Good day, ladies and gentlemen and welcome to the JDSU fiscal 2010 quarter 1 earnings conference call. My name is Jennifer and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to your host for today, Michelle Levine, Director of Investor Relations; please proceed.

Thank you, operator and welcome to JDSUs fiscal 2010 first quarter financial results conference call. Joining me on the call today are Tom Waechter, Chief Executive Officer; and Dave Vellequette, Chief Financial Officer. I’d like to remind you that this call is likely to include forward-looking statements about the future financial performance of the company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management’s current expectations. We encourage you to look at the company’s most recent filings with the SEC, particularly the Risk Factors section of our report on Form 10-K filed August 24, 2009. The forward-looking statements, including guidance, provided during this call are valid only as of today’s date. 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 limitations, is included in today’s news release announcing our results, which is available on our website at www.jdsu.com. Also, please note that during the quarter JDSU sold certain non-core assets of the Communications Test & Measurement segment. JDSU has retrospectively adjusted its consolidated statements of operations and the Communications Test & Measurement segment financials. These adjusted results are reflected as discontinued operations for the periods reported. You can find our adjusted historical financial statements on our Investor Relations home page under the link marked, historical financials. Finally, and as a reminder, this call is being recorded and will be available for replay on the investor portion of our website at www.jdsu.com/investors. I would now like to turn the call over to Tom.

Thank you, Michelle and good afternoon everyone. Let me begin by summarizing our fiscal first quarter results. JDSUs revenue and operating income were at the high end of the guidance we provided, with revenues of $298.6 million and operating profit of 3.4%, reflecting an increase in customer demand and consequently improved profitability. The leverage in our improved financial model will become increasingly evident as the top line continues to grow. Revenue grew 9% compared to last quarter as we saw growth in each of our business segments and all three of our geographic regions. Our book-to-bill for the quarter was greater than one. Book-to-bill was greater than one for each business segment. JDSUs first quarter gross margins of 44% improved by almost two percentage points compared to last quarter. Each segment’s gross margins improved from last quarter due to product mix and the benefits of our lean initiatives. Operating expenses of $121 million increased $2.3 million from last quarter, as we maintained tight controls on our spending. The increase in operating expenses as a result of our Storage Network Tools, or SNT acquisition, were partially offset by the reclassification of the expenses associated with the sale of non-core test and measurement assets and additional expense reductions. Fiscal Q1 expenses were down nearly $21 million compared to the first fiscal quarter of last year. This quarter we continued to strengthen our balance sheet. We generated over $11 million of free cash flow and we decreased our inventory by an additional $11 million since last quarter. Now let’s move on to our individual business segments. First, the Communications Test & Measurement segment, fiscal Q1 revenues grew 8% compared to last quarter, including our newly acquired SNT business. This was the second consecutive quarter of growth as we continued to see signs of…

Before I start, please note that all numbers are non-GAAP, unless I state otherwise. First quarter revenue of $298.6 million was up 9% from the previous quarter and down 20.9%, when compared to the first quarter of fiscal 2009. Revenue increased sequentially in all of our business segments and in all three of our geographic regions. For fiscal Q1, our test and measurement segment contributed 48% of total revenue, flat compared to the prior quarter. Our CCOP segment contributed 34% of total revenue as compared to 33% in the prior quarter and our AOT segment revenue was 18% of total revenue, down from 19% in the prior quarter. First quarter gross margin of 44% was up from the previous quarter’s gross margin of 42.2%, and up from the first quarter fiscal 2009 gross margin of 43.2%. Gross margin improved for each of our business segments. This improvement was the result of favorable product mix, continued realization of the benefits from our lean initiatives and our transition to a variable cost manufacturing model in the CommTest and CCOP segments. Operating expenses for the fiscal first quarter of $121.2 million were up from the previous quarter’s $118.9 million and were lower by nearly $21 million from the prior year’s first quarter operating expenses of $142.1 million. The sequential increase resulted primarily from the acquisition of the system network tools business. Due to our higher revenue and improved gross margin, our operating profit for the quarter was $10.2 million, which compares to an operating loss of $3.2 million in the previous quarter. Net income for the first quarter was $9 million or $0.04 per share, which compares to previous quarter’s net loss of $1.6 million or a loss of $0.01 per share. A detailed reconciliation of our non-GAAP results to our GAAP results…

(Operator Instructions) Your first question comes from the line of Mark Sue form RBC Capital Markets; please proceed.

