CommScope, Inc. Q2 2008 Earnings Call

CommScope, Inc. (CTV)

Q2 FY08 Earnings Call

July 29, 2008, 05:00 PM ET

Executives

Philip Armstrong - VP, IR and Corporate Communications

Jearld L. Leonhardt - EVP and CFO

Frank M. Drendel - Chairman and CEO

Brian D. Garrett - President and COO

Analysts

George Notter - Jefferies & Co. Inc.

Amir Rozwadowski - Lehman Brothers

Kim Watkins - JPMorgan

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

Amitabh Passi - UBS

Kenneth Muth - Robert W. Baird & Co

Presentation

Operator

Good afternoon, my name is Christa and I will be your conference operator today. At this time I would like to welcome everyone to the CommScope Second Quarter 2008 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the Speakers' remarks there will be a question-and-answer session. [Operator Instructions]. Thank you.

Mr. Armstrong you may begin your conference.

Philip Armstrong - Vice President, Investor Relations and Corporate Communications

Thank you. Good afternoon and thank you for joining us on this call. Frank Drendel, CommScope's Chairman and Chief Executive Officer; Brian Garrett CommScope's President and Chief Operating Officer; and Jearld Leonhardt CommScope's Chief Financial Officer join me on the call.

During this conference call we may make forward-looking statements regarding our financial position, plans and outlook that are based on information currently available to management, managements' beliefs and a number of assumptions concerning future events.

Forward-looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors which could cause the actual results to differ materially from those currently expected. For more detailed description of factors that could cause such a difference, please see the press release we issued today and CommScope's filings with Securities and Exchange Commission.

In providing forward-looking statements. the company does not intend and is not undertaking any duty or obligation to update these statements as a result of new information, future events or otherwise. Also please note that all dollar figures and percentages are approximations. After we review second quarter results and Frank makes some closing comments, we'll open the lines for questions. Joe?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Thank you, Phil. This afternoon I will review the second quarter results. And before turning the call over to Frank, I'll also cover our current outlook for the third quarter of 2008, as well as the full year. Today CommScope announced second quarter results for the period ended June 30, 2008.

This is our second quarterly conference call after making the transformational acquisition of Andrew Corporation which we acquired in late December 2007. We reported second quarter sales of $1.1 billion today and net income of $40 million or $0.50 per diluted share.

Reported net income includes after tax charges of $23 million for restructuring and acquisition related costs, $18 million for the amortization of purchased intangibles; $3 million for purchased accounting adjustments related to inventory, and a benefit of $4 million related to the settlement of tax audit. Excluding these items adjusted second quarter 2008 earnings were $80 million or $1 per diluted share.

Sales more than doubled on a year-over-year basis as a result of the Andrew acquisition. Sales increased 2% on a combined basis that includes Andrew's actual sales for the second quarter of '07. The year-over-year sales growth was primarily driven by increased international sales which was comfortably affected by changes in foreign exchange rates. North American sales declined year-over-year due to lower domestic wireline and broadband sales and due to the divestiture of the Satellites Communications or SatCom product line in the first quarter of this year.

Excluding the favorable impact of changes in foreign exchange rates of $35 million and adjusting for the divestiture of the SatCom product line, sales growth was 1% year-over-year on a combined basis. Sales increased 8% from the first quarter of 2008, which reflected positive international seasonal trends as well as the modest sequential sales improvement in North American sales.

Antenna, Cable and Cabinet Group or ACCG segment sales increased 7% year-over-year to $500 million primarily due to strong international sales as wireless operators continued to invest in expanding and upgrading their networks. Increased domestic wireless sales in the quarter were offset by lower sales to wireline operators. Wireline product sales declined mainly due to slower deployment of legacy DSL networks by our customers and due to the effect of lower average selling prices as expected for our Integrated Cabinet Solutions. However, we continue to see opportunities as wireline carriers upgrade and build next generation networks.

We've extended our cabinet portfolio with a new line of cabinets for our fiber-to-the-premise applications as well as fuel cell solutions for standby power for wireless cell site. We continue to experience strength in our wireless business across all major regions particularly in the emerging markets. For example, sales to customers in India and Africa grew by more than 20% year-over-year in the quarter. We believe the emerging market demand is driven primarily by 2G coverage needs for Voice Systems and Services.

In more materials markets, demand is being driven by capacity needs as carriers deploy 3G networks capable of handling increased data rate. Our enterprise segment sales rose 2% year-over-year to $243 million driven by higher international sales volumes.

Despite a challenging North American market and tough year-over-year comparison due to an exceptionally strong year ago quarter, we delivered solid enterprise results. Operating income in the quarter grew 14% sequentially supported by double-digit international sales growth and continued expansion in the data center market as well as the shift towards higher performance solutions.

