Ladies and gentlemen, thank you for standing by and welcome to the Alvarion Third Quarter Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session; instructions will be given at that time. If you should require assistance during the call, please press * then 0, and as a reminder this conference call is being recorded. I would now like to turn the conference over to Carmen Deville, Investor Relations for Alvarion. Please go ahead.

Thank you very much operator. Good morning everybody and welcome to our Third Quarter 2006 Results Conference Call. Together on the line with me today is Tzvika Friedman our CEO, and Dafna Gruber our CFO. The earnings release was issued this morning and is now available on all major news feeds. Matters discussed in this conference call may contain forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on the current expectations or beliefs of Alvarion’s management and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The following factors among others could cause actual results to differ materially from those described in those forward-looking statements -- failure of the market for WIMAX products to develop as anticipated; Alvarion’s inability to capture market share in the expected growth of the WIMAX market as anticipated, due to, among other things, competitive reasons or failure to execute in our sales, marketing or manufacturing objectives; inability to further identify, develop and achieve success for new products, services and technologies; increased competition and its effect on pricing, spending, third-party relationships and revenues; as well as the inability to establish and maintain relationships with commerce, advertising, marketing, and technology providers as well as other risks detailed from time to time in filings with the Securities and Exchange Commission. In addition, our limited history in completing acquisitions may adversely impact our ability to successfully integrate the businesses of Alvarion and interWAVE, and we may face liabilities and expenses in excess of those currently anticipated with respect to the acquisition on interWAVE. After all of that I’d like to turn the call over to our CEO, Tzvika Friedman, please go ahead.

Thank you. Good morning everyone. We are very pleased to report continuing improvement in our business and financial results this quarter. We reported another sequential increase in revenue to $54 million and a return to profitability on a non-GAAP basis in the third quarter. We also improved our cash position by generating $2 million in cash. In the third quarter, we had six WiMAX deals over $1 million with total BreezeMAX revenues of about $17 million. We are not at all concerned by the flat sequential quarter in WiMAX, because growth is not always linear and occasional pauses to be expected. We saw strong orders in the quarter including some large WiMAX orders. It is encouraging to see some of the early adopters coming back with larger orders. We expect our mix to continue this gradual shift towards larger WiMAX deals and we expect BreezeMAX to show good growth in the fourth quarter and beyond. We are also expecting strong demand for solutions for the unlicensed band. More importantly we continue to expand our WiMAX customer base. We want to again emphasize that we are sowing the seeds of significant future growth when we ship even small orders to more and more operators every quarter. The number of commercial BreezeMAX deployments totaled more than 100 in the third quarter, up to about 70 at the end of the second quarter. In addition to these commercial deployments, we now have over 120 active trials going on. This also represents a substantial increase over the second quarter. What is important is not the size of the specific deal. What is important is the customer relationship. Each of these customers represents a future opportunity because we enable the operators to start deploying a full feature solution immediately with a solution that evolves along…

Thank you Tzvika and hello everyone. The third quarter revenue was $64 million, a sequential increase of 7%. BreezeMAX revenue was about $17 million or 30% of total revenue, almost similar to the second quarter. Our BreezeMAX shipments in the third quarter were about $19 million. We had strong bookings during the quarter and expect BreezeMAX shipments to increase in the fourth quarter. CMU revenues in the third quarter were about $10 million, primarily because we were able to recognize some of CMU revenues from shipments made previously. CMI revenue will continue to be lumpy and I will discourage you from considering this part of revenue level as the new normal. Turning to the geographical breakdown, EMEA accounted for about 60% of revenues in the third quarter, up from 57% in the second quarter. North America increased to about 16%. Central and Latin America grew modestly to 17%, and Asia-Pacific accounted for the remaining 7%. Direct sales accounted for about 54% of revenues, distributors were 41%, and OEMs represented the remaining 5%. The aggregate impact from FAS 123R on net income in the second quarter was $1.8 million compared to $1.7 million in the second quarter. This expense shows up in several different line items in the P&L and we refer you to the reconciliation table attached to the press release for details. For the purpose of discussing comparisons to prior periods, we will refer to the non-GAAP numbers that exclude the impairment charge and restructuring charge in the second quarter, the impact of FAS 123R and amortization of intangibles. Our gross margin was 49%, same as in the second quarter and better than our long-term model which continues to be 45%. We expect gross margins to be higher than long-term models also in the next two to three quarters.…

