Symmetricom, Inc. Q3 2008 Earnings Call Transcript

Symmetricom, Inc. (SYMM)

Q3 2008 Earnings Call Transcript

May 5, 2008 4:30 pm ET

Executives

Ellen Brook – IR, Stapleton Communications

Tom Steipp – President and CEO

Bill Slater – EVP of Finance & Administration, and CFO

Analysts

Simon Leopold – Morgan Keegan

Leah [ph] – Ferris, Baker Watts

Ted Jackson – Cantor Fitzgerald

Cris Blackman – Empirical Capital

Michael Cody – B. Riley

Presentation

Operator

Good afternoon and thank you for standing by for today's conference. At this time, all participants will be in a listen-only mode until the question-and-answer session of the conference. Conference is being recorded at the request of Symmetricom. If you have any objections, you may disconnect at this time. Now, I would like to introduce the host for today's conference. Ms. Ellen Brook. Ms. Brook, you may begin.

Ellen Brook

Good afternoon. Welcome and thank you for attending Symmetricom's fiscal 2008 third quarter conference call. With me today are Tom Steipp, President and Chief Executive Officer and Bill Slater, Chief Financial Officer. If you have not yet received today's news release, you may download it at www.symmetricom.com. During the course of this conference call, we will make forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, including statements regarding guidance, revenue growth, gross margin improvements and R&D efficiencies. Actual results could differ materially from those projected in the forward-looking statements. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in the company's 10-K for the year ended July 1, 2007 and subsequent filings with the SEC as well as in today's news release.

Please note that Symmetricom is not providing full GAAP or non-GAAP financials at this time. As previously announced on April 23, 2008 in our filing with the SEC, the audit committee of Symmetricom's Board of directors with the assistance of independent legal council and a forensic accounting firm completed an internal review and concluded that due to errors in accounting for accrued liabilities related to inventory received, the company's financial statements for the fiscal years and interim periods from 2002 through 2007 and for the first quarter of fiscal 2008 and any reports of the independent registered public accounting firm thereon should no longer be relied upon.

In addition, the company has not filed its Form 10-Q for the second quarter of 2008. Consequently, all financial results described in this press release and the previously announced financial results for the second quarter of fiscal 2008 should be considered preliminary and subject to change until the company completes the restatement and files Form 10-Q for the second and third quarters of fiscal 2008. I will now turn the call over to Tom Steipp, CEO of Symmetricom.

Tom Steipp

Thank you and good afternoon everyone. Welcome to our review of Symmetricom's fiscal 2008 third quarter revenue results. In today's call, I will cover some of the highlights of the quarter along with the major developments in performance of each business segment. Before we get started with the highlights however, I would like to take a moment to discuss our new divisional structure. As you know, we entered the Quality of Experience business via the acquisition of two discrete entities: QoSMetrics and Genista. The first year focused on the integration of the two technologies and business development activities. Measures during fiscal '08 have focused on lab trials, field deployments and strategic partnerships. During this transition period, we kept the organization separate in order to allow the formulation of those plans to take place.

At this point, we believe that substantially all milestones for fiscal 2008 will be achieved and based on the results that we have seen thus far, we now believe that these products have the potential to be a viable product line within Symmetricom with strong market interest in both telecom and cable. We now believe that our synchronized products in the telco markets and the DTI servers in cable represent the best entrée for our QoE solutions. Therefore, we have begun to fully consolidate our QoE products into both telecom and cable sales program. We see the evolving deployment of consolidated voice, data, video and cellular networks as equally attractive opportunities for all three of our new product initiatives. Those being PackeTime servers, QoE solutions and DTI servers. The synergy created by this combination will we believe provide a better platform for revenue growth in all areas while reducing overall spending.