Sales in the quarter of our system SYSTIMAX GigaSPEED X10D gigabit per second Copper Solutions, increased substantially year-over-year. While we have seen a year-over-year slowdown in domestic spending, we expect on going data center strength and believe that enterprises will continue to upgrade their local area networks to handle bandwidth intensive applications such as video conferencing, collaborative software, IP based security platforms and intelligent buildings.

Broadband segment sales of $164 million were essentially flat year-over-year while international sales increased. The North American market continues to reflect the slowdown in residential constructions and some what cautious spending by measure in

MSOs.

However, broadband sales did increase 21% sequentially due to a modest improvement in spending as well normal seasonal trend. Broadband results for the quarter reflect restructuring charges of $22 [ph] million related to the plant closing of the Jaguariuna, Brazil and Seneffe, Belgium facilities, which we announced during the second quarter.

Broadband results for the quarter also include product warranty charges of $3 million related to an isolated manufacturing defects. Excluding only the restructuring charges, broadband operating income more than doubled sequentially.

Our wireless network solutions, our WNS segment sales decreased 5% year-over-year to $185 million. WNS results include sales related to the SatCom product launch which was divested in the first quarter of 2008. SatCom revenue was $3 million in the June 2008 quarter however, as a result of transition services. But was $23 million in the June 2007 quarter.

Excluding telecom revenue in both periods, WNS revenue grew 6% year-over-year. The WNS segment was positively affected by international wireless operator investments in the deployment of new wireless networks and covered solutions in developing countries.

We are particularly pleased with the operating improvement in the WNS segment, excluding special items, we improved WNS results from an operating loss of $1 million in the first quarter to an operating profit of $12 million in the second quarter of 2008.

Overall for the company, customer orders booked in the second quarter of 2008 was $1.1 billion, down 2% from the year ago quarter on a combined basis, but up 3% sequentially. Our book-to-bill ratio was 1.0 times for the quarter.

Gross margin for the second quarter of 2008 was 28.6% and includes $5 million of purchase accounting adjustments related to inventory, as well as $4 million of intangible amortization reflected in cost of sales. Excluding these items, gross margin would have been 29.4%.

SG&A expense for the second quarter of '08 was a $132 million or 12% of sales, while research and development was $34 million for the quarter or 3% of sales. Total amortization of purchase intangibles for the quarter including amounts and cost of sales was $29 million. The amortization relates primarily to the Andrew acquisition.

Operating income in the second quarter of 2008 was $98 million, excluding purchase accounting adjustments intangible amortizations, acquisition related expenses and restructuring cost, second quarter adjusted operating income was $154 million, up 37% sequentially.

On a comparative basis year-over-year adjusted operating income rose 32% primarily due to improved performance from the ACCG Enterprise and WNS segment, somewhat offset by weaker broadband performance. Excluding special items, operating income for the segments was, beginning with ACCG $85 million or 17% of sales. Enterprise $43 million or 18% of sales. Broadband $14 million or 8% of sales. And WNS $12 million or 7% of sales.

We are also pleased to announce that CommScope's integration activities are ahead of schedule. And the company remains confident that it can achieve or exceed its merger related cost reduction targets.

As previously disclosed and excluding a one-time transition cost, we expect total merger related savings of $90 million to $100 million in calendar year 2009. We expect $50 million to 60 million to be achieved in calendar year 2008.

The total cost savings are expected to come from a combination of procurement savings, rationalization of locations, streamlining overhead, integration of infrastructure and building upon best practices in technology and manufacturing.

In addition, CommScope recently announced plans to consolidate certain and tenant cable production within its ACCG and Enterprise segments into other existing facilities.

Changes come... as the changes that is some of which are subject to employee consultation processes now under way will affect facilities in England, Scotland, Australia and the Czech Republic. And are expected to resolve in a net reduction of at least 85 employees across the company. In total, little more than 700 existing jobs would be affected by these planned actions, with the majority of these positions potentially relocated to other existing company locations.

When plans are finalized and approved later this year, the company plans to provide expected savings and costs from the consolidations. The savings from these new initiatives are incremental to the previously announced synergy range. The company expects to incur restructuring charges to support the changes but also anticipates significant benefits from the actions undertaken when fully implemented by late 2009.

And before I turn to cash flow and balance sheet items, I want to mention an issue that may create greater variability in our results, namely increasing international sales. CommScope is experiencing a robust growth in emerging markets as it continues marketing its solutions globally.

For the first time in our history sales outside the U.S. represent more than half of our total sales, with international sales rising to 54% of total country sales for the second quarter of 2008. Now we are pleased with this growth and believe that the geographic diversity is one of CommScope's major strength.

International sales growth has helped mitigate the effects of the slowing United States economy. Additionally, the shift in geographic mix of taxable earnings has also helped us reduce our overall tax rate. Excluding special items, our overall tax rate for the second quarter was about 30%. This reduction compared to the expected statutory rate of 35% boosted diluted earnings per share by about $0.07 in the quarter.

