瞻博網絡 (JNPR) 2004 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Juniper Networks's first quarter financial results conference call.

[Operator Instructions]As a reminder this conference is being recorded, Wednesday, April 21, 2004.

I would now like to turn the conference over to Randi Feigin [ph], Vice President Investor Relations for Juniper Networks.

Please go ahead.

Good afternoon, everyone and thank you for joining us today.

With me is Scott Kriens, our Chairman and CEO and Marcel Gani our CFO. In addition we have Robert Thomas [ph], who has been the CEO at NetScreen.

If you've not yet seen the press release it can be retrieved at www.Juniper.net or off of First Call or Business Wire.

We're excited to announce that we closed the NetScreen acquisition on Friday. Given the recent combination of the two companies we'll be spending a little extra time on the call today so we can provide details regarding each company's quarterly results, as well as what the combined company looks like going forward. First, Scott and Robert will discuss each company's first quarter business. Then Marcel will review the financial [inaudible], as well as the combined expectations going forward. Scott will conclude the call with comments on the combined company going forward including integration activities, structure, and strategy.

Before I turn the call over to Scott, I would like to remind you that the matters we will be discussing today will include forward-looking statements and as such as subject to the risk and uncertainties that we discuss in detail in our most recent form S-4 filed with the SEC, which identifies important risk factors that could cause actual results to differ from those continued in the forward-looking statements.

In addition, we will be presenting information regarding NetScreen's independent financial results for the quarter ending March 31, 2004. Historical NetScreen information is provided for your information and convenience, only. Because it relates to a period prior to our acquisition, does not come comprise a part of Juniper's financial results for the quarter ended March 31, 2004. The financial results of NetScreen from and after April 16th, 2004, which was the date of the acquisition, will be combined with, included in our financial results, beginning of the quarter ending June 30, 2004.

We are also presenting some non-GAAP financial information and reconciliation of GAAP to non-GAAP items can be found on our Investor Relations web page as well as the press release.

Juniper Networks assumes no obligation and does not intend to update forward-looking statements made on this call.

Scott, I'll now turn it over to you.

Thanks, Randi and good afternoon to everyone.

As Randi outlined today I'll be talking about Juniper's recent results for the first quarter, which was another strong quarter for the company. After Robert and Marcel's commentary, I'll conclude the call with specific remarks regarding the combined company and with an update on where we stand with integration activities given the close of the NetScreen acquisition last Friday, and also our plans and strategies moving forward. So first, to the first quarter's results. As you seen from the numbers in the press release we're pleased with the results for the quarter. This is not only measured by 6 consecutive quarters of revenue and earnings growth, but on other metrics as well, which Marcel and I are about to review.

The revenue was $224.1 million which is up over 8% from the last quarter and up 43% from the year ago period. And non-GAAP EPS 9 cents up from 7 cents last quarter. GAAP EPS 8 cents for Q1 and please see the press release on the our website for the reconciliation of non-GAAP to GAAP results.

We recognize revenue 1,318 units this quarter and we shipped 23,288 ports. And these numbers reflect continued strength at the high-end in contrast with Q4, where the emphasis was on lower speed interfaces. And, once again, this demonstrates the positive business cycle of the co-stimulus and the continuing demand from core to edge for the last several years. And we're pleased to report, as well, that both Ericsson and Siemens represented 10% or more of total revenue during the quarter and that we, again, saw an increase in contribution from Lucent in the first quarter. I'm also happy to report that, along with the strong performance of these global partners, we continue to enjoy a diverse balance of contribution from our many partners around the world, including MTech, NK Networks, Net Comm, NEC, SAIC, [inaudible] China [inaudible] Systems and Service, Basing SRD Computer System Integration, Nissho and Hitachi. This diversification allows us to continue to add to our growing customer base and to the level of business we do with the mainstream providers and also to secure new business around the world.

Though we made several public announcements during the quarter, first in the Americas. Our E, M, and T-series platforms continue to be the right products at the right time for providers adopting IP MPLS as the network foundation for delivering new services to their customers. And new customers this quarter include Teleus, Telephonic of Brazil, [inaudible], Internet II and the State of Kansas. And our inclusion, as well, in both the common criteria certification for IP routers and the GSA schedule continue to streamline procurement processes for Juniper products by government agencies. In Emea [ph] our E and M-series, enable new services the network edge in Africa with Comtech [ph], in the U.K. with pipe x communications [ph], and Slovenia with ISP SIOL. We saw significant core activity with TCOM, which is the fixed network division of Deutsche Telecom AG, who are upgrading their network T640's through our partners Siemens and APAC as well continues to innovate with Juniper Networks as a foundation for leading edge services as demonstrated by announcements this is quarter, including Hutchinson Global Communications, Korea Telecom, SingTell [ph] and J Yang Communication.

On the product front. In the first quarter, we introduced the M320, multi-service edge platform and the M320 supports both existing emerging layer two and layer three services and offers a longterm strategic investment for providers that are looking to transform multiple disparate networks into a single multi-service network or infranet, which I'll talk about some more in a minute.

Also introduced was the Juniper Networks frame and ATM service emulation pool kit which delivers the most complete ATM and frame relay service emulation in the industry.

And that also on the subject of products, we announced the E-series completed the Tell Cordia [ph] Osamine Services process for the Tell Cordia turk system which is used by our box to plan, assign, provision, and inventory telephone networks and the M-series earned the ICSA Labs firewall certification.

So, as well, beyond specific customer and product announcements, I spoke last quarter about significant trends we're seeing in the market toward networking that delivers the security and the predictability of private networks with the economy and global reach of public infrastructure. Last quarter we formalized our recognition of this industry trend at Telecom Geneva with the announcement of the infranet initiative, which outlined our vision for a new public network infrastructure and called upon the industry to create interfaces and standards needed to facilitate that result. I'm pleased to report that the Infranet Initiative Council, or ICC, has been established and we held our preliminary meeting at the 3GSM in Cann in France last February and the industry responded very positively to our call to action and we now have a growing list of participants, including British Telecom, Orange, IBM, Siemens, Lucent, and Ericsson to name a few. And effective today, the ICC Website was launched, which you can find infranet.org as global resource for the infranet initiative where regular updates of the initiative and the council can be found.

And so, in summary, as I mentioned at the outset, the first quarter was strong. And as Marcel will cover in a few minutes, our outlook going forward will continue to reflect the fact that Juniper's position exactly where the industry will need to go as growth and recovery continue. We don't expect these opportunities to be uncontested. As clearly others will observe the same trends, and I'm sure no shortage of powerpoint and accompanying promises will be thrown in the same direction, but the customers who are building these networks know that they're setting the foundation for their future and they're increasingly aware of the differentiation Juniper brings and they don't need Juniper or anyone else to tell them how important it is to build the best and most secure networks with the best products.

