Infinera's Management Presents at JPMorgan Global Technology, Media and Telecom Conference (Transcript)

May.14.13 | About: Infinera Corporation (INFN)

Infinera Corporation (NASDAQ:INFN)

JPMorgan Global Technology, Media and Telecom Conference Call

May 14, 2013, 10:40 pm ET

Executives

Ita Brennan - CFO

Dave Welch - Co-Founder, EVP & Chief Strategy Officer

Analysts

Rod Hall - JPMorgan

Rod Hall - JPMorgan

Okay. Alright, I think we’re going to go ahead and get started, so my name is Rod Hall, I am the Communications Equipment and Wireless Analyst for JPMorgan. Thanks everybody for coming. We have got the pleasure of having Infinera with us today. Ita Brennan, the CFO and Dave Welch, EVP and Chief Strategy Officer. So welcome to you guys.

The way we are going to do this is we always do with the fireside chats; I am going to start off with some questions, but (inaudible) questions yourselves and I will open the floor for questions from the audience after we get into it a little bit and you also should know there is an opportunity that to put a question into your iPad, which will show up here on this iPad. So if you feel shy, you can do that.

So let me just get started, may be with a question for you Dave. You have guys have talked about a need as well 180 terabits per second of capacity growing 235 terabits in Q1 and as we understand that number I think from accumulative bandwidth sales for the quarter that you are talking about, do you think that that rate of growth can continue or how do you see that rate of bandwidth sales overtime developing, kind of help us understand that?

Dave Welch

Sure. That number is a measurement of how much bandwidth on the line side that we are selling and deployed into the network. The difference, there is a history of DTN bandwidth, it’s history of DTN-X bandwidth, the 180 (inaudible) and so in the last quarter, we are able to see some sort of growth in the DWDM bandwidth from DTN-X. Let’s say we are seeing a significant adoption rate that’s not on a percentage rate something is going to happen on a quarter-by-quarter basis, but I would say we see that, we are seeing good strong growth in the DTN-X platform.

Rod Hall - JPMorgan

And those are numbers that you guys intend to give us now every quarter, so we’ll track it or it is something we’ll see every once in a while but not necessarily every quarter?

Ita Brennan

I am not sure we provided every quarter, but certainly as a metric overtime, I think it's meaningful on a quarter-by-quarter basis it is going to be key metric.

Rod Hall - JPMorgan

Okay, great. I wanted to Ita maybe ask you a question about just how are you thinking about OpEx now, I mean are you guys, you’ve got a plan to reduce it overtime; where do we stand in terms of progress and how are you thinking about the next year in terms of cost control and just running the P&L?

Ita Brennan

Yeah, I mean if you look at our guidance from the last earnings call, we have kind of laid out a roadmap through the end of 2013. And assuming that we are archiving those revenue and gross margin targets then we would have tend to spend to the range that we laid out there. Beyond that what we’ve said is we’ll grow operating expenses at a lower rate than revenues right, so we do expect that we will get leverage against operating expenses as the revenues expand beyond that and that should allow for more flow through the bottomline, so I think if you see revenues growing at a particular rate, we will be growing expenses at a much lower rate than that for the foreseeable future until which we write to our targeted model of 10% operating income.

Rod Hall - JPMorgan

And just a question on your philosophy on cost particularly on hiring sales people, some people take a view that you need hire them at a time and some people like to hire behind sales. I was wondering which way you think about that?

Ita Brennan

Yeah, we put significant investment in marketing in 2011 beginning of 2012 ahead of the DTX platform; we probably increased the sales headcount by about 20% to 25%. So we definitely believe that if you spend this much money and bring in the product to market we needed to have sales resources there. If you look at where we are now we think we will increment sales resources but it will be very much on a success based factors, so if we end up winning a large account from where we feel like we need to add a sales guy or two to support that, we will do that but we think we maybe have a broad scale investment upfront.

Rod Hall - JPMorgan

Okay, alright. Maybe wanted to come back and ask just probably one for Dave, you guys have talked about (inaudible) as critical to business, can you give us any idea of what sort of share you think is achievable in the 100 gig as we move forward and how are you thinking about revenue share, unit share or both.

