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Arris Group Inc. (NASDAQ:ARRS)

Q4 2007 Earnings Call

February 14, 200817:00 am

Executives

Bob Stanzione –Chairman, CEO

David Potts – CFO

Bruce McLelland –President, Broadband Comm Group

John Caezza – President, Access Transport and Supplies

Analysts

Brian Coyne – Friedman, Billings, Ramsey & Co.

Ehud Gelblum - JP Morgan

Todd Koffman – Raymond James

Jason Ader – Thomas Weisel Partners

Ray Archibold - Kaufman Bros.

Greg Mesniaeff – Needham& Company

Amitaf Pasi  – UBS

David Wright - Henry Investment Trust

Operator

Welcome to the Fourth Quarter and Full Year 2007 Arris Group Incorporated Earnings ConferenceCall.

(OperatorInstructions)

I would now turn thepresentation over to your host for today, Mr. Jim Bauer, Vice PresidentInvestor Relations.  Please proceed sir.

Jim Bauer

Welcome to all in the Arris Conference Call withmanagement.  This afternoon we are goingto discuss our Fourth Quarter and Full Year 2007 and financial results whichwere released after the close of markets today.

We will be using a series of slides during our webcast todaywhich were also posted on the Arris website in the Investor RelationsSection.  With us here at the Arrisheadquarters are Bob Stanzione, ArrisChairman and CEO, and Dave Potts, our Executive Vice President and ChiefFinancial Officer, as well as the presidents of our three business units.  As noted in the press release, there will bea replay of the entire call available approximately two hours after theconclusion of this call, and the replay and the slides will be available on ourcorporate website for the next 12 months.

Before we begin, Iwould like to mention that during the call we will be making certainforward-looking statements including statements regarding our outlook andexpectations for the industry in general, estimated revenue, earnings for thefourth quarter of 2007, our outlook for 2008, certain financial operatingmetrics, the timing and introduction of new products and technologies, as wellas spending patterns by some of our customers, and expected sales levels forcertain product categories.

It is important tonote that the actual results made differ materially from those suggested by anyforward-looking statements which maybe made during the call.

For furtherinformation in this regard and for specific examples of risks that could causeactual result to differ materially from what we make in the call today, pleasesee our recent filings with the SEC.

Bob and Dave willnow provide comments on our results and other topics as well, after which wewill open up for your questions and answers. Now, I would like to turn it over to Bob Stanzione.

Bob Stanzione

By now you have seen our press release and know our fourthquarter results fell short of expectations. Nevertheless, 2007 was a year of solid growth and excellent executionfor Arris, and we enter 2008 with a solid profitable and highly capablecompany.

In just a moment, I am going to address the first quarterguidance and the outlook for 2008 and then you will hear more from Dave aboutthe full year and fourth quarter results in 2007.  But first I want to comment for a moment onthe significant and notable progress at Arris both on our short term in-year operationalobjectives, as well as toward our longer term strategic objectives.

Year-over-year we grew our top line by 11%, and wediversified our customer base significantly. Early in 2007, we gracefully exited from our old circuits switch telephonyproduct line and established ourselves as the world’s leading vendor of cable Voiceover IP customer premise equipment.

We shipped 7.6 million CPE units in the year that is up 46%from the 5.2 million that we shifted in 2006. In the fourth quarter, we shipped 1.79 million units compared to 1.4million in the prior year.  We also grewour CMTS business significantly, and added numerous new customers.  I am pleased to report that our C4 CMTSbusiness reached a record revenue level in the fourth quarter.

For the year, shipments of downstream ports grew by 30% andreached a record level of 7,810 in the fourth quarter alone.  More importantly, we shipped almost 1,100chassis in 2007 that is up over a 100% from the prior year, and many of these chassisare partially filled which leaves room for more growth when we introduce nextgeneration blades in the middle of this year.

Our strategy of aggressively marketing are DOCSIS 3.0 Evolutionplan clearly hit the mark, as we increased our market share from approximately25% at the end of 2006 to 35% by the third quarter of 2007.  Incidentally, if you want to learn a littlemore about the CMTS business, there is a great article on the importance ofDOCSIS 3.0 on page B3 of this morning’s Wall Street Journal.

“We continue to diversify our customer base by growing ourinternational presence most significantly in Canadaand in Latin America. We also made major gains in Europe, particularlyin Germany andthe Eastern Countries, and in Asia, as well as withsmaller MSO’s in Japan.”

“The fourth quarter of 2007 was by far our best-ever forinternational sales, both in terms of dollars and percent.  International sales were almost 32% of thetotal in the quarter.  I cannot overstate the importance of this achievement as these new customers substantiallydiversify our customer base and represent one of our best growthopportunities.  On the domestic front,our CMTS sales to Time Warner, Bright House, and Cable Vision begun to takeoff.  It is also notable that Time Warnerrecently announced that they had passed 3 million voice-over-IP subscribers andare still growing.”

On the strategic front, we began 2007 with an objective ofgaining scale and diversifying the company both by expanding our product linesand by reaching new customers while remaining primarily focused on the cableMSO market that we know so well.  Weachieved outstanding progress toward this objective through the acquisition ofC-COR which closed in December. Specifically, with this acquisition, we added a critical video componentto our already strong positions in voice and data.  We picked up two software intensive highmargin businesses, on-demand and OSSthat have significant growth potential, and we gained enhanced presence in keyaccounts such as Time Warner and Cable Vision in the US,and with international operators such as Telefonica and ONO in Spain,and many others around the world.

Although our business slowed a bit as the year ended takingin everything into account, 2007 was a solid year.

Now turning to guidance and outlook, I will not mincewords.  First quarter forecast is indeedvery disappointing especially when it is compared to the steady growth that wehave experienced over the past several years. Nevertheless, even with lower sales we expect to remain profitable andbounce back sharply as the year goes on. The slow down which we have learned about quite recently is centeredwith Comcast, our largest customer.

The good news is that the business in our other customersegments looks quite healthy as we start 2008, and we expect that our sales toComcast will rebound sharply as the year goes on.

The largest impact is in our EMTA product line.  As we have told you and as we all know, afterover a year during which we enjoy virtually 100% market share at Comcast, asecond vendor entered into the mix in the fourth quarter, at the same time anapparent leveling out of their net subscriber growth over the past two quartersas well as a resultant adjustment of inventories causing Comcast orders in Q1 tofall to a very low level.  However, weexpect EMTA unit orders to bounce back significantly in Q2 and beyond althoughnot to the peak levels that we saw when we were their sole EMTA source.

