Juniper Networks, Inc.
Q4 2007 Earnings Call Transcript

Published: 25 Jan 2008

[Operator:]

Welcome to the Juniper Networks fourth quarter conference call. During the presentation all participants will be in a listen only mode. Afterwards we will conduct a question and answer session. (Operator Instructions) As a reminder, this call is being recorded on Thursday, January 24, 2008. I would now like to turn the conference over to Ms. Kathleen Bela, Vice President of Investor Relations. Please go ahead, ma’am.

[Kathleen Bela:]

Thank you, operator. Good afternoon and thank you for joining us today. Today’s conference call replay will also be available as a podcast. Please see the Investor Relations section of the Juniper Network website for additional information. Here today are Scott Kriens, Chairman and Chief Executive Officer, and Robyn Denholm, Chief Financial Officer. Before we get started I would like to remind everyone that statements made during this call concerning Juniper Network’s business outlook, future financial and operating results, and overall future prospects are forward-looking statements that involve a number of risks and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including economic conditions generally or in the networking industry, changes in overall technology spending, the network capacity requirements of our customers, the timing of orders and shipments, manufacturing and supply chain constraints, variations in the mix of products sold, customer perceptions and acceptance of our product, litigation, and other factors listed in our most recent report on form 10-Q filed with the SEC. All statements made during this call are made only as of today. Juniper Networks undertakes no obligation to update the information in this conference call in the events facts or circumstances subsequently change after the date of the call. Also, when discussing the financial results today, Robyn will first present results on a GAAP basis and for the purposes of today’s discussion, will also review non-GAAP results. For important commentary on why the management team considers non-GAAP information a useful view of the company’s financial results, please consult our filings with the SEC. For a detailed reconciliation between GAAP and non-GAAP results, please see today’s press release. In general, non-GAAP results exclude certain non-recurring charges, such as amortization of purchase intangibles, impairment charges, and expenses related to stock-based compensation. With that, I will turn the call over to Scott.

[Scott G. Kriens:]

Thanks, Kathleen, and good afternoon to everyone. As we’ve now completed our full year, I’d like to start with a quick review of the fourth quarter and then I’ll look at 2007 in total and talk about the upcoming 2008 outlook across both the service provider and enterprise businesses, and then following that I’ll turn the call over to Robyn who will review the financial results in more detail and provide you with guidance for both the March quarter and the full year. As we began the year, we had two fundamental objectives for the company

[Robyn M. Denholm:]

Thank you, Scott, and good afternoon. Juniper enjoyed a strong December quarter, a very good close to a good fiscal year where we saw both revenue growth and operating profit growth improve in the second half. I will walk you through our results for the fourth quarter and recap the 2007 fiscal year. We’ll also present our guidance for the first quarter of 2008 and for our full year of 2008. For the December quarter, all key financial measures met or exceeded our guidance as provided on our third quarter call and I am particularly pleased with our operational execution as illustrated by a nearly 3 percentage point sequential improvement in GAAP contribution ledger. We also achieved profitability of approximately $8 million in our SLT product business for the quarter, delivering on our goal of establishing SLT profitability in 2007. On a GAAP basis, total revenue was $809.2 million in the fourth quarter, up 36% versus last year’s fourth quarter and up 10% sequentially over our strong third quarter revenue performance. As Scott noted earlier, regional break down of revenue is as follows

[Operator:]

Thank you kindly. (Operator Instructions) The first question comes from the line of Nikos Theodosopoulos with UBS. Please proceed with your question.

[Nikos Theodosopoulos:]

I guess two quick questions. The first one is I appreciate the guidance for the quarter and the year. Can you talk about specifically what your targets within your overall margin structure for the SLT business is in terms of profitability this year, and the second question would be we haven’t had a chance to hear you, Scott, speak about the departing CLO. What are you doing about that going forward? Is there a new search, what type of candidate are you looking for, if you can shed some light on that. Thank you.

