Good day, ladies and gentlemen, and welcome to the Extreme Networks Q2 2013 Financial Results. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, John Kurtzweil, Chief Financial Officer. Please go ahead.

Thank you, Patrick. Welcome to the Extreme Networks Fiscal 2013 Second Quarter Conference Call. On the call with me today from Extreme Networks is Oscar Rodriguez, President and CEO. This conference call is being broadcast live over the Internet and will be posted on the Extreme Networks' website for a replay shortly after the conclusion of the call and will remain for the next 7 days and is being recorded on behalf of the company. The presentations and the recording of this call are copyrighted property of the company, and no other recording or reproduction is permitted unless authorized by the company in writing. This afternoon, Extreme Networks issued a press release announcing the company's financial results for the second quarter of fiscal 2013. A copy of the release and supporting financial materials are available in the Investor Relations section of the company's website at www.extremenetworks.com. This conference call contains forward-looking statements and involve risks and uncertainties, including statements regarding the company's expectations regarding its financial performance, the impact of its restructuring efforts, strategies, growth of customer demand, development of new products, customer acceptance of the company's products, customer buying patterns and spending patterns and overall trends and economic conditions in the company's markets. Actual results could differ materially from these projected in the forward-looking statements as a result of certain risk factors, including, but not limited to, a challenging macroeconomic environment worldwide; fluctuations in demand for the company's products and services; a highly competitive business environment for network switching equipment; the company's effectiveness in controlling expenses, including the company's cost restructuring efforts; the possibility that the company might experience delays in the development of new technologies and products; customer response to its new technologies and products; the timing of any recovery in the global economy; risks related to pending…

Thank you, John, and I want to thank everyone for joining us on this call. It's always our goal to set and meet what we believe is prudent financial guidance for our investors, and we are pleased to report that we have met our revised guidance for Q2. In the quarter, we continued to experience significant growth in the development of next-generation 10-gig and 40-gig technologies, and we continued to see growing customer acceptance for our new products. We are realigning our cost structure, and we are now focused on driving company performance in Q3. We remain cautiously optimistic that the macroeconomic issues impacting our largest geographic sales regions are beginning to improve, as we enter what is a normally, seasonally lower quarter for the company. Given the current macroeconomic environment and the impact of delayed customer buying decisions, we have taken steps to streamline our operations and further reduce our cost structure. As we discussed on January 3, we are restructuring the company by consolidating several functional groups into our facility in Research Triangle Park, North Carolina. We expect this consolidation to lower costs by reducing both the total numbers of staff needed to run the company and by lowering the cost of the staffing. We also expect these changes to increase our overall productivity, as we add new skills and co-locate complementary functions into this facility. We have already begun to execute on these specific transformative actions, and we expect to complete the majority of these actions in this fiscal year. Once completed, we believe these actions will allow us to preserve the financial and organizational flexibility needed to continue key product investments and drive market awareness and will allow us to focus our sales -- on sales productivity and revenue growth in the coming quarters. Overall, we…

Thank you, Oscar. We target our third fiscal quarter of 2013 revenue to be in the range of $70 million to $75 million. This is typically a sequentially down quarter, and we have taken into account the macroeconomic weakness being seen in the industry, not only by Extreme Networks, but by our competitors as well. We've also taken the conservative view of Asia-Pacific given Chinese New Year is in this quarter. The restructuring efforts we took last quarter, and also this quarter, have helped us lower our cost structure. Given this, we target our GAAP and non-GAAP gross margins to be 54% to 55%. R&D is targeted to decrease by approximately $1.5 million. Sales and marketing is targeted to decrease by $2 million to $2.5 million. And G&A is targeted to decrease close to $0.5 million. On a GAAP basis, we anticipate an incremental $0.6 million of restructuring charges. GAAP net income is targeted to be between $3 million and $5 million, with non-GAAP net income targeted to be between $4 million to $7 million. GAAP EPS is targeted to be between $0.03 and $0.06 per diluted share, and non-GAAP EPS is targeted between $0.04 and $0.08 per diluted share based on 93.5 million diluted shares. For those of you who are building financial models on the company, we are targeting a quarterly financial model with the goal of achieving non-GAAP gross margin of 56%, plus or minus, and for non-GAAP operating income of 10%, plus or minus, at a revenue level below the $80 million range by the end of fiscal 2013. To help achieve this goal, the company intends to focus on growing its revenue with higher performing and lower-cost products, as well as further realigning its operating cost structure around this set of products. We will now open the call for questions. Patrick, you can start the polling. Thank you.

