Ceragon Networks Ltd (CRNT) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to the Ceragon Networks Limited fourth-quarter and full-year 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 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.

Today, we want to focus on two main areas -- the continuation of the long-term trends that have been and still are driving our growth for several years and the lack of short-term visibility. Both are important, so we want to address the reasons behind each of them.

First, let's talk about 2008 in the context of long-term trends. 2008 was another excellent year. Revenues grew 34% on top of a very strong 2007, continuing a pattern of growth averaging 45% per year over the past five years.

We were able to achieve this success during 2008 because of the foundation we've been building for a long time. For example, our multiyear efforts to develop our business in the Asia-Pacific region enabled us to more than offset the weakness in North America that began early in the year. Our continuous cost reduction, another long-term initiative which enabled us to offset most of the gross margin impact caused by the revenue mix shifting more towards OEM in the Asia-Pacific region.

We also did a good job of controlling our operating expenses to help mitigate the impact of unfavorable foreign currency translation, mainly shekel-dollar impact. As a result, we delivered record earnings in 2008.

Now, I will turn to our Q4 results and discuss them in the context of the short-term visibility issue. The fourth quarter proved to be the most challenging quarter of the year as we began to see the effect of the spreading macroeconomic crisis on our business, and in this environment achieving 23% year-over-year growth in Q4 was an accomplishment.

Regionally, there were two noteworthy changes during Q4 -- some delays in receiving orders from customers, mainly in India, as they move through their installation process; and some signs of improvement in North America, which was weak for us throughout 2008. We expect further progress in North America based on improved execution and some early success with new tier 1 customers based on our IP solutions.

Across all regions, feedback from the field about customer plans and project status continues to be good. The input rolls up into a picture of continued growth. But we feel compelled to discount this because of some other signs.

During the quarter, our customers began shifting to a short-term focus aimed at maintaining flexibility, minimizing inventory, and conserving cash. Projects continue to move forward but require a longer process to complete the negotiation.

In Q4, our book-to-bill ratio was below 1. We are at exactly the same book-to-bill level we had in both Q4 of '06 and Q4 of '07. The main reason is that customers are reluctant to allow an accumulation of radios waiting to be installed towards the end of the year. Delays of this sort are what we saw in India during Q4.

Even before the economic crisis, our customers would pause periodically in their order patterns at the end of the year because they were behind on installations. So this does not appear particularly significant. As in the past, we expect orders to resume, but in today's environment, it's harder to have the same level of confidence about the timing.

In the current environment, our customers' plans are subject to continuous review, usually at the top [C] level from quarter to quarter, which is the main reason for our lack of visibility. Still, we must make some basic short-term assumptions on which to base our operating decisions. The primary assumption we are making is that business conditions over the next few quarters are probably going to be similar to Q4.

In Q4, we chose to carefully add headcount in key sales positions to further strengthen our ability to close key opportunities and take share from competitors. Near term, we will focus on staying close to the customers and control what we can control -- products, cost reduction and operating-expenses management -- and challenge ourselves to grow as much as business conditions will allow.

We are very well positioned for both the short-term and the long-term. The source of our confidence is market growth drivers. Our belief is that growth drivers for high-capacity backhaul remain intact. Even in the recessionary environment, the demand for mobile data services and growth in mobile subscribers continue, perhaps at a slightly slower rate.

Our cost position -- we have the best cost position in the industry, based on our new generation of products. This will enable us to remain competitive.

Our IP technology leadership -- we continue to lead in solution development which provide mobile operators with a scalable, reliable future proof path for migrating the backhaul network. We are already having design wins with our IP solutions.

Our financial strength and stability -- we have a strong balance sheet and a stable capital structure. Customers can be confident that we have critical mass, financial strength, and pure-play focus to make us a safe choice as a long-term vendor or partner.

Our OEM relationships -- we have successful, stable OEM relationships that offer as much transparency and visibility to the end customer as we have with our direct business. We have strong confidence in this relationship.