Dave Welch

Well, we think about both frankly, it’s important for us from our model, I mean we built in fixed to do that. We want to be able to continue to control enough of the volume of 100 gig out there and in our DTN product line we are able to maintain about 48% unit share of 10 gig wavelengths from 2007 to 2011 that timeframe. We will expect to hope that we can have a significant unit volume on the driver factory costs, but you know ultimately it’s really about what kind of revenue for systems business we are not a component business so we need to be able to sell networks and be able to realize the market share, dollar market share from our customers. What's realistic, you know that's I think the number of participants in the intelligent transport network to converge the DWDM platform is going to decrease; I think there are clear companies out there they are going to be losing market share, we believe we are going to be gaining market share and we will see where that ends up; I don’t want to predict there where our end market share is.

Rod Hall - JPMorgan

Do you think that you can, I mean would you expect to have a higher market share in 100 gig than you had in 10 gig in US for example, can you guys share what it is?

Dave Welch

So share on a North America and worldwide basis, absolutely; the DTN-X opens up a whole new different class, second class of customers or second category of customers that we weren’t able to access before and those are, the DTN-X is the first time anyone has a product that is able to satisfy the most complex domestic networks as well as to be able to satisfy the wholesale markets, cable, the internet content provider types of markets. Just by mirror market expansion for us are total the market share is going to come.

Rod Hall - JPMorgan

Okay, alright. And then I've got one kind of for both of you I think, just talking a little bit about recognition of revenues, for DTN-X super channels and how that works; is there you know it feels to me like most of the revenue you are recognizing is from products you are shipping so you are 100% recognizing revenues on shipped products, but it also feels like with the super channel the kind of capacity that's on there, its possible that there are, you are shipping line cards they don't believe you to (inaudible) and then or at some point they might pay revenue for utilizing line cards, so I just wonder if you can just comment a little bit on how the revenue recognition model works; how you think about that, maybe you do it for the future as well?

Ita Brennan

Yeah, I mean just to clarify kind of how the revenue recognize model works then I'll kind of turn it back to Dave; if we sell 500 gigs super channel today then we will recognize the revenue on that module as we ship the product. With our instant bandwidth program when we ship that 500 gig super channel we will license only a 100-gig of that 500-gig and we will take revenue on the first 100-gig and then we will have the opportunity to build for the other 400 overtime. So on the cases where we sell the whole 500-gig, we will promptly take revenues straightaway. If it's an instant bandwidth model, there will be follow on revenue against that product within the field overtime.

Dave Welch

So I’ll, the different advantage point on this; our businesses is really about, I think about selling sockets. We deploy optical line systems; that optical line system is capable of tearing, for DTN-X cable carrying 8 terabits of information. They buy a certain amount of DWDM line fill on that system on their first 500-gig super channel, they fill 1/16 of that fiber capacity and then there is a second layer of fill which is how many service modules they plug into that DWDM bandwidth. So when someone deploys an initial network, typically they would put in all the amplifier structure for 8 terabits on day one. They would put in the first layer of 500-gig super channels on that, so in that sense, there are up to 15 more 500-gig super channels that can go on that particular length. We haven't shipped it; so we haven't recognized revenue on it, but it is certainly an opportunity for us to sell over later time. Then typically, I would say somewhere in the range of few hundred gigabits of service interfaces on first buy for that 500-gigs of DWDM line module. Service interfaces get bought at a much more frequent and faster pace and then the 500-gig super channel that sits on the Infinera line systems, they also go on at equipped that obviously at and more space down capability. So we recognized revenue almost shift, that’s a question of how much sockets you generate and how many, what's the future potential for that too.

Rod Hall - JPMorgan

And then how much, can you guys just call them on how much instant bandwidth business you are doing out there and are you seeing any growth as a proportion, anything as a proportion of unit shipments?

Dave Welch

At this point in time we are doing, let’s say, a small and modest portion of our business is instant bandwidth related. What instant bandwidth requires the customer to view two things differently that they view it strictly as I want to buy a 100-gig at a time, actually it turns up most of the people that have high capacity -- care about high capacity long haul networks, they don't have a problem buying 500-gigs at a increment from that. If they view instant bandwidth as a new mechanism of being able to instantaneously turn on bandwidth and correlate their cash flow cycle to their customers’ cash flow cycle, it means some of the true value of instant bandwidth sort of come into play.

However, that means they need to be able to operationally change how they do their planning and how their planning process and ordering of equipment happens and so it takes a longer time for them to adopt that and see the added value of being able to have that kind of instantaneous [bandwidth help].