Now, let's get started with the quarterly highlights. Third quarter revenues were $51.3 million, slightly below the prior year. AT&T was a very strong customer at approximately 18% of overall revenues. Our new cable business is showing promise with the first production shipments of our new DOCSIS Timing products. Customer interest in our Quality of Experience products remain high, with one new trial and two new strategic agreements achieved during the quarter. Shortly after quarter-end, we also secured pivotal agreement with Alcatel-Lucent, who has agreed to become both a systems integration partner and a reseller of our perceptual video quality products. Verizon Wireless approved our PackeTime NTP servers for deployment in their network. Our government business remained strong, driven by a broad mix of domestic and international communication programs.

Let me turn now to the operational results for each segment. Our Telecom Solutions division posted revenues for the third quarter of $31 million, a decline of 9.5% from the prior year. Wireline revenues were $22.8 million, about 6% lower than a year ago. We saw strong revenues from the sale of next generation sync equipment to AT&T which accounted approximately 18% of total revenues in the quarter. Lower wireline revenues were primarily attributable to weaker than expected orders from Verizon.

We also receive initial orders from multiple customers for deployment of our new PackeTime NTP server blade as part of our expanding portfolio of Carrier-Class products. Additionally, we launched our new TimeProvider 5000 1588 server that provides synchronization for many next generation network applications, including Ethernet backhaul, circuit emulation and passive optical networks. We have been working closely with Nokia Siemens in the building and testing of this product for their next generation base stations and they announced its use in their new Timing-over-Packet base station solutions.

In cable, we shipped $1.5 million of TimeCreator, our new DOCSIS timing product which provides precise time and network sync for new broadband cable services. This marks the transition from testing and lab trials to our first production order for field deployment. We are seeing activity with cable service providers around the world and expect to see continued growth in orders for this product. To strengthen our initiatives in this area, we have added two key industry veterans to our team, who will spearhead the sale of both our TimeCreator and our V-Factor products into the cable market.

Service revenues were $2.9 million, down about 11% from the prior year, again reflecting the softness at Verizon. Our wireless OEM segment third quarter revenues were $5.3 million, down about 22% from the third quarter a year ago, primarily based upon soft orders from Samsung. Our Quality of Experience business which will be reported as a segment within Telecom Solutions division in future calls, recorded revenues of $1.1 million including $900,000 in revenue for a field deployment in Russia.

At the beginning of the year, we set out key metrics to help track progress of the division during fiscal 2008. These metrics relate to three primary areas: Trials, deployments and strategic partnerships. I'm pleased to announce that we are on track to meet or exceed most of our stated goals by year end.

Our progress against these metrics is as follows: The first benchmark was to initiate at least five new trials. We met this goal in the third quarter with the addition of one new trial for V-Factor. Second was to secure at least two new deployments during the year which we achieved last quarter. There were no additional deployments during the third quarter in our top-20 strategic accounts although we did ship nearly $1 million worth of product for deployment in Russia.

On the strategic partnership front, we targeted four in fiscal 2008. Since our last conference call, we secured three new agreements. The first was with EMC to integrate V-Factor into its operational support system. The second is with Calix which has added Symmetricom to its portfolio of partners in the area of enhanced video quality monitoring solutions. Third, we signed an important new agreement to provide Alcatel-Lucent with our monitoring solutions for their IPTV deployments. They have agreed to resell our products as part of their IPTV ecosystem solution. With the global reach and presence of Alcatel-Lucent, this partnership breadth presents a significant growth opportunity for us. This brings us to five new partnerships to date.

As you can see, we have made good progress on the milestones established at the beginning of the year. We believe Symmetricom's V-Factor is the most advanced end-to-end perceptual video quality monitoring solution available today in both telecom and cable environments and the team is focused on maximizing our revenue opportunities in these markets.

Moving now to the Timing, Test and Measurement division. Revenues were $19.3 million, up 11% from the prior year. Domestically, we saw strong sales to the government for communication and electronic system programs. Growth continued to be strong in specialized timing systems for various government entities. In our Instrumentation business, we had two significant orders for Cesium in the quarter, one for the FAA's Air Traffic Control Program and the other for an Army Communications Program.