Hi. I’m still not an employee, but RBC Capital Markets. Tom, just a high level question on the return in demand and your view of sustainability of your sequential growth guidance, even if I net out the $10 million to $25 million year end flush you will still have healthy sequential growth, and it seemed from your regional and segment commentary that the strength is broad-based. Should we start thinking about seasonality going forward, or should we just think about $10 million to $25 million, net that out and then just kind of continue to grow the business, because there might actually be some catch up spend as well?

I think the latter part is that, net out the year end spend, and then we suspect to see additional growth, because primarily the broadband demand is very strong things like video, etc. So we expect the demand to continue, although again, we don’t have tremendous visibility out into beyond the December quarter, but we do expect that at this point.

Mark, another way to look at that is, we just had a quarter with about $298 million of revenue, but we didn’t have the SNT Group for the full quarter, so that a full quarter’s worth of the SNT revenue probably would have added somewhere between $1.5 million and $2 million and then if you took that budget flush incremental off then you would see that the range implies a little over 3% to a little over 6% sequential growth.

Okay, got it. Then, Dave, maybe for you, with the higher volumes and other work that you’re doing with your contact manufacturers, does the 46% gross margin seem very reasonable in terms of a near term goal, particularly with better demand, better mix, better volumes, all those things?

Well, it will depend on the mix of the revenues. We didn’t give guidance on how that mix would come out exactly, except the majority of the $10 million to $25 million budget flush is typically in the Test and Measurement area. At the same time we’ll see some of that in Optical Coms, as NEMS get demand on them, they’ll be putting demand on us. So we think the margins are a reasonable number to hit. It will depend on mix and we’ll just keep executing against improving the margins for the Optic segment and for the Test and Measurement segment.

Okay, that’s helpful. Thank you, gentlemen, and good luck.

Thanks, Mark.

Your next question comes from the line of Michael Genovese from Soleil Securities; please proceed.

Great, thanks a lot and congratulations on the good quarter guys. Following up on Mark’s question on seasonality, maybe we could talk more about seasonality in the March quarter, so for your third quarter. Can you help us think about that? I mean the Test and Measurement business is usually down in that quarter, but how would you think about that versus an economic recovery that could be happening early in the year?

We expect we could still see that seasonality in that down quarter in March. One of the things we saw last year in that quarter was things really starting to soften, and budgets for the network operators got pushed out pretty far into the beginning of the year. In some cases, beyond March, so we expect that won’t repeat itself in the March quarter, but it still could be seasonally down based on what we expect to see in the flush at the end of December and a strong December quarter.

Would you think I mean, is there any way to quantify what normal seasonality is? I know, yes, I mean last year it was a big 20% plus drop, but is there a way to quantify what you would think, if you look actually historically what that drop could be? Also do you think you’ll see seasonality in the optical components business as well, where March might be down?

This is Dave. So what we’ve typically seen is in the Test and Measurement it could be a 10% to 15%, 20% even decline from December to March in the Test and Measurement. The optical business hasn’t typically had that same impact from a December to March quarter effect. In fact, if you look at our December ‘07 to March ‘08, thinking that it’s more of a normal range, the absolute revenue for the company went down about $16 million. So that’s about 4%, but the Test and Measurement business went down almost $30 million from that period, while CCOP went up $8 million and AOT went up. So I think where we really see seasonality is in the Test and Measurement.

My last question is, over the next three quarters you’re guiding for at least a five points improvement in the Optical Components Communication Components gross margin. Could you just give us any more detail I guess, volume should go up, but I mean, could you just give us detail on how you’re driving that gross margin improvement…?

It comes in a couple of flavors. One, we just exited one of the facilities, so the full benefit of not having that extra San Jose facility won’t be realized until the March quarter, quite frankly, because we just got out of it. So that will help also, we’re working with our suppliers to continually work on pricing and our costs. Also we’re continuing looking at our engineering design structure and taking costs out of our product design.