Rod Hall - JPMorgan

Ita, I wanted to maybe just ask you little bit about the gross margins and trajectory of gross margin just get you to talk to kind of the puts and takes to that, we’ve had a situation where pricing is falling relatively rapidly, you have to got to keep cost coming down to keep your gross margins stable, but you guys have done little bit better than we expected recently on margins. So just can you help us to understand what the dynamics in the cost line or how they relating back to pricing environment?

Ita Brennan

Yes, so I think we have couple of [bookend] targets out there related to gross margin right now, our mid term target for gross margin is 45% and that is kind of thing steady state, growing still deploying significantly footprint on a steady state kind of target 45%. For 2013 what we’ve said is we will -- for the year we will be in a 38% to 40% range and what that is contemplating is that as we move through the year, we are able to achieve some significant cost reductions and cost improvements around the DTN-X platform because again you bring in new platform like this to market, it would be vertically integrated manufacturing structure that we have, you start out with the cost penalty and then you are able to improve that cost very quickly as you start to shift some volume, right.

So we are -- if you look at what is happening in 2013, we believe that we can see significant improvement and the gross margin has been driven by focus on cost and cost reduction around the DTN-X platform. So right now, it’s a 38 to 40 for the year, that is, you have to increase gross margin fairly steeply through the end of the year and you probably exit in the low-40s at the end of ‘13 to achieve that number, all right.

If you look beyond that, what happens as you move out of that that I think the product mix and the ability to fill these networks that we deploy, it becomes the more important part of that, right. We've got -- we are putting out significant line systems common equipment right now and as Dave talked about that line system is going to support 8-terabits of capacity right. So you've actually increased your fill to commons ratio significantly with the DTN-X.

So as we start to see that fill go into that footprint, we would expect to see that help gross margins as we move through times, so that becomes a bigger driver of gross margin expansion probably into next year and beyond, right. Beyond the 45%, that's when you have to start to really leverage other capabilities into the product, switching capabilities, which is heavily adopted, or other capabilities get added to the platform and the timeframe that could take you beyond the 45%. That's kind of how we are thinking about another roadmap. Obviously there's puts and takes on a quarterly basis on all of this, but that trajectory makes sense to us from a gross margin roadmap perspective.

Rod Hall - JPMorgan

For the 38 to 40 this year, you've got I guess the cost element of it. You have a pretty good view on that at least…

Ita Brennan

At least it’s within our control and things that we can drive lright.

Rod Hall - JPMorgan

Right, and that was predicted the things pricing.

Ita Brennan

Right.

Rod Hall - JPMorgan

What kind of a price assumption, price decline assumption you make this year to get to that gross margin range, can you give us some idea.

Ita Brennan

Yeah, I mean, the way we think about pricing right now is, we've said it’s flattened out versus where it was say last year. And I think 100-gig pricing had a dynamic of -- had limited supply in the market lace and that held a price point that was very high and then all of a sudden you finally have a viable supply set and then you started to see pricing come down steeply. What we are saying is now we are thinking for kind of normalize to what's typical in the industry which is anything from depends 10% to 15% plus decline which we only see a 10-gig or at 40-gigs, right.

So we are remodeling to a more normalized kind of industry price decline going forward and you drive that out of your cost reductions. Your cost reductions have to cover that before you start to get upside on the gross margin from that.

Rod Hall - JPMorgan

And but you are not willing to quantify the price decline?

Ita Brennan

Yeah, it’s a difficult number to quantify across the different parts of the business, but I think what we will say is we believe it’s kind of returning to what you've seen on average ASP doing in this space and take a 10-gig cycle.

Rod Hall - JPMorgan

10 or 15 okay, all right. I wanted to come back maybe to Dave and ask about the CapEx and OpEx operators could save by using ETN-X lightning equipment, where you’re converging MPLS switching and OTN and WDM capabilities. So can you give us any idea what sort of investment you are making, operators can, anyway if you quantify what sort of savings they receive when they deploy it?

Dave Welch

Sure. Easiest thing is to take a particular network structure. If I take a large North American carrier type of structure, I might have upwards of 100 nodes across the country and I've got a certain degree of master capabilities in that. Both the upfront and I characterize that from my upfront deployment cost and I also characterize that over a five-year cost of operation type of a capability. As a result of the technology and the ability to converge the switching technologies with the DWDM platform technologies comparing that to how things may have been done in 2011 type of timeframe, you could see as much as 40%, 50% cost on a network basis and that's not just a 40% drop in the DWDM platform, that's a consumption of functionality that used to be sit in some of the switching layer structures. That has been brought in now to the intelligent transport layer and that through this converged platform but the total cost of their network when they view it as layer zero through layer three capability, they can drive down that significantly enabling architecture it does that.