However, along these positive impacts... along with these positive impacts comes increased exposure related to foreign currency exchange rates as well as higher accounts receivable due to the higher DSOs associated with international sales.

Our second quarter results somehow reflect the more volatile nature of our increasing globalization.

Now with that diagram I'll now turn to cash flow and balance sheet items. Net cash provided by our operating activities was $42 million for the quarter, which reflects a significant increase in accounts receivable resulting from the higher international sales.

Total depreciation and amortization expense was $53 million for the second quarter while capital expenditures in the quarter totaled $11 million. As we look ahead, we expect operating performance to be stronger in the second half of '08 than in the first half of the year. However, economic conditions and rising raw material cost remain a concern.

So for the third quarter we expect sales to rise to $1.08 billion to $1.13 billion up modestly year-over-year on a combined basis. And adjusting up and... therefore adjusted operating income to rise to $150 million to $170 million excluding the restructuring and transition costs as well as purchase accounting adjustments related to the fair value write-up of inventory and intangibles which of course, results in increased charges for inventory and amortization.

This adjusted operating income range represents growth of 19% to 35% from the adjusted combined basis in the year ago quarter. We have updated calendar year of 2008 guidance based on actual results and our current outlook.

We expect revenue of $4.15 billion to $4.25 billion which is slightly better... slightly tighter range compared to our previous guidance of $4.1 billion to $4.3 billion. We raised calendar year adjusted operating income range slightly to a new range of $540 million to $580 million excluding restructuring and transition costs as well as purchase accounting adjustments.

This operating income target assumes that the company will be able to successfully recover costs that are associated with the rising raw material costs that we've seen. Our previously adjusted operating income guidance was $525 million to $575 million for the year. We expected overall tax rate of 31% to 33% based primarily on the assumption of stronger international income.

This is lower than our previous guidance of 34% to 36%. We expect 81 million weighted average fully diluted shares outstanding. We expect full year cash flow from operations of approximately $500 million, reflecting higher accounts receivable and we expect capital expenditures of $60 million to $70 million for the full year compared to our previous estimate of $80 million to $90 million and we continue to expect significant cash and non-cash restructuring costs.

Overall, we are very pleased with our second quarter performance and assuming relatively stable business conditions and currency exchange rates. We believe we are in good position to achieve our 2008 goal.

We have a strong global portfolio and continue to expect the ongoing global demand for bandwidth to drive the beat [ph] for infrastructure solutions, even in uncertain economic times. We will continue to focus on executing our integration strategy. Delivering the synergies we outlined in positioning the company for a long-term profitable growth. We recently announced new global manufacturing changes, that we believe will provide significant additional savings once they are completed in late 2009.

Now I'll turn it over to Frank Drendel for his comments.

Frank M. Drendel - Chairman and Chief Executive Officer

Thank you, Jearld. Thank you very much for joining us today on the call. I want to congratulate all the CommScope and Andrew employees for an outstanding execution on the second quarter. The teams continue to generate substantial performance and privilege and a great execution. The adjusted operating income rose 30% year-over-year.

And the teams are continuing to live with the synergies and cost reductions that we targeted. And we have a great team of managers in the industry leading products. Overall, I am very, very pleased with this quarter's performance. And I think we continue to show the effective integration of CommScope and Andrew as one company better together.

I continue to believe to omit or exceed the synergy plans for the year and create a long-term profitable growth company. And with that operator we will turn it over to you for the calls.

Philip Armstrong - Vice President, Investor Relations and Corporate Communications

Christa?

Question And Answer

Operator

[Operator Instructions]. Your first question comes from the line of George Notter with Jefferies.

Frank M. Drendel - Chairman and Chief Executive Officer

Hello, George.

George Notter - Jefferies & Co. Inc.

Hi, guys, thanks very much. I want to ask a quick question on top-line. You have tightened the range here you were at $4.1 billion to $4.3 billion. I think going back to last quarter you guys had suggested that depending on how the pricing increases are flowing through to customers, they flow through well you could kind of push people towards the higher end of that range, here you are tightening that range I guess I'm trying to figure our what the new guidance implies about the success you are having or not having on passing... pricing increases through to customers?

Brian D. Garrett - President and Chief Operating Officer

George, this is Brian, good afternoon to you. Today the success of the price increases that we announced in the April timeframe, largely have gone well. The impact in the enterprise market and digital broadband, I will say largely won't be felt until the current quarter. And so I will also say in wireless its been difficult from a global perspective.

But in entirety, I think, we are pretty well pleased with the response that we've got. Maybe counter to the nature of your question is, we continue to see the potential for rising costs in the second half of the year. And the discussions for further price increases are on the table currently, inclusive of fuel charges that were transportation charges that we're bringing in the selected markets.

