Symmetricom Inc. F1Q10 (Qtr End 09/27/09) Earnings Call Transcript

Symmetricom Inc. (SYMM)

F1Q10 (Qtr End 09/27/09) Earnings Call

November 3, 2009, 4:30 pm ET

Executives

Dan Madden – Vice President of Finance and Investor Relations

Dave Côté – President and Chief Executive Officer

Justin Spencer – Chief Financial Officer

Analysts

Mike Crawford – B. Riley & Company

Mark Sue – RBC Capital Market

Ted Jackson – Cantor Fitzgerald

Paul Bonenfant – Morgan Keegan & Co., Inc.

Cris Blackman – Empirical Capital

Larry Lytton – Second Line Capital Management

Presentation

Operator

Good afternoon and thank you for standing by. All participants will be in a listen-only mode until the question and answer session of the conference. (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 2010 first quarter conference call. With me today are Dave Côté, Chief Executive Officer and Justin Spencer, Chief Financial Officer. If you have not received today's news release, you may download it from our website.

I would like to remind everyone that statements made during the course of this call concerning Symmetricom's business outlook, the market acceptance of new products, the competitive environment, and financial performance expectations are forward looking statements that involve a number of risks and uncertainties.

Actual results could differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are continued in the company's Form 10-K for the year ended June 28, 2009 and subsequent filings with the set SEC, as well as in today's news release. I will now turn the call over to Dave.

Dave Côté

Thank you Dan and good afternoon everyone. In today's call, I will begin with a review of the first quarter highlights followed by a summary of the performance in our two businesses. Justin will then provide details on our financials and guidance, and I'll wrap up with a few concluding remarks before we take questions.

Let's get started with the first-quarter results. Total revenue was $52.5 million, compared to $55.9 million in the prior year. Revenue in the first quarter of the previous year included the benefit of roughly $8 million in cable revenue backlog carried over from fiscal 2008. Bookings were up year-over-year in both our Telecom and Timing, Test, and Measurement Businesses.

Non-GAAP earnings were $0.05 per share, compared to $0.10 per share in the prior year. We generated more than $6 million in free cash flow, ending the quarter with $119 million in cash and investments. First-quarter revenue and profits were in line with our guidance and we saw strength in a number of areas, most notably in our Timing, Test, and Measurement Business.

As for our newer products, sales of our cable timing product TimeCreator was strong and contributed meaningfully to our results. Sales of PackeTime though still emerging are ramping. PackeTime has now been sold for deployment in three service provider networks for Ethernet backhaul. Traction with our new products and recent success in new markets combined with a more streamlined cost model positions us well for the coming year.

With that overall summary, let me turn to the results of our two businesses. Our Telecom business posted first-quarter revenue of $33 million, compared to $39 million in the prior year. Keep in mind, as I mentioned that last year revenues were higher due to the carryover of roughly $8 million in Cable revenue backlog from fiscal 2008.

We were pleased to see higher year-over-year Q1 bookings across all of our major Telecom product lines. First-quarter revenues from domestic carriers were strong. Sales of sink modernization equipment to AT&T were up year-over-year following a period of slower spending. At Verizon, the award of additional service contracts to Symmetricom in support of their modernization of the timing infrastructure driven by Fios implementations led to increased revenue from services.

Verizon represented approximately 10% of our total revenues in the first quarter. Deployment of Cisco's modular CMTS, which requires our precise timing equipment is continuing in both domestic and international markets. More than 100 cable operators worldwide, including the top six domestically now use our precise timing product. We expect TimeCreator will continue to be a key revenue and margin contributor as the build out of higher bandwidth cable infrastructure proceeds.

In wireless, our new PackeTime 1588 product family continues to gain traction. We are seeing a positive revenue trend since we introduced the first members of the product line about a year ago. As I mentioned, PackeTime has now been sold for deployment in three service provider networks for Ethernet backhaul.

Recently, we launched two new products to expand our PackeTime portfolio. The first is an update to our time [tracking] management software that enables customers to manage their Symmetricom PackeTime products end-to-end. The second is TimeAnalyzer, which is an all-in-one test and measurement instrument for analyzing IEEE 1588 packet-timing data and traditional synchronization signals. As carriers look to deploy 1588 based products in their networks having the ability to test the readiness of their networks and then manage those deployments is critical to the broad adoption of this timing infrastructure.