International business showed continuing strength in network time servers, hydrogen masers, Cesium clocks and other timing devices. On the new product front, we introduced two new state-of-the-art ruggedized rubidium oscillators which we believe will improve our opportunities to be part of new military programs in the future.

Before I wrap up, let me turn to our backlog, cost control efforts and the status of our SEC filings and NASDAQ listing. First the backlog which ended the quarter at $54.8 million, an increase from the prior quarter backlog of $49.1 million. We estimate that $43.2 million of the backlog is shippable within six months, $8.4 million is shippable within 6 to 12 months, and the $3.2million will be shippable beyond one year. As indicated in our prior conference call, we expect that there may be fluctuation in both revenue and backlog as we are now receiving larger orders with deliveries over extended periods. We continue to make significant progress on our initiatives to control costs and to improve operational efficiencies. Outsourcing is an important part of that program, with the first components manufactured Sanmina scheduled for delivery in the fourth quarter, which will begin to lower our purchase parts cost.

We are also targeting additional efficiencies in R&D, as we consolidate our operations from Austin, Texas into our new R&D center in Beijing and our facilities here in San Jose. We anticipate taking a charge for these of activities of approximately $2.5 million over the next two quarters.

Moving on our SEC filings, we are pleased to report the completion of the internal investigation conducted by our Audit Committee, with the assistance of independent legal council and a forensic accounting firm. We disclosed the results on our Form 8-K which was filed on April 23. Based on the findings to date, the cumulative net income impact on fiscal years 2002 through 2007 was an increase of approximately $300,000 with no impact on net income for the first quarter of fiscal 2008.

On May 1, we received notice that NASDAQ has granted our request for continued listing of our common stock on the NASDAQ Global Market. In order to remain listed, we must file our 10-Qs for the second and third fiscal quarters of fiscal 2008 and any necessary restatements of prior financial statements on or before June 30, 2008. Although we believe we can comply with this condition, there are no assurances that we will meet the deadline set by the panel.

In summary, based on our strong market position in frequency and timing products, we believe that our core telecom and government markets are healthy and profitability. Our strategy for success in these core markets is to focus marketing and sales resources on global accounts on selected emerging markets. In addition to our core markets, we see growth opportunities from new products and new markets. The driver of all of these opportunities is the ever accelerating growth of traffic on global communication networks, more data, more Voice-over-IP, more cellular and more video. Our core products already play prominently in these arenas and provide us entree for our new product offerings.

In summary, they are PackeTime products to take advantage of Ethernet backhaul, synchronous Ethernet deployments, along with legacy and advanced timing applications, DTI servers which are tied to the deployment of DOCSIS 3.0 modular CMTS on a global basis, and V-Factor solutions to enable Quality of Experience measurements in both cable and telecom environments. Third quarter revenues for these combined products was approximately $3 million. Our business development, marketing and sales resources are focused on growing that combination.

Turning now to our guidance for the remainder of the year, we expect revenue between $205 million and $210 million. I want to thank everyone for joining us today. Bill and I will now take questions. But, due to our restatement, our answers around financial information will be limited. This concludes the prepared portion of the presentation. Christy, you can now poll the audience for any questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Our first question comes from Simon Leopold with Morgan Keegan. You may ask your question.

Simon Leopold – Morgan Keegan

Thank you. A couple of things I'd like to clarify. First, let's start with the QoE business which was quite strong this quarter. Certainly, you've got to be happy about it, but coming off of such a strong quarter, I anticipate that this was really around one project. Maybe if we can get an update of how to think about the revenue trending on that line rather extrapolating from this one data point.