Thank you. Ladies and gentlemen if you wish to ask a question at this time, please press * then 1 on your phone. There will be a tone indicating you have placed your line in queue. You may remove your line from queue at any time by pressing the # key, and if you are using a speaker phone, please pick up the handset before pressing the numbers. Once again if you have a question, please press * then 1 at this time. One moment please. We have a question from the line of Erik Zamkoff with Morgan Joseph, please go ahead.

Hi, good morning, congrats on a nice quarter. I was wondering if you could highlight if there is any particular area where you’re seeing either acceleration of activity on the spectrum side. And then regarding the sort of new emerging wireless ISP side of the business, can you talk about in that category sort of average customer size in whatever format you’re comfortable, whether it’s average revenue, average orders, number of units so we can get an idea of where that stands versus last quarter and last year?

Hi Erik good morning. First of all on the issue of specific areas, Central and Eastern Europe was an area where regulation gave licenses, operator took these licenses, had some RFI and RFQs, and we see this in results of this quarter after a period of two to three quarters converting into revenues, areas like Poland, Romania, Ukraine, and Bulgaria as I indicated. Other areas where there is a lot of activity and noise, it could still be Japan, Taiwan, and India. Recently, there were a lot of regulation processes in India, some of it actually may delay the market because there are new regulations and changes in the previous license that were given. But overall it was a positive sign where the Ministry of Communication is trying to get from the Ministry of Defense more band to be available for WiMAX in 700 MHz, 2.5 GHz, and 3.5GHz. Regarding the deals, wireless ISPs are usually the smaller rural deployments of few a hundred thousand dollars. Some of the large orders of the WiMAX as we indicated are over $1 million. These are operators with their initial deployments.

But are you seeing increased moment in those initial orders resulting in follow-on orders?

We see follow-on orders and we are very satisfied because one of our criteria as a company is to see how customers are satisfied and continue with that with a repeated order. We did indicate as we saw in third quarter increase in our orders, and this is why we provided with more confidence the guidance we see growth in the broadband wireless in the fourth quarter.

And one last question. Self-installed CPE, how has that impacted the pace of deployment?

It’s influenced slightly. Operators still believe you can try it and buy it, also buy more infrastructure, but it was not of a very huge impact.

Excellent, thanks.

And we have a question from the line of Frank Marsala with First Albany, please go ahead.

Hey good morning everyone, how are you doing?

Great, thank you. Hi Frank.

A couple of questions, number one, given the kind of renewed strategy on the CMU business where you’ve reduced some expenses there, could you give us a sense of just the relative gross margins between the BWA business and the CMU, again numbers are not important, just how they might compare to each other, which one might be higher?

The BWA is a bit higher; CMU is in the area of low 40s.

Okay. So, as we think about 2007 given the preliminary discussion that you’ve provided in your commentary, I come out to a number a little over $240 million or so for 2007, should we think of CMU kind of at the runrate of the fourth quarter at about $5 million a quarter or can it reach…again by number it is about $26 million or so that it achieved in 2006, what should we be thinking there?

I think the range is probably between $20 million to $25 million for 2007.

That makes sense, so it’s kind of in between the two of those numbers. And then the Tier 1 customer in the U.S., I’m interested in that one, have you disclosed whether that’s an access customer or a back haul customer?

We are in an NDA with this customer so we cannot disclose detail on each deployment and we hope that we will be able to do so in the future.

And that’s an access customer.

Okay, that’s all I’ve got, thanks very much guys.

We have a question from the line of Steve Ferranti with Stephens, Inc., pleas go ahead.

Hi guys good morning and congratulations on a nice quarter. With regard to your Taiwanese manufacturing partner, can you give us a rough idea of what type of improvement you’re looking for in the cost of goods by moving production there?

