Symmetricom Inc. F3Q09 (Qtr End 03/30/09) Earnings Call Transcript

Symmetricom Inc. (SYMM)

F3Q09 Earnings Call

May 6, 2009 4:30 pm ET

Executives

Tom Steipp – President and Chief Executive Officer

Justin Spencer – Chief Financial Officer

Dan Madden – Senior Vice President Finance & Investor Relations

Analysts

Mike Crawford – B. Riley & Co.

Paul Bonenfant – Morgan Keegan

Ted Jackson – Cantor Fitzgerald

Cris Blackman – Empirical Capital

Greg Weaver – Invicta Capital

Presentation

Operator

(Operator Instructions) I would now like to introduce the host for today's conference, Mr. Dan Madden, Vice President of Finance and Investor Relations. Mr. Madden, you may begin.

Dan Madden

Good afternoon. Welcome and thank you for attending Symmetricom's Fiscal 2009 third quarter conference call. With me today are Tom Steipp, President and Chief Executive Officer and Justin Spencer, Chief Financial Officer. If you have not received today's news release, you may download it at www.symmetricom.com.

During the course of this conference call, we will make forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, including statements concerning guidance for the fiscal 2009 fourth quarter and full year and our expectations of operating performance in fiscal 2009 and fiscal 2010. Actual results could differ materially from those projected in the forward-looking statements.

The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Additional information concerning factors that could cause actual results to different materially from those in the forward-looking statements are contained in the company's Form 10-K for the year ended June 29, 2008 and subsequent filings with the SEC, as well as in today's news release.

I will now turn the call over to Tom Steipp, CEO of Symmetricom.

Tom Steipp

Thank you, Dan, and good afternoon, everyone. Welcome to our review of Symmetricom's fiscal 2009 third quarter financial results. During today's call, I will review the third quarter highlights, summarize the performance of each division, and provide an update on major strategic developments. I'll then turn the call over to Justin who will provide details on our financials. We will conclude with a few remarks before taking questions.

Before I begin the review of our third quarter results, I'd like to briefly comment on the recent announcement regarding my decision to retire from Symmetricom. I have had the honor of leading this great company for over 11 years and growing annual revenues from roughly $73 million when I started to over $200 million today.

The company has a strong team in place and is very well positioned for the future, with a healthy mix of new products and a strong balance sheet. I am grateful for my time with Symmetricom and wish all our employees, customers, suppliers and investors the best. A search for the new CEO is underway. I plan to stay with the company until this process is complete, which we expect by June 30th.

Now let's start with the third quarter financial results. Beginning with the financial highlights of the quarter, I'm pleased to report higher revenues and non-GAAP earnings over the prior year despite the challenging economic environment. Revenues were up in both divisions, while earnings and gross margins benefited from the restructuring actions taken last quarter and the cost reduction activities of the previous 12 months.

Total revenue for the quarter was $56 million, up 10% from the previous year on the strength of international sales and new product revenues. Non-GAAP gross margins were 49%, reflecting a favorable trend towards newer products and the benefit of reducing our manufacturing costs. Non-GAAP earnings were $0.14 per share, up from $0.05 per share a year ago. I continue to be encouraged by the progress of our growth investments.

Cable sales were very strong in the third quarter and contributed meaningfully to gross margin. Our international sales were up over 50% from the prior year, spurred by market penetration in India. PackeTime sales, though still emerging, are growing with significant customer interest across the globe. We are also pleased with the growing market interest and development progress of the Chip-Scale Atomic Clock or CSAC, which we believe will be an important long-term growth driver for our Timing, Test, and Measurement business.

With that brief summary, let me turn to the results of our two divisions. Starting with the Telecom Solutions division, we posted third quarter revenue of roughly $34 million, up 4% from the prior year. The build-out of networks to support new wireless and video deployments continue to drive revenues in international markets.