Yes, I though it so, because you contrast with stating your question about the top-line I think we're... we contrast that George with Jearld's comments about increasing international content in our business. And there is a higher degree of uncertainty I think in our international business. And I will also say depending upon the market segment, as we move through the second quarter North America has not continued to respond favorably as favorably certainly as it did in the first quarter. So you've got a mix of inputs that get us to the guidance that we have for H2.

George Notter - Jefferies & Co. Inc.

Got it, okay. So sound likes you have all those factors out mentally in terms of other translates into your full year guidance. And then just switching gears a little bit on the cost synergy side I think last quarter you guys gave us a number of $9 million in Q1 cost synergies. I guess it annualizes to $36 million. I guess I'm trying to get an updated number on that through Q2 and how does that compare with the $50 million to $60 million guidance further?

Brian D. Garrett - President and Chief Operating Officer

Well Q2 the number was slightly north of $15 million, so that gets you to the performance in that quarter was a $60 plus million run-rate. So, we've got confidence in delivering our $50 million to $60 million number that we committed to you at the outset. I'll say that the one thing that happened in the quarter is you know the largest bucket that we continued to talk about is supply chain. That bucket continues to grow.

The other thing that happened in the second quarter was the impact of changes that we made in our distribution centers and freight management globally. That category... the new category if you will, that hit in the second quarter is now the second largest category in the total pile of synergies. And expectations for that continue to grow throughout the year. So truly that results that brings us to our pleasure and confidence in terms of what's happening and creating synergies between these two companies.

George Notter - Jefferies & Co. Inc.

Okay. And then one last quick follow-up. So given that you are ahead of plan for the year on synergies it looks like you're already having near exceeded or exceeded the plan for synergies. I guess I'm trying to understand how that feeds into your operating income guidance, the $540 million to $580 million for the full year. Its seems like?

Brian D. Garrett - President and Chief Operating Officer

Its depending upon what numbers you want to pick. I mean the good news is that operating income in the second half is going to be up $25 million to $30 million. That's what we're at.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Yes, looking at this point from a range George we're raising revenue guidance second half over the first half and we are actually raising operating income guidance more than revenue. So that implies that our margin is going to actually improve in the second half of the year, which is very consistent with all the things, I think we've said before. So we're very pleased with the outlook that we'll continue to improve our operating performance given the challenging economy broadly that's out there.

Frank M. Drendel - Chairman and Chief Executive Officer

George we review this in depth and everything that we said we plan. Brian came and set in ahead of plan. Our capital expenditures are add or below plan. All the metrics are running the business or at or better than what we expected at the beginning of this transaction. The issue we're facing is a very uncertain worldwide market and we're just trying to keep within the range and what we feel is one of our correct low carriers [ph] at the market. The costs, the price increases, we're managing all those materials very, very well and we're getting the price increases and we're not afraid to put additional price increases into the market. Its looking at the global economic situation and just trying to be as cautious as we can.

George Notter - Jefferies & Co. Inc.

Great, thanks very much. I will pass it on.

Frank M. Drendel - Chairman and Chief Executive Officer

Okay.

Operator

Your next question comes from the line of Amir Rozwadowski with Lehman Brothers.

Amir Rozwadowski - Lehman Brothers

Good afternoon, gentlemen.

Frank M. Drendel - Chairman and Chief Executive Officer

Good afternoon, Amir.

Amir Rozwadowski - Lehman Brothers

Wanted to delve in a little bit into the enterprise side of the business. It seems as though we've seen a pick down in year-over-year growth in Q2 versus Q1. Could you give us a little bit further color there? What are the factors and then particularly have you seen through the shift in the demand landscape?

Brian D. Garrett - President and Chief Operating Officer

Well the big part of enterprise this year is really softness in North America. Sequentially the business has done very well. And a lot of concern coming into the year of what's going to happen throughout the course of the year. The fact that we've got 15% top-line growth sequentially from the first quarter, I think speaks well to the diversity and the robustness of the segment for us.

But there is no doubt that our international part of the business is performing at top-line much better than North America. So that being said, if you look at the project activity that's going on globally and one thing I'll say about our enterprise business one of many is that its advantaged by an enormous direct sales organization some 400 people that support this. And with that scale you can reach a lot of activity and look at what they have done in terms of the creation of new project opportunities.

They have been able to grow that in excess of 200 over the level in the first quarter. So activity in terms of projects are not slowing down in the enterprise space. They're expanding. Now I will say Amir that, the number of big projects numbers and projects that are bigger than $5 million or $10 million contrasted to prior year is probably down but with this large sales organization globally positioned what it means is they're picking up larger numbers of smaller projects.

Amir Rozwadowski - Lehman Brothers

So, if we look at through the year-over-year in the sequential growth trend, previously you had commented that Brian that potential for growing that business in the range of 8% to 10% this year, how should we think about that given, now that we stand sort of half way through the year?

