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Powerwave Technologies Inc. (NASDAQ:PWAV)

Q1 2009 Earnings Call

May 4, 2009; 05:00 pm ET

Executives

Ron Buschur - President & Chief Executive Officer

Kevin Michaels - Chief Financial Officer

Tom Spaeth - Treasure

Analysts

Charles John - Piper Jaffray

Kim Watkins - JP Morgan

Richard Valera - Needham & Company

Ken Muth - Robert Baird

Nathan Johnson - Pacific Crest

Amir Rozwadowski - Barclays Capital

Operator

Good day ladies and gentlemen and welcome to the first quarter 2009, Powerwave Technologies earnings conference call. My name is Evan and I will be your operator for today’s call. At this time all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (Operator Instructions)

I’d now like to turn the presentation over to your host for today call Mr. Tom Spaeth, Treasure; please proceed sir.

Tom Spaeth

Good afternoon and welcome to Powerwave Technologies first quarter 2009 financial results conference call. I’m Tom Spaeth, Powerwave’s Treasurer. Joining us on today’s call will be Ron Buschur, President and Chief Executive Officer; and Kevin Michaels, Chief Financial Officer.

Before starting I would like to point out that various remarks we make about future expectations, plan and prospects for Powerwave, including but not limited to anticipated revenues and revenue growth rates, operating margins, gross profit margins, earnings per share levels, cash flow projections, revenue composition, improvements in cost structure, costs savings related to our facility consolidations, future cost savings related to our cost reduction activities, demand levels for the company’s product lines, projected growth in market share, trends in the wireless infrastructure market, the timing of product deliveries and future orders, the timing of any proposed staff reductions, common stock prices, debt purchases and the success of new products, expense levels, capital expenditure rates, inventory returns, tax rates and day sales outstanding, are all forward-looking statements.

These statements are subject to numerous risks and uncertainties that could cause Powerwave’s actual results to be materially different from those projected or implied. Some of the risks and uncertainties include our ability to accurately forecast and anticipate customer orders, realize anticipated cost savings and synergies, the negative impacts on demand for our products due to the macroeconomic environment and worldwide credit tightening, reduced demand due to industry consolidation among our major customers, fluctuations in foreign currencies, the ability to accurately forecast cash flows and credit collections, the impact of competitive products and pricing, economic and political conditions and the loss of one or more significant customer accounts.

Please refer to our press release, Powerwave’s current Form 10-K, for the fiscal year ended December 28, 2008 and other filings which are on file with the Securities and Exchange Commission for additional information on factors which could cause our actual results to be different from those projected or implied.

In addition, on this call we will discuss non-GAAP financial information. A reconciliation of the non-GAAP financial information to our financial statements as prepared under GAAP is included in our press release stated today, which can be found on our website at www.powerwave.com and on business wire. The press release also has detailed information concerning several of the significant items impacting our results, and we urge you to review that information.

Now, I’m going to turn the call over to Kevin Michaels, Powerwave’s Chief Financial Officer.

Kevin Michaels

Thank you, Tom. With all the risk factors in mind, I’d like to start by reviewing our financial results, which are also summarized in our press release. Net sales for the first quarter of 2009 were $149.7 million and we reported a GAAP net loss of $2.1 million, which equates to a net loss of $0.02 per share.

This loss includes $2.9 million of restructuring and impairment charges and $1 million of non-cash intangible asset amortization related to our prior acquisitions. These charges and amortization totaled approximately $3.9 million for the first quarter. Offsetting these expenses was a gain of $4 million from the retirement of a portion of our outstanding long-term debt.

On a pro forma basis, excluding the restructuring and impairment charges, the intangible asset amortization and the gain on the repurchase of a portion of our debt, we generated a pro forma net loss of $700,000, which equates to our pro forma net loss of $0.01 per share.

I want to note that included in both our GAAP and pro forma results is the impact of approximately $900,000 of pre-tax stock-based compensation expense due to SFAS 123R, almost all of which is included in operating expenses. Excluding this expense from our reported results adds approximately $0.01 to EPS for both GAAP and pro forma results. This is the same impact as in the prior year period.