With these announcements, we help to solidify our position as the leading supplier of end-to-end solutions for this emerging technology. We're pleased to report that our packet time solution was featured prominently at the recent Carrier Ethernet World Congress Interoperability Showcase in Berlin. We successfully demonstrated our solutions interoperability with equipment from all of the participating vendors.

As networks transition to packet based technologies, the importance of sink and Ethernet backhaul has taken center stage, which was clearly evident at this event. By all indications there was a growing consensus that IEEE 1588 PTP is likely to become the wireless industries sink architecture of choice for Ethernet backhaul. Due to the breath of our product line, our status as a leading timing vendor with a large installed base and the mounting validation that our products are meeting carrier needs Symmetricom is viewed as a leading player in this emerging market.

As the wireless industry transitions from 2 and 3G, to 3 and 4G networks, our long-term success is tied to leveraging our traditionally strong relationships with major wireline and wireless players to our next generation technologies. In addition to our success in Ethernet backhaul with packet time we are providing timing modules to Samsung for a major WiMAX deployment in Japan. This is just another example of our work with wireless equipment vendors to develop innovative timing and synchronization solutions.

Turning now to our timing test and measurement business, revenues were $20 million in the first quarter, up approximately 18% over the prior year. We've seen double-digit growth in two consecutive quarters for this business with strength across a broad range of products, programs and geographies. And we closed out the quarter with record bookings for this business.

Government programs continue to be a leading source of business for TT&M and the first quarter was no exception. We were awarded $4 million in funding for the first year of an intelligence project. The agreement has an expected value of $20 million to Symmetricom over the next four to five years. In the second government program highlight, we were awarded a $2.5 million contract to develop a new timing architecture for the Department of Defense.

Another key win in the quarter was an order for approximately $1.25 million from Raytheon to supply Cesium Clocks for ground station support tied to India's new enhanced navigation system. Our strategic focus on India is producing results. This order follows an earlier win from India's space research organization addressing a different part of a navigation system.

We believe we are well positioned to win future tenders for this program as well as opportunities at other Indian institutions. Significant program wins are an ongoing source of revenue for TT&M and serve to reinforce the attributes of our business model and our expertise as the industry leader in time and frequency. The businesses solid foundation is also derived from our participation in long-term government programs such as the joint strike fighter, which we have spoken about in the past.

We have already made some early deliveries but expect more significant revenues as the program scales over the next three to five years. Our core strengths from fundamental research to product engineering and development and a long history of developing and delivering innovative timing solutions have made us an important and trusted partner of the government and have positioned us to benefit from two important trends in U.S. defense spending.

The first is an emphasis on electronic warfare, which requires secure, high performance systems for applications such as IED Jammers for troop safety. The second is the move toward a mobile military based on systems such as UAVs or Unmanned Automated Vehicles. All of these applications require precise timing and synchronization devices. With that overview I'll now hand the call over to Justin for a review of our financial performance and guidance.

Justin Spencer

Thank you, Dave. Here are the first quarter financial details. Please note that all comparisons I will provide in my comments are made to the first quarter of the prior fiscal year. Revenue was $52.5 million, compared to $55.9 million last year. Telecom revenue was $32.6 million compared to $39 million a year ago. As Dave mentioned earlier, revenue in gross margins were positively impacted last year as we met pent up demand for our newly introduced cable-timing products. TT&M revenue for the quarter was $19.9 million up 18% with broad-based strength across a number of government programs. Gross margin in the quarter decreased 11 points to 41.3% and non-GAAP gross margin decreased nine points to 44% primarily due to the 2008 cable backlog carryover and higher mix of services and wireless OEM business both of which carry margins below our corporate average.

Looking to the rest of the year, we expect margins to improve slightly in the second quarter and to approach 50% for the full year on a non-GAAP basis. We expect our margins in the second half of our fiscal year to increase due to a higher mix of wireline and cable products. Operating expenses were $20.6 million compared to $23.7 last year. Non-GAAP operating expenses were $19.6 million or 37% of revenue, down $2.6 million from last year as a result of the cost reduction efforts implemented during fiscal 2009.