Brian D. Garrett - President and Chief Operating Officer

Yes, I think I'm going to look pretty funny when we get to the end of the year, to be honest with you Amir. Really North America has been softer than my expectations. The international part of the business is growing double digits and certainly living up to our expectations, but the part that's disappointing is North America and quite frankly the U.K. The U.K. is another one of very strong markets and in that particular part of the EMEA has been softer than anticipation, the anticipation I had earlier in the year. 10G activity I'll tell you still remains strong. Again back to the project focus. Globally the things that we see happening in the number of projects in 10G, in iPatch continue to strengthen and the result of that is you know margins when you look at the operating margins of the business they continue to perform very strongly on a year-over-year basis in light of what looks like adversity in the North American market. I mean the long-term picture for this market continues to be robust.

Frank M. Drendel - Chairman and Chief Executive Officer

Amir, it's Frank. Clearly if you look at our performance compared to any of our competitors in those first two quarters, we're doing very, very well especially at the high end and the 10G and the hitech part of this thing continues to grow at double-digit rate. So again overall I think our position in this whole infrastructure is as best as it can be. We just have to get a little bit more strength in the market.

Amir Rozwadowski - Lehman Brothers

That's very helpful gentlemen I appreciate that. If I may, just in switching gears quickly and looking at the wireless landscape. I mean you've seen fair number of pairs, particularly the North American report. A fairly healthy first half CapEx trend. How do you view the purchasing environment for the back half of the year, given the number of bills that you're involved with?

Brian D. Garrett - President and Chief Operating Officer

I think its going you to be mixed depending upon what product line we're speaking of Amir. Largely when we came into the year, we started off with a very strong run-rate on a year-over-year basis perspective in North America and we projected essentially flat performance throughout the remainder of the year. When you look at what happened in the second quarter in North America it was a mix of activity. We actually had a little bit of softening in the tower space in terms of cable and antennas, but that was contrasted by just thermo nuclear [ph] demand for back haul, for microwave. So you're seeing quite a diversity of activities in the North America wireless segment.

Frank M. Drendel - Chairman and Chief Executive Officer

Amir clearly the carriers in North America are really looking strictly right now in enhancing capacities, while they decide on their long-term decision of LTE versus WiMAX or whatever, 4G network deploy and remember also said serving that spread basically out of the market right now while they recapitalize and look at what they are going to do and you haven't seen the closure of the Clearwire WiMAX build. So all those partly towards the interview but certainly are very strong indications of how that should look.

Amir Rozwadowski - Lehman Brothers

That's very helpful. I'll pass along to someone else. Thank you very much.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Thank you.

Operator

The next question come s from the line of Kim Watkins with JPMorgan.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Good afternoon.

Philip Armstrong - Vice President, Investor Relations and Corporate Communications

Kim, good afternoon

Kim Watkins - JPMorgan

Good afternoon everyone. Just wanted to dig a little bit into the wireless network solutions margins, it looked like pretty substantial improvements there. Can you talk about some of the moving parts specifically the power amplifier business and the solder business and how those are trending versus your expectations and also where you are in terms of the decision process as to whether or not these are businesses that you think you can improve to acceptable levels or perhaps to that?

Philip Armstrong - Vice President, Investor Relations and Corporate Communications

Kim, I would say relative to my expectations I'm immensely pleased. Eddy Edwards heads that team and they've done an extraordinary job year-to-date. The mixed activities again within WNS, the Wig or the in building coverage business continues to perform very, very well, top-line growth and excellent operating margins. The filter business was profitable in the quarter which was quite a turnaround from historical perspectives. Part of that obviously was just operational focus, the other part of it clearly volume helps and they had good volume in the second quarter. So the remaining issue as we go through the year and into '09 for filters is really what's the volume outlook for this business and in getting the business scaled, can we scale the business competitively to that volume. So there has no... been no decision as it relates to filters but I'll say the outlook right now is certainly much better than it was two quarters ago. Outlook in terms of the retention of that business.

The power ramp business, Ken has good news and bad news. The traditional power ramps for OEM applications are doing very well, exceeding our expectations but that's outweighed by what I would say under performance relative to expectations and MCPAs and that was the product line that was specifically directed. It's value is specifically directed to North American Carriers in the '08 period. And our single largest opportunity in North America has elected to delay that. So we've got a mix of activity as it relates to power ramps and I'll just continue to say we're in a study mode. My commitment to all of you as to sort that subject out over the course of the third quarter and we're still in that mode.

Kim Watkins - JPMorgan

Okay, okay fair enough and so is it safe to say that power ramps were still unprofitable this quarter?

Philip Armstrong - Vice President, Investor Relations and Corporate Communications

That's a fair assessment.

