惠普 (HPQ) 2006 Q3 法說會逐字稿

Good day, and welcome everyone to the Opsware Incorporated third quarter fiscal year 2007 conference call. All participants will be in a listen-only mode until the question and answer portion of the call. Today's call is being recorded, if anyone has an objection, you may disconnect at this time.

Now for opening remarks and introductions, I'd like to turn the call over to the Opsware Treasurer and Director of Investor Relations, Mr. Ken Tinsley. Please go ahead.

Thank you Jennifer, and good morning everyone. With me today are President and CEO, Ben Horowitz, and CFO, Dave Conte.

Before we begin, I would like to remind you that during today's call, we will make forward-looking statements regarding future events and financial performance, including our opportunities in and estimated size of the data center automation market, the benefits and capabilities of our products and forecasts of future revenues, drive bookings, operating margin, and earnings, all of which are subject to risks and uncertainties.

Actual events and results may differ materially from these statements, and we assume no obligation to update the information provided on this call, or to revise any forward-looking statements. Please review the section entitled risk factors in our Form 10-Q filed with the SEC on September 28th, 2006, for important factors that may cause actual events and results to differ materially from these forward-looking statements.

By now, you should have received a copy of the press release that was distributed this morning. If you have not, it is available on the Investor Relations section of our website. In addition, we are currently webcasting this call, and an audio replay will be available on our website for 30 days following the conclusion of the call.

The terms non-GAAP net income, non-GAAP profitability, and non-GAAP EPS, and non-GAAP operating margin used in today's discussion, excludes certain non-cash charges related to stock compensation and past acquisitions. Projections also exclude FAS-123R, stock based compensation expense, which cannot be determined at this time. Reconciliation of these historical items to GAAP are provided in our earnings press release, and on the Investor Relations section of our website at Opsware.com.

Now let me turn it over to Ben.

Thanks, Ken.

I am pleased to report a strong Q3. Non-EDS derived bookings were $22.4 million, up 32% sequentially, and almost 60% year-over-year. Total revenue was $25 million at the low end of our previously guided range, and corresponded with sharply higher bookings, and a higher deferred revenue of $28.4 million, well above our expectations.

Non-EDS revenue in the third quarter was $19.7 million, up almost 100% year-over-year. Non-GAAP profitability was $0.01, and better than our forecast to breakeven. We signed 5 deals worth more than $1 million. 45% of the server deals this quarter were upsales to customers who originally purchased our network product, reinforcing our strategy to use the network product to see the market for subsequent sales of our server product. With our Cisco relationship ramping up, we expect this strategy to be even more significant next year.

We continue to see strong traction in six key verticals. We have already signed at least 10% of the top 50 companies in retail, telco, service provider, government, and internet sectors. Among the Q3 wins in these markets were Bear Stearns, MTS Allstream, Nortel, T-Mobile Deutschland, Verizon Business, and Wells Fargo.

The proven advantages of our software are underscored by the fact that Nortel is now adopting our technology internally to support services they provide to their own customers. Having been a reseller of Opsware since 2005, they have realized how powerful Opsware can be, in helping them manage their value-added premium services.

On the competitive front, we continue to rack up displacement wins. Examples this quarter include Verizon Business and Marsh & McLennan, both of whom switched from BladeLogic. Verizon Business is switching to Opsware on 1,800 servers, Marsh & McLennan is switching on 500 servers. As part of that deployment Marsh & McLennan ultimately plans to automate 5,000 servers with Opsware.

As we have discussed on previous calls, the market we address is growing rapidly. One of the biggest trends driving our market is the adoption of virtual server. In the last month we have announced a new product that directly addresses this trend, the Opsware Virtualization Director. The rate of virtual server adoption is far outpacing that of physical servers. According to IDC, while physical server shipments are expected to increase by 43% between 2005 and 2010, the number of virtual service deployed is expected to grow 470%.

These virtual servers need to be managed every bit as much as physical servers do. And not surprisingly, 62% of customers surveyed by IDC said that they are looking for one unified tool they can use to manage both physical and virtual servers together. That's where the Opsware Virtualization Director comes in. It is the first product to unify the management of physical and virtual environments. It provides all the automation for virtual servers that our server automation system provides for physical service. IT organizations already trust Opsware to manage their physical servers and with Opsware Virtualization Director, we are in the full position to manage their virtual service as well.

In summary, I am pleased with our record bookings, and 97% year-over-year Non-EDS revenue growth in Q3. Now, here's Dave to provide more detail on our results and outlook.