GAAP net income was $174,000 compared to a net loss of $1.2 million or $0.03 per share of last year. During the quarter, we implemented a new accounting rule that governs the way company's accounts for convertible debt. This new rule requires us to record non-cash interest charges and is been applied retrospectively. Therefore, our GAAP results now include non-cash interest expenses of $768,000 in the current quarter and $922,000 in Q1 of the prior year. Non-GAAP net earnings for the quarter were $2.2 million or $0.05 per share compared to $4.4 million or $0.10 per share last year. The 2008 cable backlog carried into Q1 of 2009 contributed significantly to last year's first quarter profits.

Our backlog increased to $50 million, up from $47 million at the end of the prior quarter on strong first quarter bookings. We estimate that $43 million of our backlog is shippable within six months, $6 million is shippable within six to 12 months and that $1 million will be shippable beyond one year. Cash in short-term investment balances ended at $119.1 million, up 6.3 million from the prior quarter. Strong accounts receivable collections contributed to cash flows from operating activities of $8.1 million while capital expenditures totalled $1.7 million resulting in free cash flow of $6.3 million.

And now let me turn to guidance. We are maintaining our annual revenue and non-GAAP earnings guidance. However, we are updating our full year GAAP earnings guidance to a range of $0.11 to $0.22 per share to reflect the additional non-cash interest expenses associated with our convertible debt and additional facility related restructuring charges.

For the second quarter, we are expecting a year-over-year revenue increase with revenue of $50 million to $57 million. We expect GAAP earnings to range from a loss of $0.03 per share to earnings of $0.04 per share and non-GAAP earnings of $0.05 to $0.10 per share.

I will now turn the call back to Dave for his wrap up.

Dave Côté

Thanks Justin. Before turning to our outlook I'd like to provide you with a few comments on my first quarter here at Symmetricom. I have now visited most of the Symmetricom sites. I have met with several of our partners and have begun meeting with key customers. I've been getting to know our employees and continued to be impressed with the specialized knowledge, dedication and technical expertise of our team. Our expertise and leadership in the area of time and frequency is well known in our markets and forms the basis of strong relationships across a broad set of partners and customers. Those relationships are based not only on our industry leading tactical capabilities, but also on our history as a responsive and customer oriented business partner. I believe there is a solid foundation of technology, relationships and know how from which to further build and diversify our customer base in the markets we serve. We have begun the planning process to bring focus to the future of Symmetricom. This process includes a deeper dive on all strategic and operational aspects of our business as well as the exploration of new areas for growth.

Both aspects represent opportunities for improving the effectiveness and efficiency of our company. By the time we talk next I expect us to have made significant progress in our planning and I look forward to sharing that progress with you. While we are still cautious with respect to the economic environment, we are encouraged by positive trends across much of our business including science as the capital-spending environment is improving for our service provider customers and by our strong first quarter bookings.

Over the longer term our participation in key growth markets positions us to extend our product in market reach. Such growth areas include the wireless markets where network trends tied to Ethernet backhaul favor our new assigning products. In government markets domestically and internationally that requires specialized timings and frequency products for high-performance systems. This concludes the prepared portion of our presentation. We wanted to thank everyone for joining us today. We'll now open it up for Q&A. Operator you can poll the audience for questions

Question-and-Answer Session

Operator

(Operator Instructions). The first question does come from Mike Crawford, B. Riley & Company. Your line is open.

Mike Crawford – B. Riley & Company

Thank you. It looks like you beat our =model for the quarter, can you talk about, did you give a percent of revenue for the DOD?

Dave Côté

No.

Mike Crawford – B. Riley & Company

Can you talk about roughly how much your business is now military defense related?

Dave Côté

Well it just under a third. The majority of timing, test, and measurement business is government related which is broadly includes all aspects intelligence, military, government programs et cetera so it's about a third of our revenue.

Mike Crawford – B. Riley & Company

Okay. And has that been relatively consistent overtime or is it – how has that been trending?

Dave Côté

Yeah, in recent over last few years that’s been a pretty consistent level although that as we mentioned that business have grow nicely for the last few quarters.

Mike Crawford – B. Riley & Company

Okay, great. And then – and then what did you say about the 1588 market that you were – you've been deployed in three networks is that what you said?