So now, I'll turn it over to Robert for comments regarding NetScreen's business results. Robert?

Thank you Scott and good afternoon, everyone.

As well as a significant integration efforts that were under way during the quarter, we're pleased to report we had yet another strong quarter, continuing our history of double digit revenue growth and delivery of innovative security products to the market. The March quarter also mapped our first complete quarter with NEO [inaudible] and the team integrated. The secure access business made a very strong contribution to the quarter while the [inaudible] PM business continued to see solid demand from large enterprises and service providers. Additionally, our IDP business continued to grow. Further, we had a number of significant product launches throughout the quarter, expanding our product portfolio to include new solutions for telecommuter and remote office environments, large enterprises and service providers, as well as medium enterprises.

As noted on last quarter's call we formally introduced in March an initiative and new set of entry-level base line products targeting the medium enterprise. These products offer simplified functionality to specifically address the security and price performance requirements of medium enterprises, expanding our range of products from which Channel Partners can create cost-effective solutions for medium enterprise customers. We're pleased with the tractions these products have gained to date and we look forward to continuing our penetration in this growing market segment.

We recently launched a new NetScreen secure access appliances and the NetScreen secure access central management product. The unified administration and management of globally distributed SSL VPN gateway deployments. These appliances are the first among SSL VPN solutions to address the advanced security needs of customers deploying partner extra-net and intranet with unique dynamic access privilege management, rich user self-service, granular roll-base delegation, and centralized management.

We also introduced new NetScreen secure meeting appliances. The industry's first dedicated SSL-based appliances for secure, cost-effective online meetings and peer to peer collaboration.

On the IDP product font, we delivered version 3.0 of our IDP software. Making available the industry's first solution to integrate application and network profiling in attack investigation capabilities into a single appliance.

Just last week, we announced the availability of the next generation, integrated network security platform, a Netscreen ISG2000 which is the industry's first integrated gateway uniquely designed to provide best of breed perimeter security functionality protecting against network and application level threats, while optimizing performance and decreasing complexity of enterprise and carrier networks. The new purpose system has a modular design and unique processing architecture that includes a new fourth generation APAC. We expect this new platform to serve as a foundation for continuing our history of delivering high performance and highly effective integrated network security devices that help minimize costs for our customers. Overall, we saw continued strong demand for our products on a worldwide basis and our competitive win rates continued at past levels.

We announce an exceptionally large enterprise and service provider custom wins throughout the quarter, including Siemens Netherlands, Radio Shack, [inaudible], Swift, TDS Telecom and Korean Daycom [ph]. The March quarter also is an award-winning one for us. We received a 5 star rating from [inaudible] business magazine for our partner programs and this recognition by [inaudible] reflects the robustness of our programs which seek to minimize partner conflict and maximize partner results for IT solution providing firms, resellers and consultants.

We also secured three distinguished security awards from a leading French IT publisher. NetScreen Secure Access 5000 platform achieved the VPN solutions Canterbury award and the Events Flagship best innovation award, which compared the winners from 11 security specific categories to determine the best overall security technology.

Also in the final IDS/IPS category we won with our range of custom-built integrated firewall and VPN devices. The jury chose it as a clear winner because of its [inaudible] inspection firewall functionality that provides network and application-level protection.

Additionally, due to our strong product offering, sound strategy and large market presence, we were designated as the clear market leader in [inaudible] Researches first-ever evaluation of the SSL/VPL industry and competitive landscape report.

And most recently, we achieved placement in the leader quadrants of both government groups prestigious SSL/VPN and firewall magic quadrant reports. This recognition reflects the years of incredible business execution, vision, and continued product innovation we've delivered since our inception in 1997.

In summary, we continue to penetrate the large enterprises and service provider markets with firewall, sight to sight VPN, intrusion prevention and SSL/VPN based secure access solutions. We're very excited by the recognition we've received from the industry and our new product offerings. We believe that the combination of NetScreen and Juniper's products, technology, momentum, channel, and expertise can help customers address their most sophisticated networking and security challenges, helping them to derive strategic value from their networks and create competitive advantages for their business. Customs and partners that I've spoken to over the last two months also share this view.

I'll turn over to Marcel to review the financial results ended March 31 for both Juniper and NetScreen.

Thank you Robert.

I'll will first review the pertinent financial details regarding Juniper for Q1.

I will would like to say that I'm pleased with financial metrics of this quarter, total revenue for Q1 was $224.1 million up 8% from last quarter and up 43% from the same period last year.

We continue to monitor our business based upon the deployment of customer application; however, please keep in mind that these numbers are approximation and certain definition criteria and assumptions can vary.

We're pleased with the balance of our core and Access business, with core representing about half of our revenue and Access representing the other half. Service revenue was 29.9 million, up from last quarter, and we expect service revenue to continue to be a profitable revenue stream going forward. The total book to bill ratio was greater than 1 in the quarter. As Scott mentioned we have two channel partners each to represent 10% or more of total revenue during the quarter, Ericsson and Siemens. We continue to see diversification in our channel partners. In the first quarter the combination of both Ericsson and Siemens again represented approximately 25% of our total revenue.

We're pleased with the strong growth we experience in the government business. As the revenue increase, it will become increasingly difficult for anyone to represent 10% of our total revenue. I'll address this further when we make comments regarding the combined company going forward. As a reminder, most products are configured to the specific requirement of the network, therefore almost all shipments to reseller are going to identified end-user.

As we have stated in the past, our business will be lumpy by application as well as geography. We're pleased with the growth across each region of the world. The Americas represented 43% of total revenue. We're also pleased to state the U.S. has now shown sequential growth for 4 quarters in a row. Europe represented 28% of total revenue and Asia represented the remaining 29%, of which Japan was greater than 10% of total revenue. We're pleased to see this equal balance among our international region.

Revenues to our direct sales force consisted of 26% with the remainder going through global and country specific distributors. Gross margin was 67%, up from 65.9% last quarter, due to large revenue and volume increase and it compares to the fixed cost, as well as a favorable interface mix. Service margin was approximately 42%. R&D expenses were 46.6 million and accounted for 20.8 million of total revenue, which compares to 44.7 million, or 21.6% of revenue last quarter. The dollar increase is due to an increase in payroll tax and benefit cost as well as development programs. This expense grew slower than revenue.

Sales and marketing expenses were 43.5 million and accounted for 19.4% of total revenue. Down slightly from 44.4 million or 21.4% last quarter. As discussed on the last call, the decrease is attributed to less commission, expanse relative to Q4, but upset by the increasing investment in the sales and marketing. G&D expenses were 8.9 million and accounted for 4% of total revenue which compared to 7.2 million or 3.5% of total revenue last quarter. This increase was due primarily to ongoing litigation expenses. All non-GAAP references that I discussed exclude the amortization of purchase intangible and deferred compensation and the gain on the sale of investments. Please see the press results on our website for the reconciliation of non-GAAP to GAAP results.