We have already shipped roughly half the $6 million BSNL order and expect to ship the remaining equipment in the fourth quarter. The BSNL, India's largest telecom service provider, is a significant new customer and marks the first meaningful contribution of revenue from that region.

Domestically, the ongoing upgrades of sync equipment continued at AT&T and Verizon. However, spending on network modernization slowed somewhat as large carriers reduced their CapEx. We were also affected by the potential for work stoppage at AT&T. These factors, in conjunction with the broader economic conditions, limit near-term visibility in North America. However, we expect international and new product sales to help offset any softness.

AT&T and Verizon continue to be significant customers, with AT&T representing roughly 11% of our total revenue in the third quarter. In cable, the continuing deployment of modular CMTS led to strong sales of TimeCreator in both domestic and international markets. We now have more than two dozen cable customers worldwide deploying our highly precise timing servers.

Cable revenues have been strong over the last few quarters and we expect solid revenue contributions to contribute at about these levels for the foreseeable future. We continue to make progress with our new PackeTime 1588 product family. We shipped equipment to a dozen customers during the third quarter, following the first commercial deployment by a North American service provider in the second quarter.

With these promising early indications of packet synchronization acceptance, we expect to see meaningful market traction beginning in calendar 2010. In the meantime, trials of our PackeTime products continue with major service providers and equipment manufacturers around the world. During the quarter, we further expanded our product portfolio to include the TimeProvider 500 translator system and PackeTime blades for the SSU and TimeHub platforms. These products allow customers to leverage their existing sync investment.

The wireless industry is undergoing an accelerated evolution from 2 and 3G technologies to 3 and 4G networks such as LTE, UMTS, WCDMA and WiMAX. With that transition, we will continue to see lower OEM wireless revenues. However, our new PackeTime 1588 solutions, which address next-generation timing requirements, enable operators to accelerate their migration to these new wireless technologies.

In the long run, we believe the shift to PackeTiming should increase Symmetricom's addressable market and generate better gross margins than our traditional OEM wireless products. Despite seeing a pause in the revenues for QoE in the third quarter, we made important progress developing key strategic partnerships.

First, we expanded our relationship with HP so that we are now included in their comprehensive head-in solution, which opens up new sales opportunities for Symmetricom. Second, we were selected to become part of the Microsoft Mediaroom ecosystem, the world's leading IPTV platform. This relationship gives us expanded access to customers who utilize the Microsoft platform.

Both Microsoft and HP have implemented their respective solutions in many of the world's leading IPTV service providers and these partnerships significantly help strengthen our position in existing trials. Over the next two quarters, we will evaluate the strength of our product offering in existing trials, with the intention of sizing investments proportionally with revenues in fiscal 2010.

Turning now to Timing, Test, and Measurement, revenues were $23 million in the third quarter, up approximately 18% over the prior year. We saw continued growth across a broad mix of products, including government communication systems and NTP servers. We introduced the S300 Sync Time Server, which includes a SAASM receiver. These time servers address a federal mandate requiring communication systems to receive secured GPS signals, even in a jammed environment.

In the quarter, we announced a multiyear program win for our space borne oscillators under the Air Force's GPS Block III program for which ITT is the prime contractor. Our portion of the contract is valued at approximately $4 million over the next three to five years. We are very pleased to be part of this important program designed to enhance space based navigation.

Finally, we continue to move forward on the Chip-Scale Atomic Clock program. Our development efforts have resulted in significant breakthroughs including shrinking the size of an oscillator by 95%, reducing its weight by 97% and lowering power consumption to less than 1% of existing devices.

With the technology developed and the markets identified, we plan to scale the technology for volume production starting in early calendar 2010. We see strong market demand with interest across an expanding number of applications as we move beyond the pre-production phase.

Early applications include anti-IED jamming devices, autonomous sensors, electronic warfare, oil exploration and seismic monitoring.