On a geographic basis, our total Americas revenue for the first quarter of 2009 was approximately $35.6 million or 24% of revenue. Our total Asian sales were approximately $58.5 million or 39% of revenue and our total European and other international revenues were $55.6 million or approximately 37% of revenue. As we had predicted on our last conference call, we experienced significant revenue slowdowns during the first quarter in all regions we served and our total revenue declined 17% from the fourth quarter of 2008.

Clearly our business like most industries has been directly impacted by the global economic crisis. In the first quarter, our antenna systems product group sales totaled $35.8 million or 24% of total revenue; base station subsystem sales totaled $102.4 million or a 68% of revenue and coverage solution sales totaled $11.5 million or 8% of revenue.

Our total 3G related sales were approximately $58.3 million or 39% of our total revenue. Our 2G and 2.5G related sales were approximately $78.6 million or 52% of revenue, and our WiMAX sales were approximately $12.8 million or 9% of revenue. These are approximately, the same percentage breakdowns is in the fourth quarter with the exception that we did see some growth in our WiMAX business during the first quarter.

In terms of our customer profile in the first quarter, total OEM sales accounted for approximately 64% of our total revenue and direct operator sales accounted for approximately 36%.

Moving on to gross margins on a GAAP basis, our total consolidate gross profit margin was 21.9% in the first quarter. In our press release, [Technical Difficulty] a table with the reconciliation of the various factors impacting our gross margin for the quarter. On a pro forma basis, excluding restructuring and impairment charges and non-cash intangible asset amortization totaling $2 million, our total gross profit margin was 23.2%.

We believe that our improved first quarter gross margin is a result of our extensive restructuring efforts over the last two years. As we have consolidated and streamlined our manufacturing footprint and operations over this period, we are continuing to see the benefits in our gross margin.

I would like to note that our gross margin actually increased on both a GAAP and pro forma basis from the fourth quarter of 2008, when our adjusted pro forma gross margin was 21.3% versus the first quarter of 2009 pro forma gross margin of 23.2%.

Next, I’ll review our operating expenses for the first quarter. Our sales and marketing expenses were $9.7 million, research and development expenses were $15.1 million, and G&A expenses were $12.1 million. On a pro forma basis, which excludes restructuring and impairment charges and intangible amortization for the first quarter, our total operating expenses equaled approximately $37 million, which is a $5 million reduction from the fourth quarter of 2008.

As we stated last quarter, we are driving to reach a quarterly pro forma operating expense target of $35 million for the second half of this year. We continue to believe that we will achieve this target and we remain committed to our cost reduction plans.

In terms of other income and expense, we record a total of approximately $5.4 million of other income in the first quarter of 2009. There are two main contributors to this income; the first is a gain of approximately $4 million that we generated from repurchases and approximately $5.4 million par value of our outstanding 1.78% convertible notes during the quarter.

The second item is our foreign exchange translation for the quarter, which resulted in a gain of approximately $2.8 million. These gains were slightly offset by our interest expense during the quarter. Our first quarter tax rate was impacted by some minor tax payments in the evaluation of allowances on our deferred tax assets. While we will continue to evaluate our future tax rate based upon our diverse international operations, we estimate that our effective worldwide tax rate will be between, approximately 10% to 15% for 2009. I want to stress that this estimate will fluctuate based upon our actual results.

Next I would like to review our balance sheet. Total cash at March 29, 2009, was approximately $55.4 million of which $2.8 million is restricted cash. Cash flow from operations was approximately $6.5 million and our total capital spending was approximately $1.7 million in the quarter.

Our net inventory was $72.9 million, which is a reduction of $8.2 million or 10% from the fourth quarter of 2008. For the first quarter of 2009, our net inventory of $72.9 million represents inventory returns of approximately 6.3 times. We remain extremely focused on maintaining and improving our industry leading inventory returns.

