Good day ladies and gentlemen, and welcome to the JDSU Fiscal 2008 Second Quarter Earnings Conference Call. My name is Nakita, and I'll be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. [Operator Instructions] I would now like to turn the presentation over to your host for today's call Ms. Michelle Levine, Director of Investor Relations. Please proceed ma'am.

Thank you operator, and welcome to JDSU's fiscal 2008 second quarter financial results conference call. Joining me on the call today are Kevin Kennedy, Chief Executive Officer; and Dave Vellequette, Chief Financial Officer. I would like to remind you that this call is likely to include forward-looking statements about the future financial performance of the Company. forward-looking system statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectation. We encourage you to look at the Company's most recent filings with the SEC, particularly the Risk Factors... the Risk Factor sections of our report on Form 10-Q filed, November 11, 2007. The forward-looking statements, including guidance, provided during this call are valid only as of today's date February 5, 2008 and JDSU undertakes no obligation to update these statements as we move through the quarter. Please note that all numbers are non-GAAP, unless otherwise stated. A detailed reconciliation of these non-GAAP results to our GAAP results, as well as a discussion of their usefulness and limitation is included in today's news release, announcing our results available on our website, at www.jdsu.com. Finally, and as a reminder, this call is being recorded, and will be available for replay from the Investor portion of our website, at www.jdsu.com/investors. I would now like turn the call over to Kevin.

Thanks, Michelle, and good afternoon. JDSU has made continued progress on numerous fronts this quarter, including our fundamental financial metrics, innovation and strategic advances. Highlights for JDSU's fiscal second quarter 2008 non-GAAP results include a book-to-bill for the Company as a whole greater than one. The three out of four business segments having a book-to-bill greater than one. Revenue of $399.2 million, growth of almost 12% from fiscal Q1 of 2008, 9% from Q2 fiscal 2007, and 10.5% growth for the first half of fiscal 2008 compared to the first half of fiscal 2007. All four business segments saw revenue growth and improved gross margins quarter-over-quarter. Gross margins of 46.3%, an improvement of five percentage points compared with 41.2% last quarter, and almost six percentage points above the 40.6% posted one year ago. Gross margins benefited from favorable segment mix with Test and Measurement representing 49% of the business, Optical Communications 33%, advanced optical technologies 12%, and laser is 6%. Bid issues adjusted EBITDA as a percentage of revenue was 15.5%, up from 6.6% in Q1 '08, and 9.3% from one year ago. The Company was free cash flow positive for the fourth quarter in a row, free cash flow reached 10% of revenue and balance sheet metrics continued to improve as reflected in our inventory levels and debt balance. Operating margins were 11.4% compared with 2.2% last quarter, a level associated with our long-term operating margin goal of greater than 10%. Last but not least, the Company delivered GAAP net earnings per share of $0.09 for fiscal Q2 '08. To summarize in fiscal Q2 we saw across the board financial metric improvement with some over achievement due to seasonality. The Company successfully demonstrated the near-term operating model goals and evidence of progress toward the longer term targets. As I…

Thank you, Kevin. Before I start, please note that all number are non-GAAP, unless I state otherwise. Second quarter revenue of $399.2 million was up 11.8% from the first quarter. We experienced typical December seasonality during the quarter in the comm-test segment and saw sequential revenue growth in all four segments. Second quarter gross profit of $185 million, or 46.3% revenue, was up from the previous quarter's 41.3%. We saw improved gross margins in all four of our business segments, primarily due to favorable product mix and the impact of our gross margin initiatives which resulted in improved factory utilization and lower manufacturing variances. Operating expense for the quarter was $139.4 million or 34.9% of revenue which is slightly lower than the previous quarter's $139.6 million or 39.1% of revenue. Our operating expenses for the second quarter benefited from a number of factors which included seasonally lower fringe rate, lower vacation accrual and the impact of the holiday shutdown. All of the segments benefited from these factors. In addition, the Optical Communication segment benefited from an increase in customer funding for non-recurring engineering. These items, taken as a whole, reduced the total operating expenses for the quarter by slightly more than 1% of revenue. The higher revenue, improved gross margins and lower operating expenses resulted in increased operating income and net income. Operating income increased to $45.6 million or 11.4% of revenue versus an operating income of $7.8 million or 2.2% of revenue in the prior quarter. Net income increased to $50.2 million, or $0.22 per share, versus $18 million, or $0.08 per share, for the previous quarter. Adjusted EBITDA in the second quarter was $62.3 million or 15.6% of revenue, which compares to adjusted EBITDA of $23.7 million or 6.6% of revenue in the prior quarter. A detailed reconciliation…

[Operator Instructions] And your first question comes from the line of Ehud Gelblum of J.P. Morgan. Please proceed sir.