Thanks, Ben. I will review operating highlights of Q3, and then provide an update on our outlook, including how we are thinking about profitability over the next two years. Non-EDS drive bookings totalled $22.4 million in Q3, up 32% from Q2, up 58% from Q3 of last year, and exceeding our expectations. Non-EDS derived bookings included approximately $500,000 of professional services sold to EDS that are incremental to our existing $20 million annual contract.

Total revenue was $25 million at the low end of our previously guided range, with our strong bookings performance, deferred revenue increased by $2.1 million to $28.4 million, which was higher than our $26 million expectation. As we have said, the geographic mix between deferred revenue and revenue will vary quarter to quarter. In Q2, we beat our revenue guidance by $2 million, this quarter we beat our deferred revenue expectation by $2 million. Non-EDS revenue in the quarter totalled $19.7 million, up 97% year-to-year. International contributed about 10% to non-EDS revenue.

We signed 74 new license deals worth $1,000 or more during the quarter, compared to 62 deals in Q2, approximately 55% of bookings were from new customers, and 45% were upsales to existing customers. For license deals greater than $10,000, the average deal size for our server product was approximately $450,000, the average deal size for our network product was approximately $210,000.

Almost 30% of our bookings this quarter came through the channel, compared to less than 10% in Q2. Most of the increase in channel bookings came from sales to the U.S. government.

Overall gross margin was 76.4%, down slightly from Q2 due to our continued investment in our international services organization and expansion. Non-GAAP operating margin was negative 2%, compared to negative 15% in Q3 of last year, both excluding non-cash stock based compensation and acquisition-related charges. Including these charges, GAAP operating margin was negative 23.5%, compared to negative 20% in Q3 of last year.

Non-GAAP net income in Q3 was $543,000 or $0.01 per share, including non-cash charges related to stock-based compensation as well as charges from previous acquisitions. GAAP net loss was $4.8 million, or $0.05 per share. We currently have 64 quota carriers up from 58 on our last call, and we are on-track to reach our target of 72 by the end of the year.

On the balance sheet, after making the $10 million cash payment for the Creekpath acquisition, we ended the quarter with $91 million in cash. The cash receivables were comparable to Q2 and DSOs declined 3 days to 74 overall. Cash flow from operations in Q3 was $3.3 million.

As we forecast, bookings increased in Q3 and we expect they will increase again in Q4. During the quarter, we booked a higher percentage of sales through the channel resulting in higher deferred revenue than we expected. Most of our channel sales were to U.S. government end users, which generally takes longer to provide evidence of sell-through, and therefore requires that we defer the revenue.

Looking forward, for Q4 we expect revenue of approximately $30 million, and non-GAAP net income of $0.03 per share. This will put us at $102 million, and $0.03 for the full year, consistent with our previous guidance.

Turning to our longer term profitability outlook, we expect non-GAAP operating margin this year will be roughly negative 1%, an improvement from negative 19% last year. This improvement reflects the leverage we are already seeing in our U.S. sales and marketing expansion, coupled with our server and network product investments. We expect to realize this margin improvement after consuming around 5% of margin on our international expansion and storage integration.

We expect to see continued margin improvement from our existing investments as they mature, and we will continue to make new investments going forward. Based on the strategy, next year we expect to generate non-GAAP operating margin of between 6 and 8%. In the following year, which is fiscal 2009, we expect to double that to 12 to 16%.

To summarize, Q3 was a good quarter, and our investments in the business are driving strong bookings growth. With that, let's open it up for questions.

Thank you. [OPERATOR INSTRUCTIONS] And our first question will come from Jonathan Ruykhaver, Raymond James & Associates.

[inaudible-audio break] -- sales reps that you ended the quarter with, can you repeat that number?

Jonathan, you were cut off half way through your question. Could you repeat it, please?

I asked you if you could repeat the number of sales reps that you entered the quarter with.

64.

64, okay. And can you talk about revenue linearity. Was it anymore back end loaded than you would typically expect in an October quarter?

No, it was consistent with our linearity history.

Okay. And then, I guess, on the sequential growth in deferred revenue after being down sequentially in the July quarter, and last quarter you did suggest that bookings were flowing faster to revenue due to the company meeting customer acceptance clauses faster. Has that changed, or is that still the case?

No, our revenue yield was down slightly from the prior quarter, due to the higher percentage of bookings in the channel, but it's consistent with prior quarter and what we expect going forward.

Okay. So you're attributing that completely to the increased revenues going through the channel, or bookings from the channel?

