Ceragon Networks Ltd (CRNT) 2008 Q1 法說會逐字稿

Good day, everyone. Welcome to the Ceragon Networks Ltd. first-quarter 2008 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 20F 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 conference 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 are pleased to report an excellent start to the year and we are very much on track to achieve our targets for 2008. Specifically Q1 revenues set a new record, bookings were strong and our book to bill was greater than 1, our OEM business was excellent with revenues from all OEM partners reaching all-time high levels.

Q1 results reflect the fact that we are clearly in the sweet spot of a huge worldwide trend. The need for additional high-capacity backhaul is a trend that is likely to continue for several years driven by multiple factors including subscriber growth, geographic expansion, and network upgrades required by increasing data usage. We are also positioned to benefit from the migration to flat or IP networks which is now beginning and offer tremendous potential from [committed] business.

We recently introduced the IP IP-10 product family, targeted specifically at mobile backhaul migration from TDM to IT. The IP family accommodates a variety of migration scenarios and provides higher capacity for the same link budget. For example, on an existing low capacity PDH link, we could provide the same TDM capacity with additional 100 megabits of IP all with the same infrastructures and [panels] in existing license bandwidth.

The initial reception for the IP-10 has been excellent and we are involved in a number of bids related to IP migration mainly in Europe and Australia. We hope to see some deal wins before the end of the year followed by revenue next year.

This is not to say that business conditions are perfect. During Q1 we began to see the market in North America soften as everyone was concerned it might. The weakness in demands appear to be across the board in both carrier and private networks. We are not counting on a near-term pickup and our assumption is that weakness will continue for the rest of the year. Fortunately the growing demand throughout APAC and EMEA is more than offsetting the weakness in North America.

Everyone is familiar with the tremendous network deployments in India and we continue to serve five major operators there. In addition, by enjoying rapid growth in other parts of APAC including the Philippines, Thailand, Vietnam and other parts of Southeast Asia and of course Australia.

On the profitability side like many companies we are facing the impact of the weak dollar and as management, we have taken internal measures to mitigate the effect. We're especially proud of our performance considering this changing economic environment. We are meeting our targets for one simple reason, we continue to execute very well. We have the best products in terms of features and capabilities and we have a better or on par cost structure than our competitors. We continue to lead the market with technology innovation and our continuous products cost reduction programs are essential to our ability to compete effectively and maintain our gross margin. We have reduced our delivery time and strengthened our support.

So to summarize, the global trends driving our business are very strong and we had a very good quarter. We continue to execute extremely well and we continue to expect 2008 to be a very good year.

Now I would like to turn the call over to Tali.

Thank you, Ira. In Q1, revenues grew 39% to a new record of $47.2 million, compared to $33.9 million in Q1 of 2007. GAAP net income was $4.3 million or $0.11 per diluted share on a significantly higher share count resulting from the following offering. Excluding stock-based compensation, non-GAAP net income in Q1 grew 63% to $4.9 million compared to $3 million in Q1 of 2007. Non-GAAP EPS was $0.13 compared to $0.10 in Q1 last year reflecting the impact of the increase in the fully diluted share count to 38.8 million.

Turning to the revenue breakdown. The service provider category accounted for 85% of total revenue in Q1. This is substantially higher than the 75% to 80% range we have seen during the past year or so. Private networks represented the remaining 15%. This category is comprised of enterprise and government customers. Many of these customers are located in North America accounting for the lower contribution to revenue from this category.

IP revenue in Q1 grew to 37% of total revenue despite the weakness in private networks primarily reflecting the growth in broadband wireless access and WiMax networks. The Asia-Pacific region continued to grow rapidly accounting for 50% of total revenues; North America accounted for 11% of revenues; EMEA increased to 37% of revenues reflecting the strength in Eastern Europe and Africa; and Latin America accounted for the remaining 2%. We had only one 10% customer in the quarter which was our OEM partner, Nokia Siemens Networks. OEMs accounted for 32% of total revenue in Q1. For all of 2008, we now expect OEM business to grow together with the entire business at the rate of 25% to 30% or even higher.