Kim Watkins - JPMorgan

Okay and then I just wanted to switch over and talk a little bit about the cabinet business. It sounded like from the commentary and the results that that might have been a little bit weaker than expected particularly on the DSL side. Can you just talk about what you're seeing there and what you expect for the remainder of the year?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Well the DSL is going away and one of the big providers of DSL of course is AT&T and the DSL provisioning particularly in Bellsouth was their only high bandwidth solution. Now with the deployment of light speed, high speed data is integral to the whole wide speed perspective. So DSL as a subject in North America is largely going away and that is consistent with our expectation. And so when you start making comparisons of what the performance was in the second quarter of this year with the second quarter of prior year, you've got a substantial hurdle to replace what's happening with DSL in '07. If you look at specifically what's happening in light speed, I don't think and I think what you read is likewise in terms of AT&T announcements. No one's blinking at AT&T, their plans for deployment are being executed. And nothing that I know suggests that the second half will be any different than the first half.

If you look at the number of units that we've sold in the first half of this year they are consistent with the number of units that we sold in the first half of last year, which I think speaks the strength. And then, if you do a comparison quarter-to-quarter I will tell you that the number of units in the second quarter this year are down about 5% from the same period prior year. Some part of that, I think, clearly is a result of share loss which we've also anticipated.

Kim Watkins - JPMorgan

Okay. That's really helpful. And just one other more housekeeping question, any 10% customers this quarter?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Yes, we had a couple, I think annexure [ph] was there, and I'm trying to think if Alcatel hit our list or not in this quarter. Still, we're doing a quick check here.

Kim Watkins - JPMorgan

Thank you.

Philip Armstrong - Vice President, Investor Relations and Corporate Communications

They were plus, there were a couple that were close Kim. Annexure was 10%, Alcatel and the other likely sets were in that range. I don't think they crossed the line there, little bit still in that 8 to 11 range.

Kim Watkins - JPMorgan

Okay. Great. Thank you very much.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Yes, Ma'am.

Operator

Your next question comes from the line of Jeff Beach with Stifel Nicolaus.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Jeff?

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

Hello, and congratulations.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Thank you Jeff.

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

Yes, lot of my questions have been asked already, a couple of things. On the wireless businesses, this would be, I guess, both the part in ACCG and WNS. Looking at the international, are you looking at a strengthening trend looking out through the end of this year into next year? Maybe you can tell that by the book-to-bill ratio, but I'm curious as to whether there's an acceleration occurring worldwide, and in the wireless?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Well, our book-to-bill, we can get a sense the next year.

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

Yes.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

And, we don't like backlog. I think you know that story. The... it's difficult to see a growing strength to be honest with you, in the second half. There is a... there's tremendous demand right now particularly in India and in the wireless segment, and we're responding to that in the same to Latin America. We're responding to that as best as we can with incremental capacity in the second half. And there is real potential for growth in the second half of our wireless business over the first half. And quite frankly, that's where we see the most ranks as a comparison sequentially into the second half. It's just... things are so strong right now, it's hard to anticipate what's going to happen in '09 and we've not addressed it yet, to be honest with you. So, Jeff I'll not comment on '09.

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

Okay. Second--

Philip Armstrong - Vice President, Investor Relations and Corporate Communications

Jeff just hold a moment will you. Taking the international part out of it, if you stand back for a moment, and look at the build requirements for 700 megahertz, all those licenses have been granted and paid for. If you look at both Verizon and AT&T's cash statements we're making large payments on those frequencies. I think if I'm correct they had at least in some cases two, and most cases a three year bill. So, at some point in the cycle within the foreseeable future, there has to be some additional domestic build out to kind of catch up with what's happening in the rest of the world.

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

Alright. Looking at the cost reductions, you said $15 million of quarter, $60 million targeting $90 million to a $100 million looking out into next year. You have one, is there one segment ACCG that will be the biggest beneficiary of all that or is it spread out over other segments?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Well, I think clearly, just because of the scale, one the scale of the business, it would have to be ACCG. They're half of the corporation and if you look at the activities that we're engaged ACC&G .... ACCG is more often involved, so clearly by a segment they will be the largest beneficiary.

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

And last you had mentioned inter price up against tough comparisons in the U.S. Can you give us an idea of more of if you were able to factor out some of the strong comparisons last year. Give us an idea what the growth rate is in North American and may be internationally enterprise?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

That would clearly just be a guess Jeff. I don't have a way of backing those big numbers out. Clearly it would be a single digit type of numbers something in the neighborhood of 5% in North America. And our international experience year-to-date is north of 10. So there is quite a disparity between the two.

As I mentioned in earlier comments I'm encouraged by the sequential performance. The fact of this business in this environment without the benefit of price increase in the second quarter grew 15% sequentially and to me that tells me that at least on a going forward basis from the beginning of '08, this market segment is not slowing down.