Correct.

Okay. And of the large deals over 1 million, did you have any 10% customers in the quarter or not?

No.

You didn't. Okay. And on those larger 5 deals, can you just comment on the competitive dynamics? Was it an RFP process? And who outbid it on the deal?

Yes, we can comment. Let's see, some of them, so it was a mix. Some of the deals were upsells and those tended to be not competitive. One was a displacement, and that was highly competitive. And I'm just running through, one was to a U.S. government agency, which was a complex RFP process, so it's a mix of things.

And how many were upsells of those 5?

I believe 2.

2, okay. And then one final question on the Cisco partnership, their PACE product was introduced in the quarter. Can you comment on how that deal is progressing, and what your expectation is, in terms of the contribution from Cisco in the current quarter?

Sure. So Cisco as just a reminder to everyone, reports to us on December 15th. And so that is the first time we will have sort of an official report of their sell-through. In terms of impact in Q4, we expect that the deals that they deliver in the fourth quarter, will be ones that were generated by us, i.e. deals that are in our pipeline that we pass over to the Cisco channels to cede it. And just that's the stage we are at with that relationship.

So we wouldn't expect anything to sort of be incremental, in terms of our own revenue forecast in the fourth quarter. But we would expect that they will start to be productive based on the activity we are seeing in the pipeline.

So you are not seeing any actual pull yet from the Cisco channel but you expect that will happen once you enter '07?

Yes, those deals are I would say at the front end of the cycle. So the ones that are coming to fruition are all the deals that we have already past.

Right, okay. Great guys, thanks.

Thanks, John.

[OPERATOR INSTRUCTIONS] We will hear next from Brendan Barnicle with Pacific Crest Securities.

Hi, guys, I was interested in any further comments on changes in the competitive landscape, or anything else related to competition in the quarter?

Yes. So competition this past quarter was pretty consistent with the prior quarter. We are seeing a little more activity from Hewlett-Packard since they are, you know, they have been active in the software acquisition business, and they are getting a bit more active in our space in certain instances. We have seen less activity from Symantec/Veritas, and I'm not exactly sure why that is. But they showed up in the pipeline actually significantly less this quarter than the prior.

Okay. And then over on the international front it was still, I think you said less than 10%. Any update there on how that may get accelerated as you look out to next year?

Yes, I think that we are, of course, highly focused on that as Dave mentioned. You know, if you take out international and storage investments, that is about 5 points of margin, in terms of what those investments are costing us currently. So we are focused both on shipping, storage, and developing international.

If you kind of break international down across the regions, the U.K. is already starting to make a pretty solid contribution, and that's sort of our longest standing region. And we expect to see maturity in both central Europe and Asia Pacific next year, getting to a much healthier margin levels. We have made a lot of progress, you know, to that end in hiring some very senior country managers across both those regions, some excellent people from places like Mercury and PTC. So we think that the guys that we have are very strong.

And how many sales reps do you have that are international verses domestic?

Approximately 20.

20, great, thanks, guys.

Thank you.

And we'll hear next from Gregg Moskowitz, Susquehanna Financial Group.

Thank you, good morning, guys.

Morning.

Just wondering, Ben, kind of how System 6 uptake is tracking relative to your expectations at this point? And then also if you had a number or a metric for how many customers have thus far purchased combined server and network products?

Yes, so system 6 is off to definitely a very good start, we are seeing both good traction in terms of its competitiveness, as well as the early deployments are doing very well with it, so we are pleased with that.

In terms of the combination deals about, so one of the things we mentioned was 45% of the server deals that we captured this quarter were actually upsales from the network. So that was really, that is the highest it's been, which is really direct reflection of the new integration that we have, and in terms of the overall number about half of our server customers now have the network product. So that's been going, I would say exceeding our expectations by a bit. We similarly expect that to continue.

We are also seeing a lot of similarly very high interest in the storage products from the installed base. So we a're working hard to get that out the door so we can start earning some revenue on that, as well.

And Ben, is the storage integration still on-track for first half next year?

Yes, it is.

Great and just a clarification of the non-EDS bookings of 58% year-over-year growth this quarter, pretty similar to last quarter. I had, if I am not mistaken, I think you had kind of talked about possibly a growth rate kicking up a little bit in Q3 relative to Q2, and you had the DSOE-type effect last quarter. I'm wondering if you can kind of talk about that?

