Infinera Corp (INFN) 2007 Q4 法說會逐字稿

Good afternoon, and thank you for standing by.

Welcome to the Fourth Quarter Fiscal 2007 Investment Community Conference Call of Infinera Corporation.

This call is being recorded.

If you have any objections, you may now disconnect.

All lines will be in listen-only until the question and answer portion of the call.

(OPERATOR INSTRUCTIONS).

Mr.

Blair, you may begin.

Good afternoon.

I want to note that the forward-looking statements included in today's call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements address the financial conditions; results of operations; business initiatives; views on our market; our products and our competitors' products; guidance; growth plans; timing for the establishment of VSOE; and prospects of the Company in 2008 and beyond; and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

Please refer to the Company's current press releases and SEC filings, including the registration statement on form S1, filed on October 12, 2007, and on our recently filed forms 10Q for more information on these risks and uncertainties.

Today's press releases, including Q4 and fiscal 2007 financial tables, an investor-information summary and a guidance-reconciliation summary will be available today on the Investor section of Infinera's website at www.infinera.com.

The Company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call.

I would like to discuss the non-GAAP financial measures that are included in this afternoon's press release and today's conference call.

In our earnings press release, we announced operating results for the fourth quarter of 2007 and for fiscal 2007 that excluded the impact of non-cash, stock-based compensation, and warrant re-valuation expenses.

These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparisons.

Please see the exhibit to the earnings press release for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, and an explanation of why these non-GAAP financial measures are useful, and how they are used by management.

On this call, we will also give guidance, including guidance for the first quarter of 2008 and for fiscal 2008.

In this guidance, we will include non-GAAP invoice shipment results, which exclude the impact on non-GAAP, non-cash, stock-based compensation expenses from our results.

Again, we have reconciled the non-GAAP invoice shipment revenue results to our GAAP revenue results on the Investor section of our website.

We have not reconciled the other forward-looking, non-GAAP projections we will discuss today, related to gross margin, operating expenses, net results and earnings per share, because we cannot readily estimate the impact of customer and product mix on our lower of cost or market adjustments and gross margins, and the impact of our future stock price on our future stock-based compensation expenses.

For the remainder of today's call, we will be discussing our fourth quarter 2007 and fiscal 2007 results, and our first quarter and fiscal 2008 guidance, excluding the impact of these items, and will refer to these results as non-GAAP.

I will now turn the call over to Infinera President and CEO, Jagdeep Singh.

Good afternoon, everyone.

It's a pleasure to welcome you to Infinera's conference call for our fourth-quarter and year-end financial results.

Joining me is CFO Duston Williams, who will provide a financial report for the quarter and an outlook for Q1 after my remarks.

Our strong fourth-quarter results cap a year of remarkable achievement by our team, a year in which we solidly established Infinera as a leading supplier of digital optical networks to network operators around the world.

As our results indicate, an expanding and increasingly diverse set of customers is turning to Infinera to meet their ever-growing and unpredictable worldwide bandwidth-capacity needs, and to create what we believe are the world's most economically compelling optical networks.

Our disruptive and value-added approach to the optical transport market, utilizing Infinera's unique combination of large-scale photonic integration and Bandwidth Virtualization technology continues to gain traction, as our results clearly demonstrate.

In completing the fiscal year and our first seven months as a public company, there were several milestones worth noting.

Fiscal-year invoice shipments totaled $309.3 million, compared to $146 million in 2006, reflecting growth of 112%.

We attained record invoice shipments of $93.4 million in the fourth quarter, compared to $80.4 million in the third quarter of 2007, and $70.5 million in the fourth quarter of 2006, reflecting sequential quarterly growth of 16%, and growth over the year-ago quarter, a quarter that was, itself outstanding, of 32%.

We achieved an operating profit of $12 million in the fourth quarter, compared with an operating loss of $7 million in the year-ago quarter.

We generated $23 million in cash from operations in fiscal 2007, versus a negative $68 million in fiscal 2006.