[Scott G. Kriens:]

Sure Nikos, first of all, we have not in the guidance and don’t usually speak to specific SLT profitability. I would make one comment just for the benefit of some further understanding on SLT though, as we reported the Q407 results that we just are announcing, it recognizes about an $8 million profit on SLT product sales alone. But for the full year, SLT product and service was profitable in total so as we look at the business, it is profitable with the inclusion of the services and these are obviously services specific to SLT, and as we look forward in ’08, we expect to continue to improve the profitability in both absolute dollars obviously, but also in profit margin contribution on both the product and service businesses, obviously increasing then the total for the year. If this will tend to not be as significant unless seasonality changes which I don’t think it will, meaning the first and third quarters are typically softer and the second and fourth quarters for us certainly have proven to be stronger, so the contributions to the improvements and the profitability of the business SLT will be greater in the second quarters and in the fourth quarters and obviously we’ll be contributing to making it possible for us to get to and beyond our 25% target in total. Then with regard to Stephen Elop’s departure, there were a significant number of systems and business process improvements that have begun over the last 12 months during Stephen’s time with the company implemented by a broad cross-section of people inside Juniper which has had some impact already and will have more impact as we go forward into next year and beyond, so the team of people involved in the deployment of those process improvements and the systems and IT capabilities that underlie those, as well as the practices in the company that continue to improve, not only are focused uninterrupted on that, but there’s also some growing excitement across the company that there is real measurable benefit to this kind of execution intensity and focus, so that is certainly going to continue. With regard to the position itself, we have already actually retained a firm and we’re going to be looking across the marketplace at candidates and we’ll be filling that position from outside of Juniper when we can find the person that we’re satisfied is a fit for the culture and a fit for the company. The only final comment I’d make on that is I’ve got a luxury here of a very strong team, not only Robyn’s arrival, Mark Bauhaus, Penny Wilson, and now over 1,000 employees in this last year, so it gives us with our momentum in the systems and processes side the luxury if you will of being sure about the candidates we consider and the decision we make on this front, so if it takes us longer than it might otherwise, I’m confident in the team and I think the results speak for themselves, so we will be working diligently on it and bringing more to you as we complete that search.

[Nikos Theodosopoulos:]

Thanks, Scott.

[Operator:]

Our next question comes from the line of Jeff Evanson with Sanford Bernstein. Please proceed.

[Jeff Evanson:]

Over the first nine months of 2007 according to your third quarter 10-Q, your allocated facilities and IT expenses grew by about $42 million. What was the change in the fourth quarter and what do you expect the growth in those allocations to be during 2008?

[Robyn M. Denholm:]

Jeff, in terms of answering that question, you’ll see more data as we publish the K. The overall expenses growth we talked about in the operating expenses, both IT and facilities are included in those and then they are allocated across the rest of the business group. In the 10-K as you can see or 10-Q, we have two statements and the services statement that we allocate expenses to, so all of them are included in the operating expense discussion that we talked about today.

[Jeff Evanson:]

And how do those scale with your size?

[Robyn M. Denholm:]

Again as a percentage of revenue, the sales and marketing expenses increased and the G&A expenses decreased in the quarter and R&D also decreased in the quarter.

[Jeff Evanson:]

I guess what I’m wondering is do you have facilities allocated in excess of your current requirements that don’t go up and that’s part of the way that you get your operating leverage that your guiding to over the next year?

[Robyn M. Denholm:]

I’m not sure that I understand the question. Do you want to repeat the question please Jeff?

[Jeff Evanson:]

Maybe I’ll just follow up with you offline. Thanks, Robyn.

[Robyn M. Denholm:]

Thank you. Next question, please.

[Operator:]

Our next question comes from the line of Tim Long with Banc of America Securities. Please proceed.

[Tim Long:]

Thank you. Just a few questions on the Asia Pacific theater. It’s been lagging at least on a sequential basis under the other regions the last few quarters. Could you talk a little bit about what’s going on in that theater? Is it more the emerging market and what’s the latest status update on Japan? What do you see with timing and impact of the NGN build there and is that something that you think is most likely to reinvigorate that theater? Thank you.

[Scott G. Kriens:]

Tim, a couple comments in reverse order here. As far as Japan and within that NTT in particular, we as you know, at the outset of this year had expected more announcements to be made by the end of the year and those have not been forthcoming and so we’ll now move that expectation into the first half of ’08 but I also think that when we do see them comment more publicly, it will be to describe a more measured deployment over time of the next generation network. I’m not inferring this from your question but from conversations with others, I think there’s perhaps an expectation that NTT is going to create some huge spike of some kind with some overnight deployments and impacting obviously not only perhaps Juniper if we were to participate but others and actually would be willing to bet that what they’re going to do is a lot more measured over time so it won’t produce the kind of obvious blip in the revenues per se and then secondly I’m not sure what comments of what type they will make publicly on this and obviously we’ll comment only as they do, so what I can say which continues to be true is we are very focused on the opportunity and we spend a great deal of time on it, both myself personally and our whole team, and feel pretty good about our outlook for Japan as we look across ’08. Then across impact more broadly, clearly strength in China, big opportunities in India, Australia, New Zealand continues has always been a good marketplace for us and continues to be true and the growth in theater there will be leveraged towards those markets, countries, and economies and we also continue to grow our development presence in Beijing and China in particular and see great productivity coming out of there as well as opportunity from increasing our investment in the country itself so that’s at least some color across the Asia theater which I expect to continue to have a good year again in ’08 whether it can outrun the growth in the rest of the world in percentage terms, I’m not sure what to hope for, frankly, but in certainly absolute dollars I expect it to continue to be a good market.