Rod Hall - JPMorgan

And that's a CapEx cost saving (inaudible), 40%, 50%.

Dave Welch

You can achieve that type of differential on both a day one cost and on integrated five-year cost, whether it's a power space operation, savings in the out years but is the ability to scale capacity on a converged platform or from an upfront basis. But I want to emphasize is those numbers are because the market is going through a transformation where there use to exist silos of a layer three silo, a layer two silo, a layer zero silo, those silos are disappearing. Those silos are converging together in to a common structure. The true network cost savings are because of the convergence of those silos together that allows the network to be rearchitected and now you deploy one box and set a multiple boxes in the network, not that the dollar per gigabit of transport is probably in that type of [range].

Rod Hall - JPMorgan

And that consolidation, so 40% to -- just to be clear, 40% to 50% savings on normally upfront capital cost to deploy the equipment but also on operating cost looking forward. Is that the right way to (inaudible)?

Dave Welch

For that type of network architecture, large North American network that can take advantage of the Mesh aspects of the capability, yes and cautionary when we look at it that the transport space has people that think about the world as point to point connections and there are other people in the world that think about these as large networks, and what I was referring to there is kind of large mesh network type of network and the total layers, zero to layer three savings and you can realize by re-architecting it around that box is on that over a magnitude.

Rod Hall - JPMorgan

Okay. And then who loses in that so the worse that -- revenue operating cost, but I guess mainly revenue from it eliminating.

Dave Welch

I think you are actually seeing this is one of the common questions, what you are seeing is a hot market for 100 gig and specifically converged OTN, DWDM platforms for that market is growing at a rate greater than the total layers here at the layer three market will be. The standalone optical cross connect market, well that does going to take a hit because that’s going to get absorbed into the what historically is going to converge with DWDM platform and going to have a switch DWDM or an intelligent transport market sector from that. The people that were making standalone optical cross connect platforms, they are not going to selling us standalone boxes anymore, they will have to adopt into converge platform.

The routing and switching structure within the network is absolutely the highest cost interfaces in a network businesses is historically been router interfaces into that. So there was a big driver where it can reacrchitect a network to minimize a number of router interfaces that we have to do, a converged intelligent transport network allows the number of router interfaces to be reduced therefore their dollars in growth (inaudible) some of that dollars and growth into the transport network.

Rod Hall - JPMorgan

And maybe just kind of a tacky question what is the main technology in the optical layer that allows the grooming of traffic to reduce those router forces at OTN or is it -- or what is it that you need in your box?

Dave Welch

So you need the OTN and you need a sub wave length switching capability which is OTN switching within the box, you mentioned BLAN it’s the having a switch which breaks my 100 gigs optics or in our case 500 gigs optics down into right sized containers the BLAN then will take in trackers containers through the network that is a different, that’s service enable function, but it’s integration of a digital switch at this phase of the game there is a integrator OTN switch with the DWDM platform further out it will be – OTN and DWDM --.

Rod Hall - JPMorgan

And what kind of router port savings to the --?

Dave Welch

It depends a lot on the specific network, if you listen to the academics in the extreme scenario which I am not a believer of extreme scenarios but in there presentation there is a need for the router port that handles express traffic. So in a typical system I commented at the edge of my long haul I drop down in my transport layer and transport – pop it to a router and router locks at and says should have sent half of this on and about numbers between 30% and 70% of the traffic that goes up in this core router actually could have expressed forward, that's the traffic that's we can absorb on their. So in a network that was managed that way you could see a reduction in the core router slots that's 20%, 50% types of number are possible in the extreme you eliminate any of that express traffic through a router, but these are the realities of some of our (inaudible) digital.

Rod Hall - JPMorgan

That 30 to 70, that's a big wide margin obviously. The big differences in outcome and it seems like that proportion on average has been slipping down toward the lower end of that range, would you agree with that or do you think that?

Dave Welch

Yes, it depends on, the if I'm a datacenter centric network where I've got a small number of nodes around the network that I interconnect together I don't need a lot of routers to interrogate my information because I have got a small number of locations for those networks. The amount of pass through router traffic is small. If I have got something where my service is and I'm supplying or actually you know a bunch of 10-gig services on a 100-gig backbone the datacenter would be more 100-gig services on 100-gig backbone, if I have got the smaller granular services, I'm going to have much higher frequency and at times may got to go in and interrogate that flow and see which service goes in which direction and there you can get up into 50% to 60% to 70% of the traffic.