Fourth-quarter results reflect sales strength in both our common equipment and additional channel TAMs, indicators of both our new-business momentum and the leverage of our business model.

Gross margins were 47% in the fourth quarter, on a non-GAAP invoice-shipments basis, demonstrating the long-term potential of the business model.

We expanded our customer base to 41 network operators, from 23 one year ago, included the recent additions of the Carphone Warehouse, one of the UK's leading Internet-content providers, and Equinix Corporation, a leading operator of Internet-business exchanges in North America and Asia.

We reduced the concentration of our customer base.

In the fourth quarter, four customers accounted for 10% or greater of Q4 invoice shipments, and no single customer accounted for more than 18%.

In Q4 2006, Infinera had two 10% or greater customers, with one of them accounting for 47% of invoice shipments.

Many of our customers are unannounced, but highly satisfied Infinera customers, evidenced by the fact that, as a group, unannounced customers account for 33% of our invoice shipments in the fourth quarter.

Over the course of the year, we also diversified our customer base in terms of markets served, expanding beyond our original core market of bandwidth wholesalers, into the fast-growing cable MSO and Internet-content-provider markets.

We now count four of the top five North American MSOs as customers, as well as some of the top Internet-content providers, in addition to most of the North American national-footprint bandwidth wholesalers.

Based on all this customer traction, and according to a third-party industry analyst, Infinera captured the number-one spot in the North American multi-reach WDM market, based on our invoice shipments and our competitors' revenues for the trailing four quarters, through the third quarter of 2007.

I'm often asked by investors why Infinera is winning in the marketplace, and what will sustain our growth and drive our penetration into additional new customers and markets.

I think the answers lie in the success and innovation of Infinera's customers in the marketplace today.

Customers are choosing Infinera because of our system's flexibility, its rapid service provisioning and its ability to deliver differentiated services without having to re-engineer their optical plants.

These capabilities enable our customers to deliver new value-added services very rapidly, enabling them to address one of the central business issues they face, which is how to compete in a world of steady price-per-bit declines that threaten their businesses and margins.

Operators that use the Infinera platform are able to compete very effectively on features like time-to-provision and the ability to deliver cutting-edge services, giving them a compelling advantage in the highly competitive market for telecommunications services.

We call the ability to separate the service interface from the line interface Bandwidth Virtualization, and we think of the line side as just a pool of bandwidth.

Implemented using an Infinera digital optical network, Bandwidth Virtualization allows our customers to respond quickly and flexibly to market demand, with a wide range of services, over a single optical infrastructure.

Our customers deploy our systems in a wide-range of applications, ranging from long-haul coast-to-coast mesh networks with hundreds of nodes to regional networks of a couple of dozen nodes, to metro-core networks of three to 10 nodes.

The beauty of our system is it allows our customers to leverage the advantages of our unique digital optical architecture across the multiple markets that comprise the worldwide optical-networking landscape.

In addition, our world-leading photonic-integration technology allows us to deploy optical capacity in 100 gigabit increments.

This enables our customers to rapidly and cost-effectively address the requirements of their customers.

Photonic integration also gives our customers a significant reliability benefit.

For example, our PIC have now been in field operation for over 40 million hours, with no failures.

Let me describe a few examples of how our customers are differentiating themselves with time-to-market leadership, flexibility and innovative services.

At Carphone Warehouse in the UK, this leading mobile-phone retailer and Internet-content provider was able to deploy a national network within eight weeks after signing up with Infinera, and has the ability thereafter to quickly increase their capacity, or, in their own words, to increase capacity at the touch of a button.

Infinera's unique combination of Bandwidth Virtualization and deployment of optical capacity in 100-gigabit increments allows Carphone Warehouse to take uncertainty out of the optical network, and enables it to meet last-minute, unanticipated bandwidth demand.

Last quarter, I described an innovative offer by another Infinera customer, XO Communications, a national U.S.

operator, guaranteeing 10 gigabits of capacity within 10 working days, and offering one month of free service for each year of the customer's contract if that provision deadline isn't met.