Our total accounts receivables decreased to $178.1 million, while our AR day sales outstanding remained at approximately 108 days, which is the same as in the fourth quarter. As you would expect, in the current macroeconomic environment, some of our customers are continuing to stretch out the payment cycles. We are working intelligently to reduce down our day sales outstanding and we continue to carefully monitor our customers from a credit perspective.

Before turning the call over to Ron, I’d like to remind our investors that we believe they’re better serve by focusing a long term trends as opposed to the short term volatility, that is inherit in the markets we competing. In terms of 2009, given the continuing uncertainty within the global macroeconomic environment, we are not currently providing annual guidance. As we continue through this year, assuming that the markets further stabilize, we hope to then be able to provide more specific guidance for the year.

Looking at the second quarter, we would urge caution in utilizing any forecast that are being given. We are aware of several groups commenting that they believe the bottom was reached in the first quarter and they are projecting solid growth throughout the rest of the year. We believe that given the dept of this economic crisis, we should maintain a much more conservative outlook.

While we do see some encouraging signs of growth in various markets this quarter, there are continues to be limited credit availability in several markets, slower capital spending in several regions and continuing risk that macroeconomic issues will impact future demand. From this conservative standpoint, we note that traditionally the second quarter of the year as usually benefit sequentially from the first quarter anywhere from 5% to 10%. While these are historical targets and not necessary reflective of the current environment, this is the best information that we can provide at this time.

With that, I’d like to turn the call over Ron Buschur, Powerwave’s President and Chief Executive Officer.

Ron Buschur

Thank you Kevin and good afternoon everyone. I would like to share with you some highlights from our first quarter and then I will review the current outlook for the wireless infrastructure. As we noted last quarter, Powerwave’s business was impacted by a reduction in demand across our global customer base in the first quarter. I do not believe that this was unique only the Powerwave Technologies or the wireless infrastructure industry, but was a case in almost all other businesses throughout the world.

With that being said, we did see strength in the Asia market, particularly in the direct operator sales in China. However, this increase was offset by the reduced demand across many of our OEM customers, who clearly are also being impacted by the macroeconomic issues.

If I look at our customer mix in the first quarter, we increased our direct network operator business to 36% of the total revenue, compared to 30% in the fourth quarter. I am also pleased to report that we once again significantly lowered our operating expenses. In the first quarter, we reduced our quarterly expenses by over $5 million for the fourth quarter in 2008 and by over $10 million, when compared with the first quarter of 2008. We also achieved sequential improvement in our gross margins in the first quarter, which increased 23.2% compared to 21.3% in the fourth quarter.

As we discussed last quarter, we have been executing on our restructuring plans over the last two years. With the focus on consolidating and simplifying our manufacturing operation, to reduce our overhead cost and creating a lower operating cost model. We have accomplished this goal by reducing our manufacturing footprint from eight sites to three and reducing our engineering centers from eight locations to five.

We are continuing to invest in key resources and development programs and solutions, which will enhance our product and technological leadership position. While we still have work ahead of us with our existing focus on operational efficiencies and cost controls, we believe that we are well ahead of the competition in terms of streamlining and reducing our cost structure.

For the first quarter of 2009, we reported a pro forma $0.01 per share loss. This effects our breakeven, it was due to the activities I just reviewed and I believe demonstrates the leverage and the upside potential in our operating model.

Now, I want to take a look at our future plans and provide you with what we are focused on today in this difficult environment. We have set quarterly operating expense targets of approximately $35 million for the second half of this year and we believe we are well on our way of attaining this goal.

This has significantly lowered our operating break even targets throughout this year and we will continue to help improve our profitability. In addition we are focusing on expanding our customer base and utilizing our RF capabilities in other new vertical markets. While we continue to drive to gain market share in our existing core business.

We’re extremely focused on reducing our overall cost structure and manufacturing, by improving our productivities, efficiencies, yields, cycle times and better capital utilization. The team continues to focus on supply chain management, such as rationalizing and simplifying our supply chain, shortening our lead times, cycle times and reducing our inventory levels, as well as reducing the number of suppliers in our enterprise.