The partnership with the Taiwanese partner is targeted to enable the market and it improves in certain areas. They could provide much faster new modification changes and add-ons to the CPE like WiFi, routers, home plugs, and so on. It also improves the overall margins because we will not be investing so much in developing the CPEs, it will be done by them with our help, so the overall net profit for the company even with a more competitively priced CPE would be the same.

So, it’s an ODM model versus an OEM model?

It’s more similar to ODM; we have a little bit more tighter partnership.

Okay. And where do you see pricing for mobile CPEs when they do eventually become available in the second half of ’07, any ideas there yet?

We see the pricing going down a little bit every year. I prefer always not to discuss pricing in conference calls; prices depend specifically on the markets we’re selling.

Okay, I understand that. And just a little more general question, can you give us a sense for what percent of total spend takes place in an initial deployment versus follow-on capacity adds in a typical network deployment that you see?

It really depends on the operator requirement. The operators are required to provide coverage, then they go and deploy a lot in the beginning. There are those who want to show their presence and do so, but we see follow-on orders which are both infrastructure and CPE.

Okay, so I guess you can’t give us some sort of a ballpark idea, is it 50-50, is it 25-75, can you give us some sense of that?

Between the initial orders and follow-on orders?

Yes, it’s the bulk of the spending.

It’s so varied. A customer will start very small and then grow dramatically; the customer will start initially with coverage and then only buy CPE for the next following quarters. So it’s really very difficult, but overall it’s over 50% follow-on orders.

Okay, I appreciate that. Finally, were there any 5% customers in the quarter?

There were two 5% customers.

Okay, any 10% customers?

One 10% customer.

Okay, thank you and congratulations again.

We have a question from the line of Ittai Kiddron with CIBC World Markets, please go ahead.

Hi guys, congratulations on a good quarter and good guidance. Tzvika, I wanted to drill a little bit into your outlook for 2007. Just as a way of clarification, when you say BWA growth of 15% to 20%, does that include WiMAX or not?

It includes all the broadband wireless which is also WiMAX.

And given the increasing competition you’re seeing in some of the larger players now announcing WiMAX initiatives, do you expect to lose market share next year or gain market share next year?

I believe we can maintain market share next year. I think some of the larger deals we discussed…naturally if Sprint spends $1 billion with some one it changes the market dramatically and our market share. I think it will probably shift towards the end of ’07 if at it happens in ’07.

So, as we think about growth within the year of ’07, is the growth going to be more weighted towards the second half of the year?

Yes.

Okay, it seems now that at least the consensus revenue for next year is higher than your range, which means numbers need to come down. I’m trying to reconcile that then with the guidance that you gave for the fourth quarter. It seems like if I scrape our the cellular business, you are expecting roughly 10% to 11% sequential growth in your core BWA business excluding cellular from the third to the fourth quarter. Why can’t we assume that this is going to continue or why do we see a slow down from that, is this just a one-time blip in revenue or what’s underlying there?

We indicated in the third quarter that we were a little bit flat on the WiMAX and the fourth quarter could be better. From what we see now with our current disability, we think that we gave in 2007 is reasonable to what we see today.

Right, but with all this order activity, why would it translate to only very low single digits sequential growth from quarter to quarter, 2% to 3% only?

As you indicated, there is competition coming from giants which may slow some of the…I don’t think they will get the deals because they will not have the solutions but they will try and slow the market. There could be some price pressure and as I said before, from where we stand now we prefer to see something which we are more certain on than to promise high numbers which not for sure will happen.

Okay, lastly, Dafna, you commented that cellular should be roughly in the range of $20 million to $25 million in ’07, correct me if I’m wrong, can you tell me then roughly how much is it going to be in ’06?

Currently, up until now, we’ve booked about $20 million in revenues.

Okay, so with the fourth quarter it should be roughly flattish than year over year?

Flattish or even a decline.

And are you making sales efforts in this area or you have completely abandoned that by now?

Now we continue to…

It’s the purpose of the special applications as we described before.

Okay, good luck guys.

We have a question from the line of Daniel Meron with RBC Capital Markets, please go ahead.