Tom Steipp

Yes, I think that is a great point, Simon. One of the things that we have tried to lay out in this call is the importance of all three of our new product offerings, The PackeTime products, the DTI products and QoE. Our measures are really around the progress that we make quarter-to-quarter. There will be some relatively large deployments that come in from time to time as was the case with this Russian opportunity. I think the way you should think about it, though, this is more along the lines of the milestones that we have set out, trials, deployments and partnership agreements and pretty much a steady progression. One of the things we are going to try to do is keep people apprized of how much, in general terms, our new products are generating in the way of revenue on a quarterly basis. It was about $3 million this quarter.

Simon Leopold – Morgan Keegan

When we talk about the new products, you did highlight the cable products this quarter. Are those included within the wireline, I presume?

Tom Steipp

They are. But, as I say, we have tried to give a little bit of visibility to the new products as a combination, so when we broke those out, the $3 million included PackeTime, DOCSIS, DTI as well as the QoE products.

Simon Leopold – Morgan Keegan

Okay, sure, I appreciate that. So when we think about the forecast, you are giving us a full-year forecast with one quarter. So you've essentially given us a Q4 forecast.

Tom Steipp

Yes.

Simon Leopold – Morgan Keegan

I am assuming that within this forecast you are making some assumptions about key customers, particularly AT&T and Verizon and I would like to clarify my view that you are presuming AT&T stays healthy as it was in this quarter and you see a recovery of Verizon, both of which kick in in the June quarter, so you get a good sequential step up, is that a good way to interpret it?

Tom Steipp

I would say, certainly, we are going to stay focused on AT&T and Verizon and their upgrades. We also continue to expect growth in the cable on a more regular basis just because we have now shifted from trials in that space to field deployments. I think you have seen there is an awful lot of momentum around DOCSIS 3.0 at this time and we think we will benefit from that.

Simon Leopold – Morgan Keegan

Okay. So it is really then three factors leading to the sequential improvement? There is nothing else?

Tom Steipp

Predominantly those things would – sorry, it is a little bit than [ph] an exact science at this point.

Simon Leopold – Morgan Keegan

Okay. Now, there is certainly some art to it. I appreciate. Thank you very much.

Tom Steipp

Okay.

Operator

Our next question comes from Matt Robinson with Ferris, Baker Watts. Your line is open.

Leah – Ferris, Baker Watts

Hi, this is Leah [ph] filing for Matt. I just got a question. I understand your answers for financial statement related statements will be limited. But I am going to get an idea of operating cash flow and free cash flow for the past quarter.

Bill Slater

We can't provide that information right now.

Leah – Ferris, Baker Watts

Okay, understandable. I was also wondering with the initiatives that you have with is the cost control, you mentioned outsourcing of manufacturing schedule, relative to last quarter's gross margin in the report, I understand it is preliminary right now, but relative to that, 52.2% that you have there, would that initiative pretty keep it afloat or (inaudible) some out quarters or how should we look at that in terms of –?

Bill Slater

The outsourcing of manufacturing really won't impact this year because we are carrying inventories at higher cost. So, we expect to see benefit next year from outsourcing manufacturing. We have other initiatives as well. As we mentioned, we are going to be consolidating our Austin facility with our facility in Beijing and San Jose. So, that should help us create some efficiency and control costs.

Leah – Ferris, Baker Watts

Okay, I understand. Thanks a lot.

Operator

Our next question Ted Jackson with Cantor Fitzgerald. You may ask your question.

Ted Jackson – Cantor Fitzgerald

Hey, Bill; Hey, Tom. First thing I want to do is to tell you that I think – congrats at least on the revenue side (inaudible) in the second half, like you said. So, good in line quarter and the guidance I think was good. But, (inaudible) that was going to happen over six months ago, so congrats on that.

In terms of my question, two things, the first one is could you spend a little time talking about the situation with your debt, where you stand with that, and where you think the likelihood is that might be called away from you. And then my second question is jumping over to cable market which is something that is gaining in terms of momentum to your business, do you perceive the opportunity for that business to grow to something of a size (inaudible) telecom market, perhaps a chance to see a large cable MSO becoming a top-10 customer or a 10% plus customer like you have seen out of AT&T and Verizon? Those are my two questions, thanks.