Dave Côté

Yes, there are three networks – wireless networks where we've been deployed for Ethernet backhaul. That's the primary application we are seeing at this point as wireless vendors and frankly a lot of vendors in the service provider space are implementing Ethernet as their primary backhaul. That's really the opportunity for 1588 technology and so yes we have seen that deployed in three networks and continue to be encouraged by the opportunity there.

Mike Crawford – B. Riley & Company

And for you that – you are still looking towards the March quarter for that business to ramp more significantly?

Dave Côté

Yes I think we can talk about, sort of in keeping with the way service provider spending occurs, lot of capital spending in those worlds tends to be in the first half of the year so we expect that to pickup and as you said in the March quarter.

Mike Crawford – B. Riley & Company

Okay, great and then also, can you just go into little bit more detail on how you're attacking the Indian market and a quick consult there?

Dave Côté

Well, the things we spoke about specifically we're more related to our GTM business and some of the government contracts there where we're heavily involved in the navigation system that there – the Indian space administration is putting out and we also mentioned that there – we think that sets us up for other opportunities within the Indian ministries. We also are seeing good success on the telecom side. I think we've talked in the past about an opportunity with BSNL, which is one of the largest wireless providers there and we believe there is intensely follow on business there as well as other opportunities in India..

Mike Crawford – B. Riley & Company

And is that primarily for BSNL wireless back home as well in time provider?

Dave Côté

No that was actually more in the traditional synchronization equipment.

Mike Crawford – B. Riley & Company

Okay. Alright, thank you very much.

Dave Côté

You're welcome.

Operator

The next question comes from Mark Sue, RBC Capital Market. Your line is open.

Mark Sue – RBC Capital Market

Hi, this is Joanna for Mark Sue, couple of questions. If you can talk about your customers propensity to spend any budget flush we may see through the remaining of the year, any impact you may expect related to the broadband stimulus and finally any comments on cable trends?

Dave Côté

Okay, first as year end money we’re, I guess I would characterize it as we have, we’re prepared for at as it comes, so we've tried to make sure, we have the product available that we do see those opportunities coming. We have built a modest amount as we probably do every year into the guidance range that we gave you, but to be honest with you it is one of those things that we are going to see if it happens and the degree to that to which it happens is a little bit tough to predict at this point, but that's kind of the posture we have, be ready for it, account on a little bit of it, and then see where it goes. Related to broadband stimulus, I don’t think we've seen any effect of that to date. I know there was one small deal that actually benefited from some stimulus dollars in one of the more work carriers, but a relatively small deal. So, I don’t think we’re seeing any major effects from that but we may as that progresses forward And finally on the cable front, our cable business, we thought did very well this past quarter, we continue to obviously participate in the built-out of DOCSIS 3.0 and we think that's going to continue for some period ahead and continue to effect our results positive.

Mark Sue – RBC Capital Market

Thank you.

Dave Côté

You’re welcome.

Operator

The next question comes from Ted Jackson, Cantor Fitzgerald. Your line is open.

Ted Jackson – Cantor Fitzgerald

Thanks and congratulations on the quarter.

Dave Côté

Thank you.

Ted Jackson – Cantor Fitzgerald

Couple of questions, one just going over the 1588 product set, so year-end free cash in terms of deployment can you as an update in terms of the numbers of trails you are in and then may be some discussions geographically speaking where the activity levels are highest and then I have got a couple of follow-ups?

Dave Côté

Sorry, say that again, the last part again.

Ted Jackson – Cantor Fitzgerald

Where, on a geographic basis, where the activity is the highest.

Dave Côté

Yeah, we’re currently in about 30 or more trails with, you know a combination of obviously with carriers and with some of the equipment manufactures that supply them. From a geographic standpoint we’re seeing it generally worldwide. There is obviously, trials going on in Asia, Europe, and the U.S. I mean it is pretty broad based for us, but it's probably more heavily international, I think at this point then if I had to sort of separate it, but I think relatively consistent across Asia and Europe.

Ted Jackson – Cantor Fitzgerald

When you say just a 30 trials, I mean your predecessor wouldn't talk, I think last time mentioned it about a dozen my sense is it is not an apples-to-apples comparison when you look at that 30, I mean how many of those trails are actually involving like a carrier testing out the technology?