This XO initiative capitalizes on one of the key attributes of our gear.

Compared with traditional optical gear, we have very short lead times for capacity upgrades.

With Infinera equipment, XO was able to pre-provision capacity on its routes.

The initial XO program has attracted a lot of demand from new customers, especially in Asia-Pacific and European operators looking to expand their North America networks.

In fact, XO has decided to extend the offer from its initial two-to-five months, with the possibility of the 10-gig guarantee being extended indefinitely.

Looking ahead, we believe that continued network-bandwidth expansion will drive our growth higher than overall market growth in 2008.

We have significant additional penetration opportunities along three major vectors.

First is geographic, in which we continue expansion into regions such as Europe and Asia.

The second is a market segment in which we continue our expansion into segments such as cable MSOs and Internet-content providers.

And the third is in terms of product line, with the addition of new functionality that lets us compete more effectively.

Duston will now provide a Q4 report and Q1 outlook.

Duston?

Thank you, Jagdeep.

I'll first provide a brief summary of the Q4 actual results, and then follow that up with a outlook for Q1.

The following analysis of our Q4 results and results from other quarters in fiscal years is based on invoice shipments and excludes non-GAAP, stock-based compensation.

Please see the GAAP-to-non-GAAP invoice-shipment reconciliation, which is attached as an exhibit to today's earnings press release, for a reconciliation of these results to our GAAP results.

As Jagdeep mentioned, Q4 was another outstanding quarter for Infinera.

Although we are very pleased with these results, I will caution investors that this level of out-performance should not be assumed to be repeatable in the short-term.

Looking at the specifics for the Q4 results, invoice shipments, again, in Q4, totaled $93.4 million, versus $80.4 million in Q3.

International sales were 19% of our invoice shipments in Q4, versus a similar 19% in Q3.

We continued to broaden the customer base in Q4, which, once again, significantly reduced the Company's dependence on any one customer.

In Q4, we had four 10% or greater customers, with the largest customer accounting for 18% of revenue on an invoice-shipment basis.

Cox and Level 3 were among the 10% or greater customers, with the other two being unannounced customers.

In the preceding quarter, we had three 10% or greater customers, with our largest customer accounting for 28% of invoice shipments.

I wanted to take a few minutes to discuss our business with Level 3.

First, some history -- Level 3 invoice shipments, including Broadwing and Corvis, as a percent of our total invoice shipments for 2006 and 2007, were 52% and 35%, respectively.

Excluding Broadwing and Corvis, Level 3 invoice shipments for 2006 and 2007 were 40% and 31%.

Going forward, based on the success of our customer-diversification initiatives, it is our assumption that no single customer will account for more than 20% of our invoice shipments in fiscal 2008.

These assumptions are integrated into our -- in our belief that we can obtain 25% year-over-year growth in 2008.

I would note, however, that Level 3 remains an important customer in that, in fact, in Q1, we expect that Level 3 invoice shipments will increase over the Q4 total.

Turning to gross margins, they were 47% in Q4, versus 43% in Q3, and versus 25% in Q4 of 2006.

We exceeded our original internal-shipment expectations of tributary adapter modules, or TAMs, a higher gross-margin product, by almost 30% for the quarter.

This overage was driven by a handful of customers needing additional capacity, and we do not expect this trend to continue into Q1.

These incremental TAM shipments were the primary reason for the significant gross-margin-percentage out-performance.

It is interesting to note that even with the outstanding level of TAM shipments in the quarter, we also managed to have our second-highest quarterly-invoice shipments of DTCs in Q4.

As many of you recall, DTCs are a very important barometer of new-business footprint, so the Q4 volume is an encouraging sign.

Operating expenses for the quarter were $31.5 million, versus $26.8 million in Q3.

The majority of the increase in spending over Q3 was related to increased headcount and additional commissions correlated to the higher revenue performance.

Operating income in Q4 was $12.2 million, versus $8 million in Q3.

Other income and expense for Q4 was a favorable $3.9 million, versus $2.9 million in Q3.