Operating expenses declined 44.2% from 46.5% of total revenue last quarter and up slightly to 99 million compared to 96.2 million total revenue last quarter. I'm happy to state that operating margin continued to increase. Operating income, 51 million, or 22.8% of total revenue compared to operating income of 40.1 million or 19.4% of total revenue last quarter. Net interest and other income totalled 2.5 million compared to 718,000 last quarter. This increase was due to higher cash level and decrease in interest expense from the partial retirement of bonds in 2003. Our tax provision for the quarter 17.1 million or 32%. Net income increased for the quarter 36.4 million or 16.2%, compared to 27.7 million or 13.4% last quarter. Diluted EPS also increased in Q1to 9 scents versus 7 cents in Q4. On a GAAP basis, which includes the amortization of purchase intangible and deferred compensation of approximately 4.1 million in Q1, our operating expenses totalled 103.2 million and net income was 33.5 million or 8 cents per share compared to net income 14.7 or 4 cent a share in Q4.

Now a few comments regarding the balance sheet. Cash, cash equivalent, short and long-term investment, totalled approximately 1.1 billion. We're very pleased to announce we generated approximately 73 million in cash flow from operations during the quarter. In addition, we've made an opportunistic decision to redeem the remaining 142 million of the March 2007 convertibles subordinated notes that will occur in May. This will reduce our total debt and interest expense going forward, taking into account the interest saving as well as lower cash level this will save us approximately 900,000 per quarter going forward. Accounts receivable was 87.4 million and day sales outstanding 36 days up from 34 last quarter. This remains in our target range of 30-40 days and we're pleased that we're in line with the goals. Deferred revenue was $100.3 million up 25 million from last quarter. This increase is primarily due to a large number of service renewal as well as deferred revenue related to the new M320. Capital expenditures was 7.6 million and depreciation was 8.6 million during the quarter. We ended the quarter with 1,585 in total head count up from 1,553 at the end of last quarter. It is attributed to the strategic hiring of field personnel as well as support infrastructure, which we expect to continue.

Now, I'd would like to review the financials prepared by NetScreen for their first quarter and the final result for the Company on a standalone basis. Going forward we'll report revenue on the security products of Juniper as a segment our business and it's results will be provided in summary form.

Revenue grew to 93.5 million in the March quarter, which will present the 24th quarter of consecutive revenue growth. This is a 15% sequential increase and a 60% increase over the same quarter last year. Product revenue for the March quarter increased 15% over the prior quarter to 74.8 million or 80% of revenue. Maintenance and service revenue increased 16% over the prior quarter to 18.7 million or 20% of revenue. From a geographical perspective the Americas represented 46% and international represented 54%, with Europe at 26% and Asia Pacific at 28%. Channel sale accounted for 90% of revenue. The customer mix remained very diversified as there were no customer representing more than 10% of revenue. Product revenue was as follows: high-end system approximately 41%, [inaudible] products approximately 25% and low-end product approximately 34%.

The following numbers are pro forma and exclude the admortization of intangible and deferred stock compensation and merger related cost. Please see the press release on our website for the reconciliation of non-GAAP to GAAP results. Overall gross margin was 79.9 9%. Product gross margin was 81% and service gross 73.5%. Operating expenses for the quarter were 50 million consisting of R&D expenses 13.9 million, sales and marketing expenses of 30.6 and G&A expenses of 5.4. Operating profitability was 26.1% and pre-tax profit was 26.9%. The fully diluted share count was 99 million and non-GAAP net income 15.3 million or 15 cents per diluted share. On a GAAP basis, which includes the amortization of purchase intangible and deferred compensation of approximately 10.7 million as well as one-time acquisition related charges of 10.6 million, operating expenses 71.2 million and net loss with 3 million or three cents per basic share loss, compared to net income of 6.4 million or 7 cents per share last quarter. NetScreen operated on a cashflow positive basis for the 11th consecutive quarter with positive operating cash flow from operation of 29.5 million. Cash, cash equivalent and short term investment totalled approximately 416 million. Deferred revenue increased 14.6% to 73.1 million and DSO were 41 days. Total head count was 913.

Now, I'd like to discuss the combined company guidance going forward with the purchase accounting rules and attempt to give you an estimate of what would have been without the purchase accounting rules, in fact. We'll continue to focus on our financial fundamental going forward, we can't predict the level of business each quarter, but we're managing to a financial plan and would like to share those plans with you.

As Scott mentioned we just closed the deal three business days ago so we still have some work to do regarding our understanding for the full impact of the purchase accounting rule and we'll continue to recognize revenue on the security product via distributors on a sale-through basis. I'll spend a couple of minutes to discuss the purchase accounting rule as well as providing as much transparency as possible.

There are four primary accounting implications: revenue, deferred revenue, gross margin and expenses. From a revenue perspective, according to the purchase accounting rules, no company may take revenue for sales they did not incur the cost for, this would include all NetScreen deferred product revenue, in addition, all NetScreen product backlog will be valued at amortized and inventory will be written up to fair value, both resulting in an increase in cost of goods sold.

Deferred service revenue will also be impacted by the purchase accounting rule for this same reason. The majority of service contracts have a one-year term. Deferred service contracts will be reduced to the cost of providing it, thereby eliminating the majority of the otherwise recognized margin on service revenue which, for the first quarter, was 73%. Service revenue and gross margin will be impacted for as long as the service contract exists, of which most of the impact will be over the next four quarters. Due to this changes deferred revenue will be significantly reduced in Q2 and we would expect it to increase over time.

In addition, because the companies were not combined until April 17th, the second quarter will reflect only 75 of the 90 days of Juniper's new security business revenue and expenses, excluding NetScreen's business and results prior to April 17th, and the annual results will only reflect the combined activities from April 17th, going forward. Certainly the numbers are complex on a reporting basis, as a consequence of the accounting requirements, but on an operational basis we're still invoicing and shipping to customer for the same amount of goods and services and collecting the same amount of cash as we would in a normal quarter.

With that being said, the second quarter will have many one-time purchase accounting implications, but it will start to normalize in the third quarter. I will now provide you with our guidance for Q2 and for the full calendar year, but, as I mentioned previously, these are estimates given as we only closed the transaction three days ago.

For Q2 we are forecasting revenue 270-275 million, which consists of 235-240 million for infrastructure product and services and approximately 35-37 million for security products and services. This excludes approximately 65 million of revenue due to the purchase accounting rule as well as representing only 75 days of the quarter. And as a reminder, the impact from the purchase accounting rules are truly estimates at this point in time.