Thank you, hi Tzvika and Dafna, congrats on the quarter. Tzvika, can you give us more color on why the slow down this quarter, is it more shipping, just timing kind of thing or are you seeing actual slow down in the order rates in the market right now? Also, the growth that you’re looking for in WiMAX and just following up on Ittai’s question before, it seems that it was slightly below than what I was looking for, can you quantify that and say where it is coming from, are you guys being more cautious right now or is it something that you see out there in the market, because I do see a lot of activity in many locations of frequencies and all that, I would have expected at least a more robust growth in WiMAX for 2007? Thank you.

Regarding what we see for 2007, we decided and this is why we discussed the two elements of the business separately; on the WiMAX side, yes you’re right, we expect very aggressive growth in WiMAX of 50% or higher than that in 2007. We have the remaining business which is slowly moving into WiMAX and we expect it overall to be about flat. It means that BreezeACCESS VL product will continue to growth and EMGW and multi-service product to go down. And I think we need to remember that we had distortion of the business which is not going at the rate of the overall WiMAX business is growing. I think the fact that BreezeMAX revenues are expected to grow dramatically and that is a very good sign. In the third quarter we had revenues flat but we also see a very strong demand for products and I expect nice growth both in shipments and in revenues in the fourth quarter. So, I would see it as a temporary shift between quarters.

Okay, thanks Dafna. And last one for me. Tzvika, how long of a lead do you think you have against competition that is now just entering the market by buying off-the-shelf kind of blocks out there, do you think that they’ll still make it for the 2007 timeframe or is it more of a 2008 competition? We’re seeing Nokia for example and a bunch of others really joining the fray right now, so I just wanted to get the sense on the lead times that you think you have against competition.

I will not refer to a specific competitor, but I think those building their solutions starting now, trying to use chips or components from the market, would not be ready at the end of ’07. It would probably take them a year later to have a good stable working product.

Okay, would it be fair to assume though that at least the larger carriers the size of Deutsche Telekom or Verizon, all these guys, that they will wait around until the larger vendors have a product in line or do you think the competition would be strong enough to force them to get into the markets earlier?

It depends on the operator, but I don’t think necessarily they will wait. The main issue for them is, one, their competitive environment, and two, the demand for personal broadband in their market and if that demand exists, and we believe it does exist, and they see an opportunity, like we have time to market, they have time to market, and they have to move, and what we do strategically is we complement our excellent technology with strong local partners that give us the size and the political relation, connection, and credibility to win also these big deals with these operators.

Thanks. And just a quick one, on visibility Dafna, do you feel that you visibility has improved quarter over quarter, stayed the same?

I think it’s about the same.

Okay, thank you and good luck going forward.

And we have a question from the line of Rick Church with Unterberg, please go ahead.

Thanks. Tzvika, thanks for the color on ’07, I just want to make sure that I’m getting it right. I’m coming up with a range of 225 to 240, is that about correct?

Well, we don’t give range. We were talking about BWA business growing 15% to 20% and I also indicated that the CMU business for the model should range between $20 million to $25 million.

Okay, maybe I’m a little bit on the low side. In terms of the six WiMAX deals that you said were over $1 million in the third quarter, I know you’ve also said that you had six in the second quarter, are these six new deals or have their carried over from the previous quarter?

I think that probably half of them are repetitive orders and half of them are new deployments.

Okay, and with regards to the unlicensed, where do you see demand for unlicensed WiMAX coming from?

The unlicensed market is in several areas. The areas where there is no license at all, there are a few countries we know even in Europe and other places that do not give licenses yet. Also in areas where you do have license but the license pressure is starting to go up and people cannot afford it, certainly not for rural areas, and therefore there would be unlicensed solutions in those areas.

Okay, and are you expecting developments at Germany to happen before the end of the year and when do you think we could start to see some awards in Germany?

In Germany what we saw recently from the regulator is that they expect to conclude the solution by the end of the year, but you never know. If that happens, I believe that you will see the start of deployments probably in the second half of ’07. It usually takes one or two quarters. It depends of course who will win. If someone wins a license and someone who is already doing trials with us for a long time, then maybe he can deploy earlier. If it’s someone who never tried before, probably there will be a longer process of commercial trials and then deployments.

Is it safe to say that you’re involved with a number of potential bidders in Germany?