The Q4 total included $700,000 related to asset sales and FX gains.

Net income for the quarter was $15.9 million, or $0.17 per diluted share, based on 95.3 million shares outstanding, versus $10.9 million, or $0.12 per diluted share in Q3.

Looking quickly at the balance sheet, cash, cash equivalents, restricted cash, and investments ended the quarter at $305.8 million, versus $191.4 million in Q3.

Our cash balance was aided by approximately $104 million, as a result of our secondary offering that was completed on November 5th.

Cash from operations in Q4 was a positive $18.9 million.

DSOs were 39 days, versus 47 days in Q3.

The lower DSOs were predominantly related to better linearity in Q4.

Inventory turns were 3.4, versus 3.2 in Q3.

Accounts payable days came in at 32 days, versus 54 days in Q3.

And capital expenditures were $8.5 million in Q4.

I'd like to now spend a few minutes updating you on our VSOE status.

As most investors are aware, throughout 2007, Infinera had not obtained vendor-specific objective evidence, or VSOE, on the fair value of our services, and, therefore, have been analyzing our business on an invoice-shipment basis.

At the time of our IPO in June of 2007, we made a commitment to the investment community that we would try to obtain VSOE no later than Q1 of 2009.

Today, I'm pleased to announce that, effective Q1 of 2008, Infinera has completed the necessary steps to obtain VSOE for software subscription, a key component of our current service offerings.

We are still working to obtain VSOE for EF&I -- engineering, furnishing, and installation -- and training services.

As a result of our achieving VSOE for software subscription, starting in Q1 of 2008, an increased portion of Infinera's shipments will be recognized as product revenue at the time of invoice.

However, where Infinera provides extended software warranty, EF&I and training services, which are undelivered at the time of invoicing, revenue will continue to be deferred and recognized as ratable until completion of these services.

Most significantly, due to the obtainment of VSOE on software subscription, the average deferral period for shipments -- invoice -- beginning in Q1 of 2008 will be approximately 30 to 45 days, as compared to 14 months in Q4 of 2007.

This will result in a significant increase in the amount of radable revenue recognized in Q1 of 2008, along with a reduction in additions to deferred revenue, and an absolute ongoing reduction to the deferred-revenue balance through 2008.

Due to the fact that a significant portion of Infinera's revenues will continue to be recognized as radable, we will continue our practice of reporting results and providing quarterly guidance based on our invoice-shipment methodology for the foreseeable future.

One further point to note -- because the amortization of the existing deferred-revenue balance will now exceed any future additions to this account, we expect that our GAAP revenue will be greater than our invoice shipments.

Continuing our invoice-shipment methodology will provide a clear reconciliation to mitigate this complexity.

We very much remain on-track to obtaining VSOE for EF&I and training services, and anticipate this occurring by Q4 2008, or earlier.

Looking now at Q1, we anticipate Q1 to be another solid quarter for Infinera, with a healthy mix of business between service providers, cable and MSOs, and Internet-content providers.

As mentioned previously, we do not anticipate that our Q1 results will have the benefit of the larger-than-normal TAM shipments that occurred in Q4.

With that as background, I'd like to offer the following guidance for Q1, based on invoice shipments, and which excludes an non-GAAP, stock-based-compensation expenses.

Invoice shipments of $90 to $92 million; gross margins of 41% to 42% -- once again, this gross-margin guidance assumes that our TAM revenues revert to historical levels; operating expenses of $36 million to $37 million; a majority of the quarter-over-quarter increase in spending will be dedicated to R&D; net income of $2.5 million to $4 million, based on an average estimated diluted weighted shares outstanding of 96 million -- this would lead to an EPS of between $0.03 and $0.04.

Operator, would you now please open the call up for questions?

Thank you.

(OPERATOR INSTRUCTIONS).

Ehud Gelblum, from JPMorgan, you may ask your question.

Hello.

Thank you.

Can you hear me?

We can.

Awesome.