[Tim Long:]

Thank you.

[Operator:]

Thank you and our next question comes from the line of Tal Liani with Merrill Lynch. Please proceed.

[Tal Liani:]

Hi guys. Thanks. Excellent quarter. I have a few questions on the changes between 3Q and 4Q, sort of the delta in the numbers. When I look at your sequential improvement in operating profit is about $35 million, I see that your R&D went down by about $8 million so it’s part of it and also SLT profits improved $21 million or $22 million so if I split up I get roughly let’s say to the sequential improvement, and I’m trying to understand these two points, if you can elaborate on the improvement in SLT margin, it went from -10 to +5 almost, so how did you achieve such a dramatic improvement in such a short period of time and also the decline in R&D, what’s behind it?

[Robyn M. Denholm:]

Let me answer that question, Tal. In terms of overall expenses in the quarter, the expenses increased quarter-over-quarter on a non-GAAP basis by about $8 million in total. R&D was only $400,000 lower than Q3 so I’m not sure that I understand the first part of the question.

[Tal Liani:]

I may be wrong, so --

[Robyn M. Denholm:]

That’s okay. So in terms of the total, we did increase expenses by about $8 million. The largest piece that increased in there was sales and marketing and most of that was as a result of commissions on the increase in revenue. Specifically on the SLT business, so there were two things that we needed to do, one was to increase revenue on a sequential basis, and we did, it was 90% in the quarter, and we were expecting just slightly less than that, so I think that explains the top line. In terms of the expenses, we were anticipating reducing the expenses from Q3 to Q4 and that’s what we did do in the quarter. When you say the trails, there’s the break out of that as well. That’s the two factors that contributed to the nearly $8 million worth of profit.

[Tal Liani:]

Are you looking in 2008 to buy back more stock? I think this quarter you didn’t buy any stocks? What are your plans?

[Robyn M. Denholm:]

So as you know we had approval for $2 billion of stock buy backs. We completed roughly $1.4 billion of that in the first half of the fiscal 2007 year. $1.6 billion, so we had $400 million remaining in terms of approval and we’ve not signaled our intention one way or another, with that amount going forward.

[Tal Liani:]

So last question is in your prepared remarks you said that your entering 2008 with excellent visibility, I think this is even the term you used. What’s behind this expression? Do you have better visibility now than you had before? Are these long term contracts or is it related to any specific product? Just more color about the visibility.

[Scott G. Kriens:]

Well Tal, we did say in our remarks and we do have good visibility as we look forward into ’08 across a number of different dimensions, actually. Part of it is measurable metrics which include things like the pipeline itself, the book to bill ratios, our deferred revenue and product revenue in particular grew by a fair amount here in the fourth quarter, so those are some of the metrics that give us the improvement in visibility, but also the diversity of the business which is probably the strongest point, I’d put that across at least three dimensions. It’s multiple products from obviously the two product groups of SLT and IPG. It’s multiple markets from a geographic point of view. I talked a moment ago about Asia Pacific. We see opportunities in EMEA, we see opportunities in the United States and Canada and have had significant success in Latin America, for example, so it’s multiple geographies, and then finally multiple market segments, which include vertical markets, the public sector, always a good market for us, and I would note also we completed these results in the last quarter without the benefit of the approval of the Federal budget in the United States, so we think there’s opportunities there with those budgets now approved. We also saw good contributions from the financial services sector as well as retail and the markets we focus on around the world so geographies, products, and markets all make contribution to our visibility and our outlook so it gives us a pretty good sense of the stability of the demand that we see.

[Tal Liani:]

Thank you. Operator Thank you, and our next question comes from the line of Ehud Gelblum with JP Morgan. Please proceed.

[Ehud Gelblum:]

Hi, thank you. A couple of random questions that aren’t necessarily related. First one, can you give us a sense of the split in customer base between carrier and enterprise and specifically at SLT, was it... Generally it’s mostly enterprise but you do have some carrier customers in there. Can you give us a sense as to how much sort of from each of those and also can you give us a sense of how much T1600 revenue was in the quarter?