Gross margins will be down in Q2 due to the impact of the purchase accounting rule to a range of 64-65%. We expect shares of 560-570 million, which include the approximately 140-150 million shares issued for the NetScreen acquisition, as well as approximately 20 million share from the zero coupon convertible given that we have hit all of the conversion threshold. We would expect a non-GAAP EPS of 3-4 cents per share which again reflects the purchase accounting rules.

Without the purchase accounting rules and assuming a full quarter of operation, we estimate our numbers for Q2 would have been approximately 335-340 million for revenue. And 68-69% gross margin, resulting in 10 cents per share, reflecting growth on both the top and bottom line. A GAAP EPS target is not accessible on the forward-looking basis due to the high variability and low visibility with respect to the nonrecurring charges which are excluded from the non-GAAP EPS estimate.

From a balance sheet perspective, we expect to generate approximately 100 million in cash from operation in the second quarter. For second half of the year with we would expect approximately 705-720 million in revenue, which excludes 15 million of loss service revenue due to the purchase accounting rule resulting in approximately 20-21cents per share for the second half. Without the purchase accounting rule, impact, the revenue guidance and would have been 720-735 million, resulting in, approximately, 22-23 cents per share for the second half.

Going forward, we plan to report our revenue in three categories: network infrastructure product, security products and services. Given the larger revenue base we do not expect any 10 percent customer going forward. These forecast are all based upon estimation and actual results can vary for a number of reasons including those mentioned in our SEC filing.

Finally we'll continue to focus on our objective of delivering high-quality financial metrics.

Now I'd like to pass back to Scott to discuss the combined companies.

Thank you Marcel.

As you know, we closed the transaction this past Friday, but we've done a lot of integration planning and I'd like to share the status of the integration over the first three days.

The methodology, the process, and rigor have been similar to what we instilled we did the Unisphere acquisition. Be decisive and move quickly, focus on the opportunities to accelerate our leadership position. And respect the origins of the NetScreen success and simultaneously unify as a single company under the Juniper brand as we move forward.

That said, here are some results and status thus far.

First, the entire organization has been announced and implemented throughout Juniper, including the people who's jobs have been impacted by the acquisition. This has resulted in the elimination of approximately 100 jobs in the combined company, which is predominantly the result of some obvious redundancies, but we have opened positions in areas such as product, sales, and marketing to support investment and accelerate the realization from the leverage of the acquisition. Many leadership decisions have, of course, been made during this process, and one in particular which I'd like to share with you today. [inaudible], the former CEO of NeoTerrace, who came to NetScreen as a result of their acquisition last fall will be assuming the role of Vice President and General Manager of the Juniper Networks Security Products Group and will be an Executive Officer of the Company, reporting directly to me. [inaudible] and I have spent a great deal of time together in the last few months and I'm very pleased to welcome him to this role. He will be a key contributor to Juniper as we execute and expand our position in the security market.

Robert Thomas will remain with Juniper through a transition period, which we have both agreed to deliberately leave open-ended until we are both convinced that the integration and acquisition have completed. And Robert will leaving Juniper after that goal has been met and will pursue personal interests. Robert has been invaluable to me, to NetScreen, and to Juniper for the vision to drive this transaction in the first place and since the announcement of the definitive agreement in February, a great support in the planning for the integration. And this will continue as we implement our plans, which Robert, myself, and entire leadership team at Juniper are committed to completing quickly to capture the market opportunities that we all see.

The balance of my team of direct reports will be unchanged. With Jim Dolce responsible for field operations, which is sales, marketing and service worldwide. Ashok Krishnamurthi running our infrastructure product groups, or the traditional Juniper portfolio. [inaudible] running the security products group. Marcel responsible for business systems for the entire company. George Riedel, who runs our corporate development group. And Pradeep Sindhu who is our founder and Chief Technology Officer.

Within 90 days, we will be completing the consolidation of the facilities of the two companies to a single campus here at Juniper's Sunnyville Headquarters. A move of 3,000 feet for the security team from the NetScreen headquarters across the street.

Integration activities are now under way across every function of the company from business systems to sales. As one example, the sales kick-off meetings worldwide which bring together everyone in the unified teams are held starting next week in Hong Kong, then in Europe the following week and concluding here in Sunnyville, with the teams already operating effective this Monday as one organization under Jim's leadership. In all other aspects of the company, teams are united as of this week and some facilities moves already taking place, for example, within the finance organization as people are relocating to Juniper Headquarters today.

We're also reaching out to partners to deliver to them the expanded value of Juniper, and are already at work on strengthening and extending the relationships that are so effectively built by NetScreen with its success in the market. A common operating plan and budget for with funding for initiatives now possible with the collective portfolio and market presence of the company has already been approved and is being implemented across the product and marketing organizations. Suffice it to say that we're executing and we're very clear about what we're doing and where we are going. The opportunities of the two companies have been made possible by speed and focus. And we're accelerating on all fronts to leverage those attributes.

And finally, to a few thoughts on strategy and the broader objectives and the vision that we have.

There has been a lot written by Juniper's motivation for this move and as is our policy we don't comment mid-quarter about business in the same period. Now that we've reported, I can confirm what we said at the time we announced the NetScreen transaction. This is an acquisition that joins strength with strength. Some speculated that we may have been driven by some concern or perceived weakness in our business. That is wrong. The opposite is true. The time to expand is when the Company is strong and when the market is ready for new leadership. That time is now. And here's why.

There is an old world view of the network and a new world view. The old world believers buy, sell, and build physical networks, thinking of the world as a place where they connect unnecessarily complicated enterprise equipment to unintelligent public networks, which results in a benefit to the sellers of the complicated and expensive equipment but not to anyone else.

And there's a new world being built. The new world is a place where virtual networks supersede the outdated physical distinctions of the past. The lines between enterprise and carrier blur and the more relevant distinction is the virtual network application, which spans both the private and the public infrastructure. The users' world gets dramatically simpler and therefore much more reliable and much less expensive. The intelligence of the virtual network assumes the responsibility for high-value user experiences, which are secure, high-performance and personalized to the needs of each consumer and each business.

The leadership that's needed today is to set course and speed for that new world, explaining and demonstrating to the industry that it's not only possible, it's underway. And competitive advantage is available today to those who grow past the physical limitations of the past.

This new world, in fact, a new industry, is what Juniper and NetScreen were built for, and a market that Juniper now, as one company, designs and delivers today to users everywhere in the world. We have a very powerful combination of size and speed with which to execute our vision. We're large enough to generate over $1 million of cash every day and proven with the most important networks to be trusted to serve the world-wide market with an expansive purpose-built portfolio of product and technology. We're fast enough to move quickly to meet very dynamic market conditions and we're not burdened by the classic problem of legacy and having been built in the past and now dependent on stopping progress in order to prosper. This freedom from the past, focus on the future and recognized ability to execute at the state-of-the-art level at the new market is a tried and true formula. Many a great company and associated industry has been built in this same way and we are repeating this history.