Dave Côté

Quite a number of them, I mean I guess it's at least 20 of them. I mean that's, the bulk of what we’re talking about here, we obviously are in a few of the – the major any hand set, qualified equipment and things like that but the bulk of the trails are really are within the carrier infrastructure.

Ted Jackson – Cantor Fitzgerald

Okay. Then shifting over to DOCSIS 3.0, your efforts on that front, I know you guys are tied in with Cisco on the marginal seems yes, you know modest battle between going modular or integrated, could you give as an update in terms of the market is it shifting one way or the other and kind of if you were to from your share look at the roll out of 3.0, how much of it is modular as opposed to integrated?

Dave Côté

Well, I mean as you might expect, we have a reasonable insight to the modular side and not as much into the integrated side, but it appears to roughly be in the 50/50 range and we don't really see any thing that is changed that, I mean one way to look at it is that two primary providers of Cisco and ARIS and some degree the cable providers are in some cases sort of splitting their deployments. So, we are seeing a mix of equipment in all carriers. So, we, as I think as I mentioned on the call, we are servicing a 100 different carriers, all six of the major MSO's here in the states and I think that they are both – they are all looking to deploy both technologies maybe one versus another in a certain way of deployment so you might see on a quarterly basis some fluctuation, but I think in general we are not seeing a shift either favoring us in the modular side or moving away from us on the integrated side, still sort of tends to be relatively even

Ted Jackson – Cantor Fitzgerald

Okay. And then my last question, this has to jump over to Verizon's Fios, when Verizon reported their results there were some disappointment as it related to the uptick of subscribers on the Fios side. I was curious, if you felt that, I mean – did that gave you any colors for concerns as it is related to Verizon or you know some kind of sense in terms of where they are in terms of their efforts to go at Fios services across the territories? Thanks.

Dave Côté

Yeah. We stay pretty close to Verizon as you might expect and I think that, you know most of what was said was not unexpected, it's kind of been in the way, we'd looked at their business. The disappointment they probably have in the sort of immediate quarters, subscribers, I think is probably a legitimate quarterly disappointment and I don't think it changes their commitment to Fios and the importance of it and frankly the value they see in deploying that technology.

So, we continue to sort of work a pace relative to our modernization deployments that are driven by Fios, but we're pretty comfortable that even as Fios becomes more fully deployed in the next year or two or three that the modernization -- there will be other drivers for the modernization effort. So, we continue to see that as an element of our business with Verizon, certainly as we see with AT&T. So, I guess no general overall cause for concern and certainly nothing coming from the Verizon folks in that respect.

Ted Jackson – Cantor Fitzgerald

Okay. And then just going to speak one last thing just for Justin. Justin, I'm going to give you applaud in terms of nice expense control, in fact the operating expenses were down on a sequential basis. Can we expect, what can we expect going forward on that front? I mean, are you going to be able to continue to kind of tweak these things down or are you going to see some growth in there as you bring the topline up?

Justin Spencer

Well we are constantly focused on improving the operational efficiency of our business. On the last call, I mentioned that for the year, we expected our OpEx to average about $20 million a quarter. We were just a little bit under that this quarter, but that's still a consistent way to think about our business at least for this fiscal year.

Ted Jackson – Cantor Fitzgerald

Okay great. Thanks again and congrats again on the quarter.

Justin Spencer

Thank you.

Operator

The next question comes from Paul Bonenfant, Morgan Keegan. Your line is open.

Paul Bonenfant – Morgan Keegan & Co., Inc.

Yes, hi thank you. I'm calling in for Simon Leopold today. Just wanted to start with a housekeeping question or two. I was wondering if you could give us the breakdown within the Telecom Solutions Division, what the dollar contribution was for each of wireline services in OEM?

Dave Côté

Yeah. I got the revenue contribution and then the gross margins that will be available in our queue on Friday. Paul, so the wireline business this quarter was $22.5 million. The OEM wireless segment was $5.6 million, services $4.2 million and QoE $200,000 and that should total up to $32.6 million.

Paul Bonenfant – Morgan Keegan & Co., Inc.

Okay. I will take your word forward in real-time. And it sounds like the services in the OEM was a temporary spike this quarter and you should see that go down as a relative contributor.