The last thing we are confident about is that the current environment will not last forever. It's important that we use this period to stay close to our customers, capitalize on our strong position, and prepare us to take the Company to the next level once economic conditions improve.

Tali?

Thank you, Ira. I will begin with the results and breakouts for the full year 2008 and then move to the fourth-quarter results.

Revenues in 2008 increased 34% to $217 million on top of 49% revenue growth in 2007. GAAP net income increased to $26 million or $0.68 per diluted share, which included an $11 million tax benefit in Q2. Excluding stock-based compensation and this one-time tax benefit, non-GAAP net income for the year increased 13% to $17.3 million or $0.45 per diluted share.

For the full year, the service provider category accounted for 88% of total revenues, reflecting strong growth from cellular operators. The Private Network segment accounted for 12% of total revenues.

For the full year, we had one 10% customer which was our OEM partner, Nokia Siemens Networks. OEM revenues grew to reach 34% of total revenues in 2008 compared to 19% in 2007.

The geographical breakdown of the full-year revenue is as follows -- EMEA, 31% of revenues, about the same as 2007; North America, 9% of revenue, a decline from the prior year, more than offset by Asia Pacific, which grew to 52% of revenue; and Latin America at 8% of revenues.

As the result of the geographic shift from APAC and the trend towards more OEM business in 2008, non-GAAP gross margin for the year has decreased to 33.6% from 36.2% in 2007. Operating expenses as a percentage of revenue stayed about the same, so mainly due to the lower gross margin, operating margin decreased to 7.1%.

Now, I will quickly go through the Q4 numbers. In Q4, revenues grew 23% to $56.8 million compared to $46.1 million in Q4 of 2007. GAAP net income was $2.7 million or $0.07 per diluted share. Excluding stock-based compensation, non-GAAP net income in Q4 was $3.3 million compared to $4.9 million in Q4 of 2007. Non-GAAP EPS was $0.09 compared to $0.14 in Q4 last year.

We had two 10% customers in the fourth quarter. Both were OEM customers. OEMs accounted for 27% of total revenues in Q4, down from an unusually high level in Q3.

The more favorable geographic and OEM mix in Q4 helped our gross margin improve to 33.5%. The increase of operating expenses in Q4 is related mainly to an increase in headcount (inaudible) the marketing environment.

We also reported lower net financial income in Q4. Interest income on cash investments was offset by expenses related to the devaluation of non-dollar-denominated assets. As you know, the US dollar strengthened sharply during Q4 and created negative exchange differences in several local operations around the world. For 2009, we expect that net financial income will be in the range of $300,000 to $400,000 per quarter.

We had no tax expense in Q4 due to year-end adjustments related to the deferred tax assets. We continue to expect this next tax expense in 2009 will be in the range of 5% to 10% of pretax income.

Turning to the balance sheet, total cash and cash investments was about $98 million at the end of Q4, compared to $112 million at the end of Q3, reflecting cash collection below expectation and the share-repurchase program.

During Q4, we repurchased about $8 million worth of Ceragon shares. We intend to continue to repurchase shares under the $20 million authorized repurchase program.

DSOs increased from 95 days at the end of Q3 to 112 days at year-end. The increase reflects more difficult collections as quite a few customers delayed payments in order to conserve cash as much as possible. Our major customers are financially healthy and stable, and we do not have significant concerns over collectability, only about timing. For most customers, we have credit insurance, or we require letters of credit or down payment with adequate reserves for doubtful accounts.

Q4 bookings showed a similar pattern to Q4 of both 2007 and 2006, dropping to less than 1-to-1 on the book-to-bill ratio. Meanwhile, we continue to enjoy more than a quarter's worth of backlog.

Looking ahead, due to the extremely low visibility, we do not have meaningful guidance to offer. As Ira mentioned, our working assumption is that our business during the next few quarters will be similar to Q4. It is important to emphasize this is not guidance or a forecast; this is just a prudent assumption for the purpose of making operating decisions. We intend to keep our operating expenses generally flat as we position ourselves to move to the next level once the macro economic cloud is removed.