In summary, Symmetricom performed well in the quarter, even as the macroeconomic conditions remained challenging. We are mindful of the continuing pressure on CapEx budgets that could affect our financial performance in Q4 and FY10. The diversified profile of the company and penetration within international markets and growing contribution of new products provide the basis for solid revenue generation.

At the same time decisive actions over the last year to reduce operating costs and improve efficiencies have produced a cost structure supportive of our target profit objectives. Given this balance of uncertainty and decisive action we now expect fiscal 2009 revenue to be in a range between $212 million and $219 million, up over fiscal 2008.

And our non-GAAP EPS guidance remains relatively unchanged. I'd now like to hand the call over to Justin for details on the financials and full year and fourth quarter guidance.

Justin Spencer

Thank you, Tom. Here are the third quarter financial details. Please note that all comparisons I will provide in my comments are made to the third quarter of the prior fiscal year. Revenue was $56.4 million, 10% higher than prior year revenue of $51.5 million. Telecom solutions revenue in the quarter was $33.6 million, up 4%.

TTM revenue for the quarter was $22.7 million up 18%. As Tom mentioned earlier, only AT&T represented more than 10% of our revenue in the third quarter, reflecting our increasingly diversified position in the markets we serve.

Gross margin in the quarter increased to 43.7% and non-GAAP gross margin increased to 48.7% due to a favorable product mix led by TimeCreator and the benefit of our manufacturing outsourcing and cost reduction actions announced last quarter.

Operating expenses were $70.8 million compared to $23.1 million in the prior year. Operating expenses included a $48.1 million non-cash goodwill impairment charge and $4.6 million in restructuring and other one-time charges. Non-GAAP operating expenses were $17.2 million or 30.5% of revenue, down $3.2 million from the prior year.

GAAP and non-GAAP operating expenses include a $2.7 million benefit related to employee incentive compensation. The savings from the restructuring announced in January are being realized as expected. GAAP net loss from containing operations was $46.7 million or $1.08 per share, compared to a net loss of $911,000 or $0.02 per share last year.

Included in this quarter's net loss were the charges I mentioned earlier, most notably the $48.1 million non-cash charge related to the impairment of our goodwill. In that regard the company concluded this quarter that certain criteria warranted an evaluation and subsequent write off of our goodwill assets.

Non-GAAP net earnings for the quarter were $6.3 million or $0.14 per share compared to $2.2 million or $0.05 per share last year. Ending backlog was $42.2 million down from $50.1 million at the end of the prior quarter, as our Timing, Test and Measurement division ship product early in the year. We estimate that $38 million of our backlog is shippable within six months, $3 million is shippable within six to 12 months and that $1 million will be shippable beyond one year.

Cash and short-term investment balances ended at $107.1 million, up $5.1 million from the prior quarter. Cash flow from operating activities was $7.4 million and capital expenditures totaled $800,000, resulting in free cash flow of $6.6 million.

During the quarter we used $1.1 million to repurchase 368,000 of our common stock. As of the end of the third quarter we had outstanding authority to repurchase an additional 1.7 million shares.

As Tom noted, we are updating our full fiscal year revenue guidance to an expected range of $212 million to $219 million and our non-GAAP earnings guidance to $0.35 to $0.40 per share. We now expect a full year GAAP loss in the range of $0.93 to $0.97 per share as a result of an estimated $57 million in goodwill, restructuring and other charges.

For the fourth quarter we are anticipating revenues in the range of $51 million to $58 million, GAAP earnings in the range of $0.01 to $0.06 per share and non-GAAP earnings per share in the range of $0.05 to $0.10.

I'd like to now hand the call back to Tom for his closing remarks.

Tom Steipp

Thank you, Justin. In summary our focus on diversifying our business and reducing costs has produced a strong platform for future profitable growth. We are successfully executing on our strategy to maximize opportunities in emerging geographic markets and to benefit from the modernization of communication networks worldwide.