We are seeing a similar though smaller effect on the topline of our business for CMTS revenues for a different reason.  Comcast appears to be reserving much of theirCMTS budget for an aggressive DOCSIS 3.0 roll out in the second half of theyear to meet their objective of wide band deployment over 20% of their footprintby yearend.

Let me stress the point here that in both cases Voice-over-IPEMTAs and CMTS, we remain a preferred primary supplier to Comcast.  The bottom line is that although we expected aslow start in 2008, these reductions are far beyond what we expected and havecome to light only recently.

As I said, our business sales were solid.  In fact at this time our outlook for thesecond half of 2008 is quite good.  It istoo early especially with the current turbulent market conditions to givespecific guidance beyond our usual one quarter. However, I will say that in the second half of the year we expect to bereporting respectable year-over-year gains in both revenues and earnings.  We also expect good margin expansion thisyear with margins well above the 30% level.

We do intend to increase our R&D spending somewhat, butwill continue to drive for the expense synergies associated with the C-CORacquisition and will as usual keep tight reins on our spending in general.  MSO spending will surely be very focused thisyear especially if the economy continues to slow down and household formationremains at a low level, even so the forces of competition and the growingdemand for bandwidth, driven by rapidly growing video traffic will require moreof the market leading products that we provide.

We will see significant benefit coming from DOCSIS 3.0 fromswitch digital video, from commercial services roll outs.  In addition, we see growing demand for our ondemand products as subscribers seek more control over content and MSO’sincrease their focus on advanced advertising. We also seek growing demand for our OSSsolutions as system operators seek ways to reduce rapidly escalating operatingexpenses.

The continued expansion of HDTV in conjunction with the pushto expand voice penetration and high speed data capacity bodes well for ouraccess business as operators continue to segment their nodes.  Netting it all out although the first quarteroutlook is certainly a disappointment, we see substantial improvements comingespecially over the second half of the year. And now Dave will give you the financial results.

David Potts

Let us go to chart six if we could for the moderatorplease.  Thanks everybody for joining ustoday.

Before I provide an overview of the results, I think it isimportant to note two things.  First, weclosed our acquisition of C-COR in December 14, 2007.  As a result theyear-end balance sheets include the impacts recording the assets andliabilities of fair value at close.  Thebalance sheet also includes the impact of pay no cash in our shares to C-CORshareholders, and the result for the quarter include approximately two weeks ofoperating results for C-COR.  I will alsoadd that these two weeks are seasonally low as a result of the normal sloweractivity during the holiday period.

Secondly, as we announced in December, in conjunction withthe C-COR acquisition, we implemented a new organizational structure.  As a result, beginning in the fourth quarterof 2007 we began to report our current and historical results in threereporting segments that align to this new structure.  During this quarter of transition there aremany moving parts to consider which might be a bit confusing.  As we moved through this in the ensuingquarter some content will become very clear.

On chart 7, I have outlined the former product categoriesand the new reporting segments to help you with the comparisons.  As you can see, there are now three newreporting segments, Broadband Communication System or BCS, Access Transport andSupplies or ATS, and Media Communications Systems or MCS.

Our customer premises equipments specifically EMTA’s andcable modems are no longer grouped with supplies and are now part of BroadbandCommunications System segment.  With theaddition of the C-COR products we have expanded our supplies category toinclude access and transport products.

Lastly, our new Media and Communications segment focuses ondelivery and management of content and services.  As I am sure you know, our financialreporting will compare current results to historic results by thesesegments.  The history will only includeArris’s results and will not pick up C-COR’s historical results.  In order to help you with some comparisons,we will post to our website a quarterly summary of sales and gross margin for2007 by reporting segment for Arris results and our estimates of C-COR’s salesand gross margins for the same period.  Ihope that helps you.

Let us move to the financial highlights in chart 8.

Sales for the quarter are $249.6 million up 6% year-over-yearand down 2% from the prior quarter.  Thefourth quarter sales include approximately $6.6 million of sales of C-CORproducts for the last two weeks of the year. Year-over-year, our sales ramped 11% as a result of the continued robustdemand for EMTAs and CMTS’s.  Grossmargin percentage for the quarter was 25.6% down from Q4 2006 and sequentially.I will elaborate on margin in a moment.

We recorded expenses totaling $8.2 million resulting from awrite off event process R&D and amortization of intangibles both as aresult of the C-COR acquisition.  Ournon-GAAP EPS was $0.16 in the quarter while our GAAP EPS was $0.08.  Significant reconciling items include; writeoff of in-process R&D of $0.05, equity compensation of $0.02, amortizationof intangibles of $0.02 cents, and other tax acquisition cost restructuringitems which net to a penny.  Ourreconciliation of our GAAP to non-GAAP EPS’s included with this presentation onslide 19 and is also attached to our press release and of course it will be onour website.

Let me comment on the results relative to the guidance weprovided in October.  As we stated at thetime, our guidance assume no impacts from the then pending acquisition ofC-COR.  Given that the deal closed inDecember, there is not a direct comparison between our actual results and theguidance.  Had the deal not closed, ourbest estimates are that the sales would have been $243 million and that non-GAAPearnings per share would have been approximately $0.18 to $0.19 per share.  For the full year of 2007, our non-GAAP EPSand GAAP EPS were $0.79 and $0.87 respectively and compared to $1.04 and $1.30respectively for 2006.

It is important to note that income tax expense issignificantly different year-over-year. First, in 2007 we began accruing taxes at four rates which was not thecase in 2006.  In 2007, we recordedincome tax expense of $41 million as compared to a benefit of $35 million in2006.  As you may remember in the fourthquarter of 2006, we reversed valuation allowances we had in place with respectto our deferred tax assets which resulted in a gain of nearly $39 million, or$0.35 per share in the fourth quarter, this of course did not repeat in 2007.

We generated $52.8 million of cash from operating activitiesin the fourth quarter and ended the year with just under $392 million of cashin short-term investments, after the cash of $365.7 million we used to acquireC-COR.

Let us turn to chart nine. Here you can the sales break up based on the old product categories andour new reporting segments.  Goingforward, we will be presenting our sales based on our new reportingsegments.  We have also provided anestimate of what C-COR recorded as sales prior to the December 14 acquisitiondate in the fourth quarter, which was about $62 million.

The Broadband sales are up $14 million in the third quarterof 2007.  Continued robust demand for ourCMTS products coupled with higher sales of the Universal Edge QAM D5 accountfor the increase.  Supplies and CPE salesof $156.4 million were down $26 million from the third quarter.  Lower sales of the EMTAs to several customersin particular Comcast coupled with the seasonally lower supply sales led to thedecrease.