Ita Brennan

Alright, let me just hold the audience here real quick and then I will can you all go back and have some questions does anybody have a question out there in the audience. All right our iPad is not working so if you put your question one the iPad you don't have to ask it.

Alright I am afraid. All right I'm going to go back to you Ita I just want to ask a little bit about your R&D thinking, obviously things aren’t stopping at 100-gig or move to 400-gig and there's a lot going on especially now that we have moved the (inaudible) processing, can you talk to us through a little bit about the thinking on R&D, are you at a point here where you can stabilized that for a while or do we (inaudible) next year, you need to ramp R&D up again, kind of what the next couple of years looks like in R&D terms.

Dave Welch

Yeah, I mean from a business model perspective our thinking is the 20% of revenue is a reasonable target for us to have around R&D spending, because the reality is there are there is always going to be various stages of development that we will have in place with various time horizons at any point in time but we think kind of a 20% of revenue budgeted if you like going forward is a reasonable place to be in, we need to go into that a little bit versus where we are now, but we think that can be maintained after that.

Rod Hall - JPMorgan

And do you think one of the things that's coming up a lot and you know it’s not exactly related to what you guys are doing, but silicon photonics comes up quite a bit as an emerging technology. We realize you can't generate light in silicon you know a lot of drawbacks what you are doing, it doesn't really work for a long haul network, but it feels like maybe someday it might and I just wonder that's an area of interest for you guys from an R&D perspective or is it something you don't feel like to need to worry about at this stage.

Ita Brennan

That is certainly a question for Dave.

Dave Welch

All right. So there's a number of technologies that are evolving out there that absolutely may participate in communication system going forward. Silicon photonic is certainly one that’s interesting. Why is it, what is the value of it? When we took on our photonic integration technology at that point in now, it is the only photonic integration technologies capable of satisfying any application in the metro or long haul transmission space. And when we implemented it, how do we implement it. We didn’t implement it to get 10 gigabits. We saw the value in the integration was to go make 100 gigabits when everyone else was making 10 gigabits or today to make 500 gigabits when everyone else is making 100 gigabits. If it is, if the technology is chosen to just, if I was just using silicon photonics to make 100 gig transponder, it will make in an incremental to the transponder cost structure. It won't make, it will miss chance to make an architectural change which makes a great cost impact on the network.

So silicon photonics is for it to be optical in the metro and the long haul and is both be able to achieve the same type of performance, get out of the current technology which is in the (inaudible). That’s coming do it, will it get there? My firm belief is if you put enough engineers in something, they will eventually, enough motivation, they will get there. It's not something that’s coming in next few years, but it's definitely an interesting technology to look at. The better question is, is silicon photonics allow me to do something architecturally that I wasn’t able to do before. The answer to that is there is a lot more motivation on how to leverage it. It was mischaracterized, our photonic integration -- photonic integration wasn’t about making lasers cheaper, our photonic integration was about architecturally changing the network, right to drive the digital optical network. As silicon photonic is taking as a I need to make lasers cheaper, right, modulators cheaper, then they will miss a great opportunity, at least introduce a technology and this is making architectural change which is where you can make much greater impact in the industry.

Rod Hall - JPMorgan

I want to ask you a question about guidance Ita a little bit. I realized and this industry never makes sense to guide out further in the quarter, but just curious what is happening to visibility, I mean we all are anticipating more spending of 100-gig, hoping for it, but we haven’t really seen it yet, we’ve seen a little bit of, some signs of like with guys, you’ve seen some other people talking about it, but for the most part we have to see this big ramp in 100-gig spending make all of us think it’s coming at some point. So just curious to getting your view on visibility right now, do you think it's improving how far out, do you think you could see at this stage that sort of thing without giving us any specific ballpark guidance unless of course you want to?

Ita Brennan

Okay. Let’s see. So typically we have always said coming into the quarter we can see pretty much that coming quarter, right. That’s been our degree of visibility at a guidance level, right. As we look our beyond that, you are looking at what deals you have in the pipe, where are those deals at, what's your probability of closing and when right. And that’s the dynamic of trying to do anything beyond that.