We are encouraged by our newest commercial products and product pipeline which we anticipate will produce in excess of 15% of our revenue in fiscal 2010, up from approximately 5% in fiscal 2008. They include our cable timing product, which has built a strong market position by enabling the deployment of DOCSIS 3.0. Our portfolio of PackeTime products which is on a promising trajectory as it progresses from trials to early customer installations, enabling the deployment of 3G and 4G wireless networks with Ethernet backhaul.

And finally the Chip-Scale Atomic Clock, which moves into early production in calendar 2010. At this time we see established government applications with significant demand and are ramping our production capabilities accordingly.

I want to thank everyone for joining us today. This concludes the prepared portion of our presentation. Justin and I will now take questions. Operator, if you can poll the audience we'd be more than happy to move into that phase of the call.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Your first question comes from Mike Crawford – B. Riley & Co.

Mike Crawford – B. Riley & Co.

Thanks. So the gross margin of 48.4% pro forma in the quarter, I mean, clearly now you've got three quarters of stronger gross margins than you've had in the recent past. What does it take to get them up over to around 50% on a consistent basis?

Justin Spencer

I think it's important to point out that our gross margins this quarter were affected by the international sales that we had, which tend to be a little bit lower than our overall company margins. We don't expect that mix – while we expect international sales to continue at a good pace we don't expect the mix of international sales to total revenue to be like that going forward.

So if you exclude the impact of some of the international sales this quarter our margins would have actually been a little bit higher. So we're actually very close if not at the 50% level that we had expected.

Mike Crawford – B. Riley & Co.

So am I to imply from that that in fiscal 2010 50% is a good benchmark to shoot for?

Justin Spencer

That's consistent with what we've said historically, yes.

Tom Steipp

Keep in mind Mike that it's been an ongoing process, particularly on the manufacturing side. We've had a very focused program to reduce manufacturing costs in general and in particular as part of that to outsource boards to Sanmina. That's a long-term process that should be finishing up probably the end of the fiscal year before we get the full benefit of that.

Mike Crawford – B. Riley & Co.

And when that finishes up is there going to be anything left in Puerto Rico or is it all moving to China?

Tom Steipp

Oh no, the boards are moving to China or at least most of the boards are moving to China, but we still have things in Puerto Rico. That's 20 years worth of installation, configuration and test capabilities that doesn't move particularly well. We should also comment that about a third of our business is U.S. government and while we use Sanmina for some of that as well those products don't go to China. They use U.S. facilities for those.

Mike Crawford – B. Riley & Co.

And then final question relates to a kind of legacy business with the North American carriers to maintain their old networks, so what's the status of that? How long can these be stretched out? Is this something that's going to sell off now or is that something you expect to pick up?

Tom Steipp

Well I think we're always working on that kind of interesting, challenging process with in particular AT&T and Verizon. As noted AT&T was a 10% customer this quarter. I think we're at levels that we believe are sustainable at the current levels.

It probably will take closer to 20 years for the entire install base to get upgraded whether or not the ability to pick and choose the central offices to replace will allow them to do that over a 20-year period of time it's hard to tell. But for right now I think our objective is to work very closely with them on what they need to keep their networks reliable and that's what you see in the numbers we've got today.

I would say kind of parenthetically that we certainly view the 1588 deployments which utilize the card CAGES of the new products to be an additional incentive for them to continue the upgrade beyond just the failure rate of the components on the legacy equipment.

Operator

Your next question comes from Paul Bonenfant – Morgan Keegan.

Paul Bonenfant – Morgan Keegan

First question is more of a housekeeping one. I'm wondering if you could break out for us the sub-segments for the telecom solutions division? I believe these show up in the SEC filing so that wireline, OEM, services, QoE?

Justin Spencer

Yes Paul, I don't have that here in front of me. It will be – the Q is going to be filed on Friday but I can – I think we'll have a call a little bit later today and I can certainly have those numbers at that point.

Paul Bonenfant – Morgan Keegan

But just from I think from your commentary earlier would it be fair to say that both OEM and QoE were down sequentially?