Dave Côté

Well it is, we actually see some strength for the next few quarters in these areas. Services was strong this quarter, we see that continuing particularly driven from Verizon. The OEM wireless business overall will continue to decline although that pace has slowed because of the Samsung WiMAX products that are being sold and associated with that segment. So we expect that to, as I mentioned to continue to decline, but albeit at a moderated pace.

Paul Bonenfant – Morgan Keegan & Co., Inc.

Okay, fair enough. And can you disclose the sales that are linked to your Ethernet timing distribution or the IEEE 1588?

Dave Côté

You know we haven't, we don't break those out and they're relatively small today. We do expect, I think what we have said is that in the second half we expect that to represent a larger portion of our revenue of few million dollars in the second half and then ramping into the fiscal 2011.

Paul Bonenfant – Morgan Keegan & Co., Inc.

And it sounds like that's driven primarily from wireless backhaul. Do you see any opportunity for other applications, distributing timing to enterprises for example for PBX systems?

Dave Côté

Yeah, I am not sure, yes, there are other opportunities. I don't know if they are specific when you mention relative to enterprise PBX, there is a lot in enterprise that use something called NTP, which is frankly a less precise timing protocal. We sell product in that space as well, from the standpoint of PTP, we think there are a number of other opportunities that we've seen related, primarily to the general move to IP, and Ethernet and the delivery of service provider, obviously wireless, but also wireline overtime. It may also have application in other areas such as power industries and others. So, we think PTP 1588 technologies have very specific applicability in the trails that we are doing relatively carrier space, but there are broader implications for it that possibly could extent to the enterprise, but certainly into other industries.

Paul Bonenfant – Morgan Keegan & Co., Inc.

Okay. And I have one more as a followup question. Earlier you said federal was about – were the government business was about a third – just under a third of sales. I'm wondering if you could size for us the contribution from some of the emerging markets China, India or may be talk about that in the context of what the spilt is for domestic and international.

Justin Spencer

Well the domestic business is about, in terms of revenue contribution is about two-thirds of our revenue and the international business is about a third, just directionally our international margin seem to be a little bit lower for a variety of reasons than our domestic business, if you will the contribution would probably align a little bit beyond those two-thirds, one-third, but it wouldn’t be far off from that.

Paul Bonenfant – Morgan Keegan & Co., Inc.

Okay and one more I guess, forward looking question. You know, if you look out a year towards your you know reiterated top line of 210, 230, what do you expect could be the biggest positive and the toughest drag on the business in terms of revenue drivers to get to that target?

Dave Côté

I think that in some respect the biggest swing there is what happens with wireline revenues. I mean I think our government business, we feel pretty good about our plans there, and what we have ahead of us. As you look at the second half of our year. So, not including the quarter we are in. Second half of the year, that’s where a lot of the wireline spending, typically occurs and so that probably carries because it's a relatively sizable percentage of our telecom as well as our overall business that’s probably the biggest swing one way or the other, you know, that comes in healthy than with the higher side if it comes in a little weaker than we're at the lower side. That’s probably the biggest driver.

Paul Bonenfant – Morgan Keegan & Co., Inc.

Okay. Thank you for taking my questions.

Dave Côté

You're welcome.

Operator

The next question comes from Cris Blackman, Empirical Capital. Your line is open.

Cris Blackman – Empirical Capital

Yeah thank you. Congratulations Dave and Justin.

Dave Côté

Thank you.

Cris Blackman – Empirical Capital

I guess almost every question has hit on the 1588, obviously there is a lot of interest in backhaul and you can see that from some other companies that compete in that space, but I'm trying to get a better understanding I guess on the backhaul and where you'll specifically participate. I guess is that pretty much all exclusively with fibe on your backhaul, which was your 1588?

Dave Côté

It's not exclusively there. There was certainly a fair amount of that as people tend to use fibre as their backhaul delivery mechanism. Really, we fit in – if you think about it for most of these applications there is still a requirement for precise timing and one of the reasons that people, why this is not just an automatic sort of turn one off, turn the other one on is that there are people that have kept their basic SONET or TDM sink in place as they are overlaying an IP or Ethernet based backhaul as their testing PTP 1588. So, overtime they don’t really want to continue to support that TDM circuit just for timing and so that’s why we see the potential acceleration here as people get through their trials and make their decisions on how they are going to deploy PTP that’s the piece that we're looking at as we said begins to affect our business in the second half of our fiscal year, which is really the first half of the calendar year and then on into fiscal '11. So that I think is the reason why it's not an automatic move from one to the other, that the TDM infrastructure still enables some of the synchronization, and so that will be one of the factors that changes as PTP gets implemented.

