTower, a good customer of ours. Yes, we share the customer with NEC like we share many of our customers with other competitors, and we get our share and we continue to get our share from them, which is by the way a significant share. But that is the other part to the story.

Martin Yokosawa.

Great quarter and great work, guys. I had a question on it looks like there is a lot of opportunity out there. What are some of your growth constraints from keeping you from even growing faster?

The second question is about stockownership other than the Chairman. I don't see a lot of ownership by upper management. Can you address that?

Okay. I will address both. First of all, growth constraints. Growth constraints come from two areas. I think the first area is execution. We have been executing, but executing growth is not very special in the Company, which is very much hardware-oriented. So we need to grow capacities, delivery capacities, delivery times and go through cost reduction capabilities, which is constraining in the little ways constraining growth, and you need to build the sales channels and increase those sales channels into the market, which we were doing through our OEM relationship. We will continue doing that execution moving forward to keep on growing.

Relating to the last comment you had, upper management does hold options in the Company. We do not hold direct stock in the Company. But a lot of percentage of our compensation is related to stock options.

And the sales channel, how are you going to build that, and what cost would that be and when?

The sales channel is growing as you can see our operating expenses over the last two years growing all the time in line with the revenues, and we have extended the sales channels in building the OEM relationship. One of the main reasons for the OEM relationship is reaching places where still a small company our size are sometimes hard to reach. And you use the OEM channels to reach those larger deals and be part of those.

Great. Keep up the great work.

Steve Ferrante.

Great quarter. A quick question on your IP sales. Can you give us a sense for what portion of your total IP sales would come from WiMAX versus, say, private networks?

I don't have the number in front me. If I need to in general look at it from counting the deals, it is probably 50-50. What happens, the WiMAX deals are larger with larger amounts of links where the private deals are a lot of smaller deals.

I see. And regionally can you kind of give us a sense as to where you are seeing traction with WiMAX opportunities?

As I said before on the call, we see WiMAX opportunities almost worldwide. We see US opportunities. I mentioned Nextlink and XO, and we mentioned a few others in the past. We see European customers, which we talked about in the past like Irish broadband and others in Europe, and we have also opportunities which we have done in the Asia-Pacific region.

Okay. Great. One final question. Can you give us a sense of maybe in terms of percentage of revenues or however you see fit, a sense of how much of an opportunity you see that as going forward, and when do you expect us to hit the steeper portion of the growth ramp there?

My expectations on that is two sets. I do expect that somewhere towards end of this year, probably first half of next year, we will start seeing people quickening up the WiMAX deployments. But a lot depends on -- and largely depends on WiMAX equipment and mainly on the WiMAX devices, which will connect to the WiMAX E, and this is very hard to predict when, but sometime in that timeframe we will start seeing the pickup. And then we will see the next wave of usage of wireless IP is one LT and UMB in the more classical mobile networks will take place, but that will start somewhere towards the end of this year, but that will be only first filed but real pickup towards the end of 2008.

And I guess just one last one, do you get a sense for in these types of deployments the percentage of them that are using wireless backhaul versus more traditional means?

I think that they keep on using the same proportions worldwide as we see in mobile networks, which if you look on an overall worldwide basis, it depends on the geography and places where it is 60% wireless, places where it is 20% wireless. It depends a lot on the local infrastructure that exists and is very similar to the mobile infrastructure.

Rick Church.

With regard to your 30% growth outlook, does that assume just your current OEM partners, and do you expect to sign new OEM relationships before the end of the year?

The way the outlook right now assumes the current structure and OEM partners and a lot of our direct sales and what we see in the market and visibility as to we were working very extensively to add additional OEM partners to our lineup. But, as I said in the few times I think before in a few calls, very, very hard to predict when and if any of those relationship building, long-term relationship buildings, will materialize into contracts. And once they materialize into contracts, it also takes time and different rates and when it turns into real orders and real relationships.

With regards to WiMAX, is that mainly done direct, or are you working OEM partners there?

Right now it is mainly done direct. Not really, no. My instinct was to say, direct no. One of the OEM partners is working with us on one of the WiMAX deals.

Okay. Great. Thanks a lot.

Okay. Thank you. And there are no further questions. Please continue.

I would like to thank everyone for being on the call with us. It has been a little bit of a longer call this time. But I would like to thank you for your patience and for all the good questions. And I hope to see you over the quarter face to face. Thank you very much.

Thank you. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.