Justin Spencer

Yes.

Paul Bonenfant – Morgan Keegan

And did you break out the international business as a percentage of sales?

Justin Spencer

We didn't. We had, as Tom mentioned in his remarks we had over a 50% increase year-over-year, but we don't break that number out specifically.

Paul Bonenfant – Morgan Keegan

Switching over to your commentary on the growth opportunities, it sounds like you're a tad more optimistic now than you were even on the last call, now talking about greater than 15% revenue in fiscal year '10 relative to new products. Can you talk about the expectations regarding the mix there? I mean, it sounds like the new product growth right now is led primarily by the DOCSIS 3.0 and modular CMTS. Do you see that carrying forward? When do you see the other elements contributing materially to that?

Tom Steipp

Yes. Paul, we've always tried to articulate the fact that we had multiple products that would layer-in in the new product arena. Certainly, cable was the first and has fueled that growth to date. We would expect to see both 1588 and the Chip-Scale Atomic Clock starting to represent significant levels of revenue in the second half of fiscal 2010, the first half of calendar 2010. And between the two of those, though they'll certainly be – we would expect to see kind of double digit millions with, I would expect, the 1588 probably leading the way on that.

Our Chip-Scale Atomic Clock? We've become more encouraged by what we see there. It really is a function, at this point and time, of how quickly we can build them, but the demand is certainly one which we are encouraged by in terms of very specific programs that the government has approached us on, or system integrators have approached us on. That particular one will probably be low, single-digits in 09 and double digits in 2010.

So, you can think about it as cable came on first; 1588 will probably come on second, then Chip-Scale Atomic Clock will come on third.

Just a comment on the QoE, you'll see the numbers. We had less than a half-million dollars worth of revenue in Q3. We are very encouraged by some of the trials we are in, but trials have a limited life and you need to make a decision on those, and we would expect fairly quickly, depending on the customers we're working with at this point in time, that we'll have decisions on that, then will balance the revenue and the expenses in 2010. We're moving that way at the end of this year.

Paul Bonenfant – Morgan Keegan

Okay, and a quick follow-up if I may on the international question. You spoke about the revenue from India. I guess you booked about half of that in last quarter, with the other half coming in this quarter. Can you update us on opportunities and contributions from China relative to the 3G build or otherwise, if that's primarily 1588 or any legacy products?

Tom Steipp

Yes. We see the opportunity in China in the 1588 space; China Mobile being the first one coming down. We have our 1588 products over there being evaluated at this point and time, and certainly would expect to compete very aggressively for the opportunity over there. To our knowledge, China is fairly adverse at putting GPS antennas in a lot of places, so we think 1588 will be likely the technology of choice for deployment on their next generation base stations.

Operator

Our next question comes from Mr. Ted Jackson – Cantor Fitzgerald.

Ted Jackson – Cantor Fitzgerald

Thank you. A few questions, one is, Justin, I actually missed those just thinking about how great your numbers were, I missed the backlog numbers.

Justin Spencer

Sure. The backlog was $42 million.

Ted Jackson – Cantor Fitzgerald

And then all the breakdown for it?

Justin Spencer

Yes. Let me get it for you, hang on; $42.2 was the ending backlog, 38 million of which is shippable within six months, $3 million is shippable within six to twelve months, and $1 million is shippable beyond one year.

Ted Jackson – Cantor Fitzgerald

Thanks. Then jumping over to the BSNL revenue, with half going this quarter and half last, with, and kind of the volatility that you have in your revenue streams, could you see a case to where you'd have another good chunk of revenue from them come through in the fourth quarter? And then that would cause you to have perhaps a sequential decline in the quarter?

Tom Steipp

I can't comment on first quarter, but we –

Ted Jackson – Cantor Fitzgerald

Well, you could –

Tom Steipp

But I'm not. We did say in this script that we expected the second half to ship out in fourth quarter. So we, as you know, we have not had a real strong presence in India, over the course of the last several years. BSNL was really the first structured Synch bid in India in a long, long time, certainly in my memory of the ten years since I have been here at Symmetricom.