Bill Slater

I will take the question on the debt. Since our 8-K that we issued on March 5 (inaudible), we were in default, we have received no further correspondence. So, we have nothing else to say at this point in time with regard to the debt.

Tom Steipp

Let me just answer the question relative to cable. I think it is still a little early to project the total size of the market. But, certainly, our understanding of the DOCSIS 3.0 deployments would indicate that we would see the cable opportunity at least to the size where 10% of our revenue would not be a surprise. In terms of major cable operators becoming 10%, that possibility at this point in time a little difficult. That may be premature. I should point out that we have only had dedicated guys covering the cable space now for about three weeks. But you probably saw from the press release they bring about 50 year's worth of experience and have a good understanding of the market and are excited about the prospects they see.

Ted Jackson – Cantor Fitzgerald

Great. One last question and it just goes in to the other income line item. I know you are not giving a lot of detail going down to the bottom line, but can you give us a sense in terms of what the other income line item for you would be or maybe what type of interest rate you are getting on the cash that you have on your balance sheet, so we can tweak our models on that front? Thanks.

Bill Slater

Ted, interest rates have been falling generally. Ours have been falling as well. So we are seeing less interest income now than we have seen in previous quarters. Of course, as a lot of companies, we have been going into relatively safe investments.

Ted Jackson – Cantor Fitzgerald

Okay. Thanks very much.

Operator

(Operator instructions) Our next question comes from Cris Blackman with Empirical Capital. You may ask your question.

Cris Blackman – Empirical Capital

Yes, thank you, I appreciate it. Congratulations.

Tom Steipp

Hey, Cris.

Cris Blackman – Empirical Capital

Hey, how is it going guys? You mentioned you shipped $1.5 million worth of the TimeCreator?

Tom Steipp

Yes.

Cris Blackman – Empirical Capital

Can you tell me tell me how many units that is?

Tom Steipp

It is about 100.

Cris Blackman – Empirical Capital

It is about 100 units, okay. Could you walk – I am a little confused on exactly how that sales cycle goes. I know, for example, it is being sold with Cisco and I know you have licensed it to a couple of their competitors. Can you explain how that sales cycle works its way through?

Tom Steipp

Yes. Just to clarify one thing for the rest of the people listening on, the TimeCreator is our product. We did license a client to Cisco and BigBand, and ARIS [ph], and Motorola, virtually everybody else who is in that space, so that client is what is on the other end of the connection between us and them. Essentially what happened here, Cris, is sales cycle went something like CableLabs with up a new standard. We all certified with that, those people who are selling into it. During the course of the last 12 to 15 months, there have been trials going on at various stages. Then just recently, within probably the last six months, people have started looking at deployments. I think in general, my read and I am not probably as close to some of other guys who provide directly into the 3.0 environment, but momentum has been growing for the DOCSIS 3.0 deployments as the cable operators are trying to get more bandwidth into their networks and what we have seen is a significant level of interest and people actually deploying them. The sales cycles that we have seen, the shipments we have made are predominantly internationally at this point. But, it certainly appears there is a level of interest domestically which we are trying to get ready for as well.

Cris Blackman – Empirical Capital

Do you know how many international head-ins [ph] there are roughly, Tom? Any guess?

Tom Steipp

I don't, but there is something in the neighborhood of 10,000 domestically and there is probably another 10,000 internationally, although that should be taken with a grain of salt. It is not a suggestion that there would be that many DOCSIS 3.0 head-ins. That transition will happen at a more measured rate.

Cris Blackman – Empirical Capital

Okay. These five new partnerships or I am sorry, I think you mentioned you had changed to the V-Factor, three new agreements, strategic partnerships?

Tom Steipp

Yes.

Cris Blackman – Empirical Capital

Is that partnership like a JV?