Now we would be happy to take your questions.

Are you ready for questions, sir?

We are.

Thank you. (Operator Instructions). George Iwanyc, Oppenheimer.

Thank you for taking my questions. You know, following up on your comments about how -- while visibility is bad, the order patterns are similar to what you've seen in the last couple of years -- when did the orders start to return and build up? Was that a few months into the first quarter or can you give us kind of a sense and then what you are seeing happen at this point?

I will give you some sense of what we are seeing. We started seeing some of the discussions with the customers. I think that the main issue orders were down, as I said, them holding on because they have backlog with installations. For those customers where we have seen that phenomena, we are in discussions. I said we are cautious about the timing and usually it's within the first quarter coming back.

Is that for the most part still happening this year, or is that different than the patterns you've seen?

Similar this year.

From a regional standpoint, are there any differences or are carriers fairly consistent in their caution regarding cash and the way they are approaching contracts?

I think that, if I look regionally, it's almost in all regions. It's not in all customers. It's we see similar patterns, specific customers in each one of the regions being a little bit more cautious, taking longer decisions, still keeping up the plans moving forward. So I don't think I can pinpoint and say "Okay, it's more in this region versus that region." I've seen it across all regions.

Okay. Then just following up on North America, you did say that that shows some relative improvement. What happens in the fourth quarter and what gives you the comfort that will continue?

We did improve in North America-based, A on the execution, and B, we had some design wins which started turning into orders based on our IP products. We have not announced those design wins yet; we will announce them when they become (inaudible) we can announce them.

And my last question -- your OEM relationships, what type of feedback are you getting from them on their order patterns and the outlook into the first part of the year?

As I said, our relationships with the OEMs are very close and we have almost the same type of visibility that we have with our direct channel. We go with them all the way to the end customers. We know usually each mark where it goes to, (inaudible) have exactly the same visibility as I have on the direct channel. And all my comments refer to both exactly the same.

Thank you very much.

Amir Rozwadowski, Barclays Capital.

Thank you very much. Good morning, Ira and Tali.

I just wanted to discuss a little bit in terms of geographic trends that you are seeing. Certainly it seems as though we've seen a little bit of a pickup in North America this quarter. Then conversely, on the Asia-Pacific side, obviously you continue to be strong growth on the year-over-year basis but perhaps not as strong as we've seen in the last couple of quarters. I wanted to see what sort of the puts and takes were there.

I think I referred to that both in the talk in the previous call about two trends there, okay? One is Asia Pacific; we saw friends mainly in India where most of our customers were behind on the installations. I will put some color into that. Usually, the purchasing department has a plan for the year how much to purchase, and they purchase and they move ahead, and then they need to install. Towards the end of the year, they turn around and look behind their back. Is the engineering department running as fast in installing everything into the network? Usually, it's spread across the year, that type of [a check]. This year, we sought a more concentrated towards the end of the year. Most customers looked around, saw the engineering department is not installing as fast as they planned, so they had some kind of a backlog of equipment being ordered and they slowed down the order patterns. We expect to see and we started seeing in discussions that order pattern resuming as the plan for 2009 starts rolling out. That's the main reason we saw a little bit of a slowdown in the Asia-Pacific region.

The other part is North America is picking up for us because we are executing better and using, as a leverage, our strong IT offering for the migration to more data services, migration from TDM services to IP services, and we believe we have one of the leading solutions. This opens doors and is being translated slowly both into design wins and the whole revenue generation.

Great, thank you very much for the color. Then, if I may, there obviously has been a lot of chatter about migration to IP. I know that, in the past, we've discussed some activity out there, fairly prominent carriers looking to install equipment in their next-generation networks. I was wondering if you could give us a little bit of color on where the opportunities lie now and whether or not you've seen any shifting in RFP activity from your standpoint.