Yes, I think that 32% sequential growth, you know quarter-over-quarter, which is pretty good, and we are seeing a really good pipeline for the back half of the year. So I think we feel pretty good about the bookings mix overall.

Okay and just one final question. How did sales of the Opsware network fare during the quarter? Thanks.

Yes, so the Opsware Network attach rate was right at 40% for the quarter, which was roughly double the prior quarter. So as that product is getting out there, and our guys are getting up to speed, it's going pretty well.

Great, thanks, guys.

Thank you.

Moving on to Kash Rangan of Merrill Lynch.

Hi, thank you very much, congratulations on the quarter. A couple of questions, any trend that you are noticing on a pricing per server basis for the server product, or pricing for network node or device on the network product?

The pricing this quarter was pretty stable, we looked at that versus Qs 1 and 2. And they are all pretty much in-line in terms of the per node pricing.

There is, I would say, slightly less competition on the network front. And so that pricing, and with the Cisco effect, that pricing was a little up in Q3 on a per node basis, but other than that it was pretty similar.

Alright, and Ben, it sounds like you still have probably another 7 or 8 sales reps to hire by the end of this year. How do you feel about the quality of the reps that you've brought on board in Q3, and the folks you would be bringing on board in Q4, and the productivity that you would expect to hit targets for next year?

Yes, so we right now are, you know, and have been continuing to attract a very high caliber of sales reps. And it's, a lot of it is good fortune in that there aren't sort of that many growing sales forces in enterprise software. And then there is some really good ones with both Veritas and Symantec's sales forces where there is, you know, a fair amount of turnover right now. So we have been benefiting from that.

In terms of, you know, just time to productivity, if you look at it over the last four quarters, it's ranged between basically 3.3 months and 3.9 months, the time to first deal. And then if in terms of when we expect them to get to full quota, if they have 12 months under their belt, then we expect them to reach full quota in the subsequent 12 months. So that's, you know that's also been, continues to be the case. We are not able, at this juncture anyway, to get people to full productivity faster than that.

And final question for you. How much of the growth in any of this is attributal to competitive displacement versus true expansion of the [opportunity]?

Well, you know, most of it is expansion of the opportunity. I think that the competitive displacement sort of ironically turns out to be low-hanging fruit for us in some cases, so that if there is a customer who bought a competitive product, deployed it, and failed with it, then it's the easiest sale because they already have the need. One of the things we talk about a lot is the biggest drag on the business right now is the lack of kind of awareness that there is, you know, a solution to the problem.

And so once people said okay I have a problem and I bought a solution, then they are very, very clear on what their requirements are, so we can go in without any of the education process. Those tend to be fast sale cycle deals, which is why we look at them. But you know, as a percentage of deals still relatively small. So 74 deals, and I think 3 displacements in the quarter, for example.

Great. Thanks a lot.

[OPERATOR INSTRUCTIONS] We'll hear next from Denny Fish, JMP Securities.

Hi, guys. Thank you.

Hi Denny.

Just real quick question. First of all on Virtualization Director, is that generally available yet? Or if not, when is that going to be shipping?

So that ships in January.

Okay. Perfect. Okay. And you had a, you know, I guess you felt it was significant enough to put out a press release on your patent announcement for automated positioning framework for internet site servers. I was just hoping you could give us a little more color on how significant that patent could potentially be from a competitive standpoint? If significant at all, I don't know.

Yes, I think if you read the patent, it's certainly covers a lot of ground. And defends our extension across the product line, which is important in that it's good protection for our intellectual property in terms of, you know, offensive or defensive patent portfolio strategy, you know, a little premature to discuss that. I don't know that we would discuss it on an earnings call, but we do think it is important.

Okay. Great. Thank you. And then lastly I noticed that one of your primary competitors network integration automation company, AlterPoint, recently announced their ZipTie open source network integration management project. I was wondering if you could just comment a little bit on that strategy, how it could potentially impact how you go to market with you network automation product. Maybe just a little color there?

Sure. Well, it's interesting, the components that they released are actually competitive, so there is an open source project that does that already, I believe it's called RANCID, which basically sort of does this backup of configuration, and so forth. So the first thing with respect to the AlterPoint thing is will it get traction with the open source community, which is, you know, a bit of an open question.

And if it does, the strategy that they have is to get some help in getting content, i.e., meaning, so content for the network products being drivers, device drivers. We have a bit of an advantage there as you know, because we have our relationship with Cisco, and we've, you know, got much larger staff, and also a superior architecture in terms of being able to add those things, so that's where it would impact if they were successful with that strategy. It's not clear to me that they will be.