Let us look at some of the sales details in chart 10.

Looking at sales of our new reporting segments, first,Broadband Communication System sales were $216.9 million down $8 million fromthe third quarter of 2007 and up $13.6 million from the fourth quarter of2006.  The sequential decrease is aresult of lower sales of EMTAs which I mentioned a moment ago partially offsetby the increase in CMTS and D5 sales, access transport in supply sales of $30.9million or $1.4 million from the third quarter of 2007 and just slightly above2006.

Sales as the result of our C-COR acquisition more thanoffset a slight decline in our supplies products.  Turning to sales of our 10% customers in thefourth quarter; the sales to Comcast were $95.3 million and sales to TimeWarner with $30.9 million.  One other statistic,given the acquisition and in particular the timing of it, normal book to billratios are not as meaningful, what I can tell you is we ended the year with a combinedbacklog of $137 million and that we estimate the book to bill for thepre-acquisition Arris in Q4 was approximately 1.00.

Let us turn to chart 11 and review gross margins.

Consolidated gross margins were 25.6% down from 27% in Q3 of2007, this despite the fact we had less EMTA’s and more C4’s in the mix.  Several factors led to this, first; lowermargins and higher start up costs associated with the D5 contributedsignificantly to the decrease.

Second, we incurred a one-time warranty charge of about amillion dollars related to a small amount of unique power supplies in thequarter.  Lastly, we had an inventorycharge of approximately $1million associated with the discontinuance of the CXMproduct line.  Excluding these factors,our consolidated gross margins would have been approximately 27.7%.

Let us turn to chart 12 and review gross profit by theprevious product categories.  Please notethat this is the last quarter in which we will provide details on our marginsby previous product categories. Beginning next quarter, we will move to providing gross margins in ournew reporting segments.  Broadbandmargins were 38.7% in the fourth quarter and compared to 44.3% in the thirdquarter of 2007.

The decline is predominantly the result of the lower marginsand start-up costs associated with the D5. Gross margin percent for our supplies and CPE product was 18.3% ascompared to 20.1% in Q3.  Several factorsled to the majority of the decline, first, as I had just mentioned we chose toexit one of our CXM product lines and recorded an inventory charge ofapproximately a million dollars.  Next,the warranty charge I mentioned a moment ago also impacted this category.

Now, let us turn to operating expenses on chart 13.

Once again, it is important to note that we closed the C-CORacquisition in mid–December.  Operatingexpenses were $51.3 million in Q4 which included a write off of in-processR&D and amortization of intangibles related to the C-COR acquisition of$8.2 million dollars.  About $2.9 milliondollars of R&D and SG&A from the former C-COR and about a million and ahalf dollars of acquisition integration and severance cost resulting from theC-COR transaction.  If you bat these factorsout, spending was about $39 million dollars as compared to $41.6 milliondollars in the third quarter of 2007. The decline is mainly the result of lower variable people relatedcosts.  With respect to synergies, wecontinue to believe we are on track to meeting our yearend target of areduction of about $15 million to $16 million.

Let me touch on the balance sheet briefly on chart 14.

We ended the quarter with $392 million of cash in short-terminvestment which was net of the cash we paid for C-COR and the cash they had onhand at close.  We generatedapproximately $53 million of cash from operating activities in Q4.  This is a result of the underlying earningsand a reduction in working capital particularly the Arris inventory.  Inventory ended December at $131.8 millionincluding about $28 million we acquired from C-COR at close; and accountsreceivable ended at $167 million including about $34 million of accountsreceivable we acquired from C-COR.

Turning to chart 15.

When we announced the acquisition of C-COR last September, Iexplained that certain impacts resulting from purchasing and accounting willaffect us; I also said we would give you an estimate of those impacts.  As promised, I highlight five key items onthis chart, first inventory valuation. The accounting rules require that inventory be recorded a fair value onthe opening balance sheet, this is different from the historical cost, essentially,we were required to write their usable inventory up to end-customer price lessa reasonable margin as a distributor. This resulted in an increase in the value of inventory of about $3million which will result in higher cost to goods as it is sold.

Deferred revenue and deferred cost, at close C-COR had $27.5million of deferred revenue, the fair value of which is $4 million applying thepurchase accounting rules.  Similarly,they have $7 million of deferred cost, the fair value of which is zero, applyingpurchase in accounting.  In essence, eventhough the cash has been received this revenue and cost goes into the tether asneither C-COR nor Arris will ever score them. Intangibles have been valued at about $272 million, this will result inhigher amortization expense for multiple years, and finally in-process R&Dhas been valued at $6.21 million which was expensed in the fourth quarter.

Turning to slide 16, I had provided the estimated impact invarious time periods of key purchasing account items, please note that two ofthe items; in-process R&D and amortization of intangibles have and will beadjusted in our GAAP to non-GAAP reconciliation that is why our actual expenseis captured in our income statements in the future.  The others are not captured in thereconciliation, so as an aid for you to compare historic C-COR results we havequantified these items for you, in particular deferred revenue, deferred cost,and inventory valuation.  As you can see,we estimate that the impact was about $0.03 per share in the first quarter of2008 of these items.  I hope this helpsyou.

Next on chart 17, let us review guidance for the firstquarter.

At this point, we estimate that sales will be in the rangeof $270 million to $285 million and that non-GAAP EPS will be I the range on$0.08 to $0.12 per diluted share; and GAAP EPS will be in the range of breakeven to $0.04 per diluted share.  Thereconciliation of GAAPs to non-GAAP EPS guidance can be found in chart 18, andis also attached to the press release. Reconciling items include amortization of intangibles, equitycompensation expense, and some integration costs.  We are assuming $138 million fully dilutedshares; we are assuming a tax rate of 37% on the first quarter.  As you may know, Congress is yet to approvethe continuation of the QRE credit, once they do and assuming it will beapplied retroactively, which it usually is, our rate should reduce to about 35%for the year.

And finally, for completeness in chart 19, we have includedthe reconciliation of our GAAP to non-GAAP earnings per share for each quarterand for full year 2006 and 2007.  Thatconcludes my remarks and let me turn it over to Jim Bauer.

Jim Bauer

Thank you Dave, Stacey if you could come out back on lineand then just instruct the participants on how to ask their questions and wewill get on with our answers.

Question and AnswerSession

Operator

(Operator Instructions)

Your first question comes from the line of Brian Coyne withFriedman, Billings; please proceed.

Brian Coyne –Friedman, Billings, Ramsey & Co.