We have not seen a shifting in the RFP activities, neither in lead testing, thinking about bringing in, you know, testing the equipment. My expectation is there that, during this year which was planned to be mainly 2009, I would call it a design win year. I won't see a change in the patterns.

We might see some slowdown in 2010 as people deploy maybe a little bit slower as we move forward, but if I'm looking at the main customers worldwide -- and that's all the tier 1 mobile operators worldwide tier 1 -- they are all in the process of understanding that they need to upgrade their network to mixed TDM and IP networks with the capability to carry a lot more data on today's generation of HSDPA to 3G type of a solution with an eye and a very clear eye to the 4G generation solution.

Okay, that's helpful. Then lastly, just looking at sort of the competitive or pricing environment, I know we've seen, in other areas, vendors that sort of feed into the carrier community discuss some concerns around pricing environment. I was wondering if you could shed some color in terms of what you folks are seeing, whether or not some of your competitors are picking up on their activities around being aggressive around pricing, or how should we characterize the current environment?

The current environment is as competitive as ever. I think our market has always been a competitive market. There are places we are pricing more critical and winning deals and it's (inaudible) continued to be critical. I think we have a very strong competitive position in this area because our new generation of products is very, very cost-competitive.

As we move forward, I don't think I'm seeing a major change in the competitive environment at this point. Then that's not to say that the competitive environment has not been and is not at this point very competitive. We've been working in that environment for a while.

So you wouldn't say that the pricing trends have incrementally changed? (multiple speakers)

No, it's incrementally they have not changed.

Great. Thank you very much for taking my questions.

Steve Ferranti, Stephens Inc.

A question about the investments you are making in sales and marketing -- can you give us a sense for, either geographically or by customer, what are you seeing out there in terms of opportunity that is giving you the confidence to make those investments freely, I guess, in a time when you've got some uncertainty and some lack of visibility on the revenue picture?

We are making the sales investment where we feel we have a good chance of increasing our market share and winning more customers. There were two regions where we did those changes. Mainly, it was the US and in Africa.

Okay, that's helpful. I guess that sort of leads into my next question. In North America, you are obviously seeing a nice pickup there from where we had been. Is it more private network or operator-related, where you're seeing opportunity?

It is more operator-related.

Okay, okay. Obviously, I think there's been some speculation in terms of what some of the bigger operators are doing there. Is there any update you can give us in terms of progress on RFQs or RFPs?

All the big operators in the North American region are in some kind of a process around RFQs, RFPs for the next generation backhaul networks.

Okay. I'm assuming you guys are involved there?

We are involved, and I also hinted that we had some early design wins in some of them.

Okay, very good. I think that's it for me. I guess one last one -- just in terms of how you're thinking about stock repurchase here. You know, the stock is looking like it's going to open up a little weaker this morning. You know, how do you balance now or what's your view in terms of how you are balancing stock buyback with perhaps the need to be a little more conservative on the cash side as you look forward here?

Yes, we are trying to balance these two needs together, but overall we have decided to go on and continue with our plan. We have completed about 40% of our plan in the fourth quarter. We will continue now this year as well. I'm not sure about the rate, but I will try to (inaudible) as long as it makes sense.

Okay, very helpful. Thanks, guys, and good luck going forward.

Daniel Meron, RBC Capital Markets.

Can you give us a sense on the industry pace this year? I realize it's for you guys specifically or for many other players is very much diminished, but if you can give us a little bit more of a framework to work from?

Our working assumption at this point -- and that's what we're saying -- that we will see a pace to what we are seeing in Q4, maybe a little bit up, maybe a little bit down. We do not have more color to this except to say that, from everything that we see, backhauling and demand for backhaul will be one of the last to get hit there by the crisis because the demand in the network for high-capacity backhaul is staying and the wireless operators are the strongest, and the operators (inaudible) segments.