This time, it's virtual high-performance intelligent networking for the most demanding network customers, private and public, and this will lead the broad market to expect and insist, that they will easily, reliably and securely connect to the constituencies in any market, in any country in the world, anytime and with unprecedented economic advantages and Juniper will deliver. That is our opportunity, our strategy and our plan. And it's an incredible opportunity. Because the world is changing and the challenge is to see it clearly, anticipate the direction and pace of change, work closely with our customers and our partners, and as a result, to be where the market is going, and to be there first, because the first company to see the opportunity clearly, remove the clutter others face, and to then execute with that clarity, will win. And though this is, indeed hard, it is not complicated. If you're in the right place to begin with, which Juniper is, it's largely under our control, which is the exciting part, and it requires relentless execution which is exactly what Juniper is known for and what we've been practicing since our inception.

As a company and team of people now 2,500 strong, our excitement comes from a clear sense of purpose and the momentum and enthusiasm that can only come from winning. Every day in the market against our competitors and winning every day with our customers as they meet their opportunities head-on as well. And we look forward to reporting on our progress in the times ahead.

My words today mark our direction, beliefs and intentions and our results will speak for themselves as they always have.

Before we open it up for questions, I'd like to thank and recognize all of our employees for their continued commitment and focus on achieving these results and on the execution of our plan and the strong results this quarter. This has been an especially challenging time for everyone as we've had to take on a second job of planning and integration in a time of uncertainty that always comes with an acquisition and I'm especially proud of everyone in our combined company for their focus and commitment.

I'd also like to thank our customers, our long-term shareholders, our partners, and our suppliers for their continued confidence in Juniper Networks.

Now we'd like to take questions and please limit yourself to one question.

Thank you. [Operator Instructions] Our first question is from the line of Brant Thompson [ph] at Goldman Sachs. Please proceed with your question.

Hi, guys. Congratulations on closing the deal and the good quarters. I was wondering if you just could comment a little bit Marcel on the guidance and that you gave for the combined companies, and just break out for us when we can expect to see some topline synergies, some, you know, what other types of cost synergies might be there, it looks like you've got a lot of that behind you, but just talk a little bit about what kind of incremental topline the combined companies will be able to bring to us. Thanks very much.

Brant, in terms of the synergies and the guidance and on the top line, talking to the field, I think it will take six months before we start seeing really tangible results in terms of the cross-selling and taking advantage of those opportunities. On the expense side, as Scott mentioned, we have gone to reduction in force; however, we we are going to reinvest a significant amount of those resources because we see a lot of opportunities in terms of the combined company. So I don't think that we'll see significant savings there.

Can you give us any indication in terms of what type of revenue synergies in terms of size we can expect to see and maybe what some the milestones are there for getting to those over the next six months?

Brant, I think it's probably too early at this point, I mean, as Scott mentioned we're going to go to the various sales kick-off in each of the regions, starting, actually, next week and throughout the months so we'll have a much better idea and we'll be in a better position to comment at the end of next quarter.

Operator, next question, please

Our next question from the line of Christin Armacost at SG Cowen. Please proceed with your question.

Thank you good afternoon. I just wanted to ask a question about -- about a break-out. You said about half access and core, yet, the port count was down and given the revenue level you would think that the decor would be a higher than the access. I was wondering if you could walk me through that.

Yes, Christin. What happens here is that we classify the product based on the application where they are deployed. And think we've been careful to make this distinction in the past, so you don't have necessarily have a direct mapping between specific product category and whether it's going into a core versus access application. So, having said that, I mean, what we have seen is, really, good strength and at the core and the core remained at the 50% level in terms of the overall business and we saw, actually, some really good, I would say, heavily loaded interface in some of our core systems.

Thank you

Next question, please?

Our next question comes from the line of Sanjiv Wadhwani of U.S. Bancorp Piper Jaffray. Please proceed with your question.

Thanks so much. Congratulations and a good quarter. Just got a question for you, can you talk -- I know this might be a while away, but down the road, should we be expecting at least some of your lower end products, or more of the access products, having more of the security features from NetScreen? Can you just talk, walk us through that as to what we should expect in terms of combined products down the road? Thanks.

Sanjif we're obviously looking quite closely at that, I think it's a function of how far out into the network, one looks at the product placement. I think when you look more to the center of networks, private or public at the core I think we'll still see quite distinct functionality for routing and security. But, as we move to the edge and out into the branch location and to the end points of the network, wherever they may physically reside, the functional requirement is for integrated devices and the customers are increasingly expecting to be able to essentially unbox, plug and play with those devices and not have to daisy-chain together separate distinct pieces. The challenge in accomplishing that, is that the criticality of the security functionality and the networking capability are such that it's not acceptable to simply deliver something which is middle of the road but integrated. It has to be best in class security and it has to be best in class routing and functionality, or the integration will be considered secondary, relative to the compromises that it would present to the network user and particularly in the area of security. So it is true that we will see more integration in this area, but it will not be successful unless it's absolutely best in class on both the networking and the security front, and we're looking with high interest and see a lot of leverage in serving that.

Thanks.

Next question, please?

Our next question comes from the line of Steve Kamman, CIBC Oppenhiemer. Please proceed with your question.

Honey, actually that's CIBC World Markets, we sold the Oppenheimer name about a year ago. But, anyway, two just some housekeeping questions -- [inaudible] not sure if there's any revenues come in from that, just sort of a question. Also, a very strong increase in G&A just wondering if anything is driving that, if that's temporary on the deal? Last thing, treatment of inventory on the NetScreen, are we going to see the inventory going forward or not? I may have missed that.

Steve, in terms of the Digby, we did recognize revenue from the contract, and I said the government business was good for us. I think, you know, we're on target with federal we would like that to be about 10% of our business by the end of the year and I think we're on target to get there. In terms of the increase in G&A, that was driven by litigation expenses and there is really nothing new there. Some of the same things that we have had, but, just, you know, as we progress and some of the cases closer to trial, ets, the expenses go out. We're going to evaluate the contract manufacturer's strategy with the PM for the Security Product Group and it is our desire to move to the same model of not having inventory on our books. But this is likely to take some time. So I think that's more of a six-months type of process and something that you'll see immediately in the next quarter.

All right, thanks a lot.

Next question, please?

Our next question comes from the line of Raj Srikanth, Deutsche Banc Securities. Please proceed with your question.