Hi, thank you. Hard to just take one question, in that case why don't I say that you... I think, Kevin, you had mentioned that you had taken share on the ROADM side and the Optical Components business, obviously, was very strong, relatively fairly strong, as bounced back again for the last two quarters. Can you go into some detail on the shares where... where you think you have picked up share in Optical Components, give a little more color on that and where you are seeing competition? And then, if I can get clarification Dave on some of the numbers. Can you kind of parse out some revenues from some of the acquisitions and how much revenue this quarter and how much revenue in your guidance next quarter came from inorganic growth?

Ehud I will give a shot. I didn't make any comments on shares, what I did try to highlight is where we felt we had significant strength for quarter-over-quarter growth. And you are correct ROADM was one of the areas that we had very strong quarter-on-quarter growth. Some of our transmission modules, another place where we had strong quarter-on-quarter growth. So there were only two or three that I cited in the script as particularly strong, probably the only other important fact was that we grew revenues in eight out of nine tier one, tier two customers. So it was... fairly broadly based.

I thought you said that when... I am sorry I thought you said that when the quarter is over and you will be looking back at it, you thought you grew faster than the market?

That was the comment that we made relative to the comm-test results.

Okay, I understand [Technical Difficulty]

In the guidance, Ehud, for Westover, we've talked previously when we did the acquisition that the revenue from Westover is about $16 million per year. So, that's what we contemplated in our guidance that's on roughly that annual run-rate.

Great, thank you.

Your next question comes from the line of Todd Koffman of Raymond James. Please proceed sir. Todd Koffman - Raymond James & Associates: Yes, just a clarification. I thought I heard you say that your book-to-bill was greater than one in three out of your four segments. I just want to get the clarification that the segment that it was below one was the Test and Measurement or is that not accurate?

That's accurate, and that's normal for that particular quarter because we have such a high amount of turns in the end of the quarter. Todd Koffman - Raymond James & Associates: Can I just get a quick follow-up to that? Some of your competitors in the Optical Communication segment have talked about visibility being very limited; with that segment seeing a good book to build do you have seen fairly decent visibility, and what you're thinking on the Optical Communications segment?

Yes, I think we've sent the message that in general we have not particularly great visibility across the Company and Optical Comp and Test and Measurement that we are sure of. I'd say our interlock process on one hand is giving us better conversations, on the other hand as you lean your system out, you tend to have less visibility because you can turn at a higher rate. So, I'd say our visibility continues to be measured in weeks, not quarters. And that's really where we are. Todd Koffman - Raymond James & Associates: Thank you.

Yes.

And your next question comes from the line of John Harmon of Needham & Company. Please proceed. John Harmon - Needham & Company: Hi, good afternoon. You talked about mix being favorable in your Optical Component segment. I was wondering if you could, may be sketch out which... couple product lines that might have contributed, and just also talk about was the high level profitability in the segment... congratulations to those involved with it... was it a fluke or is it pretty sustainable from now on?

John, try me again, we didn't hear the opening part, so if you could just repeat it. John Harmon - Needham & Company: Oh, I am sorry. Which products have higher margins that help to contribute to the profitability for Optical Component segment and how sustainable is it looking ahead?

So, I'd say the... we mentioned that there are two business units in particular that are at this 28% and above. As you know from prior calls the IP photonics piece has always been one of the best performing in terms of gross margin. And clearly that are our growth in ROADMs didn't hurt us. So, you should assume that our switching products are good. But that's the only detail we gave in terms of gross margin. And you had a second part of the question that might have been for Dave. John Harmon - Needham & Company: How sustainable is this profitability, was it -- the stars line up right or are you in a much better place and more likely to be profitable now?

Let me try that. I think the gross margin structures of the business units are trending in a favorable light; and we've been working hard to raise them. So, this kind of thing is sustainable, and in fact will continue to improve. I think the... we had a significant growth and we ran very hot on all of our factories, so that level of it gave us a little bit of overachievement, and I think Dave has tried to identify for you where we think we will be in the next quarter or two by giving you an operating margin range, but that, we will actually be sustainable at these kinds of levels by the end of calendar '08. John Harmon - Needham & Company: Okay, thank you.

Your next question comes from the line of Paras Bhargava of BMO Capital Markets. Please proceed.

First time I have said this in years, Kevin, congratulations that was a... well done this quarter.

Thanks Paras.