Okay. I understand that you guys are looking for a flattish kind of performance, but what are you guys taking -- or what kind of cost-containing measures is probably more accurate question, are you taking in this environment to preserve the bottom line?

We will, as Tali mentioned in his part, we will maintain flat operating expenses throughout the year as long as our assumptions for the quarters are similar.

Can you be a little more specific on what measures you guys are taking toward that end?

It's a lot of measures in the operating and the execution to make sure that the expenses remain flat.

Okay. Maybe I missed it earlier, but can you give us a little bit more color on the decline in the cash balance this quarter? Obviously, you had some buyback going on, but you also had some lower operating cash -- declined operating cash flow. Can you give us a little bit of color there into how should we think about your cash balances going forward or in cash generation?

Yes. In addition to the fact that we spent about $8 million on the share repurchase, we also had difficulties in collection. Therefore, our cash balance was reduced by an additional $6 million. We feel that this is a general trend. Customers of all types and of all regions are trying to delay payments as much as possible, and it's very difficult. We, on the other hand, will try our most to do, to collect the amount, even if we have to stop shipping to these customers because cash is important to us and we do want to collect on the amounts.

Overall, I mentioned that I am not too concerned about the financial health or financial strength of the customers. I believe that most of them -- we are checking it all the time -- I believe that most of them are financially strong, but they are trying to conserve cash.

I would also mention that the vast majority of our receivables are insured by an insurance company, and in other cases we are requiring letters of credit or down payments. So overall I think the situation is reasonable to good, but we will decrease the collection effort.

Just as a follow-up before I yield the floor, can you give us a little bit of sense what was historically your write-off of bad debt? Also, what is the risk for inventory write-downs down the road?

Historically, the amount of write-offs was low except the year 2000, the famous year 2000, but since then, write-offs were very minimal.

As far as inventory write-downs, no, we don't believe that we will need an inventory write-down. We do write-down inventory on a regular basis; if there have been changes, technical changes to equipment or it is slow-moving, we do write-offs. For example, this year in 2008, throughout the quarters, we wrote off about $3 million worth of inventory. It's all included in the gross margin that you're seeing. I don't think that there's a risk like that for the future.

Okay, thank you. Good luck.

Matt Robison, Pacific Growth Equities.

I apologize if I missed part of the explanation for the 10% increase in sales and marketing. Should I view that as correlation with direct mix going up or can you repeat some of the color on that?

The color on the increasing sales and marketing is mainly because we increased expenses in some areas to strengthen our sales activities mainly by hiring people mainly in the Africa region and in the US, where we believe we have opportunities for 2009.

What was the change in headcount in the quarter?

We had about 20 people, and at the end of the year, we had about 440 employees.

Okay. In the US business, in the past when that's been relatively strong, it's been with carriers' carriers. Are we seeing more direct-to-carrier business in your demand funnel at this point?

Yes, I think you are characterizing it very correctly. I think the carrier business at this point in the US is very weak because those are the -- I would say the type of customers which are much more highly dependent on financial resources and getting financial resources. I think, in this environment, it's much harder for them. The very large carriers which have a direct business and have the end customers I think are much stronger, and we see a lot more business with them.

Okay. Now getting back to that sales and marketing number, so I guess we should assume that will continue at similar levels this year.

Yes.

Okay. I guess that's all for me at this point. Thanks.

Blaine Carroll, FTN Equity Markets.

Ira, you keep saying that the operating expense will remain flat. Do you mean flat with the fourth-quarter level of the $15.8 million?

Yes, this is working in fact.

Okay. Then, you know, there's a lot of gives and takes on the gross margin line, whether it's geographic mix or whether it's OEM versus direct, but also at the lower volumes anticipated going through the facilities. Can you give us some idea on where you see gross margin trending during the year?

As we ship more of the new products, we do expect gross margins to improve gradually over the year.

That's good news.

However, you know, I'm speaking to the fact that we are not giving guidance. I'm speaking to the fact that right now we are kind of assuming a similar picture.