Non-GAAP gross margin in Q1 was 35.5%, a little bit lower than the last few quarters due mainly to the relatively higher portion of revenues for OEMs. Given this revenue mix, the modest decline in gross margin demonstrates the effectiveness of our cost reduction initiatives.

Operating margin was 8.7%, better than the first quarter of 2007 and about the same as the prior quarter. Our objective is still to reach 10% operating margin in the second half of 2008. Due to our hedging activities, foreign currency impacting Q1 compared to Q4 was minimal. However, if the dollar remains weak, we are likely to see an impact in Q2 and beyond. We are aggressively managing our cost to compensate for potential currency negative impacts. Without such actions, we would be looking at an impact of about $400,000 in Q2 and even more in the second half. Even with aggressive cost control, achieving 10% operating margin for the full year will be quite challenging. But we expect to achieve it in Q4.

Turning to the balance sheet, cash operations was close to breakeven and purchase of fixed assets reduced cash by about $1 million. So total cash and cash investments was $121 million at the end of Q1 compared to $122 million at the end of Q4. DSOs were flat at 79 days, consistent with our expected range of 70 to 90 days. Q1 bookings were strong, book to bill was above 1 and we continue to have more than a quarter of backlog.

We expect Q2 revenues to be in the range of $47 million to $51 million. For the full-year 2008, we continue to target 25% to 30% revenue growth on top of a very strong year in 2007 and we are certainly on the road to achieving this objective.

Before we open the lines in response to those of you who told us last quarter's call was too long, we are requesting that you limit yourself to one question each. We will accept follow-up questions if time permits. Now we will be happy to take your questions.

(OPERATOR INSTRUCTIONS) Tim Long, Banc of America.

Thank you. Just if we could drill down a little bit more color on the strong performance in IT. In the quarter as you mentioned, a little bit weaker in the private networks yet that did pick up. Could you just give us a little more color there? How distributed would you say the IT business was on the carrier side in the quarter? You mentioned WiMax and broadband wireless access. Was it one or two big deals or would you say it was pretty distributed? And how do you think about the sustainability of that level of IT products in your revenue stream? Thank you.

I will start with the second half, which is the IP distribution. IP distribution was quite even although within the mix there is one larger project. I believe it is sustainable. I'm not sure if it is exactly the 37% but in those ranges, it's about one-third to a little bit more than one-third of our revenue it is I think sustainable. We do you have quite a few wireless broadband WiMax deals. Most of them are small and we started seeing small deals around IP migration to backhaul in several of our networks.

Okay, great. So it's safe to assume this is one of the pieces of business that you've seen less impact on macro conditions on?

It has been impacted I would say in the same way as the other businesses, lower in North America, strong in all other regions.

Okay, great. Thank you.

Rich Church, Collins Stewart.

Thanks, guys, nice results. I'm just curious -- you are keeping the outlook for top-line revenue growth the same 25% to 30%, yet you are saying that OEM business, you now expect to grow along with that. Why if that's the case, why couldn't you raise the full-year outlook for top line?

Because if you look at our pipeline looking for the rest of the year which is strong, that's what we are getting. It's about 25% to 30% for the year. There's a little bit of change in the mix, part of it is OEM, part of it is more in APAC and EMEA and everything together brings us to the same numbers.

Just a follow-on to that. Nokia Siemens had some comments yesterday that sounded pretty cautionary. I'm just curious where you are seeing strength with them? Is it specifically in India and Asia-Pacific or are you seeing some European business for them?

At this point the large deals with them are, as you mentioned, in India and in the Asia-Pacific. Although we see smaller deals with them focusing mainly on IP migration also in Europe and other locations.

Okay, thanks.

Irit Jakoby, Susquehanna.

Thank you. So you had a much higher OEM contribution this quarter. Was it mostly from Nokia Siemens or were there other OEMs that were significant in the quarter?

Well, all three OEMs grew. The second one which was not a 10% customer was I would say almost a 10% customer. So we are happy to report that we got good business from all three OEM partners. Of course Nokia Siemens is the largest one.