Cris Blackman – Empirical Capital

I have seen some bandwidth capacity for backhaul networks expected growth for the next five years than now and it's exponential as far as the growth is expected for that space and I guess if you are looking at that space you got the old copper lines, you've got the fibre and of course you've got microwaves. Can you distinguish for me, when it's more cost effective or beneficial to deploy fibre versus microwave? Is it a matter of how close the fibre is to the cell tower or maybe the geographic location or structures and such, but can you compare the two for me?

Dave Côté

Yeah, I don't know that I'm an expert on that. I would tell you that there is a lot more microwave internationally and maybe because they're delivering over greater distances and the density associated with it. I think fibre tends to be something that you're looking at density as a driver of fibre versus microwave obviously crossing large geographic areas. Quite frankly, we are a bit agnostic when it comes to that. PTP needs to flow overall of those environments to deliver the synchronization that's required. So we, as I said, we're somewhat indifferent as to which of those gets deployed. They all are going to require our technology because as you said the drive – the underlying driver is just tremendous growth in bandwidth requirements and everybody is looking at IP and Ethernet as a way to deliver that as opposed to traditional Sonet and other. So that's going to be the big driver and that is going to drive, certainly we believe that's going to drive the adoption of PTP.

Cris Blackman – Empirical Capital

So you would expect your product to actually address not only the fiber, but also microwave and of course as we know somewhat in cable and copper but…

Dave Côté

Yes.

Cris Blackman – Empirical Capital

Fibre as you said it will be, okay.

Dave Côté

Yes, transport independent if you will.

Cris Blackman – Empirical Capital

Fantastic, fantastic. Just a followup on a previous question, I think you just you got 30 or more trials with carriers and OEMs, and previous call I think the statement was that you had the 1588 with 12 OEMs. So now this call you're saying 30 or more trials and I think you answered previous question saying you're in approximately 20 carriers with the 1588. And then you also stated more international maybe than domestic, can you maybe be give a little more granular on that. I mean domestically what kind of presence do we have and then also can you maybe further comment on China? What's happening with your opportunity in China there?

Dave Côté

Yeah. I don't know that I can get more granular. I don't necessarily have the exact details of it. My comment about, something I'll try to clarify make sure I'm clear on the things I have or the points I made which is the international versus domestic is more about carrier trials going on than it is, which OEM we're working with. And that's just sort of a I think more of a trend in the carriers that they are more engaged probably with the use of pure Ethernet backhaul than maybe they are in terms of timing than they are in the U.S. at this point. So, that's driving that point. From an OEM standpoint, I don't know. I wasn’t obviously wasn't here for the discussions around the prior 10 or 12. It's probably in that same ballpark. It's all the major OEMs in this space, and in that respect it probably hasn't changed dramatically. With respect to China specifically we're certainly engaged with China Mobile, which is the primary player over there. As you might expect, we are not engaged with far away they have their own solution, but in my view we become more valuable to the OEMs in providing PTP solution to them certainly when they are competing with -- so that's – hopefully that's a little more on this.

Cris Blackman – Empirical Capital

Okay. That's helpful and I'm going to throw it out there. I don't know if you can answer it or not but are you all doing any business with Clearwire at this point at all?

Dave Côté

I don't know, not that I know.

Cris Blackman – Empirical Capital

Okay, all right. Congratulations on the quarter and I guess in closing that I'd just like to say I think that in description of your revenue, when I read descriptions I still see that QoE Assurance, you don't see anything on backhaul in there, Ethernet backhaul and with all the interest in Ethernet backhaul I think one describes your company it would be worthwhile to remove the QoE and throw Ethernet back on there but thank you.

Dave Côté

Thanks Cris.

Operator

(Operator Instructions). The next question from Larry Lytton, Second Line Capital Management. Your line is open.