Thank you. Marcel with all the purchase accounting adjustments for the quarter, can we expect the September quarter, once you get into this and its a full quarter and all of the purchase accounting adjustments are behind you, that that will behave like a normal quarter in terms of the normal pattern of revenues for Juniper and NetScreen on an ongoing basis? Thank you.

Raj, really, like to say, that's the case. I think, unfortunately, the one piece that has a longer impact than the second quarter is the service revenue. And we are losing, as part of the purchase accounting, about 15 million of service revenue for the third and fourth quarter. Approximately, 9 million in the third quarter and 6 million in the fourth quarter. So that does affect the top line and that does, also, affect the margins because what has happened with the service revenue is that you deduct revalued to cost so that the amount that's left and bill service contract get recognized in the third and fourth quarter. Basically, come in at no margin so they have some -- some impact there. So if you look at the guidance and I gave for the second half, I mena, that's why I have to give kind of two numbers, one with the purchase accounting, and one 705-720; and one, excluding or adding back the service revenue that we're losing of 720-735.

Thank you.

Next question please.

Our next question from the line of Ken Muth at Robert Beard. Please proceed with your question.

Hi, on the infrastructure side can you just talk about any change in competitive landscape, have some new players out there [ INDISCERNIBLE ], thoughts of maybe what's being seen out there?

Ken, not really much new to report thon on that front. We, as you mentioned, many of those names we continue to read some of the same information, but when it comes time to actually short-list an RFP process, the list is usually down to two. And certainly by the time the testing and final qualifications take place, we're finding that to be the case. It's still a market where the primary drivers are reliability, performance, software quality, system quality, et cetera. And I think the challenge, elsewhere beyond the obvious competitors here is the chicken and egg problem of how to get to critical mass in a market that's quite careful about how it spends money today. We really haven't seen much change on that landscape functionally even though we continue to read some of the same information in the press.

Thank you.

Next question, please?

Our next question comes from the line of Ehud Gelblum, J.P. Morgan. Please proceed with your question.

Thank you very much. On the last conference call, you had mentioned that Q4 had looked somewhat like a budget flush you were seeing especially from North America. Now that we go into first quarter, to me a budget flush in the fourth quarter kind of would mean that it's above and beyond what you would normally expect in the regular quarter and yet your guidance was actually it would get stronger in Q1, but you actually even beat that. Looking back now and we know what happened in March and we saw what happened in December, do you still think there was a budget flush in Q4 and, if so, are we still seeing some sort of a seasonal pattern as we go through this year we should get stronger as we go along? Or do you think now what was really driving Q4 was much more of a secular move that kind of spilled in and, perhaps, we're sort of flatter as the year goes out? If you could just comment on that and linearity throughout the year kind of a little bit in perspective.

A couple of -- couple of comments. One of the things that we, again, as we mentioned, in the last quarter, they don't really put budget flush on the POs so its all guess work. But that said, we guessed at the time that the amount of the flush relative to total results was in the 5-10% range, which, kind of still feels about like that's what happened. I don't know, maybe if anythings changed, looking back. I don't remember exactly how specific our attribution was to North America last time. I don't know that we would, you know, percentage in terms of the business distributions over the regions of the world didn't change a whole lot, so perhaps it was not particularly regionally specific. As to the balance of the year and in question of linearity and what we see, I wouldn't say that our visibility, per se, is better than it's been. Our confidence is probably higher. But that's a relative statement. That's a comment relative to the strength of IP and the kind of infrastructure and now security products in the market for those and on a relative basis, it's -- that's partly confidence that comes competitively and partly confidence that comes from looking at the redistribution of capital spending, towards areas of infrastructure and security which are the things we've obviously positioned the Company to take advantage of. But it isn't the case that that translates into having any dramatic improvements on the visibility across the balance of the year. I think we will see a, you know, obviously, absent any catastrophes in the world, I think we'll see continued examples and evidence of the kind of drivers that produced the strength of the results that we've brought forward this quarter, and give us the confidence to offer the guidance that we have today. But I think we'll still be a little careful before we declare that this is all going to move to the kind of linearity that was seen in past times.

Next question, please?

Our next question comes from the line of Gina Sockolow, Buckingham Research. Please proceed with your question.

Thank you. When you did the acquisition of NetScreen, that 75% of their business was enterprise and most of Juniper is carrier. Can you clarify the channel strategy of the two businesses, please?

Gina, actually, the -- you know, that's -- I often times wonder myself between the quality of the assets within NetScreen as a company, which will turn out to be most valuable overtime. There is tremendous value in the market-leading products across multiple product categories. But the distribution channel and the strength of the brand and the Company in the marketplace is also very dramatic. Because the both distributors and bars have had many, many quarters and years of experience making money, selling NetScreen products to happy customers who come back and buy more. And so that's not something that we have to go build or start from scratch, that's a proven, financial result and experience from a revenue and a customer satisfaction point of view that is already in place with literally hundreds of partners around the world. So that's a hugely valuable asset for us. In terms of the distribution of business, it remains to be seen what -- and frankly, I think the distinction between private networks and public networks is actually a bit outdated. What we sell and what this company is built for is the virtual network application. And some aspects of that reside as clients on end-user devices and some of it resides within the infrastructure and the basement of a business. And maybe even in a home. But primarily, and then it resides across the public infrastructure as well, but primarily the driver behind the strategy that Juniper is built on today is serving the virtual network application that essentially eliminates and outdates the physical distinctions that drove the actual location where the device was plugged in, as being the definition of the market. That's just not the market anymore. So you know, we'll see the devices plugged in to buildings that may be owned by service providers, private network operators, big and small businesses and that's part of the excitement behind the opportunity, all that have is a place where the virtual network application delivers value and that's the strategy for the Company.

And can you break out backlog, please?

Gina, we don't report on backlog.

Next question, please?

Our next question comes from the line of [inaudible] of Bear Stearns

Thank you. Good afternoon. Just a one clarifying question on then a follow-up. When we look at the port -- early question the ports units were down, both segments. But you mentioned that they were heavily loaded. Should I interpret that means as ASPs per port when the price per port went up? I just want to clarify that.

That's correct. Basically, if you look at edge-type of interfaces on a card who might have several ports like a new one type of card and what happens there was a shift to the basically higher speed interfaces which have less ports per card. So that is correct.

Okay. One quick further, but the question I had: all of Netscreen, are there any other senior executives that you would expect or you believe that there will be leaving within a next couple of quarters or so? Or that you're aware, at least?

No.

Well, I tell you, the organization is very specifically defined at this stage and the people not only in the executive management ranks but throughout the management of the company, are all in place. And those decisions are deployed literally down to the individual contributor across all 2,500 people in the company. So the approximately 100 positions that were impacted that I talked about for the decisions that were made Monday and Tuesday were essentially announced and rolled out Monday and Tuesday in the first 48-hours of the acquisition being final are the only moves of that type that will be made as a result of the transaction. It's actually very important in successful acquisition and integration that the uncertainty and ambiguity be removed completely immediately. So that's exactly what's been done and these numbers that we report are the only actions that are a direct consequence of the acquisition.