Tom Steipp

No, it is not a joint venture; it is a joint selling activity. And the three we mentioned were for EMC where they have integrated us into their operational support system. The second one is for Calix, which is a well known supplier of voice, data and video systems, primarily to second tier, but also some first-tier supplies and then finally, and one that we are very excited about is Alcatel-Lucent reselling the product as part of their solution. So, all three of those represent a fairly long process whereby we expose these folks to what V-Factor does, went through fairly exhaustive series of tests and then they had to decide they wanted to do something with us or they don't. Obviously, people like this who are well established in the voice, data, video markets, who then are willing to sign up for some kind of partnership with us, add to our credibility in the market. That's one of the things you always do with early products.

Cris Blackman – Empirical Capital

Okay. I am looking back at some old notes. It seems you have been with the company close to ten years, is that right, Tom?

Tom Steipp

I think you are right, Cris.

Cris Blackman – Empirical Capital

Obviously, cable has been an area of interest to you since you came to the company. I guess I am kind of – seems like momentum is arriving in several areas. I am curious if would comment on, are we at an inflexion point now in this area that you are trying to move sync into?

Tom Steipp

I would not say that we are at a inflexion point because that would carry some of connotations with it that I might not want to go there. But, what I would say, Cris, is that in the ten years I have been at Symmetricom, the changes in the network driven by the additional amount of data that is being transmitted on them and to a large extent new video content is driving that, is clearly changing the way people use not synchronization but timing in those networks and the reason that we have started to break out the new product areas, the PackeTime, the DTI and the QoE, is that all three of these one way or another take advantage of those fundamental changes going on in the network. By the way, we are not the guys who are leading the charge on that. All you have to do is look at Cisco and see; they see changes to the network. To the extend we can take advantage of that, we will do that. I've pointed out long time ago that Cisco is the one who brought us into the discussion on timing in the cable environment. We think there is probably other changes there and all three of these seem to be benefiting from the changes that are happening in the network.

Cris Blackman – Empirical Capital

Thank you. If I may just circle back around, since you brought Cisco into that in your last comment, so when Cisco goes out to sell a M-CTMS product, my understanding is that product really needs TimeCreator to work properly.

Tom Steipp

That's correct.

Cris Blackman – Empirical Capital

And so, in that situation, is Cisco referring the MSO to you for you to sell or are you going out there first and selling them on the TimeCreator and what it can do and then referring Cisco, or – is there cross selling going on here?

Tom Steipp

At this point, no, there is no cross selling going on. You are absolutely right. Cisco has a global – very large global sales footprint. They have probably the earliest implementation of a 3.0 modular CMTS. So they have taken the forefront of this and they can't install their product without the cable operator purchasing our TimeCreator. So that is what was generating the earlier business with trial sales and that is what is now generating the business with deployment sales.

Cris Blackman – Empirical Capital

Okay and that will be the case also with ARIS and Motorola and the others you've licensed this technology to or will it be embedded?

Tom Steipp

No, they all have licensed clients which they embed in their products and once you buy a server from us, we are pretty agnostic, you can deploy anybody's equipment that you want to.

Cris Blackman – Empirical Capital

Okay, finally one other question then I will drop out and let someone else in. I apologize for taking so much time, but you mentioned these initiatives that you've got going on in the outsourcing of manufacturing which ultimately is going to improve our margins and consolidating the Austin facility and then of course, what we are looking at in the cable space, I would assume gross margins in that area are going to be higher than what we have been experiencing once you get some decent run rate. Symmetricom, obviously, over the years, going way back, always seemed to have some pretty good margins. What can we look for? Once all these occur, the outsourcing manufacturing and consolidating of the Austin facility and the cable kicking in, I'm asking we ought to see significant improvement in the gross margin number.