I think to add to Dave’s comments, also as we talked, we’ll be starting to move into volumes for our tunable XMP in Super Transport Blades in the December quarter that we’re in, and then we expect those volumes to continue, so that mix will help us as well.

We believe that ROADM revenues will start to recover and that has a better gross margin than the current gross margins.

Great, thanks a lot.

Welcome.

Your next question comes from the line of Ajit Pai from Thomas Weisel Partners; please proceed.

Yes, good afternoon.

Hi, Ajit.

Hi.

A couple of quick questions and the first is on the Optical Component side. Could you just give us some color you talked about some capacity constraints from components. So how much will that constrain your revenue? How much can your revenues grow if those constraints weren’t there? Would that sort of suggest that in the March quarter, outside of the two factors you already mentioned about the ramp on ROADMs and your Super Transport Blades, whether some of those capacity constraints also would go away in March, which could lead to a pretty strong quarter in March relative to December?

That the guidance contemplates that there will be some impact from constraints. Basically, when I look at all the segments taken as a whole, we’re somewhere in the middle single digit millions of dollars that it could have impacted. It will depend obviously on the mix of the orders that come in, but like I noted that, more than 50% of our revenue is booked and shipped in the quarter. We’re just looking at how our component suppliers are talking about lead times, but we’ve contemplated in the guidance we’ve gave and just stepping back, I’d say it’s in the mid-single digit millions.

Got it and then, you talked about the Sumitomo Electric being awarded one of their first supplier. On the datacom, LAN and storage side, like what percentage of your optical component business is from these applications?

We broke down the mix between transport, which was 64% last quarter, and transmission, which was 36%. We put those datacom products into that transmission percentage in that 36%. As we mentioned, that percentage did grow last quarter from the previous quarter, and the datacom products definitely helped that.

Does this award sort of mean anything meaningful in terms of future revenues? Is there a greater allocation you get?

Yes, we believe we’re getting closer to the customer and that, as we mentioned collaborative innovation and working earlier on with our customer base we think that really helped. It gets us much closer to their technology roadmap and where they’re headed and better capability to support them.

Then the last question would be just looking at the M&A environment, you talked about one of the uses of cash is finding synergistic acquisitions. Just given the recent rebound in the broader economy is it making it more difficult for you to find acquisitions or is it becoming easier? How rich is the pipeline?

I think the pipeline remains pretty rich out there. I think things have gotten healthier, but I think there are still opportunities. Again, we’ll be very selective in those, making sure they fit close to our core, at least a close adjacent market, and that they’re accretive for us, but there are still opportunities out there.

Is it across your businesses or are you more focused on a couple of your business lines?

We continue to look across our portfolios. We see opportunities really across all of our business units.

Got it. Thank you.

Welcome.

Your next question comes from the line of Paul Bonenfant from Morgan Keegan; please proceed.

Yes, hi thanks. The first question is a housekeeping question, if I may. Did you have any 10% customers in the quarter?

Yes, we did have one 10% customer.

Okay and can you describe what the geography was or do you…?

No, we don’t name it.

For the substantive questions than, I’m wondering if you’re seeing any changes in the pricing environment, given that you had, I believe you said that your declines in optical were above the typical 2% to 4% range in the first quarter?

Yes, so as we went through the quarter there were opportunities for us to gain share. As we have taken cost out of our structure, we were able to look at where our pricing fix as compared to market prices and to make sure that we are more in the market. So we may have lowered our premiums on some products we had to get more market share. So we feel we’re still priced at or slightly above market, but that helped and obviously the reductions we have taken, you can see even though the ASPs were higher that the margins came in also higher.

Last question, if I may. You talked a lot about mobility and wireless, and I’m wondering if you can quantify for us to what extent those projects are contributing to sales and if you expect any appreciable impact from broadband stimulus?