Right. And on the margins, you are still within the 35% to 36% range that you've always given, but it has been lower over the last several quarters. Is that a trend or is that just the mix of business in a specific (inaudible) quarter?

Well, we always knew that things may change from one quarter if mix changes a little bit from one quarter to another so we feel comfortable with this range. And of course it depends on the specific range. I don't really see it as a trend except the fact that OEM, we now expect it to be larger than we expected a few months ago.

Okay and my final question, are you seeing more margin compression in APAC and particularly in India?

Not anything which is different than we saw as margin compression over the last two years in the markets. The margin -- I wouldn't say margin compression as much as price reduction which is offset very effectively by our product cost reduction initiative.

Okay, great. Thank you.

Bill Choi, Jefferies.

Okay, thanks. You just mentioned that OEM visibility is obviously better versus last quarter. You guys have been reducing delivery time which generally limits visibility but you sound a lot better about your business let's say versus last quarter. Could you just talk about what else might be improving -- is churns business growing, your book to bill seems pretty solid and so forth?

The visibility for the long-term stayed the same, I think it might have gone a little bit up. OEM business, we have visibility with them. Let's remember that the OEM visibility that we have is exactly the same as the visibility that we do because of the model that we work with the OEMs. We work with them on a deal by deal basis so we know the end customers. So it's not an OEM visibility what they order, it's what we work together with them by the way (inaudible) OEMs. It's part of our moving forward.

So what is the delta here, has the churns business improved or where is the increased confidence coming from?

In the OEM business? In the OEM business the increased volume comes from seeing with them additional deals which we haven't seen in a quarter ago or volumes we were not sure with those specific deals with them moving forward.

And the direct business not much has changed otherwise?

Direct business has not changed. It's the same visibility that we had.

Okay. Somewhat tied to this I guess, deferred revenue being down $2 million, can you just explain what happened there?

As I said in I think on a few calls, deferred revenue has almost nothing to do with the backlog. Yes, it is but it's a very small indication mainly having to do with larger projects that we do and payment schedules. We recognize the project which had an upfront payment which showed up in the deferred during this quarter.

Okay, thanks.

Matt Robison, Ferris Baker Watts.

Congratulations on your execution. A couple of questions. First, housekeeping. Tali, it looks like the biggest factor in the operating cash flow was the change in payables and accrued expenses. Was that substantially in the vendor payments but was there also a chief scientist payment there?

You are right. This quarter we did have a relatively large amount of payment to the chief scientist almost $3 million.

Okay.

And as you can see, we also reduced the amount of accounts payable which means we paid more to our suppliers.

Right. Now the OEM growth, was there -- can you comment on the geographic component to that? I guess since you asking -- since you only want us to ask question and I'm already into two of them, I will make this one a multipoint question. The OEM growth, can you comment on that from the -- in terms of geography? The direct growth declined sequentially, was that reflective of North America? And then did you -- it looks like you either had a major increase in OEM gross margin or a decrease in direct gross margin or a combination of both. Can you comment on that as well? So that is my (multiple speakers)

Okay. We will start with the mix. Yes, OEM business like the rest of our business came mainly from the APAC region. Although we had OEM deals both towards EMEA, both Europe and Africa, but most of it like the rest of the business came from the APAC region. Yes, the direct went down mainly because of the softness in the North American market which is mainly a direct business for us. So there is a mixture there of the different activities there.

If you look at the gross margins, there is a mix which at the end balances out, which is again product cost reduction through and going through the OEM channel and then product -- the same effect on the direct channel. And I think that's a little bit of change in the mix there both at the gross margin by a little bit.

Got it, thanks a lot.

Blaine Carroll, FTN Midwest Securities.

Yes, thank you, nice quarter guys. How are you doing? Can you talk a little bit about the commentary within the U.S.? What are you hearing from the carriers and the private networks? Are they indicating that they are ratcheting down for the remainder of the year? And then, Tali, with the currency issues, which area of the P&L is there the potential for the most pressure? Is it on the SG&A and R&D or could we see it on the gross margin line as well?