We pursued that aggressively; won the largest piece of that and expect to see – and I've actually had multiple other timing wins in India, not just in Synch, and believe that India represents a good market for frequency and timing moving forward for both our TTM and TSD divisions as they build out more of their infrastructure.

Ted Jackson – Cantor Fitzgerald

Could you remind us the size of that deal?

Tom Steipp

It was about $6 million; our piece of it was about $6 million. There were two awards. I believe it was roughly 70% for the first award and 30% for the second award.

Ted Jackson – Cantor Fitzgerald

And then, when you look into the guidance that you had, which would suggest that – let's call it sales are more or less flat. Would you see one division Telecom or TTM growing and the other perhaps decline a little bit?

Tom Steipp

We just give you the guidance for the combination of the two of those. Certainly, if you go back historically, we have had some offsets in those two, which to our benefit, I guess, relative to diversification, have kind of balanced each other out in terms of our quarterly revenue numbers. So, I don't see a big shift in anything that is going on in either one of those, other than to say that over the course of this year, as has been in the past, our Timing, Test and Measurement business operates off more long-term contracts. We tend to have better visibility there, lower volatility there, than we do on the TSD side.

Ted Jackson – Cantor Fitzgerald

Okay. Just quickly some model questions. Could you tell me what CapEx and depreciation were in the quarter? And, what your outlook is for the fourth quarter? And could you tell me what operating cash flow was in the quarter?

Justin Spencer

Sure. So CapEx for the quarter was $1.9, really $2 million. Depreciation was $2.1 million, but that included $600,000 of accelerated depreciation. So if you are trying to get to an EBITDA number off of our non-GAAP operating income, you should take the difference between those two. Cash flow from ops was $7.4 million in the quarter.

Ted Jackson – Cantor Fitzgerald

So what do you think the depreciation in CapEx would be in the next quarter?

Justin Spencer

CapEx should be, sorry, the CapEx – I misstated. The CapEx was actually about $800,000 in the quarter. CapEx should be at about that level next quarter. And then, did you also ask about cash flow from operations?

Ted Jackson – Cantor Fitzgerald

No, just depreciation, but you can tell me what your thoughts are on cash flow from operations.

Justin Spencer

No. Depreciation should be at about that level next quarter as well.

Ted Jackson – Cantor Fitzgerald

What did you say, $2.1?

Justin Spencer

Yes, somewhere in the neighborhood of $2 million.

Ted Jackson – Cantor Fitzgerald

And then, I had one more question for you and it just came in and out my head. I'll step out of queue and free it up. Thanks very much.

Operator

Our next question comes from Mr. Cris Blackman – Empirical Capital.

Cris Blackman – Empirical Capital

Thank you. Hey guys. A couple of things, first, I noticed obviously you didn't buy any bonds back. Are you still attempting to buy bonds back or is that something you just kind of have moved on and concentrating your efforts on other areas for your cash?

Justin Spencer

We're always open to exploring our options there, but no current plans in that regard.

Cris Blackman – Empirical Capital

No expectations there. Okay. Your inventory of Synch Timing Cards, any comments on some of that older inventory? I know you had worked through some and do you have any of the older Synch inventory left or timing cards left or is that pretty much all worked through, or was that included in some of your COGS?

Tom Steipp

Cris, are you talking about the fact that, as we've outsourced boards to Sanmina/China, it takes a while for those boards to work their way back into the system, back into our finished goods and then back into our improved gross margins?

Cris Blackman – Empirical Capital

Yes.

Tom Steipp

Yes, we're towards the end of that. We're not totally completed yet, but we're probably in the last 25% of it, and would expect to finish it. At least our current plan is to finish it up by the end of the fiscal year.

Cris Blackman – Empirical Capital

The end of this fiscal year, okay?