Few questions, first of all on the voice modem side, I waswondering if you can sort of give us a sense as to where you think sharesstands at your largest customer given the addition of the new EMTA vendor andwhere do you see that going for the year? And, then sort of secondly, Dave I was wondering in terms of the futureP&L impacts, I know you walked through a lot of stuff and I am going tohave to take some time to go through it but maybe I missed it, could you talk alittle bit about the net revenue impact that you thought would be the case in1Q and maybe just refresh us on how you view this at the time of theacquisition?

David Potts

So indeed on the chart, it gives you the actual numbers onthat piece, it is a bit lower; I believe at the time of acquisition, we thoughtthere was $36 million of deferred revenue and it turned out to be $27million.  I would have to go back andreally compare, but I believe that is the case. The timing which we have laid out on the chart for you, I think willhelp you see how it would have cycled out on the historic C-COR; and I would behappy to talk to you about it if you need it.

Jim Bauer

On the voice modem part of business, with our largestcustomer, we expect that as the year settles out, we will have at least 50%market share.  I think that addressesyour question, right?

Brian Coyne –Friedman, Billings, Ramsey & Co.

Yes and I mean obviously, I guess, with about 1.7 millionshipped in the quarter, do you think you are sort of halfway there at thisstage?

Bob Stanzione

Well what we are seeing is a big dip in the first quarter,so it is a very significant adjustment. Because what I believe happened is that we both shipped significantquantities in, in late December, and we scored pretty good revenues with voicemodems in the fourth quarter although it was down from the third quarter.  But so did our competitor in the quarter, Ibelieve what our customer was doing was ensuring supply given that they werestarting up with a new vendor, they ordered a large quantity from us and theyordered a large quantity from the alternative source.

Now they will spend I think most of this quarter digestingthat; we will be making shipments in there this quarter towards the end of thequarter and we expect that second quarter numbers will bounce backconsiderably, but again we are not going to be the 100% supplier and thereforethe second quarter numbers will not be at the peak numbers that we saw lastyear.

Brian Coyne –Friedman, Billings, Ramsey & Co.

Alright, and then maybe just one more quick comment on howyou see sort of the rest of your customer-base going on the voice modem side overthe next couple of years?

Bob Stanzione

We see it going very well, in fact if we were to, and we arenot going to because we do not have the permission from customers to revealtheir specific data, but I can say that if you exclude Comcast, our largestcustomer in this adjustment that is taking place in the first quarter that theshipments of voice modems to all other customers would be up.

Brian Coyne –Friedman, Billings, Ramsey & Co.

Got it and then finally I guess, I am trying to think of onemore, on the D5, can you say whether or not that was profitable at all on thegross margin side?

Bob Stanzione

No, it was not.

Brian Coyne –Friedman, Billings, Ramsey & Co.

Do you have a timeline or something like that, I guess is itmainly just volume related, is that sort of the only thing or do you have to doa kind of incremental engineering and grinding costs out on that basis beforeyou start to see that sort of pick up and when do you sort of see that gettingback towards or getting closer at least toward corporate average?

Bob Stanzione

First of all, the D5 sales are off to bit of a slow start, Ithink the STV deployments are off to a bit of a slow start, to answer yourquestion, your specific question about the profitability, it is both volume anddesign-spin oriented.  As the volumes increasethis year, of course our cost go down from our OEM partners.  And secondly, we have a very significantdesign spin that is in process and that is going to yield a marked majorreduction in cost towards the latter part of the year.

Operator

Your next question comes from the line of Ehud Gelblum withJP Morgan, please proceed.

Ehud Gelblum - JPMorgan

Did you mention the size of the D5 revenues this quarter?

David Potts

No, we did not.  Well,we do not report on specific products, but it is a small number, as a percentof our sales, it is a very small percentage.

Ehud Gelblum - JPMorgan

Okay, as you mentioned, Bob that you think that is itstarting off a little bit slow that you may have anticipated, as you look atthe rest of this year and into’09.  Howdo you think that ramps, do you think you could get ahead maybe 5% of revenueat some point by the end of this year or the next?  How are you looking at it now that you haveprobably a little bit better handle on what the deployment schedule may looklike?

Bob Stanzione

It is possible to reach that level, what I think what I willstand by is what we said before is that we think that by the end of this yearlike fourth quarter, will be shipping $10 million to $15 million per quarter ofthe D5 EdgeQAM product.  Because, we areseeing a lot of interest in that product, not just in the one announced winthat we have, but an enormous amount of interest from other customers, not onlyfor Switch Digital Video deployments, maybe I should let Bruce McClelland, whois here, the President of the division that runs that comment on that.

Bruce McClelland

The Universal EdgeQam is really for intended applications,broadcast video, VOD, switch digital, as well as, part of the module or CMTSarchitecture, so there is really four targeted applications and as I Bob said,there is a significant interest and we are pretty optimistic as the yearprogresses.

Ehud Gelblum - JPMorgan

So, we are can have roughly 5% by Q4 is that changed fromwhat you thought was prior?

Bob Stanzione

The number of 10 to 15 has not changed, the percentagedepends on what our total revenue is in for Q4.

Ehud Gelblum - JPMorgan

Right, what happened in terms of the start has not changedyour thought processes and how far it gets? When you get that 10 to 15 level assuming you get that by Q4 of ’08,roughly what gross margin is associated with that?

Bob Stanzione

I think it will be at or above the average of the company’sgross margin.

Ehud Gelblum - JPMorgan

Now, if we can get back on EMTAs for a moment, you mentionedthat with the slide of Comcast now with the larger spending that they didearlier that would fall off now.  Thestrength from me, out of everyone else, do you anticipate ASPs to remainrelatively stable as you go through that this year, as Comcast comes back up ordo you think by the time Comcast comes up you may see ASP’s drop and therefore,kind of off-setting the growth that we might see in volume?

Bob Stanzione

I do not think we will see any change in the rate of changeof ASPs, as you know they go down 5% to 10% a year.  The volumes go up considerably, so I do notsee any dislocation occurring in the pricing trends on EMTAs, do you have onemore?

Ehud Gelblum - JPMorgan

Yes, I have one more, Dave, you have mentioned for revenue,in that original presentation when you bought C-COR that running $36 million oryou kind of showed that quarter by quarter, how that was going to kind of fadeoff throughout the year.  Why do youthink that there was a difference between the $36 and the $26 that you actuallyhave now?

David Potts

It is just purely timing, so that was their actual deferredrevenue, I forget what quarter it was, but it is purely timing of the ins andouts.

Ehud Gelblum - JPMorgan

Did that impact at all what you anticipate that C-CORproduces for you in revenue for Q1, and what their revenue contribution will befor all of 2008.