We believe that these efforts combined with our previous actions will further leverage and reduce our overall operating cost, as well as help improve our cash generation from our operations. Now looking at the industry, we do believe that there continues to be long term drivers that will create additional demand for our products, solutions and services.

As we look over the year, we believe the long term demand for wireless services, especially data driven demand will continue to increase and create demand for additional infrastructure spending which will benefit Powerwave’s business. We continue to believe that the wireless network operators throughout the world are looking for ways to improve their network performances more cost effectively using solutions, like the one Powerwave technologies provide.

Clearly we believe that Powerwave has one of the strongest product portfolios, the best personal and engineering resources. This along with the most advanced leading edge technology solutions for the next generation of products. We remain committed to improving Powerwave’s profitability and performance in 2009, which will generate the level of shareholder value you deserve.

I would now like to turn the call over to the operator and address any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Mike Walkley - Piper Jaffray.

Charles John - Piper Jaffray

This is Charles sitting in for Mike Walkley. Thanks for taking my questions. Just a few from me; obviously a top macro out there, but China seems to be the bright spot. So it would be helpful if you could just comment on maybe how will you think your position’s within China and what the competitive landscape looks like for you in terms of pricing and maybe just the level of visibility you have there in general?

Ron Buschur

Okay. Certainly the APAC region has been very strong. China especially, where China Unicom and China Mobile has been good for Powerwave this previous and we see good trends, looking forward in that region and we are seeing some healthy signs in other parts of the continent as well looking over towards the Middle East.

So, visibility I won’t say is great at this point, but it is improving and looking at the pricing economic environment, we don’t see anything that’s out of the ordinary as far as pricing pressure or any concerns around the pricing. It’s still a very competitive marketplace, but nothing out of the ordinary.

Charles John - Piper Jaffray

Any thoughts just on the share gains relative to some of the encumbered Chinese players like the Combos or the [Grandecks] or may some of the regional guys who have close relationships with Huawei and ZTE?

Ron Buschur

Well obviously from Powerwave’s perspective, as you know our strategy is to have a dual sourcing strategy direct with the operator as well as having our products pull through the OEMs. So, we’re very pleased to have increased sales with the direct operators there in China, so that’s a real advantage and we want to continue to focus on that.

As far as market share, it’s difficult to tell what the market shares are of some of those Asian suppliers, because one, they’re not public and two, they typically don’t break out their customer base on a present basis, given on our product segment like we would do, or some of our competitors would do. So, it’s a little more difficult, but we certainly think that we’ve been able to pick up and gain a little bit of market share in that region.

Charles John - Piper Jaffray

Just looking at some of the trends in the EMEA region, maybe if you could share what you’re expectations are from carriers in this region and you’ve talked about capital constraints, I think you had alluded to that a few quarters ago. Has that played out entirely or are you still some of its impacts on order trends from some of your customers there?

Ron Buschur

No, the EMEA region is certainly a little slower that what we would like to see and it’s not anything that we have not projected or predicted, it’s just we were hoping and see things pick up there and they have not.

So what we have to do is shift our efforts and our focus into the regions that are expanding and try to capitalize and gain a little bit more market share in those regions and when EMEA region picks back up and they start spending, I think we are well positioned there with our relationships and our products. So, we have to be a little bit patient there until the market returns.

Looking at some of the other segments that we focus on, clearly if you focus in North America, we are seeing some signs and things are slightly improving here as well.

Operator

Your next question comes from Kim Watkins - JP Morgan.

Kim Watkins - JP Morgan

Just wanted to see if you could comment a little bit on linearity throughout the quarter and if you saw any differences in demand or orders throughout the three months and then maybe if you could comment and what you are seeing so far in April?

Kevin Michaels

Sure. I would say it was traditional backend loaded. The activity really started to improve towards the end of the quarter, which isn’t unusual. Now, that also being said, I think from what’s going on in the economic perspective, I think all industries are very slow in January and February, so we were no different than that.