Okay. How many quarters do you expect a similar picture? You know, you say "a few". Can you quantify "a few"?

It's the main issue that, because of the low visibility, it's very hard for me to quantify a Q. It's highly dependent on the macro-economic environment, and I think it's much better to look at the macro economic specialists to guide by them when the [fuel] will end.

I Would add that, you know, our customers are probably adapting also kind of a quarterly view rather than an annual view, so it's very difficult for us also to figure out what their annual view is.

Yes. Is it fair to assume -- I mean, typically the first quarter in this industry is a seasonally light quarter because of the weather conditions and so forth. But also to that point, Tali, do you think a number of the operators are still going through their budget planning for the year and that could be impacting your visibility as well?

I think everything that you mentioned is correct, although weather is more of a seasonal geographical pattern. For example, India, the part where it's harder to install for example is the monsoon months, which is the middle of summer and not this season. This season is dry; it's easier. It's not the snow in the US and in Europe, but so their seasons balance out a little bit.

Yes, part of what I'm seeing is some of the budgets which should have been closed by December are still being discussed, or some of the things that have been closed in September-October sometime are reviewed again. My expectation is that budgets will be reviewed almost on a quarterly basis by all of the operators.

Okay. And then Tali, did you give what the IP revenue split was?

IP revenues were shy -- about 27% if I remember correctly.

For the quarter?

Yes.

Okay. Then the last question -- you know, you talked quite a bit about the receivables and being backed by letters of credit or being insured. What percent of your receivables would you say is at risk or has some risk associated with it, and how would that compare to a year ago?

No, it's very difficult for me to quantify the risk because when we go customer by customer and trying to figure out whether the financial position of the customer has deteriorated, as far as we know, we cannot pinpoint. I mean, of course, there is the overall deterioration of the entire company, and you never know what's going to happen. But it's very difficult to come and pinpoint certain customers, say this customer is on the verge of bankruptcy. From that point of view, it's very difficult for me to say. I do say that payments are becoming slower; I know that.

Okay, thanks. Good luck, guys.

Larry Harris, CL King.

With respect to the IP-related wins in North America, are they related to, say, 4G-type deployments, say such as WiMAX or LTE, or can your IP radios be used I guess in the Nativesquared configuration on, say, HSDPA-type networks?

It's mostly today on HSDPA-type networks because that's where the demand and that's where people are seeing it and that's where the need exists today. But everyone is looking with a strong eye on what will happen in the 4G environment, being WiMAX/LTE types of environment. This is the trend worldwide. So we expect HSDPA deployments to continue very aggressively worldwide, because this is the vehicle that people are supplying the demand for a lot of broadband data at this point.

Great. And any updates in terms of the relationship with Nokia? I believe you mentioned they were a 10% customer. Is it continuing forward? Any changes in terms of their trying to develop competitive platforms?

I think, as I said, we feel very confident in our relationship with all of our OEM partners, moving with them forward in different ways as we progress throughout the year. I think we will continue seeing strong relationships with them.

Great. Thank you.

Jonathan Kreizman, Oscar Gruss.

Going back to the [book-to-bill] that you mentioned before -- book-to-bill sorry -- so you said book-to-bill is pretty in line with seasonality, below 1 in the fourth quarter of the year. So basically do you expect to see this going back to a level in Q1 or above 1 during the next quarter and if you could please give some color on how the backlog looks like. Thanks.

Backlog, we remain with the backlog (inaudible) one quarter, which is typical for what we've seen in the last few quarters. Again, some of the backlog will be converting to revenues in this quarter and some will be rolled out forward.

Looking forward, we believe that book-to-bill will return to more normal levels, but that's part of saying similar to Q4, and the seasonality around the book-to-bill.

Okay. Now, looking at the geographies, more specifically on APAC, are you able to say what revenues were looking like from India, which was particularly strong during the last quarter, meaning the third quarter?