David Potts

Well, as you try to compare back to the history, of course,we would suggest that you take the amount I showed you for the deferred revenueand cost and you would have to build that into the comparables back to theC-COR history, because we will lose that trail and then it is just a matter forus to rebuild our deferred revenue and deferred cost as we go forward.  I would comment that I believe that we areoff to a pretty good start on that portion of the business.

Ehud Gelblum - JPMorgan

Right, so it has nothing to do with deferred revenue, justthe entire revenue contribution from C-COR aside from the stuff that you canactually recognize.  Has there been anychange to your observation of that?  Ithought you only did $6.6 million?

David Potts

That is the material, at all no.

Ehud Gelblum - JPMorgan

Okay, so having $6.6 million in those two weeks, of course,we were looking for a little larger than that. That was kind of roughly in line in your thoughts for complete revenuecontributions.

David Potts

Not many docks are open around Christmas; I will say that,that was a challenge.

Operator

Your next question comes from the line of Todd Koffman withRaymond James, please proceed.

Todd Koffman –Raymond James

Can I just get a clarification on that follow-up, we aregoing to lose the C-COR trail the September quarter C-COR, I guess the Decemberquarter was $69 million and you did not make any commentary in your outlookguidance for March regarding C-COR being a factor in the weakness.  Can you make any comment there?  Thank you.

David Potts

We do not see this as a major impact.

Bob Stanzione

As I said, the major impact of the first quarter is in onecustomer with those items that I mentioned. Otherwise, the business looks quite good.

Todd Koffman –Raymond James

I do not have C-COR trail I&D, it was $69 million intotal revenue; C-COR in the December quarter, do you have the Septemberquarter?

David Potts

We do, we pull it up while we continue on, how is that?

Todd Koffman –Raymond James

Okay, and just one follow-up question, which is kind ofinterrelated, when I am looking at the new segments, which are somewhat named,somewhat generically.  How will the C-CORbusiness be split-up in your new three reporting segments?

David Potts

The access and transport business, which John Caezza headswould be combined with the supplies business which we previously had and the OSSand On-Demand businesses would be part of Bryant Isaac’s new piece in the mediaand communications segment.

Todd Koffman –Raymond James

Since I do not approximately how big in the December quarterwas the full quarter, say, C-COR Arris of media and communications?

Bob Stanzione

Todd, there is a great chart on our website, from apresentation that I gave at the beginning of the year that shows a pie chartwith how these things map into one another. And, I think it just exactly answers your question, so if you can justgo on our website, it was the presentation I gave at the Needhamconference on January 9.

David Potts

And, Todd your answer to the trail was about $72 million iswhat C-COR recorded in the third quarter.

Operator

Your next question comes from the line of Jason Ader with ThomasWeisel, please proceed.

Jason Ader – ThomasWeisel Partners

Bob, could you rank order the three drivers for the low EMTAsales in Q1.  I think you have mentionedthree different things.  Did you orderthose correctly?

Bob Stanzione

Well, I think I saidthree things, one was the introduction of a second vendor and of course, thatis the big item.  That is, by far, thebiggest effect and as I was trying to explain earlier, I believe that whathappened was we had fairly significant shipments into Comcast in the fourthquarter as did our competitor.

Just kind ofthinking through it logically, if you were the customer; if the introduction ofa new vendor is somewhat risky and therefore, you would hedge your risk bymaking more purchases than you might have normally, so, I think they ended upthe year with a lot of product-on-hand.

The second effect Isaid was that the Comcast voice Net-ads have been tampered somewhat.  I listened to their call this morning andthey were down slightly from the previous quarter.

In my discussionswith Comcast, they believe that in 2008, that number is going to pick back upagain and they are going to have quite a good year in Voice Ads.  And, with the introduction, by the way, Iwill embellish the answer a little bit, by saying with the introduction ofDOCSIS 3.0, I think we will get another boost towards the end of the year asthose products get introduced.

Those are the twomain effects and of course, there is the inventory adjustment related to thosetwo things.

Jason Ader – ThomasWeisel Partners

Now, they bought a lot of boxes from you, a lot of EMTA’s inQ4, why was the revenue down $10 million? How would you explain that sequentially?

Bob Stanzione

They did not buy asmany as they did in the peak quarter. The peak quarter was I think the third quarter.  Bruce is signaling me yes, it is the thirdquarter, so they were down some from that and if you recall, so were theirsubscriber ads.

Jason Ader – ThomasWeisel Partners

And could you giveus a sense of the impact in Q1 from both the EMTA and CMTS commentary orguidance that you have given related to Comcast, I mean, are we talking about,you would have been able to do $40 million or $50 million more in Q1?  Can you give us just some sense more or lessquantify a little bit how big this was and how far off it was what you wouldhave guided if you did not get that call this week?

Bob Stanzione

I think, well it wasnot a call this week.  It was over thepast week or a couple of weeks that it began to ooze out and we nailed it downjust in the past few days, but let me put it this way, if Comcast were flatquarter to quarter, our revenues would be up in this quarter.  In other words, I think that the reductionyou are seeing from the fourth quarter to the first quarter is all due toComcast because of this adjustment.

Jason Ader – ThomasWeisel Partners

So you have got togive us what C-COR was in order to make that math work?

Bob Stanzione

Well, we were justtalking about C-COR, it is about 70 a quarter.

Jason Ader – ThomasWeisel Partners

So if you add 70 toyour 243, is what you are saying, assume that Comcast was flat in Q4 to Q1, ifyou take the delta from that with the 270 to 285, then you get your impact, isthat about right?

Bob Stanzione

That is roughlyright.

Jason Ader – ThomasWeisel Partners

Last question, you were at our conference last week Bob andyou said that you still see growth in residential EMTA units this year an  I am just wondering, in light of the Q1guidance, do you stand by that statement?

Bob Stanzione

I think I have toback-off from that statement, quite honestly, I think that the next threequarters are going to be good quarters beyond first quarter, but it will behard to make up for the difference in the first quarter, the difference that weare experiencing in the first quarter.

Jason Ader – ThomasWeisel Partners

Did you considered pre-announcing for Q4, given that youhave the shortfall?

Bob Stanzione

No, well, of course,we considered it, but we decided not to because the miss, first of all, theguidance was given assuming that the C-COR acquisition is going to be completedin January and then we closed it early and that distorted the results.  So, the miss compared to the low end of ourguidance was not that much, it was a penny or two and the advice we had wasthat we should not pre-announce.

Operator

Your next questioncomes from the line of Simon Leopold with Morgan, Keegan, pleaseproceed.