We have here, obviously, you know, tons of experience with open source going back to the Netscape days, and open sourcing the browser, and so forth. I have a pretty good feel of where that takes, and where the interest is in the open source community, to do things, and so forth. And it's not that often that you will put out a technology that already has a decent open source effort around, a competitive technology and have it supercede. So it's not clear it'll be a successful strategy, but it's something that we will currently keep an eye on.

Great. Thank you.

And our next question will come from Katharine Egbert of Jefferies.

Hi, good morning. It's a little early, if you don't mind repeating, why was it that the revenues are flat and deferred revenues are up? What is it about the channel that causes you to defer more?

So in terms of revenues being within our range, and we look at the composition of bookings and what goes through the channel. As you sell through to resellers, the criteria needs to recognize revenue as higher because, you know, you have got an extra party in there. In particular with U.S. government, which takes a longer cycle to turn it, we are waiting for the reseller to provide us all of the evidence we need to meet the revenue criteria. So with a higher mix through the channel, it causes us to defer more than to recognize more.

Just one thing, so you understand the nature of those deals, we have got them from the reseller both signed contracts and cash payment against the deal. But going through the, the tail end of the process to get the last bit of evidence on a sell-through to convert that, deferred revenue. So you see it in the deferred revenue and you see it in the cash flow, but not yet in the revenue, which will happen in relatively short timeframe.

And what is that waiting on? Now are you deferring any licenses?

Yes.

Yes, you are deferring licenses. So it's waiting on a product?

No, no, it's waiting on evidence of sell-through. So basically the, you know, the government agency to, you know, basically relay their information through the reseller back to us.

Okay. And then on the guidance, why have you decided now to put out long-term margin targets? What gives you the confidence in those numbers, as well?

Well, there is a couple things. One is it is really in our articulation of the investment strategy. One of the things we have wanted to do is, you know, in general with guidance is to make sure that we have enough data to forecast. So that's a good question.

I think at this point that business is getting developed enough so that we have a pretty good idea of where we want to make the investments both geographically and product-wise, and so we balance that with the margin expansion on the parts of the business that are already generating a fair amount of profit like the U.S. sales force, and like the server network product lines, and it's relatively straightforward to map it out.

So now seems like a good time. And we certainly get a lot of questions on it. So we thought that it would be helpful for investors.

What kind of revenue growth are you assuming in those out years? Can you give us some kind of indication of what the license service mix might be?

So we will forecast, a full revenue forecast when we normally do at the end of next quarter.

Okay. All right. Thanks, Ben.

No problem, Katharine.

And moving on to Ranjini Chandirakanthan of ThinkEquity.

Good morning. Just following up on a comment earlier. You said that half the server customers now have the network product. I'm curious, because there is a lot of folks buying network that are upgrading to server, or have you gone back to your pre-rendition installed base, and been able to sell the network product also?

Some of both. So for example, both, we had large server deals at both Nortel and Marsh & McLennan, which were upsales to deals that were originally done at rendition. So some of those are that way, and then some of them are server customers who go the other way.

Okay. Great. And can we just follow-up a little bit more on Nortel as a reseller. It sounds like it has had some ramp. Is that one we are going to continue to see and hear about?

Yes, Nortel has actually been a pretty productive reseller, you know, relative to the other resellers we have. And I will leave Cisco to the side, because they are a special case. And then we have a new deal with them where they've got a, being part of the service provider portion of Nortel that is offering a service based on the software. It's not so much of a reselling as a sell-in in that case. And that is the deal this quarter.

Just to understand Nortel, then. They bought the server automation, and they also bought network automation to manage network?

Yes. So they are, so first off they're a reseller of the network product. There's a different division of Nortel that has acquired both the server product and the network product to run a service that is enabled by the software.

Great. And how do you get paid on that deal?

That's a license, you know, regular --

Regular license.

It's not a sell through deal. But as the service expands, of course they'll buy more licenses.

Got it, so there's an opportunity if they can, can you give us the name of the service? Do you know the name of the service?

Off the top of my head, I'm not actually sure that they've named it yet.

Great. Thanks so much.

And we'll hear next from Andy Schroepfer, Tier 1 Research.

Hey, Andy.

Hi, Ben. Good morning, guys.

Morning.

Question on your million dollar deals with partners in the past. If you can give out the explicit percentages, that would be great, but just generally speaking, any change in, I know you've been hiring a lot of direct sales reps, so any thoughts on have you been getting more bigger deals through channel partners? And when did that have an inflection point, if it did have one?