[Scott G. Kriens:]

Ehud, there was not very much T1600 revenues. We’ll see that come in Q1 more and even then, by the way, the customers will be testing the product and because of it’s criticality at the heart of the networks, what’s more likely and reflected in what we saw in those fourth quarter where we had the T640 growth up 50% over the fourth quarter of ’06, the confidence in the portfolio that the T1600 brings, as well as the fact that you can take everything out of a T640 and put it in a T1600, allows people to make protected investment decisions which has a couple of translations. One, it’s easier to buy T640s and two, it’s more relaxing to do that while you test the T1600 even longer, so I do think we’ll see revenue and revenue growth out of the T1600 and if history is any teacher, for me at least, I’ll be pleasantly surprised by that but we certainly created the flexibility for our customers to make protected investments in the T640. In terms of split of business, as we’ve said before, it wanders a little bit just because it’s not always easy to track this precisely because of the definition of the terms but the business divides roughly two-thirds service provider and a third enterprise. Sometimes that will move up or down. There are and there has been good growth in IPG products sold into the enterprise markets, even some surprisingly large router products being bought by the major high performance enterprises, and the security portfolio is of an increasing interest in the service provider market because I think there are enterprise customers who, if they can, would like to turn over their security and sometimes even application performance, as the Verizon business product being rolled out as our WX portfolio demonstrates, but an interest in the enterprise market in turning over security and application performance responsibilities to service providers. We also have business being sold through service providers to enterprises, business being done with service providers who put it in their internal network, in which case you’d actually call it an enterprise, and so it makes it a little difficult and it’s one of the reasons we don’t deliver precision on this, because we aren’t always sure, but the rough distribution of a third and two-thirds between service provider being two-thirds and enterprise being about a third of the totals, is probably a good marker and it may grow in enterprise as a little bit higher percentage of total looking forward. That doesn’t really, it’s probably false precision to claim that, but it wouldn’t surprise me if it happened.

[Ehud Gelblum:]

Okay. I’ll assume basically that mix sort of stayed constant from Q3 to Q4. Two questions if I could. One, Federal business. I know it’s somewhat smallish for you but it was an area that you started growing a couple years ago. I know the budgets haven’t been signed, but do you see any weakness or particular strength out of Federal? The last time your operating margins speak to that is 2005, you had 28%. Do you consider, it sounds like you’re going to end this year at 25% plus, do you consider 28%, I don’t care when it happens, over earning? At that time, in ’05, that seemed to be a little bit too high in the sense that you didn’t have enough money to do R&D or do you think you can safely hit that sometime in the future, 28% without being in an over earnings state?

[Scott Kriens:]

First of all, I will suspend my personal opinions on the impact of the outcome in November on your question but certainly as we saw the difference between the fourth quarter when we didn’t have an approved federal budget and that budget has now been signed or is now approved, that should allow everybody participating in that market -- including ourselves -- to have a little more visibility on projects, commitments and programs that are supported by the new budget. I don’t know; I am not also including in there what sort of other stimulus or other things may be considered by whomever in the future here as it relates to the economy. So we will see. But certainly with an approved budget its in a stronger position than it was last year and we do see, really, a clear opportunity to continue to grow our business in the marketplace of public sector, I would say. It is not just the U.S. federal budget but its public sector around the world; NATO, for example, a number of other successes we’ve had in public markets worldwide continue to encourage us. With regard to operating margins, we are not going to put a limit on making money and if we are in a position beyond 25% to continue to bring money to the bottom line and grow operating margins there is no magic in 28% either. But we are also a $2 billion -- actually now I guess I can say three, being that we’ve crossed over the $3 billion run rate this quarter -- so call us a $3 billion company in a $20 billion market. There are a lot of opportunities that I think our growth this year has demonstrated that with investment and discipline and focus and execution and the things that we are committed to continuing there is a pretty significant opportunity to return on those investments by growing our share in markets which we did in literally almost all markets we participate in worldwide across all products. There is going to continue to be contingent for investment in two areas in particular -- research and development and sales and marketing to take that research and development to market but also we are placing no limits on profitability improving. We have a clear target to get 2% or beyond the 25% and we will take an assessment of the situation there and see if we can push that number even higher without compromising the opportunities.

[Ehud Gelblum:]

I am still attempting to ask you who you think will win in November, but I think I have drop it. Thanks.