Next question, please

Our next comes from the line of Erik Suppiger, Pacific Growth Equites. Please proceed your question.

Scott, can you just comment as to whether or not a combination of routing and security will be sufficient from a product line to go after the enterprise and as to -- if you look out over the long term, how much of the revenues would be coming from the enterprise?

A couple thought Erik, first of all, on the notion of routing and security, if -- the challenge for serving the need or solving the problem in the market is that it requires a very comprehensive footprint. And so, Juniper has always had a focus on securing the infrastructure, if you will, from the inside out. And the NetScreen portfolio represents the same commitment with similar, actually, technology philosophical approaches, but securing the network from the outside in. So the combination is where the leverage and, if you will, the horsepower of all this is, because, what we're going to be able to deliver with the collective portfolio and intellectual property is a very comprehensive security footprint across a routing infrastructure that, in some cases, will permeate all of the way in the form of a client to reside on an end-user device. And if you think about it, without being able to deliver that kind of security, not only from a coverage point of view, from also from a quality of the security capability, that's the only way to make a statement or to deliver a commitment of security to a virtual network user. Because anyplace not joined is an obvious vulnerability. With regard to the distribution of business and how that translates on both a product and geography front, I think, again, it's actually not something we're particularly focused on driving and we don't really have a goal one way or the other. The virtual network application begins when you push enter on your device, whether a thats a laptop or could be a cell phone or Ipod or PDA or server-based application, it begins when the user pushes "enter" and it terminates when the destination and the information retrieval is complete. And this is as is the case if you think of it today as we use the devices that make up the market today, we're all users of many of those kinds of devices. We're the ones who pay the bills and we don't really draw any distinction as to when the request we make travels across or transits between private or public or enterprise or service provider infrastructure we pay when the service or user experience is delivered. And we don't when it isn't. And so we're really not trying to drive a result across geography or with regard to the particular ownership of the real estate where the product is plugged in.

Next question, please?

Our next question comes from the line of Alex -- I'm sorry, Alex Henderson, Smith Barney Citigroup. Please proceed with your question.

Thanks. We dropped the Salomon, too. The question I have for you is really pertaining to market share. You made the comment last quarter that -- which was pretty surprising to the street that you thought that given the strength of your results that Cisco would see something similar, which didn't really transpire in the Cisco numbers. And you obviously continuing to have very strong results here. Can you talk about what you're seeing relative to market share, now that you've analyzed it a little bit more last quarter and what you think is happening in market share this quarter versus Cisco and other so if you can push in share of IP versus ATM in the marketplace. Thank you.

Sure, by the way, Alex, could you comment about the purchase accounting behind that Salomon situation? You can join us in this task.

Fortunately, I worked at a different form then.

A couple of things. Market share began sort of up to the researchers here, there's always a month lag in these numbers as they come out so -- and then they are always difficult to untangle. What we had measured and I think continue to monitor, which is really the way I gain my level of comfort or confidence in what I think the business is doing is by looking at the win rate in the transactions that we qualify and engage in and that continues to be quite good. And that's true across the NetScreen products as Robert and I have spent a lot of time on the same subject and just watching very carefully and it certainly is true within the infrastructure products as well. The win-rates are strong. The share gains, hard to know, quarter by quarter, but we feel very good about the business and the results. In terms of the competition with ATM, as a technology, or other, perhaps even more outdated technologies, there's actually been quite a market shift, I think, over the last couple of quarters. And, in favor of IP and MPLS and the infrastructure that delivers these multi-service capabilities, I think that's a lot of what is driving the results that Juniper is able to post, frankly, is the market was in a much more heated debate about this subject a few years ago. And you know, ATM, is it frame, is it IP? Still leftover circuit bigots out there. Then when the market turned down and spending paused, I think that people sort of lost interest in the debate. And now that we see the market start to come back, it's almost as if when they start to spend again the debate isn't resuming. It's more the case that as spending resumes, people are saying, well, I remember that argument, actually it's pretty clear it's IP. So it's not really a matter of whether I want more of an older legacy technology or whether I want more IP instead it's more a question of how do I protect the investment that I've made and get the maximum life out of what is already installed? So more of a, perhaps, what they call cap and grow. But a lot less debate and I think, you know, when the numbers are produced and studied over time, I think we'll see an accelerating shift to the newer technologies, meaning IP and MPLS and a more rapid decline in some of the older stuff.

Next question, please?

Our next question comes from the line of Sam Wilson, JMP Securities. Please proceed with your question.

Good afternoon. A question for Scott. Sorry, a little bit of an introduction, Scott. If you look [inaudible] at SPC today data revenues were generally kind of flattish on a quarter on quarter and up slightly on a year on year basis. And you've got MCI coming out of bankruptcy now saying they expect to be a difficult year because of pricing pressure. On the flip side you see DSL has been strong from all the [inaudible] that have reported. So I wanted to just get from you, cause you talk to them on a regular basis, the tone of the overall spending environment is like on the carrier side? And then specifically, is there certain areas that are clearly spending in, be it consumer broad band or migration MP -- IP/PLS, those sort of things?

Sam, a couple of thoughts. One, you -- those are the areas I would also identify in terms of spending. The IP infrastructure and IPMPLS to a certain extent and at least as much and really probably as a percent of total or a percent of growth, either way you say it, the broadband for both consumer and business is clearly a growth objective and a growth result that we're seeing not only in the SPCs and MCIs of the world, but I was just in Europe last week meeting with a number of our customer there and it's true in France and Italy and Germany and Spain, very, very strong commitment and realized results coming from broadband deployments. Some of the cases, literally the tens of thousands per week in a given country. So those are definitely areas of strong focus and execution and roll-out. They are being offset by, in terms of aggregate Cap Ex, its really not a concern of ours, cause its not an area that our product intentions extend to reach, but the legacy network capital and the spending across existing and prior infrastructures is, I think, in fact, if we're successful, this will be the case, is the legacy network Cap Ex spend will go down faster than the spend in the new strategic areas goes up, which is - is actually a goal. Because one of the results and the deliverables that comes from building a single physical infrastructure that can carry multiple service types across it, and many of these meetings I had last week there's a lot of discussion and roll-out, actually, of video, time of day services, what they call turbo bandwidth, which is an ability to go in on a webpage and change bandwidth for the sake of downloading music, what have you. Realtime customer-driven kinds of changes that create fewer margins for the service providers and the instant value realisation for the users, those kind of things are all happening across those infrastructures, but it's all virtual. And the physical plant is actually declining by design as a percent of total. And I think because such a disproportion nature amount of money is spent on the physical plant that being able to impact that is going to have a more powerful impact in reducing Cap Ex than the virtual spending thats necessary to deliver the new services. It's very much realization or playing out of the strategy that we've built the Company for.