We’re involved with some of the potential bidders, yes.

And anything new on France since they are handing out the licenses?

We are still working on few deals trying to convert some of the customers to commercial deployments.

Okay, great, thanks a lot.

And we have a question from the line of Kevin Dede with Merriman, please go ahead.

Let me offer my congratulations to a very nice quarter Dafna and Tzvika. You mentioned Tzvika that you didn’t really want to talk about pricing, so I’ll try not to hammer on that too much, but I was hoping that you could sort of give us an indication on how much pricing change you’re expecting in 15% to 20% guidance on the BWA business next year? And maybe also an indication of the weight on base station versus CEP given that many of these deployments are new and you think that they’d be pretty heavily weighted on base station sides?

Let’s assume that prices will go down 5% to 10%, and we don’t want to discuss it too much. You want us to make a profit so you don’t want me to discuss prices in the conference call.

Okay, good point.

Regarding the next year guidance, we expect that out of the overall, base station will probably be more than 50%.

Okay, you also mentioned that the market as you see it is shifting to looking at “e” solutions even for fixed installations, and I’m wondering if you think some of your customers might be delaying purchases on account of that, or how you feel about their decision making process with regard to the change in technology?

We indicated in the past that there are cases that customers will delay decisions waiting for the “e” standard. This is why we make an achievement from releasing a 2.5 and 2.3 TDD system which is supporting what we call our e-based solution. This system can be upgraded by software to support the “e” standards and now also the CPE is a dual mode, actually it’s an FDD/TDD and also DME CPE. So when this is out, a customer can now go and provide services knowing that once we conclude certification of any version that would upgrade it. The reason why people prefer in many cases the e-based solution is they understand that this is where the market is going to grow and this is where investment will be made in chips, in new CPE, in applications and so on. So even for fixed, people understand that in the long term this is where the industry is going. Not necessarily Alvarion, but the supporting industry or chip maker or radio component makers, they will make the most investment and this is where you could expect improving economics and a reduction in cost and improving overall businesses for them.

Okay, Tzvika, I hate to drag you to this again, but could you just review where you are on the base station side with BreezeMAX and the features FDD versus TDD and whether or not you’re able to take that fixed product and upgrade it to “e”. I understand that the CPE side isn’t tough on the base station side, but I guess I’ll like to understand the product line a little bit better there?

The CPE as you indicated is already slowing, and that by the way is a more complicated side because to grow to 100,000 customers and replacing the CPE is a very costly activity. On the base station side, our BreezeMAX Plus has a variety of solutions already today. We have the 3.5 FDD solution, the recently released the 2.5 and 2.3 TDD solution. We will release soon also a 3.5 TDD solution. All the TDD solutions are what we call e-based systems. They can be upgraded in the base station to a full certified “e” system. We also are supporting high-power base stations, which again could be more useful also in the “e” as well as diversity in the base station, which again is going to be released very shortly. So, all these things are done already in the base station that are under testing and will be released to the market in the next few months. Some of them as I indicated are already released and we already are shipping the TDD system and we see a strong demand for them.

Right, thank you very much and congrats again.

We have a question from the line of Ehud Eisenstein with Oscar Gruss, please go ahead.

Hi, congrats on the nice numbers. On the geographical breakdown and given the new partner that you have in Asia, where do you see this geography trading forward? Also, in Latin America, what was the contribution of the Mexican carrier?

Regarding APAC, I must say we are not so happy. We want this area to grow. We are in the process of building this area and we expect to invest and build the channels that will grow this area. We see a demand there and we see this area growing. We started to reach 15% in APAC. Regarding North America, the Mexican customer was less than $1 million.

Okay, and just a clarification on the base station to CPE ratio, when you say more than 50% in ’07, is it only on the BreezeMAX product or overall?

That’s overall but mainly on the BreezeMAX. The BreezeMAX is very low for the base station.

Okay, thanks so much.

And we have a question from the line of Dan Harverd with Deutsche Bank, please go ahead.

Thank you and congratulations on the quarter. Just looking at your guidance on the WiMAX side for 2007, it seems very optimistic. Can you give some indication what you’re basing the 50% or above growth on, is it based on specific pipeline feedback from the customers or more through overall market growth that you’re seeing?