[Scott Kriens:]

I can’t even narrow it down, Ehud. I can’t even tell if I care, it’s so complicated but we will see. Thanks Ehud.

[Operator:]

Your next question comes from Simon Leopold - Morgan Keegan.

[Simon Leopold:]

First just general housekeeping, I hope I didn’t miss it. Your usual color on the split between core and edge routing?

[Scott Kriens:]

Sure. Did you want to toss another question on the end of that and I’ll just answer both?

[Simon Leopold:]

Sure, the other one is a little bit more philosophical. Giving us the split by segment on the operating margin is very helpful and its good to see the SLT breaking over that zero percent threshold. Now considering the forecast for the Q1 overall operating margin, I wonder if we can get a little bit of color and thought around how the segment operating margins might trend both in Q1 and through the year. Very specifically, do you see SLT dropping back below zero in the first quarter? Thank you.

[Scott Kriens:]

A couple of things. First, core and edge not a big change this quarter and I think what we continue to see in that dynamic that you reference is this is kind of an oscillation. A quarter will push one quarter and then create capacity to be consumed by the edge and so on. We saw, as I mentioned earlier, 50% growth Q4 this year over Q4 last year in the T-series and at same time we saw our MX business double from a $100 million run rate just last quarter to a $200 million run rate 90 days later. So a pretty good competition for the top growth spot going on there between core and edge, which is good. In terms of operating margins and segments, we don’t see SLT slipping from profitability as we go into this first quarter. It won’t make the kind of contributions in the first quarter and probably -- although I guess we will see when we get to the third quarter -- what I’d make is a relative statement which is it won’t make the kind of contributions to the bottom line in the first and third quarters that it is likely to make in the second and fourth quarters. Obviously there could be an event that changes that, but just borrowing from history it is likely that it will be continue to be true. But even as we look into this first quarter, we don’t see SLT slipping below the line, even if you look at product only. Certainly the product and services combination that comes from SLT is profitable, has been profitable and is only going to continue to be more so.

[Simon Leopold:]

So that would imply that that infrastructure and/or services operating margins take a step down? I am assuming it could be hundreds of basis points based on the guidance then?

[Scott Kriens:]

No, not necessarily.

[Robyn Denholm:]

We talked about expenses going up slightly in the first quarter because of the seasonal impact of [FIC] and other employee expenses.

[Operator:]

Your next question comes from Mark Sue - RBC Capital Markets.

[Mark Sue:]

Scott, when you are watching CNBC or reading the newspaper do you say, “ha! what recession?” Perhaps you can help us understand how your business correlates to the current economic cycle since you do have more enterprise exposure and also any anecdotal comments from your enterprise customers?

[Scott Kriens:]

Mark, lately I make it a point not to watch that stuff because you kind of feel like its people sort of walking around asking when they are going to die. Sooner or later they are going to be right, but boy it’s going to happen a lot faster if you don’t stop talking about it. From our point of view, and here is where I would say something more seriously that I think is something that I think is true is Juniper could be a dangerous place to look for the answer to this question of marketplace and recession and so on for the following reason. In this high performance networking segment, most of what we are doing with customers is what I think they would term pretty strategic and so as they do look across their budgets and if there are pauses or hesitations or consequences from the overall economic condition -- and just for what its worth, I frankly worry more about oil prices than I would about sub-prime write offs -- but anyway, that’s my own opinion. Whatever the cause of the concern is, it is more likely to reduce their spending on commodity technologies than it is strategic IT projects. Most of the things that we are doing in this high performance market segment are pretty darn strategic to our customers. As a result, the reason we might be a poor place to look for leading indicators is there could be more going on than we see and we just won’t be the first ones to find out about it because when we go out and check with our teams and then I go out and talk to customers about the projects we are working on together, these aren’t likely to be the ones that they are concerned about -- first at least. They may be concerned and we are certainly not insulated from market pullbacks and all the rest of that but we probably won’t see it first. Often as a final point, what people originally buy for offensive reasons for deploying new applications and so forth they sometimes are happy they own for defensive reasons because in difficult times the cost savings of network infrastructure can be a reason to deploy it or to be glad that you own it, even though in different days it might have been purchased proactively for offensive reasons to deploy new applications and new services. I am certainly not saying that we are insulated or that we are not paying attention to the economy, but I am not surprised that we don’t see it in the same way that perhaps some of the commodity participants might run into it just a little earlier than we do, if in fact there are seeing it as well; I don’t know.

[Mark Sue:]

Robyn, does that mean we are back to the glory days of beating every quarter by at least 2%?