[Operator Instructions] Our first question comes from Christian Schwab from Craig-Hallum Capital.

Just a few questions. As you look to visibility, Oscar, this quarter versus last quarter, would you say the visibility is the same, a little bit better or a little bit worse?

I would say, looking at the quarter and the information I've got, the information I have right now is probably about the same level of consistency that I had at this time last quarter. Now with that said, we drove down a lot into our pipelines, et cetera. So I got good confidence in the forecast that we've given at this point. But I would say that it's still a little bit cloudy out there and the customers are still being very careful about how they buy.

Right. Can you quantify your pipeline? You talked about that, in your press release, the pipeline continues to grow. Can you quantify either revenue or percentage improvement quarter-over-quarter?

Yes. The -- so specifically, my comments are around the 10-gig and 40-gig products, which are mostly data center-oriented products. There are some 10-gigabit products that wind up going into campus cores for some of the high performance campuses. But for the most part, it's really data center and deployments or high-performance computing, Internet Exchanges, et cetera. For that, we continue to see the pipeline grow. I'm beginning to see more large customer deals out there, and more large customer deals are being bid into. So -- and a lot of these larger customer deals wind up having a lot of 10-gig and 40-gig technologies along with them. So I'm seeing the pipeline for 10-gig and 40-gig products grow more aggressively than the other parts of our portfolio, which are more 1-gig to 10-gig combinations are more campus oriented. So that's the part that I'm feeling good about. The -- in terms of percentage, I don't know if I can cite a percentage and I don't want to give an announcement of dollar value here but it is growing and better.

Can you quantify the size of the typical deal you're looking at now? And has the size of that deal larger than it was a quarter or 2?

Yes. So for us, the concept of average deal size is beginning to vary a little bit. It's almost becoming [indiscernible] we have these larger customers that we're engaging with include data center cloud types of customers, and those deals have a tendency to be anywhere minimum of $500,000 on up to $1 million, $2 million or several million dollars. So those are important deals for us, and they get a lot of our attention, of course. The other side is the more traditional campus medium-sized campus and medium-sized customers, which could be more on the lines of $350,000 to $500,000 type of deals, right? So I'm beginning to see more of the former. And as a result of more of the former, you can then begin to see the lot more of the bigger technologies, bigger bandwidth technologies at 10 gig and 40 gig. Also, the growth of that jives along with that.

And then, are you ready, prepared to quantify exactly what you're 10-gig and 40-gig product revenue was in the quarter yet?

No, we haven't brought it out yet.

As we look to -- no, you're not going to answer that either. I guess, 2 quick other questions. Given the fact that you expect to be in your 10% non-GAAP operating margin target by June, is that going to be more revenue driven or gross margin driven?

It will be a combination of both. We have -- the cost structures that are going in place are going to help the gross margins but also greater volume, typically -- because typically, Q4 -- our fiscal Q4, the June-ending quarter has the highest volume of the year. That's pretty typical for us over the course of the last dozen years.

And then, my last question, if I may. Can you explain the customer buying decision to move from InfiniBand to ethernet?

Sure. So a lot of customers that are in the high-performance environment are now looking at ethernet as a replacement for InfiniBand. Not everyone has moved immediately. I think there are some early adopter customers that are beginning to look at InfiniBand. I've cited at least one of the InfiniBand retrofits that we did in China. For a large high-performance computing environments and for geophysical research. It's -- part of it is a cost-driven issue and also the fact that InfiniBand interfaces on some of the largest servers today, there's a tendency for them to bring 10-gig interfaces with them. And so, there's no additional cost at the server and no additional cost at the network, if you will. And the fact that Ethernet is also running storage now is very compelling. So with Ethernet able to drive network type storage over iSCSI or other types of technologies, plus the servers having native 10-gig interfaces and 40-gig interfaces, now we have the ability for Ethernet to move into the InfiniBand space. So I think that it's an early market. It's growing, and I think we're going to more InfiniBand replacements by ethernet as the market moves on.

[Operator Instructions] We show no other questions in queue.

Okay. Thank you very much for your time this evening. We appreciate your participating in the call, and look forward to talking to you again at the end of next quarter. Thank you very much.

Ladies and gentlemen, thanks for participating in today's program. This concludes the program. You may all disconnect.