Looking at the India levels, they'd probably be at around the same levels we are seeing in Q4, moving forward. Again, the seasonality in that will probably see some quarters a little bit stronger, a little bit weaker, as we move forward.

I think Q4 revenues from India were again a little above 40%, I understand.

Yes.

Okay, thanks. That will be all for me.

Aalok Shah, D.A. Davidson.

A couple of quick questions for you -- one is on the US strategy. You mentioned that you're going to be spending more in the US. I'm just curious. What changed over the last few months or quarters in terms of that change in strategies for you guys?

I think that we are seeing better opportunities right now with the product mix and with the shift towards IP to gain momentum, and we see also a shift within the operators in the US (inaudible) for using a lot more high-capacity microwaves than before.

Ira, in terms of the China 3G rollout, I know that the Chinese networks are a lot more private and military-based, but is there an opportunity for you guys and can you somehow give us a sense of how big the opportunity could be for wireless backhaul?

You can't see me smiling because it's one of the larger unknowns for us. In general, China, there is a government directive which says "fiber to every base station." There's very, very little microwave in China up to now. I mean, it's not us; it's all of the microwave vendors.

The reason I'm smiling -- one of the questions that is on the table, as more mobile and 3G will roll out towards the end of '09 and the beginning of 2010 into more rural areas, there might be opportunities there, but we don't have any way to guide or judge this at this point.

Are you seeing any kind of increased activity levels in China at this point?

No, not really. We saw very large tenders for 3G which were awarded over the last couple of weeks. None of them included any microwave equipment. It was mainly fiber-based.

So if you had to look at your 2009 opportunities from a geographical basis, I mean would it still be pretty much the same profile as that we saw in '08?

Yes.

Okay. Then Tali, just one quick question on the backlog -- is that a six-month backlog number that you feel comfortable with right now?

I'm not sure I understand (multiple speakers) six-month backlog.

You said you had one quarter's worth of backlog. I'm just trying to get a sense of how much, how long that backlog exists, or is it in shipments for the next quarter, six months --?

Oh, I see what you mean. Yes, the backlog will not fully ship in the next. It will be spread over at least three quarters, meaning a lot in the next quarter and a certain amount after that and a certain amount after that -- not only from a shipment perspective but also from a revenue-recognition perspective because, in some cases, we already shipped, waiting for acceptance to recognize revenue and it's part of the backlog.

Okay, great. Thank you very much, guys.

Ilya Grozovsky, Morgan Joseph.

I just had a couple of housekeeping questions. You had mentioned that the gross margins in 2009, you see them trending up. From what level are we talking about? From the fourth-quarter level, or from what level?

I'm not getting into numbers on purpose, but I'm saying, generally speaking, the trend is a trend of more products of the new platform, which are more profitable.

Then also, what was the linearity like in the fourth quarter, and how is it trending in January?

There is -- usually, as the quarter moves along, there are more orders and more shipments in the second and in the third months, but it is not extremely skewed towards the third quarter. It's reasonably growing gradually from one month to another.

In January, how did that track?

It's about the same trend.

Bill Choi, Jefferies.

Tali, first a clarification here -- you've mentioned headcount of 240. If I know correctly, last quarter, you guys ended with 426. Can you just clarify that?

Didn't I say 440?

I thought you said 240.

No, so I meant 440.

Okay, good. If you guys could try to quantify this installation issue that occurs typically around Q4, what kind of number of units or number of base stations were they behind as we head into '09?

Somewhat related to that, in India, perhaps not any operators going into -- on the verge of bankruptcy, but just have you heard anything through your contacts about their ability to fund their intended buildouts in '09, given that in these countries emerging markets, they are largely funded through debt for their overall buildouts?

So, we are taking two questions. The first question is usually it's somewhere around the quarter for backlog. That's why we saw about a quarter of delay where we expect to resume, in most cases, resuming orders in this quarter in some of those cases. Usually, it's less, but it's around that number. This is also the trigger point usually for making decisions and doing some stuff.