[Scott Kriens:]

I’ll tell you Mark, we are going to continue to do our best here and we long ago abandoned trying to manage the expectations that are out there so we will just set our own and away we go.

[Operator:]

Your next question comes from Ittai Kidron - Oppenheimer.

[Ittai Kidron:]

Congratulations on a good quarter. Scott, I am trying to dig a little bit deeper into your infrastructure revenue. You said if we take the MX product out of the picture, you had a pretty flattish business in the rest of your revenue in the infrastructure. Maybe you can comment on that. Also looking into 2008, just assuming that momentum within the MX product continues and within a couple of quarters becomes a $300 million product run rate it implies that your annual guidance you are expecting nothing more than low teens growth in your core infrastructure revenue on a year-over-year basis which just doesn’t make that much sense to me. May be you can realign my thoughts here. What am I missing?

[Scott Kriens:]

Just one clarification, I am glad you asked the question. When you say low teens growth in the infrastructure business meaning that it should be higher or it is not that sustainable? How do you mean?

[Ittai Kidron:]

Yeah. My expectations would be that router market would be growing still closer to the 20% level rather than lower teens. But again, that number excludes the MX. Excluding MX, you are expecting low teens growth in your core infrastructure business.

[Scott Kriens:]

If the MX were to somehow grow as dramatically and the totals didn’t go up then that would mean it would come at the expenses of the other infrastructure products, I see what you mean. First of all, the MX product did well this quarter certainly but so did T-Series and M-Series in the infrastructure line and that allowed us to grow the overall business 24% for the full year and significantly over same quarter last year as well. So I am pretty pleased with that business. Now that it has tipped the $2 billion run rate as a product business alone – and again that is before services and we have seen from the industry researchers share gains really across the board. No matter which lens you put on those numbers, I feel pretty good about them. The MX itself has certainly been an incredibly rapid ramp in a very short period of time, without even really yet seeing the impact of MX480 which came to the market last quarter but really the MX960, the high end product has produced most of the result so far, which has been out longer to see a business go from zero to $200 million. What it actually, I think is beginning to confirm from what we see, is in fact that rapid acceptance is a function of people being confident in JUNOSe, the operating system and so they take the MX product; it looks, feels, runs and is featured exactly like the infrastructure they already have at the core in the edge before they put the MX in the middle of it and it’s a no brainer to add and move on with a product that now optimizes in this Ethernet segment. So as I said before, I actually don’t think there is going to be a carrier Ethernet segment worth counting when the history is written here. I think there is an operating system competition going on here and JUNOSe is sort of flexing its muscles here with the success it’s demonstrating in the MX. If that continues to be the case, then we should continue to see MX growth but I don’t think it will come at the expense of the rest of the portfolio because when a customer makes an MX decision they are not really making a hardware decision they are making a JUNOSe operating system decision delivered by an optimized piece of hardware called the MX. So if we continue to see the success of our strategy in that regard, I think we will see it affect all of the products and what the mix of that is and what it does to the total it is too early to tell but I don’t think we’ll see really disproportionate contributions here based on the strategy that we have and actually based on what our customers are telling us about why they are buying.

[Ittai Kidron:]

Can you comment on the two products that disappointed you the most in the quarter? Maybe you could give us a little bit more color on the DX product; what happened there and what was the thought process behind exiting that business?

[Scott Kriens:]

In particular with regard to the DX the comment on that, for those who may not know, we are phasing out that product over the next five years. The DX product is going to continue to be sold to customers over the next six months and continue to be supported until 2013. So its hardly disappearing but we are phasing out our development support and commitment to it because of the opportunities we see in the balance of the portfolio and because of the commoditization that we see in that space. When we look at what we’re really trying to do here in the high performance segment, we’re going to continue to focus our development priorities and really it speaks also to our commitment to execution under the standards that we are setting around performance for the portfolio and focus of our resources. To answer your first question maybe in more general terms, what doesn’t grow as quickly are standalone appliances in the SLT business; that’s not true in every quarter and in all cases but as a rule, when we look at the success of things like SSG or ISG products, products that are integrated security and routing the integrated firewalls and intrusion detection and things like that, those are the products -- really what they become are solutions -- that contribute to the growth and in some cases the standalone products are what our costumers are moving from as they move to the integrated solutions, making a lesser contribution as a result in the integrated portfolio.

[Kathleen Bela:]

Operator, that is all the time we have today so we are going to conclude the call at this point. We would like to thank everyone for joining us and we look forward to speaking with you next quarter. Thank you.