I would say it hasn't had an inflection point and it's been like pretty steady. So we channel partners on million dollar deals have been historically main through the U.S. government, U.S. government end users, and that's consistent this quarter. So I don't want to imply that we are further along with that than we are.

Okay so even looking back a year, whether it was one deal or five deals, you had the same number of deals of size through partners as you did direct?

Yes.

Okay.

Well, it varies, I mean, it's not, it's very inconsistent quarter to quarter, I would say also. So we certainly had a lot more through the channel this quarter, than as Dave said primarily U.S. government that last quarter.

There are other quarters that where we've had a lot of business through the U.S. government. Through the government channels.

Okay and maybe I'll phrase that same question relative to the long-term guidance you gave. Is the model to expect that you will have that same kind of inconsistent, but generally the same kind of mix with partners?

Well, we do expect a more significant contribution from Cisco, although not, you know, I would say conservative, but we do expect a contribution from Cisco.

Okay. That is helpful. Then, coming off of the user conference since this year was so much bigger than last year. To the extent that there are deals that are closing more quickly as a result of that conference, would you say you saw some of that impact already in this third quarter? Or would you say that is something you expect to see happen in the fourth and first quarter?

Yes, so the user conference deals, the ones that were kind of generated and worked during that, I would say almost all of them are targeted for this quarter. So we didn't, I'm trying to think, I don't think we had any, they are just about, if I go through the kind of breakout session we had with all of the big customers, they are all this quarter.

Excellent. Excellent. Thanks, guys.

And then we'll now take a follow-up question from Brendan.

Thanks, I just had a quick follow-up on the services revenue from EDS, that 500,000, is that going to be recurring so that we should be factoring into the services? Or should we be expecting it ti just sort of typical seasonality in there?

Yes, so that's different than the EDS contract.

Right.

It's actually, it's not recurring, but there's a, it's basically there is an upsale deal to that deal on the table currently, so there will probably be a second part of it, you know, I don't know if it will be this quarter or next quarter. But it will be sometime in the not so distant future. But it is not a new recurring deal.

Great. Thank you.

And we'll hear next from Jeff Gaggin, Avian Securities .

Hi, guys. Nice quarter. Can you give us a little granularity on the pipeline close rate assumptions for the January quarter? And how much contributions from Cisco?

So, you trailed off a little. It sounded like you said how much contribution from Cisco?

Yes.

So in terms of pipeline, the pipeline is I would say, you know, the close rate assumptions are a fair amount smaller than in Q3 just on a relative basis, if you look at sort of the amount of pipeline that we are planning to convert. Cisco specifically we are not planning on an incremental contribution from them. So as I discussed prior, they will report to us on December 15th, but none of the deals that we see coming to fruition in the fourth quarter are deals, are sort of what I would refer to as Cisco-generated deals.

They are deals that we generate in our pipeline and pass to them, so they've, I mean, I think that their sell through contribution will be probably, very slightly negative, in the sense that they will get some margin for deals that we worked on, but other than that it won't have much of an impact this year. Next year, we expect the deals that they are generating to start to come through.

Thank you. Okay.

And we'll next take a follow-up question from Ranjini Chandirakanthan, ThinkEquity.

Hi just a quick follow-up. It seems you discussed that there is a lot of synergies on the selling server and network together. I'm curious if you had mentioned HP, if you could talk about Tivoli, are they able to sell in that way? You know, what are they trying to do to combat your selling the products together?

Yes. So they are not super refined competitively against us yet, either IBM or HP, that's an excellent question. HP does have an OEM relationship with a company called Voyance on the network side, and they sell that in conjunction with their product that they have acquired from Novadyne. And that's, you know, essentially their strategy.

In a competitive bakeoff, it's not a real effective one yet, but HP is a good company with a, you know, excellent account control in many places, and good relationships and broad relationships, as does IBM. They are both continuing to be more threatening at the account control relationship level, than on the product competitiveness level. But, you know, we are certainly watching what they are doing on that front, as well.

Great. Thanks

And we'll now take a follow-up question from Denny Fish, JMP Securities.

Hi, guys. Not to beat a dead horse on Cisco. But previously you have suggested you might see roughly 10 million in revenue contribution next year for Cisco? Is that still a fair assessment?

Yes.

Okay. Thank you.

Thanks, Denny.

And at this time we have no further questions.

Okay, thank you very much.

And that does conclude today's conference, thank you all for your participation, and have a great day!