Tom Steipp

I think given the fact that e are still in the early phases of the new products, it's a little bit premature to give you a model. But I think it is very safe to say that the all of the new products we have are pretty substantially higher than the corporate average gross margin: PackeTime, DTI and QoE, that when we outsource products, those things which we can actually get outsourced through Sanmina. We have seen a pretty significant, on the order of 15% to 20%, reduction in the cost of the parts. As Bill pointed out, we haven't still washed a lot of things out of our inventory. So I think on the gross margin side of the equation, we are clearly trying to focus on improving gross margins for the corporation as a whole while controlling the expenses. To the extent that we need to be a global organization, we think there is opportunities in Asia, pretty significant opportunities in Asia, so having R&D and some manufacturing activities over there tends to help with that process. So I think you get a double benefit, both better gross margins as well as some extension of our overall market opportunity.

Cris Blackman – Empirical Capital

Excellent. Congratulations. I'd look forward to your future reports. Thank you.

Tom Steipp

Thanks, Cris.

Operator

Our next question come from Michael Cody with B. Riley. You may ask your question.

Michael Cody – B. Riley

Thanks. Hi, Bill. Hi, Tom

Tom Steipp

Hi, Michael.

Michael Cody – B. Riley

Just a real quick follow-up on Cris' question regarding DTI. Do you ever make a sale to an MSO support DOCSIS 3.0 where they are not buying a modular CMTS?

Tom Steipp

We have to be clear, we have made sales of trial units where they are testing, but have not yet made a decision to go to modular CMTS.

Michael Cody – B. Riley

So, okay. All right, thanks.

Tom Steipp

But, there is no defined need at this point in time other than for modular CMTS.

Michael Cody – B. Riley

Got you. Thank you. The shift to the QAD for a second. Has the outlook changed from your initial goal and it was a competitive advantage. It was an end-to-end solution. Have you changed your focus from selling end-to-end solution to now selling sort of V-Factor as a part of another solution? Does that impact your decision to integrate QAD into TSD?

Tom Steipp

Comment, we have certainly positioned our QoE solution as end to end. I think in the cable environment, we are seeing interest in that end-to-end discussion. For large telcos, I think the reality is that finding the person who can sign off on an end-to-end solution is a bit of a daunting task. People tend to buy more what would be more discrete solutions. Our end-to-end solution is actually a series of discrete products. So we are certainly trying to adjust to the customers' approach for valuation and deployments. I think the combination of the two divisions is less a function of what the customers were seeing and more a function of the fact that when our sales team, business development, marketing folks were talking to customers, we were getting our entrees and leverage from our core business and we were seldom talking about one product only. So, as we looked at how do we get maxim – have the opportunity to maximize leverage at sales, business development and marketing side, there are clearly going to be some synergies and we think that's going to benefit the effort we had initially as well as the company as a whole. Obviously, as we pointed out in the call, there is some cost benefits to it as well.

Michael Cody – B. Riley

Okay. Thanks for the answer, Tom. I don't want to ask this a third time, well I am going to anyway. Bill, can you provide any kind of quantitative idea of what the OpEx savings will be from the consolidation of some of these facilities as you look out, maybe just on a run rate basis, and also some of the headcount reduction in QAD offset by adding people in cable and then folding that into TSD, is there any idea you could provide of what that is going to do OpEx (inaudible)?

Bill Slater

We have a number of initiatives going on. We have the initiative with Sanmina, we have the Austin facility consolidation, and we have the integration of QAD, we have some other cost reduction opportunities going on at our factory to reduce costs. I can't really give you much color right now. But I think at our next conference call, we will be able to fully flush that out.

Michael Cody – B. Riley

Okay. Thanks again and good luck.

Operator

I show no further questions at this time. I will turn the call back over to you for closing comments.

Tom Steipp

Okay. I just want to thank every one for taking time to join us on the call this afternoon. We look forward to providing you an update in another quarter. Thank you very much.

Operator

Again, thank you for your participation in today's conference call. You may disconnect your lines at this time.

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