A couple quick questions I wanted to go over -- first of all, if we're getting into the business -- the cash flow -- clearly, about $19 million in cash flow out of operations this quarter.

It was a negative $2 million last quarter, and I was trying to parse quickly through the cash-flow statement to see the difference, because, basically, your top-line clearly didn't move that much.

Can you kind of go over the moving parts there?

Was this unusual?

Did your accounts receivable kind of get dumped out?

That may have happened.

I'm not -- or, I mean, did something happen in the deferreds or something there?

And what kind of -- assuming you stay in this 90-millionish kind of range on the invoice-revenue side, what is the natural cash flow of the business, if you kind of normalize through the other things?

I'm just looking for -- how much cash does the business really spit out when some of the other kind of comings and goings of deferred revenue and deferred other things -- and kind of stabilize out?

Sure.

I'll take that, Ehud.

Yes, if you look at the -- clearly, DSOs came down quarter over quarter.

So that definitely helped offset the revenue growth.

But the fact -- the business made more money in the quarter, so, obviously, that's a benefit there.

But you did $19 million in cash flow off of -- off of 90-some -- $93 million in -- call it invoice revenue, but call it revenue that we'll be looking at.

That's an insanely high margin.

Is that kind of the margin that we should be looking for going forward, roughly in --?

No.

No, not at all.

And it was a great quarter from a -- I think, from a balance-sheet-management perspective.

As the DSOs came down -- made a fair amount of money in the quarter -- but depending how fast we grow the revenues, obviously, from a working-capital perspective, you should assume that fair amount goes back onto the balance sheet, as we continue to grow the business -- meaning inventory growth and accounts receivable growth as we grow the business.

Okay.

I hate to nitpick on these things, but no one ever asks these kinds of questions, so I figure I may as well attack the balance sheet for a little bit, too.

The inventory -- your inventory has been dead flat for literally 18 months.

Yes, right around $57 million to $58 million.

Exactly.

Does that go up next quarter or in time?

Do we start seeing that skyrocket?

Or is that really, for some strange reason, all you need to keep in your warehouse?

I wouldn't expect it to skyrocket, no.

But I'd expect it to keep within these turn levels that you've seen over the last three or four quarters.

Okay.

So as revenue moves up, returns will make the inventories finally start moving up again.

It could, yes.

Okay.

But not much.

Okay.

And then two other questions kind of more closer to the business -- the OpEx ended up being low again.

What was the -- I missed maybe the reason to why and how that should -- ?

Yes.

We provided -- the guidance that we provided going into the quarter was, I believe, $32 million.

It came in at $31.5 million.

So --

But you upsided the top-line by a lot, so one would have thought that --

Yes.

I wouldn't -- we've got, again, some timing issues here and there that can move from quarter to quarter.

And then, as you see, we've guided up a fair amount in Q4 to $36 million to $37 million.

Okay.

Your gross margin, finally, obviously, was very high, and a function of the extra TAMs.

Two questions on that -- one is, did you -- were these last-minute types of orders that came in?

And what are those carrier-customers seeing that made them suddenly have to rush off to get more TAMs than you expected?

And then, is -- should we assume that 42% is the mid-point of where gross margins are, and when there's a rush on -- run on TAMs -- it goes to 47%, 48%, and it could just as easily go the other direction?

We could look at a 35% some quarter?

Or is 42% the bottom, and, like 45% to 47% is kind of the mid-point of regular mix?

Yes.

I think we've always said that margins would fluctuate by a fair amount quarter over quarter.

I think we'd be disappointed on your 35% number, obviously.

But, yes, I think in the -- very consistent, by the way -- what we've said for quite a while now -- in 2008, somewhere in the low 40% range is normal.

Now, we had a couple surprises with some TAM orders in Q4, as I say, but that popped up the overall margins.

But we very much expect to be back into that low 40% range.

Yes, I think, Ehud, the basic point there is what we've already said all along, which is, our business model has two main prongs to it.

One is we want to increase our new-footprint wins, which is empty slots that we can sell into -- right?