Simon Leopold –Morgan, Keegan & Company, Inc.

I have got a couple of things that I would like to try todrill down on.  One is on the broadbandgross margin; you gave us a pro forma number and I think it seemed like it wasvery weak I am assuming that the D5 contribution was so small, but that is notall.  Maybe if you could help usunderstand the core gross margin on broadband?

David Potts

Actually, the D5 isby far the biggest impact in the reduction, in the whole product category.

Simon Leopold –Morgan, Keegan & Company, Inc.

So, should we assume that the CMTS business gross marginsare trending similar to the way they have been?

Bob Stanzione

Yes.

Simon Leopold –Morgan, Keegan & Company, Inc.

Okay great, if you could give a little bit more color onsome of your other customers, as you have in the past, Cox and Liberty?

Bob Stanzione

I think sales to Cox and Libertywere roughly flat in the quarter, I do not know Simon.  They have not been 10% customers for quitesome time and therefore, we took them off the chart, but we are looking it upright now.

Simon Leopold –Morgan, Keegan & Company, Inc.

Okay, while you are looking that up, let me throw in anotherquestion.  The cash balance, I think wasa little bit better than what you had guided to on the deal and I just want tosee whether, and I have not gotten the chance to digest all the details, butmaybe you can highlight what is helping out here in terms of the better cashand whether there is something whether this is one-time or whether that issustainable.

David Potts

Remember that we hada piece of paper, the $35 million convert, which we actually paid out inJanuary, about January 12th or 13th I believe, which was$35 million.  That was actually nextquestion I believe so.

Simon Leopold –Morgan, Keegan & Company, Inc.

Yes, I think so, I have got to sort of go through thenumbers a little bit in more detail to maybe formulate it, but optically thenumber was bigger than what I thought you were going to put up.  I think you had guided $275 million to $300million in cash and equivalents.

Bob Stanzione

By the end of theyear and we did better than that.

David Potts

I am sorry, Ianswered the different question than what you are asking. I am sorry.

Simon Leopold –Morgan, Keegan & Company, Inc.

It is quite a bit better than that and I am trying to figureout where the extra money came from.

David Potts

An inventory wasdown substantially and we also adjusted the basic earnings with the firm andsome higher payables, but yes, we are $52 million in the quarter.  It is probably a bit better than I hadexpected.

Simon Leopold –Morgan, Keegan & Company, Inc.

Okay and then, if we think about sort of the trendingthroughout the year, particularly on the CMTS business and looking out to wherewe get a step function.  Bob, I got alittle bit confused, because some of your commentary suggest it was second half’08, some of it seem to imply it would be as early as the second quarter.  And, I am assuming if DOCSIS 3.0 is beinglaunched in the second half of the year by your customers, you would seerevenue in the second quarter, if you could just clarify what you are talkingabout on that?

Bruce McClelland

The DOCSIS 3.0 technology is going through testing today in ourlabs, as well as customers and we anticipate just the start of revenue reallyin the second quarter.  So, the majorityis really in third and fourth quarter where we think it really starts to hitthe stride and there are really two sources there.  One is obviously new chassis sales withDOCSIS 3.0 technology and the second is upgrading the existing footprint I thinkas Bob mentioned earlier that the strategy in ’07 of exceeding that market andestablishing footprint was pretty successful in increasing market share.  So, we started to sort of adding in the secondhalf as we go back and enable those chassis with DOCSIS 3.0.

Simon Leopold –Morgan, Keegan & Company, Inc.

Okay, and I have just one last question it is around tryingto model the gross margin particularly, thinking about what your mix lookslike, whether it is in the first quarter through 2008.  I think Bob mentioned it would be over 30%,were you suggesting you would get back over the 30% in the first quarter orthat was more of a target.

Bob Stanzione

What I meant wasthat for the year, I think we will average out over 30% by the second half ofthe year; we will be well into the 30s.

Simon Leopold –Morgan, Keegan & Company, Inc.

And, what do you expect for the first quarter?

Bob Stanzione

We are not givingspecific guidance on margins.

Simon Leopold –Morgan, Keegan & Company, Inc.

How about for the mix, what kind of mix do you expect?  Similar product mix in Q1?

Bob Stanzione

No, I think the mixwill be more in favor of the higher margin products, given the big reduction weare seeing in the EMTA to Comcast.

Operator

Your next questioncomes from the line of Glenn Anderson with Oppenheimer, please proceed.

Glenn Anderson – Oppenheimer

Can you guystypically provide a little more granularity in terms of ports shipped?  I did not hear any international salesnumber.  Some of these data that isprovided, did I just miss it or is it provided somewhere else?

Bob Stanzione

I did mention in mycomments, we shipped 7,810 ports.

Glenn Anderson – Oppenheimer

In EMTA volumes, didyou?

Bob Stanzione

I said $1.79 millionCPE devices, which is mostly EMTA, so it is about a 130,000 cable nodes inthat.  And, I also said internationalsales were 31.7% or approximately 32%.

Glenn Anderson – Oppenheimer

The real questionhere, with respect to CMTS’s, it  hasbeen suggested that ASPs are falling pretty rapidly, I want to get a sense forhow the CMTS pricing environment looks and has the erosion of pricing there accelerated,decelerated what is the pricing environment right now?

Bruce McClelland

So, one of thebenefits of the DOCSIS 3.0 technology as we get further in the year is not onlyincreased speeds and wide band capability, but the technology is, as what a lotof technology actually allows, a lower cost base from a cost per megabyte orcost per bandwidth perspective.  So, I thinkthere is an anticipation that ASP’s in general, if compared them on the downstream basis will fall throughout the year.  Keep in mind that part of what we are doingon the CMTS is actually separating the upstream and downstream technology sothat customers can purchase the bandwidth they really need to have as opposedto buying in fixed quantities and so as you think about prices per down stream andeverything, you need to take that into account as a lot of the cost inside thetechnology associated with the upstream bandwidth, not just the downstream andthe new blades, there are interviews later in the year with DOCSIS 3.O thatallow us to have 16 down streams on a blade, change those ratios.

Glenn Anderson – Oppenheimer

Got it, and a follow up question; with respect to C-COR, theway you see C-COR business as the access and transport business, any of theweakness in the quarter and the guidance associated with the weakness in thatbusiness or do the fundamentals remain pretty strong there?  I think we are expecting the Adelphia plantto sort of taper off, is that going to produce weakness over the next quarters?

Bob Stanzione

Let me introduce John Caezza who is the President of theAccess Transport and supplies segment to answer that question, John.