I will stop start with U.S. comments. Most of the people that we talk with directly, their comments is business as usual. But when we look at the numbers at the end of the quarter or during the quarter, we have a softening on all fronts. So probably people are saying one thing but taking actions probably because I don't have people change plan but they slow down and slowing down means at the end that -- see a little bit of softening. So that is what we see in the U.S. markets on all fronts.

Regarding the impact of the weakening dollar, on the salary expenses because this is the most vulnerable expense, salaries are paid in shekels. So it's related to the groups of people in the company in Israel and of course R&D is the largest group of people. Then sales and marketing is the second largest, G&A and gross margin or cost of revenues, I would say, are much smaller than the other two that I mentioned.

Okay. But do you see operating margin expansion as we move through the year and into the fourth quarter?

Yes. Yes, of course there are many factors. I think that the currency, if your question is related to currency, then from all of the variety of factors affecting the gross margin, the currency is the smallest. Of course, there is the cost reduction, there are the various prices on the various channels on the various geographies (multiple speakers)

Operating margin.

Operating margin?

Yes, I did ask operating margin.

I see.

But I enjoyed your answer.

Okay. So as far as the operating margin, yes, there is a pressure that is coming mainly coming from the salaries paid in shekels and as we said, we are also taking other cost reduction measures to mitigate that impact.

Beautiful. Thank you.

Amir Rozwadowski, Lehman Brothers.

Thank you very much. Good morning, Ira, and Tali, and thank you very much for taking my question. Just in terms of the IP, if we can get back to that topic for a quick moment. We had discussed in the past the availability of IP capable base stations to help spur some of the demand potentially starting in the back half of this year spur some of the demand amongst the carrier community. I was wondering if you could give a bit of an update from that front?

And then as well is how should we consider the puts and takes for potential increased contribution from IP into your sales and how that could impact the gross margins? That would be helpful, thank you.

Okay. First I think your statement is correct. We will start seeing IP capable base station in the second half of this year. All operators that we talk with had some kind of plans for that either testing them or starting to deploy them. That is where my commentary about being involved in many bids mainly in Europe and Australia around this is where we will start seeing those IP base stations being deployed. And the operators are gearing up toward that and also changing the way in their thinking about the way they will do the backhaul.

That is why we will see wins this year, small deployments this year, and revenue from that in 2009.

You referred to the gross margin, we believe the gross margin will stay about the same although people do expect that the price point for the IP equipment will be a little bit lower than the SDH equipment. And again as we designed the products and the IP-10, we design to those price points to maintain our gross margins.

Yes, yes. And then just a quick follow-up. With the IP-10 recently introduced, can you talk about carrier reception to the product? Is it still early stage or have you received positive reception of the product right now?

We have received very positive reception of the product from a few carriers we have been talking with which is a very good indication.

Great, thank you very much.

George Iwanvc, Oppenheimer.

Thank you for taking my question. Just following up on pricing, can you give us an update on just how the pricing environment looks from region to region right now?

Pricing environment from region to region I don't think the change is any different than it was over the last two years. Pricing, the most pricing pressure we are getting is in the Asia-Pacific region mainly from India. Other places in the Asia-Pacific are not -- are a little bit higher pricing. And then you have Europe and the U.S. at a higher price level.

And now -- but price levels and general comment are currently that only one parameter are highly dependent on a lot of parameters mainly deal sizes, having geography deal size a little bit about the product, which doesn't affect on what the price level is.

And just following up on that, have you seen any changes in the type of contracts and orders that you are getting? Are they pretty much staying consistent with what you've seen over the last several quarters?

They are staying consistent on what we've seen over the last few months. But if the mix changes then the overall -- the numbers change in the numbers.

And just one final question. How does the competitive environment look and especially on the IP side, what kind of lead do you feel you have on the competition?

Competitive environment on the IP side is about the same as we saw over the last few months. We saw two things at this point, we are mainly competing with people our size, I would say, companies our size, in many ways a little bit smaller, a little bit larger. The very big vendors do not have IP solutions at this point. The only one which introduced a product which is not available is Alcatel-Lucent. The others are not there yet. We expect them to introduce product as we said probably 12 months down the road, by mid '09.