So, I have been covering this company for a long time, those are the best results I have seen. Now just more on the last question in terms of sustainability, you have guided relatively cautiously for the last couple of years. How do you see the market, the end demand... we had an inventory cycle last year. What are you seeing in terms of end demand, because I know one of the things that drove this quarter had to be operating leverage?

Yes. So, couple of thoughts, one is that the results are positioned to continue to improve as top line improves. We were asked once before, it was our magic number to get to in order to achieve a fairly healthy operating margin leverage and we had put the number out at 400 and we came amazingly close to that number. So, you should hold that thought that we had comprehended that that was an important place to get and in affect the results followed suit. Relative to the market demand, I'd say, we read the papers and things just as everyone else does. So, I would say we are proactively probing any potential softness. I have not seen any trend as such, and in fact my greatest fear is what I don't know. The bad news is, is we don't have a lot of visibility, so we could be the last to know, but the bottom-line is, I felt that that the growth in eight out of nine top customers on Optical Comps was a very positive outcome. And I thought the contest numbers were positive. So, bottom-line is I am not a good bellwether for the future, and we are sensing it, but we haven't sensed a negative trend at this point.

Can, I have a follow-up with David.

Sure.

David, in terms of the tax. At some point when you get sustainably profitable, I think you would need a year of sustainable GAAP profitability, you will have to take the, I think, it's $2.8 billion of deferred tax asset, and put them on your balance sheet, and then start fully taxing. Do you have any expectation on when that will happen?

Yes, actually, Paras, we did a detailed review with our auditors on that, and they said it's typically a 12-quarter... sequentially 12 quarters of GAAP profitability, especially given our history that you have to show that you are, have turned the corner and you are predictably profitable, as much as that goes. So, it is more than a year, I think you've asked us before. We do see companies come out faster when it is usually they are going negative, because of more business cycles than what we have had here, so right now, it's about... I have to show about 12 quarters in a row sequential.

That's very helpful, Dave, thanks.

Sure.

And your next question comes from the line of Jeff Evenson of Sanford Bernstein. Please proceed.

Could you quantify the aggregate benefits of currency impact on, both, revenue and pro forma earnings for us?

Yes, on the revenue side it was mid single-digit millions, and from the bottom-line it was low single-digit millions.

Great, thanks.

And your next question comes from the line of Subu Subrahmanyan of Sanders Morris. Please proceed.

Thank you. My question was on gross margin and operating expense trends. It sounds like we should see some sequential decline in gross margin, and the operating expense you said was positively impacted by about one percentage point. So, Dave, given the addition of Westover and what's going on with the other things, should we expect kind of like a $5 million operating expense increase. And then on the gross margin side, other than just mix what else could make it come down from that 46% level?

See, let me first on the OpEx side, as I noted the one-time benefits that we got were... represented about 1% of revenue. So, you can do that calculus. The Westover, we talked about it's basically slow single-digit millions of OpEx for quarter. So, those are the two main items, plus I did note that we will be starting this project on our Oracle ERP, going to the next release and so that will cost a little money also. So that's a little single-digit millions. From a gross margin standpoint, it was mix within the segments and mix between the segments that helped favorably on the gross margin. And obviously in the comm-test side which has target gross margins of 57 to 61, and we are at the higher end of that range. You can see how that helps in the overall gross margin and that's... because of that the budget flush activity we see the high turn. So, those factors, we believe, will result in the margins coming down, plus the, the factories ran very well during the period at that revenue level, and the range right now has the... the midpoint of that range would have a revenue level that somebody might have at slightly lower.

Got it. And just a follow-up, on the operating margin ramp from the 4% to 7% you are expecting in March to a sustainable 10% or higher by the end of the year. Would you expect that to be a fairly linear one? And Kevin, 10% or higher, what could higher be especially since the turns, the rate doesn't seem that long-term, since we'll achieve it in the next three or four quarters?

I think as far as linear, we are just going to call it one quarter at a time, as we see it, and we'll communicate with you that type of a range. And I will let Kevin answer the

Yes, I don't think we're, we are going to get ourselves to this greater than 14% that we represented on an EBITDA scale. First, before we try to up the range. So I'd say the... there was the existence proofs that we can... at 400 we have the portfolio and the leverage and the opportunities for improvement to get there sustainably, but I want to wait until we get to the end of the calendar year, before I try to advance the model beyond that.

Got it. Thank you.

And your next question comes from Ajay Pai of Thomas Weisel Partners. Please proceed.

Hi, this is Spenay Mahn [ph], dialing in for Ajit. I have a couple of quick questions. First one has to do with mix within the communications test side. Could you tell us which of the businesses, field test versus lab solution versus service assurance grew fastest on Q-over-Q and year-over-year basis?