John Caezza

I think as we had taken a look at the trends for the accessbusiness, we anticipate a steady progress kind of consistent low for that partof the business as the operators work to expand their capacity, their networkswithout really having to make significant investments and infrastructure in thetraditional sense, so where in the past there has been a lot of investment fromthe stand point of labor to rebuild the networks, they were a able to do thatpretty simply today by just adding the types of components that we provide togive them that capacity, so it is an expansion of the optics and I think thingslook pretty good today so it is really more capacity from the network theyalready have.

Bob Stanzione

Are you expecting growth in that business throughout theyear?

John Caezza

I think that at this point we would probably look at it tobe flat, maybe a little bit up, but I think given what is going on with othersegments in the market today we would anticipate it to be kind of steady to wherewe are.

Operator

Your next question comes from the line of Ray Archibold withKaufman Bros., please proceed.

Ray Archibold -Kaufman Bros.

Just a housekeeping item, in terms of the new segmentreporting, are you going to provide some of the pro-forma historical data?

David Potts

We will be doing sales and gross margin and we will beputting them on the website hopefully tomorrow for you.

Ray Archibold -Kaufman Bros.

Okay very good, and then just a couple of things, one interms of the gross margin on supplies and CPE, from quarter to quarter is thatall related to volume or was there pricing concessions that kicked in thefourth quarter?

David Potts

There are two things I mentioned; one is that we had a writeoff of some inventory from a product line from CXM which actually is not theEMTA’s that was just over a million dollars. We also had a warranty cost which is very rare actually in this stufffor some isolated power supplies that we have on one of the modems which usanother million bucks.  If you back thoseup we are still a little bit below, but it is much closer to what thehistorical margins were.

Ray Archibold -Kaufman Bros.

And then if I understand correctly as far as Comcastreporting in terms of the EMTA business, you shipped a substantial amountthough lower than the 3Q, you had a second vendor which also shipped quite abit, so it sounds like your read is Comcast is carrying a lot of inventorygoing in to the first quarter, is that correct? And secondly sort of, your expectations that that gets burned off largelyin the first quarter and we return in kind of a normal seasonal pattern?

Bob Stanzione

Yes that is correct, as I mentioned we expect to shipproducts to Comcast this quarter, it is just at a much lower level, so theywill burn through that inventory during the first part of the quarter and theywill begin replenishing towards the end of the quarter.  I would expect that we will return to a morenormal level although not as a peak, remember we expected that the secondvendor was going to come in a year before it did, and so we were—

Ray Archibold -Kaufman Bros.

I guess I am trying to establish what is the base that weshould be looking in terms of modeling if you will, normal progression is thefirst quarter expectation, the base or is it something between the firstquarter and the fourth quarter, how should we think about that in terms of whata normalized level should be going forward?

Bob Stanzione

Probably closer to the fourth quarter than the first quarterbut I cannot—

Ray Archibold -Kaufman Bros.

But not quite that level?

Bob Stanzione

We cannot predict that well, not that far.

Ray Archibold -Kaufman Bros.

And then on the CMTS, or I guess on the broadband andinfrastructure side, sounds like you are indicating again that Comcast is backand loading their adoption of DOCSIS 3.0, you did talk to strong volumes Iguess coming out of Cable Vision and Time Warner but probably not as sufficientto offset the delays if you will coming out of Comcast, but I guess my questionis related to the rest of your customers, shall we expect, I guess if you will,more normal seasonality going forward or is that business sort of rampingthrough or can you give us a sense in terms of the non-Comcast business if youwill, what that trend looks like for the remainder of the year, so we get asense of what the trajectory could look like as we get into the second half of2008.

Bruce McClelland

This is Bruce, I think one of the indications Bob talkedabout earlier was the increase in the international business and that certainlyapplies to the CMTS and broadband segment that we have seen.  Pretty healthy growth particularly in SouthAmerica and even in Europe, so I think if it is not enough to make up for whatis a slower rate in the first two quarters with Comcast, it certainly makes upas a piece of it, so we are pretty bullish on the growth outside of thatComcast only.

Ray Archibold -Kaufman Bros.

Okay and in terms of the guidance, so you have given and therisk that could stay, so I am assuming that takes into account the lack of thedeferred revenue recognition from C-COR?

Bruce McClelland

Yes.

Ray Archibold -Kaufman Bros.

In the first quarter?

Bruce McClelland

Right.

Ray Archibold -Kaufman Bros.

So this is a GAAP number as opposed to anything else?

Bruce McClelland

Yes.

Operator

Your next question comes from the line of Greg Mesniaefffrom Needham & Company; please proceed.

Greg Mesniaeff – Needham & Company

I have a question regarding Comcast and EMTA’s, can youquantify to the extent possible how much leverage or wiggle room you have withComcast to potentially alter or shift the current market share dynamic based onprice and on future set particularly as future sets get enhanced throughout theyear.

Bob Stanzione

That is a great question, certainly the environment atComcast with additional vendors is more of a competitive environment and we donot take our market share for granted at all, it is a business where you haveto win the business everywhere, every month, every week, and it is aboutadditional features in the product to produce operational cost and  I think we have talked about in the past thatthere are number of things that we have designed into the product to make theinstallation and the quality of the service differentiated and better than thecompetition and we continue to focus on that and the customer service and theflexibility of the product is a huge focus, so I think you are right that ourchallenge is to make sure we win our unfair share of the market goingforward.  The other growth area in 2008we have not talked about is the commercial services arena in the small businessenvironment, I think if you listen to the Comcast call today that is certainlya very major focus for them as well as several of the other operators here inthe US.  I think we are very wellpositioned with the portfolio products to address that market as well.

Greg Mesniaeff – Needham & Company

Could you comment on your multi-lining MTA vis a vis theother vendor?

Bob Stanzione

So I think we are pretty much the only vendor with a suiteof multi-line products today that are shipping, so I think that is adifferentiated area and something we focus on a lot.

Greg Mesniaeff – Needham & Company

And just to kind of close the loop on my first question; inhind sight, is it fair to say that Comcast has been planning this for quitesometime to namely to introduce a second vendor, and this is sort of themputting a stake in the ground and at this point going forward it will be moreof who gets to win the business based on the credentials and on thespecifications of the products?

Bob Stanzione

They have a policy; a multi vendor policy that we havecommented on and I am sure you recall, we expected quite honestly that this wasgoing to occur a year before and evidently our competitors had more difficultyin getting their product qualified than we anticipated, we enjoyed a tremendousprogress in that, so I think that the business throughout 2007 and of coursenow another vendor has come in and performed.