Thank you.

Kevin Dede, Morgan Joseph.

It's Kevin Dede. Thanks, nice job on the quarter guys. So, Tali, the sequential increase in R&D is that shekel related or spending related or a combination? And what do you think happens going forward?

Let me say the least portion is shekel related meaning Q1 was hedged. Therefore, I didn't have any meaningful impact of the shekel dollar expenses. So it is related to R&D expenses which are naturally salaries to additional employees and payment to subcontractors and payment to other materials that the R&D people need in order to execute the growing tasks for the development -- research and development.

And going forward?

Going forward, it will continue to grow in a moderate rate.

Okay. What sort of internal measures, can you give us a little more color on those, Ira, are you taking in terms of monitoring costs, product development?

When we talk about -- there are two things there. There's measures on the product side which means we are introducing all the time newer versions of our products at lower cost points. But if we look at the shekel dollar which is more related to your first part of the question, it is mainly looking very, very carefully how do we expand our headcount during the year and taking measures around that to make sure to mitigate the effect.

Okay, last question from me. I know Huawei has been doing very well in the market and I'm curious to know how you are seeing them offer high-speed backhaul capacity to add to their infrastructure?

Huawei has been offering -- has started offering their own productline of microwave backhaul. Lately they announced the product, it is mainly a productline which is low capacity, or they have some I would say much inferior high-capacity solutions. And we have a few customers together where they are doing the access pieces and we are doing with them the high-capacity or the backhaul pieces into the projects.

Well, that's great to hear. Congrats and nice job in the quarter.

Steve Ferranti, Stephens Incorporated.

Guys, good morning. Congratulations on a nice quarter. (multiple speakers) Question on your second OEM now approaching 10% of revenues. Is there any color you can provide us in terms of that the contractual element of that deal in terms of potentially an upcoming renewal date or exclusivity? Any additional detail you can provide us there?

Second OEM customer has been with us for the last three or four years. Off the bat I don't remember the renewal dates on their contract, which is really an ongoing contract moving forward. They do work with us both in the EMEA regions and the APAC regions with us (inaudible) as customers.

Okay. In terms of the migration to IP, can you give us a sense, are there any regions that are maybe further along in that migration? And then I guess in conjunction with that, you talked a little bit earlier about IP capable base stations being a catalyst for that migration. Are they a necessity for that migration to take place or you've obviously seen an uptake in your IP equipment, but how important of a catalyst will that he?

It's an important catalyst mainly in Europe and Australia. My guess is it also in some other regions where they deploy HSDPA. But all the operators around that are rethinking their backhaul strategies because much, much higher capacities require rethinking on the way they do the backhauls to make it cost effective. So IP is becoming an interesting and a major part in their built-up strategies.

Great. And if I could just one housekeeping question. What is your latest sense in terms of when you might have to start accruing for taxes?

We lost Tali on the call.

Okay.

Let me transfer -- let me transfer the handset to him and put you on speaker so we can do that for a second, okay?

Okay.

Larry Harris with C. L. King.

Do we want to do Steve's question first?

Go ahead, Larry.

Okay. The question that I have is related to what you estimate your IP marketshare as being? And in terms of the IP backhaul, either now or maybe for this fiscal year, how much do you think is WiMax related, say, versus HSDPA?

We believe our marketshare, we have the largest IP marketshare out there which is from the latest report somewhere in between 30% to 40%. Out of the 37%, which is our number from revenue, I would say about half is and a little bit more is WiMax or broadband wireless access. We don't really separate those in the market.

I see. And the rest would be private networks?

The rest would be private networks yes, and then a little bit in the cellular side.

And in terms of the broadband wireless access, at this point you're not breaking it out between WiMax and HSDPA?

No, HSDPA is not broadband wireless access, HSDPA is cellular (multiple speakers)

Okay.

Broadband wireless access is WiMax, pre-WiMax, other technologies do the same -- (multiple speakers) With all the wireless high speeds, many, many operators that provide fast Ethernet over wireless.

I see. All right, thank you.

James Faucette, Pacific Crest.