That creates empty slots as we sell new chassis and so on.

And over time, once we win that footprint, we expect to fill those empty slots with TAMs.

What we -- and in the long run, I think what the results demonstrate is that business model is obviously validated by the results that we're talking about.

What we obviously can't predict is the quarter-to-quarter specific fluctuations.

I mean, our customers are going to buy TAMs.

The whole beauty of our system is that it's very flexible and very rapid -- very fast to order TAMs and turn them up.

So you turn them up on a just-in-time basis, based on your bandwidth demands.

So that's going to fluctuate, obviously, on a quarterly basis, which is one of the parts of the value propositions.

We can't predict that precisely, but I think the real point is, longer term, we would expect the TAM ratio to continue to --

Right.

And lastly, did your customers give you any sense as to why they suddenly needed more TAMs -- from a global-to-macro perspective on bandwidth demand?

I think there's no single reason that's there.

I mean, I think the takeaway, if any, is if there clearly wasn't a dramatic slowdown in their demand for bandwidth, that's for sure.

But if vendor -- customer-specific factors that drove their demand for TAMs.

Okay.

I appreciate it.

Thanks so much.

Thanks, Ehud.

George Notter, from Jefferies, you may ask your question.

Hi.

Thanks a lot.

A question for Duston -- just so I'm clear on what's going into the Q1 guidance -- the $90 million -- $92 million -- how are you handling revenue recognition there?

I heard what you said about how a portion of your revenue stream we now have VSOE on.

Does that mean there is a big slug of incremental revenue that, previously, has been hung up for rev-rec that will now flow through here, and it makes comparability of Q1 to Q4 more difficult?

Or will you still be using the same rev-rec methodology in Q1 as you had in Q4?

Thanks.

Yes, great question.

There will be absolutely no change to how -- our methodology of reporting the numbers -- so the invoice shipments -- the exact same methodology that we applied in Q4 or Q1, this year or last year, will remain.

The only thing that the real difference is is the shorting -- shortening of the ratable periods, which is going to cause a lot of the deferred revenue, from a GAAP perspective, to flow off to the balance sheet.

So the GAAP revenues will now exceed the invoice-shipment revenues.

But we will continue to, just like we have, report from a management-reporting perspective and a guidance perspective based on invoice shipments.

So absolutely nothing has changed there.

Got it -- Okay -- got it.

So the commentary about the software and then getting recognized upon shipment -- that's all a GAAP discussion?

It has nothing to do with the invoice-shipments discussion?

That is correct.

Okay.

And then, just a bigger-picture question on 40-gig, from a technology perspective -- I know you guys are working on a new PIC chip that supports 40-gig wavelength.

Can you just talk about where that is -- what the game plan is for supporting 40 gigs in native format?

Thanks.

That's a great question.

And let me take a few moments to address that, because it's an important question.

So there are two parts of the 40-gig story.

And part one is -- what customers need right away is the ability to connect 40-gig services up to their 40-gig devices -- so the 40 gig on the service side.

That, they can serve today via our 40-gig TAM.

So we have a tributary adapter module that lets them deliver 40-gig interfaces, 40-gig serial, over the 100-gig PIC-based optical plant they've put in place.

And that's the whole point of Bandwidth Virtualization, as you guys know.

So there's no change to the plant.

That 100-gig PIC optical plant can be partitioned off in either 10-gig or 2.5-gig or 40, for that matter, using today's systems.

And so, from a service standpoint, customers can deliver the 40-gig services they need with the Infinera platform.

The second part of the issue is the line side.

On the line side, there is one, and only one, reason to look at higher line rates or lower line rates, and that's basically economics.

Is it -- are you better off economically with higher-speed modulation on the line side than you are with a 10-gig?

And the answer is, You might be, but it depends on how that higher speed is implemented.

And the issue that we have with current implementations of 40-gig is that they're done using discreet parts, and a 40-gig DQPSK modulator is going to end up needing more parts than an equivalent number of 10-gig modulators.