Larry Lytton – Second Line Capital Management

Thank you. I suppose that last point, is the QoE video quality management solutions business fill around and what did that contribute in terms of profits or losses in the quarter?

Justin Spencer

The QoE business represented about $200,000 in revenue that will be disclosed in the coming 10-Q filings that we will file on Friday. It is a part of our portfolio and as Dave would mention its part of our – the ongoing review of our business as our all pieces of our overall business profile.

Larry Lytton – Second Line Capital Management

And in terms of what the losses associated with that, is that something you break out?

Justin Spencer

We don't break that out.

Larry Lytton – Second Line Capital Management

Okay. And then also obviously there is a lot of moving pieces but I believe kind of coming out of the last Verizon call and you mentioned how they were 10% customer about, they were kind of talking about overall flat capital spending I think in calendar 2010 and then we’re looking for a very significant decline in their capital spending in 2011. I though a AT&T echoed that as well, so obviously there is a lot of other pieces to the company but with that as a backdrop longer term what does that mean in terms of 2011,2012, the ability to grow the business or not?

Justin Spencer

So I guess I commented in a couple of ways one specifically I did not heard that same kind of conclusion out of AT&T. I have not heard their commentary on CapEx spending in- well really even in 10, let alone 11 and 12. Having said that though I would comment in two areas, in our sink modernization we are a relatively small amount of an overall CapEx spend and in many respects I mean the term modernization is correct, they have equipment that's in some cases 15 years old and 15 to 20 years old and there is just a pace at which they need to upgrade that equipment to deliver their network resources albeit wire line which well may be a declining part of their overall revenue is still a coverage issue that these guys need to deliver in their geographies. So there will be a pace at which modernization continues to take place and it is sort of the good news, bad news of the fact that it’s a relatively small amount of CapEx and so I think its more driven by the need than by necessarily ups and downs in CapEx spending.

Having said that the other areas which we are actively engaged in with carriers in particularly with AT&T and Verizon, are there plans for wireless and for the delivery of Ethernet resources into their backhaul environment as we discussed on previous questions, in that case I think that's an area where they will take even a lower overall CapEx spending and drive more of their spending. It's into that capability they have to deliver more capacity to their network to enable the wireless services, which are again the growing part of their business and we are well poised to play a role in that and so we think we have an opportunity in both those areas. Obviously we are looking at the commentary coming out of those customers as well as our own obviously conversations with them to try to understand better what the opportunities is specifically for us, but I guess we have been dealing with a relatively tough economic environment carrier space now for a year or so and we're ready to deal with that as we move forward. We're not planning huge amounts of upside in their spending but we think it still represents good opportunity for us in terms of these two strategic areas where they stand with us.

Larry Lytton – Second Line Capital Management

So and just slipping that around and I appreciate the fact that you're looking for a small piece of a big pie but in terms of your planning at least conceptionally do you see the Verizon business up in calendar 2010 and then up again in 2011 or that’s – are you saying that's an open question or it's not an open question?

Justin Spencer

I think it's an open question from the perspective that we do have these two sort of drivers to the business one of which is based on an existing deployments and their modernization of those. The other one really their acceptance of the PTP 1588 based technologies as I mentioned earlier the activity is probably squid to international more than it is to domestic, and therefore I think it's not as clear exactly how quickly Verizon and AT&T both are going to deploy this technology, and that’s obviously a big swinger for us. So, we don’t know exactly what that looks like yet, in terms of planning fiscal '11 or fiscal '12.

Larry Lytton – Second Line Capital Management

And may be lastly, as you view the whole portfolio of businesses of Symmetricom, what's you're timing in terms of making decisions on what gets capital or doesn't get cap?

Dave Côté

I would guess as I mentioned we're heading into a very aggressive planning process, and I would bet there will be some outcomes back here in the next quarter, by the time we're talking again on our earnings call after the second quarter, there will be some commentary on that.

Larry Lytton – Second Line Capital Management

Thanks a lot.

Dave Côté

Sure. So, if there are no other questions, I would like to thank you. Are there no other questions, operator?

Operator

There are no other questions at this time.

Dave Côté

Great. Then I want to thank you all for joining us. We look forward to updating you on our progress during next quarter's conference call.

Operator

This does conclude today's conference call. You may go ahead and disconnect at this time.

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