Thank you Scott.

Thanks, Sam.

Next question, please? Next question, please?

Our next question comes from the line of Inder Singh, Prudential Securities. Please proceed with your question.

Yes, hi, thank you. I just wanted to found out sort of if you look beyond the next few quarters, maybe beyond the rest of '04, in your due diligence when you were doing the acquisition. the merger with NetScreen, you must have, sort of, contemplated what a longer term operating model might look like for the combined business. Can you sort of update us on the longer-term thinking might be for things like top line where that could go or gross margins could end up and where operating margins could go, going forward? Thanks.

It's probably a little early for us to start commenting on model, again, we closed the acquisition about three days ago. And obviously, you know, we've done here guidance and, further than we have in the past and as Scott said its not necessarily as a result of increased visibility, but [inaudible] to give some help in terms of what we're planning to and looking at. So I think it's probably going to take a couple of quarters before we come back and kind of reestablish a long-term model and talk about what we think is achievable over next year or two years.

Operator, next question, please?

Our next question comes from the line of Timm Bechter at Legg Mason. Please proceed with your question.

Scott, Marcel, I try this a different way. It looks like your second half guidance would pretty much indicate that one plus one equals two through the end of the year, at least from what we've done in the way of modeling. I'm wondering, next year, if these revenue synergies kick in, can this second half guidance extended this would look like about a 1.4 to $1.5 billion revenue run rate, how quickly might we see a $2 billion company?

As soon as possible would be one answer. When we talk about the guidance over the course of the second half of the year, as much as anything else, we what to try to give people is a sense of the stability of the businesses, now in combined fashion we operate. Clearly the goal of the acquisition and of both companies is to grow both of the businesses individually, but also to create leverage and synergy and all those terms attached to the power of the combination of two. So, as much as anything else, when you see us talking with the confidence that we have about what we see across the second half, we're taking a phased approach to completing the integration of this acquisition and deploying the now more comprehensive assets across the marketplace. I think the message to take away from what we said, really, is that we have confidence in the stability of these businesses and the ability to execute without any consequences to the negative. And that's the first thing that has to be achieved in the acquisition. And we've been doing planning, obviously, for a couple of months but we're obviously new and very recent into the actual combination of the companies where we can visit with customers, and which is the primary constraint that exists in the planning process prior to close. And because of the need to spend more time with those customers and explain together some of the things that we see, before we can really pinpoint where we think the actual synergies will be, not in theory, which is what drives an acquisition on the front end, but in realisation and execution which drives us on the back end. We just haven't had the time yet with customers, due to legal constraints to verify that. As we're able to do that and identify the opportunities and then target and execute on them, I'm very confident on the ability to target and execute. Both companies, that is one of the reasons that it was so easy to put them together without any setbacks was that both companies are very focused on being able to target, execute and deliver. We just haven't had enough time with the targets yet, so we'll be working on that, literally, as we speak, and expect to bring more insights on that when we're able to come back to you again.

Thank you.

Uh-huh.

Next question, please?

Our next question comes from the line of Tim Luke at Lehman Brothers. Please proceed with your question. Mr. Luke? Your line is open, please proceed. I'm sorry, I'm not getting any response.

Hi, thank you. Hello?

Yes, Tim, go ahead, its Scott.

Hi, sorry, Scott. First, thank you very much, myself, for providing all of the guidance sort of broken out for the full year. I was wondering if you had any [inaudible] was the book to bill above one for the quarter?

Yes, it was, Tim.

Thank you. I was also wondering in the guidance you did provide, Marcel, did you have any cross-setting revenue synergies associated with the guidance? And would one expect, Scott, those kind of cross-setting revenues by the second half of the year or would you expect that that would be more of a calendar '05 notion?

Tim, in terms of the guidance, there is some implosive cross-selling built in. But, as I mentioned before, our current view is that it's going to take, approximately, six months really, for the sales force and the channels to get educated about the different products. So, you know, that is kind of the time horizon that's built into our thought at this point in time.

Next question, please?

Our next question comes from the line of Hasan Imam, Tom Weisel Partners, please proceed with your question.

Thank you. Question for Marcel. Marcel, last quarter, you talked about what deferred revenues up by about 25 million which you attributed to product revenue recognition since some features had not been delivered. And so my question is that were those product revenues recognized this quarter?

Most of those products are still being deferred, actually. A large part of the increase this quarter was really due to service contracts where there were a lot of renewal of service contracts in the first quarter. And to a smaller extent, due to the M320, which we started shipping in the last month of the quarter.

Thank you.

Next question, please?

Our next question comes from the line of Chet White at Merriman Curhan and Ford. Please proceed with your question.

Thank you very much. One quick clarification. Did you say that you were expecting the edge -- integrated edge products, security, and routing in six months? And the question on wireless, is that still fair to stick it up 10% goal for the year? Thank you.

Chet, no, I didn't talk about any product that would not [inaudible]. What I was referring to is basically the edification of the sales force and channel on the respective products that we have in the portfolio today. And in terms of the segment, I mean, it is our goal to leverage the various segments, the federal government business that we have, mobile and cable as well. As we continue to work on those.

And 10% is still a good goal for wireless?

Still a good goal.

Thank you.

Operator, we'll now take our final question

And that would be from the line of Susan Kalla at Friedman, Billings, Ramsey. Please proceed with your question.

Could you give us some idea of what the geographic split could look like through the second half of the year with the NetScreen acquisition?

Susan, the geographics played an actually very similar between the two companies, about, you know, 43 to -- for us, 46% for security product group in north America. I really don't see a lot of reason for that to change, but I think that's actually a very well balance with approximately 45% being the Americas and the balance being international.

And then how about the split of indirect to direct sales?

Well, I believe that the split is going to be a lot more indirect. You know, we already, on the infrastructure product had a fairly high amount of indirect and the security product group at the higher amount of indirect. Probably going to shift toward more like 80% indirect.

Thank you.

We would like to thank all of you for your participation today. There will be an audio replay available in the call in the Investor Relations section of our Web site at www.Juniper.net/company/investor/conference call, in addition, can you call 800-633-8284 and enter the reservation number 21192333. The audio replay on the website will be available for one month and the conference call dial-in info will be available for one week. We currently plan to report Q2 results on July 13th, taking into account the July 4th holiday. If you have any additional questions, please feel free to call the Investigator Relations Department. Again, thank you for your participation on the call today and have a nice evening.

Ladies and Gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.