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

Okay, last question. I don't believe it's been asked, but the lower cabinet sales in North America in the second quarter, do you see that trend continuing ahead?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

I'm thinking of the numbers. Again the second quarter of last quarter was the peak quarter in terms of numbers of units in cabinets and it will be...it will be a big number for us again in this year. But there is not an expectation for a big uptake in the number of cabinets in the second half of the year relative to for the Q2 run rate.

Jeffrey Beach - Stifel Nicolaus & Company, Inc.

All right. Thank you.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Yes sir. Thank you. Christa anyone else.

Operator

Your next question comes from line of Amitabh Passi with UBS.

Amitabh Passi - UBS

Hi. Can you hear me?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Yes go ahead.

Amitabh Passi - UBS

Thanks, my first question was just a clarification, you guys raised the midpoint of your operating income guidance from $5.50 to $5.60. I just wanted to make sure the new revised upward target, does that include the incremental benefit you expect from you recently announce footprint rationalization or would that all be incremental to your new target?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

No, its not. I mean the additional plans that we have that we want to renew with the counsels is not inclusive in these. Add it -- and we really don't expect to have any significant benefits from those just announced actions this year or, so that's a 2009 to 2010 subject.

Philip Armstrong - Vice President, Investor Relations and Corporate Communications

There will be some traction early in the year, but it will take the entirety of '09, to complete the list of activities.

Amitabh Passi - UBS

Got it. Okay thanks and then Brian perhaps for you, despite sort of decelerating trends in the enterprise segment, you guys have continued to hold operating margins at a fairly healthy level sort of in that 17% to 18% range and.

Philip Armstrong - Vice President, Investor Relations and Corporate Communications

You bet..

Amitabh Passi - UBS

And I think if memory serves me well. I believe 2Q'07, had some one time benefit so that 20% perhaps was not represented over last year. Oblige for a minute and let's assume your enterprise sales end up sort of flat year-over-year 2008 over 2007 or perhaps slightly down. Do you enough leverage in your control to sort of keep margins in that 17% to 18% or do we need to start worrying about sort of negative leverage to a large degree if indeed we see some slight decline in sales?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Well my expectations are not further declined, but I'll expect your premise for discussion and so the one thing that works to our advantage is that the ongoing shift in terms of level of product or the mix of 10G or the mix of category six, the mix of iPatch. The... I mentioned prior the level of activity that we see... increasing level of activity in those high performance, higher margin products. It's always difficult to anticipate mix, a couple of quarters out. But my hope is that was the right word, if we saw some decline in revenue in the second half, then it potentially could be offset by improving mix.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

And I think also we clearly have one of the best management teams we have in this company runs that group and we have the biggest sales force in the world and so with us we are going to be seen.

Philip Armstrong - Vice President, Investor Relations and Corporate Communications

And lets now point out to the Brisbane closing that was announced... communicated a week ago that the enterprise business would benefit from the cost improvement there if that changes. So it's an outgoing challenge of cost reduction and pricing. I think the second half of this year, we will see higher raw material costs than we experienced in the first half of the year. That is just given to where we are right now and those are significant of the scenario being able to raise our operating income ratio in our second half guidance in light of 100 basis points or more of raw material cost increases as part of the challenges that we have that currently cannot... the current economy is good.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Again that team is prepared and capable of implementing price increases and making the roll. The customer base we serve is the best in the world.

Amitabh Passi - UBS

Sorry and did you provide a number for your cat 6 plus and cat 6A penetration in the quarter? I think you've given that in the last couple of quarters?

Philip Armstrong - Vice President, Investor Relations and Corporate Communications

We did in combination I think in the prior quarter. I think we were somewhere between 75% to 80% and in this quarter I look specifically at it and it was at the 75% range. The 10G sales, they were up 60% or so year-over-year. So again we're at the beginning of this cycle and our expectations are to continue to report strong year-over-year growth in 10G.

Amitabh Passi - UBS

Got it and then just a couple of questions. You guys recently announced what I thought was a pretty interesting new initiative. The Fiber Du prime [ph] cabinets, I am just wondering if you could provide any sort of an update in terms of where you are in terms of customer interest. Could we see any incremental sales this year or is that again a '09 event. And then finally any update on the adoption of your aluminum, wireless scratched cables; have we seen any sort of incremental penetration there.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

I will take them in the reverse order. In terms of the aluminum activity, it's all good news. I won't recite specifics for you but it continues to grow in terms of its participation in the combined business of legacy CommScope and legacy Andrew. I can say that we have sales and/or field trials in essentially every region of the world. So we are very happy with the strategy and I think as our position particularly in China moves forward, that product in particular is going to play a more and more important role to our continued success. The other part of the question was --

Amitabh Passi - UBS

Fiber du prime cabinet.