So I think that this is the abruptness of the adjustment iscoming unexpectedly or the size of the adjustment I should say is unexpected,but the fact that it happened is not. Now Bruce has been up there recently the past few days, and we aretrying to work out a forecast arrangement so that these unexpected changes inthe business do not occur and I think he has made tremendous progress in that;so I think that the business will be more predictable as we go forward.

Greg Mesniaeff – Needham & Company

I guess the concern some people have is that price couldbecome a far more gating factor here than it has been and I am kind ofwondering whether this is going to be really a price driven equation or afeature richness driven equation.

David Potts

I think price is number one, two and three and in a lot ofminds, and it always has been with all the operators, I mean if you are notcompetitive on price you are not going to get the business.  However, what decides is the market sharesplit and the volume is all about differentiating the product and providingmore value at a similar price range, so I do not think we believe that dynamichas changed substantially, it is the life we live everyday on this product lineand you have got to be grinding the cost out of the product and constantly withyour partner and your supply chain and that does not change.

Bob Stanzione

And I think we have an advantage on cost, given our volumeis so much higher than anyone else’s.  SoI think Bruce and Jim before hand have done a great job in establishing aculture where we are keeping the margins up by reducing the cost at about thesame rate the prices have changed.

Greg Mesniaeff – Needham & Company

Great, one more quick housekeeping question; what were DSO’sin the quarter?

Bob Stanzione

So DSO’s are sort of meaningless because we have brought inthe receivables from C-COR so we did not give the statistics.

Greg Mesniaeff – Needham & Company

Sure, okay, got you.

Operator

Your next question comes from the line of Amitaf Pasi (ph) withUBS; please proceed.

Amitaf Pasi – UBS

Bob just have time for you regarding Comcast, I mean Comcasttoday guided to CAPEX being roughly flat just like we up in the year, call itmaybe up 1%; do you think you can actually at least have your business atComcast remain flat in 2008 over 2007 including C-COR contribution?

Bob Stanzione

The first quarter puts us in a hole of course and so wewould have to make up for that and more in the next three quarters in order tohave the same amount of revenue or more than we had in 2007, so I would saythat is going to be a hard thing to do, although I do think that as the yeargoes on you are going to see the revenue dollars coming out of Comcast to Arrisbounce back nicely.  We have got otherproducts besides the two that we have talked about predominantly on this call,John Caezza is Access and Transport products, I think we have great upsideopportunities in Comcast for that, Bryan Isaacs here with his softwareproducts, the OSS as well as the On-Demand products particularly the adinsertion, a lot of people do not realize that Arris is the number one vendorof ad insertion equipment as a result of our acquisition of C-COR.

Bryan and his team are very much involved in winning more ofthat targeted or advanced advertising piece of the pie, so I think there areopportunities that are going to emerge as the year goes on outside of just theEMTA’s and CMTS, and I think even in those two categories the introduction ofDOCSIS 3.0 is going to open some gates to more spending in the second half ofthe year.

Amitaf Pasi – UBS

Okay and then just a couple of questions around your firstquarter guidance, the gross margin that you reported for the broadband segment,I mean is it fair to assume that that is the level we should expect over thenext couple of quarters or even potentially have them trend down driving costout of D5 or should we consider 4Q 07 as a low point; just trying to get asense of how to think about margins over the next couple of quarters.

David Potts

I would think it is a low point.

Bob Stanzione

Bruce, elaborate on that.

Bruce McClelland

Alright again, we will just extend this a little bitmore.  There seems to be a lot ofquestions in queue, so we will take another one.

Amitaf Pasi – UBS

Okay just one final question from my end, could you give anumber for the multi line units for the quarter.

Bob Stanzione

We did it but, Bruce what was it roughly what we had?

Bruce McClelland

It was roughly what we did in the first quarter.

Amitaf Pasi – UBS

About 21K?

Bruce McClelland

Yes, very close.

Operator

Your next question comes from the line of Ray Archibold withKaufman Brothers, please proceed.

Ray Archibold -Kaufman Bros.

I think we have already gotten Ray’s question, is thereanother one in line?

Operator

There are no further questions in the queue.

Bob Stanzione

Okay, Ray go ahead, Ray did we answer your question or youhave another one?  I think we answeredRay’s question.

Operator

An interruption, there is one more question in the queuefrom David Wright with Henry Investment Trust

David Wright - HenryInvestment Trust

Can I ask a question, on the slide, is the $138 millionshares, is that an actual or is that an average?

Bob Stanzione

That is what we anticipate to be the fully diluted sharecount for the first quarter into the next year.

David Wright - Henry InvestmentTrust

But is that also the actual?

Bob Stanzione

No, it would not be because we would have options in it.

David Wright - Henry InvestmentTrust

Right so what is the actual?

Bob Stanzione

We have to—

David Wright - Henry InvestmentTrus

How many shares did you issue for C-COR?

David Potts

$25.1 million.

David Wright - Henry InvestmentTrust

Using the $138 and the billion and the quarter dollar of equitythat is on the balance sheet in the press release, I get a book value around $743,and obviously there is a lot of goodwill in that book value but a lot of itfrom the acquisition that is very recently closed, my question is with thestock fleeting pretty freely at around $6.10, does it makes sense to buy somestocks back and if it does are you at all prohibited from buying any stock backhaving just closed this large acquisition with stock?

Bob Stanzione

We will not be prohibited after Monday I believe, we have anopen window, we have established or in fact re-established the Committee of theBoard of Directors that we will be examining that essentially day by day, andwe may, I am not sure whether we will, but we do have the facility to do thatif we see the need to.

David Wright - Henry InvestmentTrus

Do you have a presently authorized buyback open?

Bob Stanzione

No but we do have this committee so that we can act veryquickly should we decide to do that.

David Wright - Henry InvestmentTrus

Thank you very much.

Bob Stanzione

Alright, thank you and with that I would like to justsummarize this for those of you who have stuck around until the end.  We are very confident that we have the rightproducts and the right technologies and that the industry that we are in isgoing to continue to invest aggressively against their competition.

So to balance things out, I would say that ourdisappointment in the first quarter is offset by our enthusiasm for the rest ofthe year.  I also want to mention that weare holding an Investor Conference on March 4 and 5 here in Atlanta and you areall certainly invited to come, we are certainly be doing a deeper dive both onthe financial side of the business as well as on some of the technologies.  With that I would like to thank you forattending today and we will adjourn.

Operator

Thank you for your participation in today’s conference thatconcludes your presentation, you may now disconnect and have a good day.

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Source: Arris Group Inc. Q4 2007 Earnings Call Transcript

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