It’s a combination of things. Overall market forecast is the amount of trials and commercial deployments we have and engaging with customers we see where the forecast is going on and in the fact that we also introduced new products in the 2.5, 2.3 and later 3.5 TDD moving to e-based system, which the overall combination gives us the reason to believe that we can over 50% growth in WiMAX next year.

Okay, in the current deployments that you have in the trials, how often do you find that you’re competing head to head with the larger equipment vendors, and how often are these accounts that the larger players don’t target?

We see some of the larger players going to deal in many areas and making noises. As we indicated we choose our battle and we try to win in places we do compete. It’s not going to be a 100% market share for sure, and we will some and lose some, but I think the idea for a company of our size is to build our market share and position by choosing the right battles.

And then just finally, can you give an indication of how many WiMAX end-users you’ve supplied in total at this point?

End-user, meaning customers or…

Customers or your customers in order words.

We didn’t do the calculation but it’s probably over 100,000.

Over 100,000.

Okay, and that should be pretty much the same as the number of CPEs that you’ve shipped.

Yeah, there could be more users. There are CPEs, we have customers that connect to one CPE a business and you have 10 or 20 people. CPEs of over 100,000 and end-user customers probably double. We didn’t do the calculation.

Okay, thank you.

And we have a question from the line of Larry Harris with Oppenheimer, please go ahead.

Yes, thank you very much and congratulations on the results for the quarter. I believe Sprint has said that while they’ve named two initial suppliers they will definitely want to have multiple suppliers particularly in the access portion of the network, are you seeing in your discussions with other carriers a great willingness to have multiple suppliers?

Naturally someone who is going to a large deployment would like to have two or three suppliers to make sure that their ambitious targets for deployment and market share are met and is not dependent only on one, and we see it in other places as well, and this is why when we look at the future in 2008 and we look at a handful of five or six potential players and we are one of them. We have reason to believe we can get market share.

All right, thank you very much.

And ladies and gentlemen, if there are any additional questions at this time please press * followed by 1. And we do have a question from the line of Andrew Schopick with Nutmeg Securities, please go ahead.

Thank you and good morning everyone. I have a question about the general marketing strategy going forward, especially to affect a greater penetration of the market if you expect to achieve the kind of WiMAX growth that you’ve alluded to. Right now about half of the business is direct and half is about non-direct, to what extent are you anticipating or targeting increasing both your distributor and OEM relationships?

We expect to do more direct business; it means our own involvement in making the business as we indicate with larger deals. It could be that we will have deals that we will be involved directly but we will close them through a strong local partner, not a distributor, so it could be indirect. But overall it’s our direct involvement in large projects and working directly with strong local partners in areas where we see growth.

I would like to ask you one question about one other competitor, that’s more of a direct pure play, Airspan Networks, how frequently do you see them, how often do you win against them when you do go head to head especially in the WiMAX arena?

We see them in some of the deals. It’s not every deal. It depends I think in the product offering they have. In some cases we see them, in other places they are not there at all.

Okay, thank you.

And we have a question from the line of Scott Sullivan with Smith Barney, please go ahead.

I’m wondering if you’re able to comment at all regarding Cisco’s plans or thoughts on the space of WiMAX specifically?

We work with Cisco in the WiMAX Forum on the mobile technical group designing the networking interfaces between network components, and naturally they have plans in this area but I think they should disclose what their plans are and not us.

Thank you very much.

And we have no further questions in queue, please continue.

Okay, I would like to thank you all for waking up early in the morning to listen to our conference call, and thank you very much.

Ladies and gentlemen, this conference will be available for replay at 11:45 a.m. EST today and will end on November 9, 2006 at midnight. You may access the AT&T replay service at any time by dialing 1-800-475-6701 and entering the access code of 845299. International participants please dial area code 320-365-3844. Those numbers once again are 1-800-475-6701 and 320-365-3844 with the access code of 845299. That does conclude our teleconference call for this morning. Thank you very much for your participation and for using the AT&T executive teleconference service. You may now disconnect.