Philip Armstrong - Vice President, Investor Relations and Corporate Communications

So that was a... that was a new product launch. I'll say it's in a new space and it's somewhat speculative. The largest consumer of that particular product would be Verizon for files applications and clearly we're... we're way late into that market and we don't have large expectations specifically as it would relate to Verizon. But I will say as the -- as the highlights and others begin to look more seriously at fiber as a home they're going to need enclosures for passive equipment and we want to make sure that we've got a product line suitable. It's all part of the larger strategy much like what we are doing in the cable television space with BrightPath. There is going to be increasing interest in fiber-to-the-home. We're going to make sure we're positioned for the hardware into all of these market segments.

Amitabh Passi - UBS

Thank you and good luck.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Thank you.

Philip Armstrong - Vice President, Investor Relations and Corporate Communications

Hey operator, I think we have got time for about one more question.

Operator

Your next question comes from the line of Ken Muth with Robert Baird.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Ken good afternoon.

Kenneth Muth - Robert W. Baird & Co

Good afternoon. Can you answer this one, on the wireless side you were looking at underassessment, the pricing was clearly an issue there and you guys have done just a great job with your other part of the business and increasing pricing. This one seems to be a little bit more challenging. Can you just kind of give us some evidence of what's happened in that marketplace, may be why its been little bit more challenging or kind of the headwinds you're seeing?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

Well, I wouldn't say that we've been unsuccessful on raising prices. It took a lot of things to take margins from where they were to where they are today. Clearly operational discipline, product pruning, pricing has been part of that. Maybe you're picking up on my earlier comment. I thought particularly in copper cables from a global perspective, we would have much stronger support in the industry than what we're seeing. But that doesn't say we've not been able to raise pricing. In the WNS part of the business, Ken, pricing has been a big, big part of the equation and we are moving pricing into those product lines and its part of why revenues in WNS are not growing as quickly as other parts of our business. So, there is no giving back or giving up, I should say, in terms of our insistence on moving pricing into these traditional Andrew product lines.

Kenneth Muth - Robert W. Baird & Co

And, just on the pricing again, could you... is it... have you had more than one price increase there in the wireless side?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

In the wireless side, as it relates to the ATCG business, there has been one, and that was the one that we announced early in the first quarter effective May.

Kenneth Muth - Robert W. Baird & Co

And does it... I know we talked about this before, but, I mean, you put out the release of it, but the actual execution seemed to be pretty kind of basically holding pricing flat. Is that not correct, or did you actually get a price increase?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

We announced prices in the 5% to 7% range, is my recollection. And, we have achieved less than that. But we have made gains.

Kenneth Muth - Robert W. Baird & Co

Okay.

Philip Armstrong - Vice President, Investor Relations and Corporate Communications

The more important part of that subject is the success we're having with the aluminum incretion in taking copper share. And, obviously, part of the reason we're having trouble with the copper cable price increase, is the competition is looking through the aluminum piece of that. So, long term, I still believe in our aluminum strategies actually.

Kenneth Muth - Robert W. Baird & Co

And, could you just tell us Frank what is kind of your presuming that, that historically it has been a pretty low contribution of your overall mix of cables?

Frank M. Drendel - Chairman and Chief Executive Officer

Well, I don't know. We don't like to see part of our business, Ken, it was 70% to 80% of our production.

Kenneth Muth - Robert W. Baird & Co

Frank, I'm talking about kind of the new kind of combined entity though.

Frank M. Drendel - Chairman and Chief Executive Officer

Well, in the legacy Andrew basis, it was in the single-digits.

Kenneth Muth - Robert W. Baird & Co

Right. I got it.

Frank M. Drendel - Chairman and Chief Executive Officer

And so, we came into this proposition with a dilution of those two numbers, and we've been able to grow it from that point. And the outlook in terms of the number of customers and their geographic disparity, in terms of the numbers that are evaluating these products, is very encouraging that we'll continue to move that number upward.

Kenneth Muth - Robert W. Baird & Co

Okay. And then, just last question on the enterprise side domestically here, do they kind of catch you a little bit off guard, about how things have maybe slowed throughout the quarter, what was kind of your linearity that you saw there?

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

I think it did not slow in quarter. The sequential performance was up 15%. And so, no, and then I spoke earlier about what's happening to the business in terms of new projects and accounts and activities that are happening. So, I would take argument about your assessment of the... particularly the North American markets slowing over the course of the quarter.

Kenneth Muth - Robert W. Baird & Co

Okay. Great. Thank you.

Jearld L. Leonhardt - Executive Vice President and Chief Financial Officer

You bet again.

Frank M. Drendel - Chairman and Chief Executive Officer

With that, operator I think we'll call it a day. I want to thank everybody for joining us, and all of the continued support we're getting from shareholders and our employees. And, with that, we'll call it.

Operator

This concludes today's conference call. You may now disconnect.

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