If you refer to the funding issues, what we are hearing through our channels is that they are all continuing with their plans, and as I mentioned that what we are hearing from the field is most of our customers or almost all of them are continuing with the plans as they planned moving forward. But I am putting a cautious note on that because the channels that we work with are usually the working channels and then our C-level decisions at the fab sometimes which may [affect] large projects at some point, which we are less privy of. That's the main reason we are putting, on top of a very strong message from the field, the more cautious approach with low visibility.

Okay. If I remember something about your product lines, it's typically configured for a special installation, so depending on the capacity and just geographic locations and so forth, based on these custom products, are you able to get a sense of any changes in buildout plans? Did they cancel certain builds or are they focusing on any different kind of configurations that you have been talking with them about?

No. Plans are, as I said, plans are on track with everyone. I haven't seen changes.

Okay, great. Thanks.

Rich Valera, Needham & Co.

With respect to your activity on the IP side and with North American carriers, it sounds like you've made some positive progress there. Could you give us any sense of your expectation for revenue from these North American IP opportunities? You know, do you think it will be material in 2009, for instance?

I think we will continue to see similar levels to what we saw in Q4, maybe a little bit of increase during 2009, but if I look at material and knowing from the questions, there's usually very large numbers. It's the 2010 type of phenomenon, not in '09.

So you see sort of a fairly gradual ramp there on that North American IP business?

There will be, I would say, a low to mid level, and then major rollouts in 2010 or beyond. Again, this is -- you know, I'm saying low visibility on one hand. Long-term trends are in place for placing the exact date when that rollout will be. Probably when people will feel a lot more confident because of the macroeconomics, we will start major rollouts. This is a timing which I'm the last one to predict.

Sure. Understanding the difficulty in predicting the actual, large-scale rollouts, are you seeing somewhat of a mindset shift within the carriers? It sounds like there's a pretty wide scale embracing of the need or the want of an IP backhaul solution which probably didn't exist, at least to this degree, a year ago. Have you seen a fairly marked shift in the attitudes and mindsets of a lot of these carriers?

I think you are characterizing it very correctly. A year, a year and a half ago, it was not on the mindset. It's on the mindset; it's one of the main design points right now for most of the carriers. I think we have a very, very strong offering for them at this point, I think the leading offering, and it's gaining very nice design wins worldwide.

Great. Just one more question if I could? Not to get too specific but there is another competitor of yours that's a very IP-centric player that has competed in North America but vastly smaller than you and perhaps not with the financial resources you have. Have you seen any competitive advantage being gained by yourself due to your very strong balance sheet and relatively maybe secure position compared to just, let's say, any competitors that are smaller than you?

Okay, I'll answer. A, yes. I think being a very well-established and a strong balance sheet makes us much stronger, but that's only half the story against that competitor which you did mention. The second part is that competitor is focusing on pure IP solutions, and what we focus on is IP together with a migration strategy and a mixture of what we call Nativesquared, both TDM and IP, which is really what the carriers need for their migration into the 4G.

Sure, that is a clear distinction. Okay, thanks very much for answering my questions.

James Faucette, Pacific Crest.

This is Nathan Johnsen sitting in for James. I was just wondering if you could provide a geographical breakdown of your bookings. Were there any areas that were above 1 in Q4 versus overall being below?

No, I'm sorry I cannot provide it for two reasons. Number one, we never do; number two, I don't even have it in front of me. I will not be able to give that.

Okay. Then I guess maybe I missed this. I heard what the geographic breakdown for the full year 2008 was, but could you provide the revenue breakdown just for Q4?

It is included in the press release. We did put a breakdown in the press release that you will find in there. If you still have any question, I will be happy to answer it later. You can call me.

I would like to thank everyone for being on the call with us at this time. We will, like if anyone wants further on discussions, we will be glad to hold those over the next hours, days and weeks as we progress. Thanks for being with us.

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