Yes, I don't have the breakdown. Let me first, level set you that the significant, biggest piece of the business by far is the field service piece of the business. And secondly, we had given some notes that year-over-year the lab and production grew the most, in terms of quarter-over-quarter, I don't know that we broke it out. So, hope that helps.

Okay, great. The second question I had was there was... in the quarter, you mentioned there was a customer... I guess customer funded non-recurring engineering that impacted Optical segment margins. How big was that impact?

That was... so what happens is our customers will... and usually it also has related to with their budget... will fund us to expedite some engineering spending and so that's what that funding is all about. And it was part of a number of items like I listed that total about 1% of our revenue.

Okay, good. Thanks very much.

And your next question comes from the line of Sam Dubinsky of Oppenheimer. Please proceed.

Hey guys, good quarter. Just a couple of quick questions. Number one, what was the operating margins of the Optics of business, if you exclude the NREs and also I believe you reclassify some revenue from the Optic segment to a different segment, if I heard correctly earlier in the call?

Yes, we moved about $4 million to $5 million that was the run rate of revenue out of the Optical Comp segment into the Test and Measurement segment. So, that was the WaveReady because that product is sold more directly to carriers versus the Optical Comps products are sold directly... more directly to the network and equipment manufacturers. And then we didn't actually breakout the amount of the NRE, we just noted that it was a factor in their margins in that they also benefited from the lower vacation in fringe also. So we didn't actually break it out that specifically.

So... but if you include... if you exclude these factors... if you put them back... if you exclude them, was the business still profitable?

Yes.

Okay. And then my question number two is; it seems like there has been some consolidation in this space recently with OCP getting bought up by Oplink, and Intel selling its transmission business, its telecomm-related optics to Emcore. Are you guys seeing any share gains due to this consolidation in the near term. Do you seeing increased activity in any of these markets? And then I have a follow up question.

Yes, I'd say it's too early to say that we have seen any share gains in either direction. So, why don't you just pit us with your follow-up one.

Okay, then on the market for SFP+, can you just talk about how that's developing, particularly from a pricing perspective and margin perspective?

I'm trying to think... right now it's early in the race, those people that are wining are people who have something that works and can ship on a very quick basis. And so within that I think we anticipate there could be aggressive pricing in the future, but right now it's about who has the product to deliver to the people who can deploy it today. And so I think that's the basis of competition.

Okay, great. Thank you.

We have a follow-up question from the line of Paras Bhargava of BMO Capital Markets. Please proceed.

Kevin, this is a question on the cable segment within comm-test, that's the segment that really drove the very, very high margin growth lat year, as I recall. How is that segment doing, and have we sort of hit a point where the year-over-year growth of comm-test has to sort of come back progressively?

Well, Paras, you've asked several questions there. Let me

Answer whatever you can.

Yeah, let me see what I can break up. I'd say, if we were to look at sales of our products in North America, it would be true that we probably have one significant cable customer that we're evidencing softer sales to then we would have a year ago. So, now that being said, do we have sufficient growth... and this is sort of been a theme for about three quarters that we've had a fairly strong business in Europe and Asia, and so if we didn't have those other factors that one customer would have disproportionately challenged us. I'd say we had strength this quarter because we did have a very balanced growth, and so I think the answer to your question is the specter of the future more positive or negative, I think will be dependant upon how a small number of customers actually buy. And so the one that you're, that I'm thinking of hasn't slowed us down yet, but if that became a trend it could.

But are we going to see more normal. I mean the test market is probably growing around 10% at best. I think you have said even lower numbers, but sales growing at 10%. And you've been growing at significantly higher than that. What I am just asking simply is are the dynamics going to bring you closer to the industry growth rate now?

I think we had a phenomenal four or six quarters, and so growing at 25%, 30% year-over-year is not something that I think is sustainable. There is a second challenge which is the growth rate of the test market are highly fragmented. So, you see wireless test went very negative for a period of time while broadband happened to be very positive, we happen to be the benefactor of being wholly in broadband and not during wireless. So, do I think the norm of our serviceable markets are in the single-digit range, I do going forward. And do I think that we can outpace by a couple of points, I probably believe that we can outpace. So, do I think we will be at 30% again over a long haul? No. But do I think this can be a healthy growth business? The answer is, yes. Hopefully that helps you.

Thanks.

There are no further questions at this time sir.

Thank you, operator. This concludes our call.

Thank you for your participation in today's conference. You may now disconnect, have a great day.