So you end up with actually a potential production reduction in your economic -- overall efficiency -- not to mention power dissipation.

We believe that DQPSK is a fine technique and has value, but it really only becomes economically viable if it's implemented in an integrated fashion on a PIC.

And so what we've said is that we fully intend to pursue the high-speed modulation using the PIC, but we're going to leverage integration to get that there.

So, to summarize, on the service side, we have 40-gig capability today.

So no customer has any -- we don't preclude any customer from delivering 40-gig services to their customers today.

And the line side -- we intend to deliver state-of-the-art economics with higher-speed modulation, whether it's 40 or 100 or whatever else makes sense, leveraging our PICs.

Got it.

And I assume -- is that something that's deliverable in 2008, or is that next year?

We haven't made any comments on the timing of that.

Okay, thanks a lot.

Sure.

(OPERATOR INSTRUCTIONS).

Marcus Kupferschmidt, from Lehman Brothers, you may ask your question.

Hi.

Hi.

This is Jack Monti in for Marcus.

A couple questions -- first on R&D.

I noticed that it's getting guided up, but mainly because of -- or, I'm sorry -- the operating expenses -- mainly because R&D more closer to 40% range.

In the longer term, the model is 35% range.

Should we think about that trending down throughout '08, or is this kind of a pickup throughout '08 of the R&D?

Yes, you're right.

The total operating expense to the invoice-shipment target has been 35%.

What we have said is that, for the immediate future -- probably throughout 2008 -- that should be viewed in the high 30% range, probably.

Right now, we've got it around 40%.

But we will not be at that 35% -- we certainly don't anticipate being at that 35% in 2008.

And one more thing -- I guess when you talk about -- I think there was three comments on penetrating new opportunities next year.

One was Europe and Asia.

The second was by, kind of, market segment -- cable MSOs, Internet-content providers, and the third was -- I believe I heard it correctly.

Just to be clear, was it new functionality?

Yes.

And then, if so, maybe, could you kind of elaborate on that, between core-switching, metro WDM, long-haul, or how we should think about that functionality in the broader optic market?

Thanks.

Yes.

I mean, I think what we've said publicly is -- I mean, I think some of the areas of interest to us are to play in markets that are -- or spaces that are -- just adjacent to where we are today.

So, for example, we play very well today in the long-haul and metro-core markets.

And so the functionality we'd be talking about would be functionality that helps us play better further into the metro -- closer to the edge, for example, or with more packet-type functionality and so on, over time.

And that's what we've said publicly.

And we haven't provided anymore details on that roadmap.

Thanks a lot.

Brandt Thompson, from Goldman Sachs, you may ask your question.

Brandt, you there?

This is Katie for Brandt Thompson.

I just was wondering if you could, please, just walk through the visibility that you're seeing in the '08 outlook for 20% growth, maybe by customer group.

Thank you.

Yes.

Just to make sure, we said 25%, which is very consistent with what we've been saying all along, Katie.

So I think you said 20%.

But what -- we were saying we were comfortable with '08 revenue growth of 25%.

Thank you.

Okay.

And I'm sorry -- the second part of the question was what again?

If you could just walk through, by customer group, the visibility that you're seeing in the channels?

I don't think it differs necessarily by customer group at all.

Again, as we go into the quarter, we've got a pretty good feel for where business is coming from.

Again, the nature of our business requires us to have pretty close interaction with our customers, due to the size of the transactions.

So I don't think -- nothing has changed this quarter, as compared to the Q4 quarter or the Q3 quarter.

So the level of visibility we have has pretty much stayed the same.

As you go out into the year, obviously, we have discussions with customers on their anticipated buying for the year, but it gets, obviously, less finite as you go out quarter after quarter.

Thank you.

That's very helpful.

Okay.

(OPERATOR INSTRUCTIONS).

Okay.

If there are no further questions, I want to thank you for joining us today.

We're excited about Infinera's future, and we look forward to staying in touch with you in the months and years ahead.

Thank you.

This concludes the conference call.

You may now disconnect.

Thank you.