Certainly things have improved some, but we are still long ways away from where we were even a year ago. So, it’s still a cautious environment out there and I think as we noted, there is still a number of regions where there are capital constraints, there are financing issues, Eastern Europe is a prime example of that. So, from a global perspective I think there’s still a lot of a reason to be cautious, but certainly we have seen an improvement.

Kim Watkins - JP Morgan

Did that continue on and then let’s say April the first month of your second quarter?

Kevin Michaels

Well, we are not going to get down to specifics there. I just say overall the environment has improved some, but we’ll leave it at that.

Kim Watkins - JP Morgan

Then I also wanted to talk a little bit about gross margin. I was particularly impressed by the fact that, gross margin improved sequentially with the decline in revenue. I know in the past you’ve talked about getting into mid to high 20s gross margin, do you think that’s possible to achieve that level, let’s say at this revenue level or slightly higher or kind of what’s your target there as you move throughout the year?

Kevin Michaels

Well, I think as we even stated last quarter, that’s still our long term target. Obviously, I think at this stage, we think it’s achievable at a higher revenue, strictly higher revenue rate. Kim you’ve been following us; you know all the efforts we’ve been doing, they are starting to pay some benefits for us, so we have seen improvement here. Clearly we think long term that we should see some stronger revenue we should be able to get back to that kind of mid to high 20s gross margin target. That continues to be a longer term target.

Kim Watkins - JP Morgan

Okay, but no commitments in terms of that happening in the near term versus.

Kevin Michaels

At this point we’re not giving a forecast on particular revenues, so I’d hold off on that. Depending on how the markets go, we’re just uncomfortable predicting further out here.

Kim Watkins - JP Morgan

Okay and then my last question. I noticed and Kevin you also mentioned this in your commentary; that WiMax picked up a little bit sequentially, actually quite a lot on a percentage basis. Can you just give us some additional color on; the regions where you’ve seen that pick up, is that in North American particular, have you see that outside of the US; if you could talk to that for a minute that would be very helpful.

Ron Buschur

Yes, Kim this is Ron. We’ve seen that improvement in the APAC region, as well as the North American content with WiMax deployments and our sales of our remote radio heads and our complete solution for WiMax. So it’s encouraging to see it in multiple locations and I’m hoping that we can expand that possibly to other regions as well in the very near future.

Operator

Your next question comes from Richard Valera - Needham & Company.

Richard Valera - Needham & Company

Kevin I was wondering how we should think about cash from ops going forward? You did a really nice job working down the inventory; and receivables this quarter which I think would be tougher to do going forward, particularly if revenues goes up.

Then your payables did come down very sharply; I am wondering if you could actually maybe bump them up to generate some cash. I was just wondering how you’re thinking about cash from ops, maybe over the next couple of quarters.

Kevin Michaels

Well, from our internal perspective are focused on positive cash flow and we believe our goals is to execute positive cash flow over the next few quarters. We think that there is opportunity in our receivables. I mean on the turns basis they’ve stayed kind of flat and clearly in this environment people are pushing out stuff as I discussed, but we do think there are opportunities to have some improvement there and we’re focused on that.

We think we can continue to manage our inventory turns back to a higher level, even as inventory ramps back up; if demand ramps back up. So, that’s our strategy and we think combined with those this areas, we should be able to manage the business to generate some positive cash flow. We are not spending a lot on capitals, so we don’t have much spending going out, so that’s our target, that what we’re driving towards.

Ron Buschur

When you look at little bit Richard, what we’ve been focusing on as Kevin said, our inventory turns, I’d like to see them. Even though I think from an overall industry standpoint they’re probably leading. I still believe we can get back to the 8 to 10 turns out of our operations and help them prove the cash flow as well. So that is going to be our continued focus as Kevin has outlined.

Richard Valera - Needham & Company

I was just wondering how we should think of the sequential trajectory in gross margin and OpEx? If your revenue does go up inline with historical seasonal trends, you have a little better revenue base than the second quarter and presumably that you maybe impact even more restructuring. So, I’m wondering if we should think of gross margin flat to slightly up and should OpEx tick down a bit towards your goal of $35 million in the second half?