Just wanted to -- now that it sounds like Tali is back on the line, just go back to the question on taxes. I thought that previously there had been some commentary on potential for paying taxes during 2008, at least on the interest income. Can you just give us an update as to what we should be thinking about there?

Yes. We will start paying taxes on the interest income because there are certain rules in Israel that you cannot use NOL for some of the interest income. So we project that starting Q2 and on we will pay income tax in the rate of about 27% and the interest income.

Great, thank you. And just to -- and I apologize, I was late getting on the call but if you've already addressed this. It sounded like you talked about a little bit of weakness in the U.S., Ira, and it sounded like maybe that you had characterized that as being across both carriers and private networks. Am I understanding that correctly?

You are understanding that correctly.

Okay, great. And then finally, just my last question. Ira, can you go back over the opportunities in Europe. I kind of caught a little bit that you had seen some improvement there but you thought maybe you wouldn't start to see a big impact from that until 2009. Can you just go back over what is happening there, what is driving those opportunities? And then when we should start to see that impacting your P&L?

Two kinds of opportunities to make it simple. One is we see and we saw EMEA growing this quarter mainly around SDH deployment to provide all bandwidth to existing networks. What I was referring to in Europe is HSDPA deployment which are driving slowly integration toward IP, (inaudible) operators moving and planning, we'll see revenue from that or more significant numbers early in '09.

Okay, great. But in terms of I guess particularly in conjunction with your improved outlook on OEMs and that kind of thing you do expect that SDH in Europe driven backhaul improvements will continue throughout the rest of this year?

Yes.

Great. Thank you very much.

Rich Church, Collins Stewart.

Thank you. In terms of the -- if you could talk about the IP-10 product. Is that what you are using as well for the carrier side of IP to backhaul the IP capable (multiple speakers)?

Yes. In early deployment that we are doing today we are still using the IP-MAX2 for those, but for new wins and moving forward we are using the IP-10. IP-10 was designed and is targeted mainly towards the IP migration of carrier. Fitting very much the need for what we call a native square environment where people do backhaul both of TDM and IP in parallel to meet both current and previous generation needs on the TDM, new generation needs on the IP.

Okay. In North America, it looks like HDSL or wired backhaul held up very well in Q1. I'm just curious, are you seeing -- the terms of your comments about North America, are you seeing delays on carriers assessing or deploying wireless backhaul?

Yes, we see also in wireless backhaul with some of our -- we saw weakness across all our customer base which is also wireless backhaul, we saw wireless broadband access slowing down a little, we saw backhaul through people like [Fibetor] and others slowing down a little. In general we saw a slowdown.

But do you get the sense that carriers are deciding they don't need a wireless backhaul or --?

No. no, that is what I said when we talk to everyone, everyone said, yes, we need it. Everyone says they are on target on their plans. But the actions are moving a little bit slower. I think everyone is cautious in the U.S. environment.

Okay. And then, Tali, I think you said at the beginning of the call that you expected to hit the 10% operating margin by the fourth quarter. Is that --?

Yes, that is correct.

Okay. So then you do not expect to be at 10% for the full year then, right?

This is correct as well.

Okay. Do you think -- does that mean earnings have to come down or I mean I guess we could offset that by stronger revenue growth?

No, guidelines and revenues are in place. Gross margin went down a little bit so this is another consideration which I took into account. But nevertheless we will target all our efforts to achieve 10% operating margin by Q4.

Okay, thanks a lot.

Jeff Kvaal, Lehman Brothers.

Tali, for you on currency --

Excuse me, Mr. Kvaal, can you start again. We just got you open, sir.

Thanks. Tali, my question is for you on the currency side. Could you talk about some of the steps that you are taking to mitigate the impacts for you folks? Are they hedging or how should we think about that?

First of all, we have been hedging for a long period of time and usually we are hedging a larger amount for the short period and a smaller amount declining amount for long-term out. And therefore we were hedged for Q4 from a few quarters ago as well as partially for Q2. But as the dollar went down so much, we stopped the hedging for the rest of the year. So I'm not really hedged for Q3 and Q4.