Tom Steipp

Yes. And by the way, that doesn't mean that we're stopping our emphasis on reducing manufacturing costs at the end of this fiscal year.

Cris Blackman – Empirical Capital

Okay. If you look at your cost structure in 2010, if we assumed flat revenues and then you see the change in product mix, do you still think that you could achieve a profit margin in the 15% plus area with a flat revenue, with a change in the product mix and the cost containment that you've been working on?

Justin Spencer

It obviously just depends, but certainly we feel really good about the cost reductions that we're realizing up in the gross margin line, so we've taken a lot of costs out and there's more to get, we feel, next year. So that gross margin target is pretty solid.

The OpEx, as you know, some of that cost is fixed, and we continue to be focused on driving our OpEx down. In a flat revenue scenario, assuming a 50% gross margin model we'll be close to 15%. Whether we hit it for the full year or hit it during that year, it just depends on mix and a lot of factors.

Tom Steipp

But I should parenthetically say we've taken a lot of charges this year, during the year, which we didn't get the full benefit of during this year. And you know we will get the full benefit of them next year. So that's clearly our goal, although we're not making any commitments or projections at this point in time.

Cris Blackman – Empirical Capital

Can't blame you for trying. Thank you. Did any cable customer represent a top five customer?

Tom Steipp

Not this quarter. I think we've had one quarter when a cable operator was a 10% customer, but I am very pleased, really, with the diversification we've got on the cable side. We ship almost as much internationally as we do domestically. So got a good balance so far and we draft extensively off the Cisco sales force, frankly.

Cris Blackman – Empirical Capital

Okay. I guess another subject that's kind of hard to approach, but on the CEO search, any thoughts on the timing on that? What we could be expecting, and can you share with us maybe what the board is looking for? Are they looking for an operator, or is someone from the wireline space, or the cable space, or someone who's a numbers person? Any thoughts on that sort of –

Tom Steipp

I don't think it would be appropriate to try to pigeonhole what the board is looking for, other than they're looking for somebody who will provide exceptional leadership and keep the company going on the track we're on.

My expectation is that the person will be identified and onboard by the end of June. Now, searches like this are always somewhat difficult, and you can never guarantee them, but I would certainly expect that to be the target timetable, which coincides kind of with the end of the year transition to a new person, and all the things that you would expect.

Cris Blackman – Empirical Capital

Okay. Appreciate that. When you talked about new products representing in excess of 15%, which I think is higher than what we were expecting before, I assume that includes the Chip-Scale Atomic Clock?

Steipp

Well, not in 2009. And, as I indicated, we would expect Chip-Scale Atomic Clock to be kind of single-digit millions in 2010. Just because we know how to build a few of them, we're trying to figure out how to build lots and lots of them with revenues, really back-end loaded.

But once you get into 2011, certainly based on what we see as the existing requirements today, we'd see that moving pretty quickly up into the double-digit millions.

Cris Blackman – Empirical Capital

Okay. So is it safe to say, then, that what you're suggesting on the new products in excess of 15%, that does not include the Chip-Scale Atomic Clock?

Tom Steipp

Just very modest contributions from Chip-Scale Atomic Clock. I think as I laid out, cable's been the big winner, and you know the leader, and we would expect 1588 to come on faster, because that's been in incubation longer and is an industry standard, and things like that.

Cris Blackman – Empirical Capital

Right. And then finally, with AT&T having been 11% of the total revenues in Q3, was there anything that drove that, because that certainly was a pickup from where we were prior quarter?

Tom Steipp

No, I think if anything, the fact that they went through the exercise of trying to figure out if they were going to have a strike probably delayed some of what we would have expected to see in the quarter. They've always been pretty much front-end loaded.

I mean, just to reiterate over the last three years – and we may not be exactly that this year, but – I'm sorry, the last two years and may not be exactly that this third year, roughly 45% of our revenue is in the first half of our fiscal year, and roughly 55% of it is in the second half. And that's driven mostly by AT&T and Verizon, although not exclusively.