Kevin Michaels

Yes, I think we’re on a path to get to that $35 million OpEx for the second half. So, we’re kind of on that path; even if revenue grows, we’re pretty committed to that path. So we think we’ll see some further improvements there. On the margin right now it would be kind of flat, maybe it depends where revenue comes in. If it came in very strongly, it would be up some, but I think your guidance of kind of flat to up is probably accurate.

Richard Valera - Needham & Company

I’m just wondering how you’re thinking about market share overall, looking at both sort of direct carrier and the OEM business? Do you feel like you’re holding your own with respect to market share, doing this downturn? Any commentary you could give on that would be helpful?

Ron Buschur

Rich, this is Ron. I believe that we’ve done a pretty good job of maintaining our market share with our OEM customers, as well as trying to even pickup a little bit of market share in the APAC region and the Middle Eastern markets that we’ve never participated previously to any large contribution to our revenue, so I feel good about that.

Looking at products; I think we introduced enough new products into the market that it has really sparked some interest in some of these emerging regions and with some of the operator customers that should benefit us here as we go forward.

Operator

Your next question comes from Ken Muth - Robert Baird.

Ken Muth - Robert Baird

I was just wondering if you could give us a little bit of an overview on the balance sheet as you’re kind of taking a breakeven down here. How are you guys looking out for the next couple of quarter on the balance sheet and any other incremental ability to buyback some of the converts?

Kevin Michaels

Sure Ken. I think our first and foremost is we’re trying to generate positive cash flow and we think we will overtime and that will provide us some more cash. Clearly, we’ve got some real estate for sale and those things. In this environment, you can’t count on timing of those; whether you can be able to clear a transaction; we’ve had them out there for a while, but if we’re able to execute on some of those deals, we can get some additional cash there.

Then we keep looking at opportunities. We do believe overtime, the financing markets will stabilize and we’ll look at opportunities when those become available. If you’ve noticed, we replaced our credit line and put a new credit line in and it’s over a two year line, so it’s a regular revolving credit line, but it’s out there. The maturity date’s well over 12 years, so we’ve got plenty of flexibility in the near term and that’s our plan.

Ken Muth - Robert Baird

And just kind of further on the real estate side, is there any kind of rough figure that might be the range you could give us for those?

Kevin Michaels

Well, I think on the sites that we have listed for sale, it’s probably somewhere between $5 million to $10 million range of those of excess facility that we have out there.

Ken Muth - Robert Baird

Just on the covered solutions that you have there, any kind of insights you can give us there, why that seems to be pretty low again, is that even getting hit more harder, incremental to this downturn?

Ron Buschur

No, I think what you’ll see Ken, a lot of it as we talked about in the past, we recognized a revenue based on completion and I think you’ll see as we move forward that that will start moving up again. It just depends on where we are in the cycles and it will continue to be a cyclical type of business from a revenue recognition going forward as well.

Ken Muth - Robert Baird

Then a kind of a last thing from me; the antenna solutions kind of stays at a lower level, you guys are clearly running a lot higher than that in the last couple of years. Do you expect to kind of get to those more historical levels in the later 2009 timeframe?

Ron Buschur

Yes, that’s an area that I’d certainly like to see a little bit of improvement. If you go back and you look at Q3 and Q4 of last year or even Q2, you can see that we had some pretty improved sales levels in that product segment and as some of the network operators stopped expanding the networks and the credit became an issue, it had impacted the direct operator sales with antenna products and solution.

So, as we turn through this crisis, I do think we’re going to see an improvement there and that’s certainly going to be an emphasis that we’re going to have on the sales organization in internally as well. So that area certainly is an area that I think you’ll see improvement.

Operator

Your next question comes from James Faucette - Pacific Crest.