So for Q3 and Q4, either we hope that the dollar will strengthen, because we still don't know what is going to happen until now, until then or we will continue with our measures from the cost reduction in order to mitigate the impact. But no doubt I cannot ignore, no doubt that there is an impact or there is a potential impact of the weakening dollar on the shekel denominated expenses.

To be more specific, if we're looking at measures (inaudible) measures, we will be controlling our expansion and growth in expenses below our original plan for the year, budgeted plans for the year, to offset the effect.

Okay, thank you both very much.

Martin Yokosawa, Oberweis Asset Management.

I just want to clarify a couple of things. Earlier when you were speaking about the U.S. markets, you said most people say business as usual but the numbers show that it is slowing. The most people you are speaking about are U.S. carriers? Is that correct?

It's both U.S. carriers and private enterprises.

And private --

And the middle tier carriers which do carriers (inaudible)

It was those versus -- not your salespeople. You are talking about actually about the customers' comments?

Talking about the customers, yes.

Okay. When you said moving slower on all fronts, that was specific to the U.S. market not in the APAC? Or is that a --?

The opposite. We said APAC is -- U.S. is a little bit softened.

Right.

We have very strong demand and growth from all other regions in EMEA and APAC. (multiple speakers) That is why we are confident in reaching our growth targets of 25% to 30% for the year, by APAC and EMEA compensating on the softness in the U.S.

Yes, that is how I understood it. And then if you can -- look at your sales cycle from just past quarter and then going forward, are you seeing -- you said there is some slowness. Did the sales cycle start lengthening last quarter? And is it lengthening looking into the future or was it actually accelerated last quarter because people wanted to use up their budgets before they were cut? Or do you see that going into the future? Can you give me any color on that?

The color is in the U.S. we see sales cycle lengthening. In the other places, we see sales cycle staying the same.

Okay. But nobody is trying to use up their budget before it gets cut?

If you look at APAC there is a very strong demand and people are moving very much forward on their plans of expansion. And increasing subscriber growth, we see the same in Europe and Africa.

Thank you.

Daniel Meron, RBC.

Thanks for taking the question. Can you please provide us with an update on what you are seeing from Sprint right now or are your estimates accounting for anything from this major carrier for 2008? Thank you.

Sprint. As we talked on previous calls -- people asking me, Sprint is slow. We are in the (inaudible), we are involved with them in design for their backhaul network, but I think the indications from them -- and I'm seeing the same indication as I (inaudible), they will start to do their testing later in the year and it will take longer. And we are waiting for that longer to happen.

So to what extent do you have any Sprint numbers in your estimates or guidance right now?

As in the original plan for the year, we still have Sprint numbers in our estimate, small ones.

Okay. Tali, maybe you can give us a sense on the share count. The share count this quarter was at least below what we were looking for. And obviously that is because of the lower share price. What are the assumptions that we should be thinking in your opinion going forward? And when I did the math, it sounds like overall the EPS goes from like $0.60 toward somewhere in the [50s]? Is that a fair testament?

As far as the share count, no doubt that the share count is impacted by the share price. Therefore I'm assuming the number came out lower than you expected. I think again, it's all based on assumptions of what the share price is going to be in the future; therefore, it is going to be difficult. But I think that I'm basing my estimates on the current number with a certain modest increase may be 200,000 shares each quarter. That is my best guess right now because I cannot guess the share price. If anyone of you could, I will be happier.

As far as the question about the EPS, I think that based on our guidelines, you can get to a reasonable number. I prefer not to right now confirm your number. But I believe that we gave enough guidance to reach a reasonable number.

Okay. Thanks, Ira and Tali, and good luck going forward.

Thank you, Daniel.

Matt Robison, Ferris Baker Watts.

My question has been answered, thanks.

Speakers, there are no further questions. Please go ahead with any closing remarks.

Closing remarks, thank you for joining us on the call and for those of you who are celebrating Passover with us tomorrow, I would say (speaking Hebrew) with your family. Thank you very much.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and thank you for using AT&T Executive Teleconference Service. You may now disconnect.