Cris Blackman – Empirical Capital

Okay, and if I may, and I apologize; this will be the last one. That Chip-Scale Atomic Clock, you mentioned several different applications that's going to be used for. Could you maybe go into a little more detail on those applications?

Tom Steipp

Sure. I think the one that's probably most illustrative to folks who are on the call– and by the way, when we say it reduces the size by 95%, it reduces the weight by 97% and only uses 1% of the power, this is a paradigm shift. Basically what you can think of is all the applications out there that used to use what are called ovenized quartz oscillators are now potentially in the space for us to replace in a mobile concept.

So the easiest one to explain is the number one killer of U.S. troops internationally are these improvised explosive devices, and one of the ways they counteract those is they jam for our mobile and troop guys going down the road. And that's great, except that then the mobile folks and the soldiers can't talk to one another or can't talk to the base.

So these mobile Chip-Scale Atomic Clocks provide very precise openings in both time and frequency to allow all the good guys to talk to one another while, from all outside appearances, the bad guys view it as totally jammed. So that's a real benefit.

The other thing is with very precise time our field troops can acquire GPS much more quickly. And as you can imagine, if you're in kind of a hostile fire environment, you're not sure exactly where you are, acquiring GPS quickly is a high priority.

So there's actually quite a few applications that have been identified by the government, and government contractors. We've got a very good bead on those, and I think it's probably easy to say that the demand at this point in time outstrips our ability to produce them, but we're working it.

Cris Blackman – Empirical Capital

Any government funding on that?

Tom Steipp

I should point out that the government funded almost of the R&D for this, along with several others. So to be clear, we don't have any patents on this technology, but we do have trade secret capabilities. And of the five plus teams that entered the competition, it is our belief, at least at this point in time, that we are the only ones able to build it in commercial volumes.

And we continue to get government assistance to a small part, although to be clear, we've upped the ante and put more of our own expenses in there to accelerate to production, because we can see the demand.

Operator

Our next question comes from Mr. Greg Weaver from Invicta.

Greg Weaver – Invicta Capital

Hi. Thanks for taking my question, here. In terms of your typical turns business in a quarter, I guess what percent is a book-and-burn for you?

Tom Steipp

Our book shift during the quarter is typically 50% for the company, although just parenthetically, our government business has a much bigger backlog on longer term contracts than does our TSD. So we only report aggregate backlog, so what you get, Greg] is that average.

Greg Weaver – Invicta Capital

Okay, that helps. And just one more, Justin, I think you mentioned, maybe I misheard you, was there a one-time benefit to OpEx?

Justin Spencer

Yes. We did have a one-time benefit of roughly $2.7 million to our OpEx this quarter, tied to a reduction in our employee incentive compensation. So we have certain milestones within the company that we measure ourselves to, and we reduced that which translated to a benefit to our income statement this quarter.

Greg Weaver – Invicta Capital

So the actual cash OpEx was a little less than $20 million?

Justin Spencer

It's a non-cash benefit. It's basically a reduction of an accrual, an expense accrual.

Greg Weaver – Invicta Capital

Okay. So the ongoing – I guess I'm kind of figuring where we are in the current quarter, then. So an ongoing OpEx number is in the neighborhood of what?

Justin Spencer

It should be just around $20 million, just over that.

Tom Steipp

Operator, any others queued up?

Operator

At this time, I show no further questions.

Tom Steipp

Okay. I think Ted Jackson had one more queued up that he didn't quite get back to us on. Ted, do you want to call us? That would be fine.

I just want to thank everyone for joining us for the third quarter update, and we'll look forward to having everybody on the next quarter's call. I may not be part of that, but Justin and the rest of the team will. And again, I want to wish everyone the best and Symmetricom as well, our employees and customers. Thank you. Talk to you later.

Operator

Thank you for participating. Today's conference has concluded. Please disconnect.

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