Nathan Johnson - Pacific Crest

This is Nathan Johnson calling in for James. I was wondering if we could comeback to China, it’s highlighted that as a strength in the quarter, I was wondering with the visibility that you have, what you expect in terms of linearity sort of throughout the rest of the year?

Do you guys believe that deployment schedules have been able to keep up with the amount of purchasing that they’ve been doing? Do you guys expect any sort of pause in purchases by the carriers after some of these May deployments; I just wanted to get your insight there? Secondly, what you guys felt in terms of current levels of inventory and your key customers and how they compare to historical?

Ron Buschur

I guess looking at the visibility going forward, I don’t believe that it was just a May deployment that they’re looking to continue to build out, but with that said, we certainly don’t have the rest of the year visibility from these operators in China as well and what their plans are.

So to answer your linearity question, it’s a little bit tricky at this point, but I certainly do see that there is a some strong demand still being driven in that region yet this quarter and as we go forward, it depends on how quick that they continue to deploy, but I don’t believe, at least from the information I have right now, that there is any concerns about the deployment of the hardware actually being deployed into the sites.

Looking at the inventory levels within the OEMs and the network operators, I see nothing of significant quantity settling in within any of their hubs or in their systems that we have exposure to or we can see today. So I don’t believe that there is any concern with that. In fact I’d say, we probably as an industry managed that correctly here during this downturn, first time at least since I’ve been in this industry.

Operator

(Operator Instructions) Your next question comes from [Philip Grass] - Symphony Asset Management.

Philip Grass - Symphony Asset Management

My questions were answered. Thank you.

Operator

Your final question comes from Mr. Amir Rozwadowski - Barclays Capital.

Amir Rozwadowski - Barclays Capital

Just a question around Europe and some of the trends you folks are seeing there, ca we dig a little bit in terms of color, in terms of what the purchasing environment is there? Are there issues around FX that have been really particularly pointing within that region, or how should we think about things from that perspective?

Ron Buschur

Well I think that’s a good observation. I mean certainly in Eastern Europe and in Russia, obviously there is a real issue around credit and the effect of the FX; that’s really hindered their ability to spend.

Looking at some of the other regions, I think that they’ve just pull back and maybe have been a little bit more prudent and maybe more conservative in what they’re planning on doing as far as roll outs and keep in mind, those networks are just a little bit more advanced from a technology perspective in a timing scale, than if you compare it to maybe North America or other parts of the world today.

So they maybe just ahead of the curve on the rollouts, but I do believe that sooner or later they are going to be in a position where they’re going to need to grade and start looking at upgrading and spending in these networks.

Amir Rozwadowski - Barclays Capital

That’s helpful and then Kevin if I may; it seems as though you folks have been fairly strong in terms of the execution, in terms of the OpEx reductions; how should we think about sort of that trajectory? You sort of gone to that mid 30s level or at least approaching it quite quickly here; how should we think about that sort of trajectory? Should we think of it as stable at the moment?

Kevin Michaels

Well, I think we’ve got little bit further to go, but that’s our target right now, so from a forecast standpoint I kind of look at that as kind of stable for the second half of the year. We still got a little bit of reduction to go, but that’s our plan, our goal is to get to that number and kind of remain stable there in spite revenue fluctuation. So that’s what we’re driving for.

Ron Buschur

I think the other key as Kevin had outlined earlier; even with the environment and maybe the signs that the environment are improving and as we start ramping up production, we still believe we are staffed appropriately and we have the cost structure that we’ve been targeting now for the last two years, in place within this company to grow the business, to service our customers and continue to provide the leading hedge technologic products in the marketplace. So, we haven sacrificed our future or the ability to meet or exceed the customers expectations.

Operator

At this time you have no more further questions. I would now like to turn the call over to Mr. Ron Buschur for closing remarks; please proceed sir.

Ron Buschur

I want to thank everyone for joining us today and your continued interest in Powerwave Technologies. We look forward to sharing with you our results for the first quarter of 2009.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a good day.

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Source: Powerwave Technologies Inc. Q1 2009 Earnings Call Transcript
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