I think we have been a little bit more comfortable around guiding a little bit beyond that this year just because we are in a fairly unique situation of we can see momentum and there is a enough momentum and there is enough in the pipe that I can't tell you which deal will be in Q3 revenue and Q4 revenue, but there are number of deals there that give you confidence around what that number might look like, right. And I think that is we still have to go win those, we have to go execute on those, and they are not books or in backlog, all right but at least there is enough activity and momentum in the pipe that gives you some more confident, but I think that is what we see right now, if you ask why are we more comfortable talking about at least the current year revenue number.

The other thing we look at some of the stuff that's happened from a Q1 results perspective across the industry, I mean I think even though on an overall basis people had some problem I think if you focus on looking at 100-gig and 100-gig signals those are actually okay, right. I mean I think if you peel it back and start to look at where did companies who are focused on this technology and technology link to the cycle, they seem to do okay. And I think it is important to do that but there is lot of different technologies in play and some like you see technologies are declining in this timeframe. And if you want to truly look and say okay are we seeing some momentum on the 100-gig, we are going to parse that in part a little bit more maybe than has been the case.

Rod Hall - JPMorgan

Okay. And what about for 100-gig is like the opportunity from your point of view, is this the year or do you think really 2014 is going to be the big year for acceleration of 100-gig?

Ita Brennan

I mean again we look at it from our perspective. We believe there is a pipeline of customers and opportunities that we can go address and that is going to take time, and I think those opportunities will be in play certainly into next year or maybe even beyond just in terms of when do these people actually make decisions around networks and then how do they get deploy and how do those deployments ramp, right. I think it’s probably the same if you look at the rest of the industry because really not that much 100-gig has actually been deployed yet or certainly not prior to the last six months.

Rod Hall - JPMorgan

Okay. Another thing that's been in news lately that seems like it would affect you guys, there's Level 3 in Huawei, there's been quite a bit of talk of security concerns about Level 3, do they continue to use Huawei and then if they you roll to bought back 18 months ago the whole worry was you guys were losing tons of share to Huawei which never been materialized. So I just wonder did you guys comment on what you think is going on at Huawei at the moment and do you feel like you’ve got incremental opportunity there?

Ita Brennan

Yeah, I mean, I think you know good news is people were worried, we couldn’t absorb kind of losing that revenue stream and I think we've done that right. So Level 3 is still a customer but they are obviously not in anyway as significant as they were. The public records from Huawei is their presence is North America is not going to expand and they are likely going to retract from the US markets. Level 3 in particular to talk about that is tough right there, they are a customer. We have ongoing relationship with them. We have a significant install base with them and we would expect to have a play in any RFP or any other activity that they have around deciding what they do next, right. We've maintained good relationships with them over the last couple of years and we will see what happens there.

Rod Hall - JPMorgan

All right. Just give a chance for one last minute question in the audience.

Question-and-Answer Session

Unidentified Analyst

I apologize Rod I asked this question (inaudible) at what point in time I know the big deal is try to get a tier 1 in the U.S. (inaudible) where is the tradeoff, where did you decide that and you had to do a great job in the conference call talking about not getting your tier one, you are still doing very well. At what point in time do you say hey listen the pricing is not right or beneficial to us to get a tier one in the U.S. and walk away maybe from one of those deals because of the pricing because it's easy for one of the guys, use you guys upon for pricing you get a lower pricing (inaudible)?

Dave Welch

Your question is, what pricing is necessary to get into tier one? I think it’s what value is necessary to get into tier one. It’s not -- tier one has typically a much more complex network. It is not, they don't buy commodity based bandwidth and that process so you have to, the criteria to get into a tier one is you have to have the right product. TNX is absolutely right product that is being evaluated by tier ones worldwide for that. You have to have that product needs to bring value and needs to be synced with the transitions that that particular tier one wants to make in their network.

And the conversation with the tier ones is a multi-year conversation. We've engaged we announced yesterday Belgacom International for a pan-European business has selected Infinera. So you know they are from an – it's their international network but they are Belgacom’s tier one in that. So our engagements with tier ones and for the DTN-X is the first platform that we've been able to engage with them on -- in this conversation we are confident that that value we add. It’s not about when am I willing to drop the price at a point to make the tier one interested, it’s when how much value, differentiated value does the DTN-X bring for them.

Rod Hall - JPMorgan

We had to cut it off there as we got a traffic jam at the back of the room. So thanks everybody for coming. Thank you guys for coming along. Appreciate it.

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