I think on the mobility, we’re participating very heavily in the Ethernet backhaul with the NetComplete solution. We mentioned a major North American customer where we were able to sell into product for 10,000 cell sites. We think that just really kind of the tip of it. So we think we are very well positioned there and that is a pinch point for the service providers today with the growth in the mobile traffic. As far as the stimulus money, we think we’re very well positioned to help support that whole effort. We haven’t seen a lot of that flow through actual to the end user at this point. We expect it is going to be a few more months before we see that happen.

Thank you for taking my questions.

Welcome, thanks.

Your next comes from the line of Jeff Evenson from Sanford Bernstein; please proceed.

Hi, a couple of questions on growth drivers. First, you talked about DOCSIS 3.0 hardware and software upgrades. I’m wondering if you could give us some thoughts on, where the cable operators are in terms of upgrading the equipment they have.

I think they’re still in a very initial stage of that. We have not seen large volumes from DOCSIS 3.0 yet and we expect that it’s going to be out a few months. We are well positioned for it, but not seeing any significant volume increase from it at this point.

Second, on the etching for the LED wafers that go into LED TV and lighting, could you tell us a little bit about the market for that? Are you very concentrated in terms of number of people who pursue that opportunity, often they have to replace the lasers that they buy from you, etc.?

I can’t right now give you a lot of detail on that. We can get the information and provide it to you, but I don’t know the answer to that specific question.

Last question, you just sold off some non-core businesses in test and measurement. I’m wondering if you could tell us a lot about, what you were thinking that led you to decide to sell those and maybe also on an ongoing basis, how often and the magnitude of discontinued businesses we should think about in our models over the next couple of years?

The business that we sold off this past quarter was really not in our core business at all. It was more geared towards the motion picture industry and colorization, and didn’t fit into our core or any adjacent markets. So it really was an outlier and part of our strategy is to continue to strengthen our core and grow off of our core. So we saw actually some opportunity costs as a result of having that business inside of our portfolio and we decided to divest of it. I don’t see a lot of other businesses inside of our portfolio that would fit into that particular category.

Great. Thanks, Tom.

Welcome. Thank you.

Your next question comes from the line of Todd Kaufman from Raymond James; please proceed.

Thank you very much. You made some comment that the ROADM business declined, but I thought you said 30% up tick sequentially in orders in ROADMs, and you expect to get a ramp going, I think one or two quarters from now. My question is in the current quarter that you just finished up, approximately how big is the ROADM business within your optical communications segment?

On a percentage basis it was under 20% this past quarter. As we mentioned, you are correct, our bookings did grow by over 30% quarter-on-quarter. So we do now expect that to come off a bottom, as one of our major customers is burning through their inventory that they had stocked. We also have the 50 gigahertz ROADM, as I mentioned, in qualification stage and as that gets through qualification into volume. We also expect that that will add to our market share in the ROADM market.

Just a quick follow-up on that, did I hear you correctly in your prepared remarks, say that you expect the ROADM shipments against those sizable new orders to be in the March quarter?

No, we expect them to start happening in the December quarter and will continue in the March and then layering on top of that in our third quarter will be the 50 gigahertz ROADMs, the new 50 gigahertz ROADMs that will bring now.

Thank you very much. Good luck.

There are no more further questions at this time. I would now turn the call over to Tom Waechter for closing remarks.

Thank you, operator. As our call concludes, I’d like to reiterate some key points. First, we are seeing clear evidence of improvements in demand from our customers, as each of our business segments reported quarterly revenue growth and a book-to-bill of greater than one. As our top line grows, the leverage in our improved financial model will become increasingly evident. We continue to focus on innovation and we are seeing momentum with the recent product introductions. Lean is a part of the JDSU culture. We have had tremendous progress in simplifying our business and improving our financial model in fiscal 2009. This quarter we lowered our revenue range further to $375 million to $385 million to realize 10% operating margins. I expect through our continued focus on lean and optimizing our processes that we can further reduce our costs. Finally, on our last call I said that fiscal 2010 would be a new chapter for the company, positioned for growth as the economy rebounds. So far, we’re off to a great start with our Q1 results and positive outlook. I look forward to updating you on our advancements as the year progresses. Thanks again for joining us today. We appreciate you taking the time and for your interest in JDSU. Have a great evening.

Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great weekend.