Volt Information Sciences, Inc.
Q2 2010 Earnings Call Transcript

Published: 29 Jul 2010

[Operator:]

Ladies and gentlemen thank you for standing by. Welcome to Voltaire Second Quarter 2010 Results Conference Call. All participants are at present in listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded July 28, 2010. I would now like to hand the call over to Mr. Kristin Knies CCG Investor Relations. Mrs. Knies would you like to begin?

[Kristin Knies:]

Thank you operator and good day to everybody. I would like to welcome all of you to Voltaire’s second quarter 2010 results conference call and thank Voltaire’s management for hosting this call. With us on the line today are Mr. Ronnie Kenneth, Chairman and Chief Executive Officer and Mr. Joshua Siegel, Chief Financial Officer. Before we begin, may I remind our listeners that certain information provided on this call may contain forward-looking statements and the Safe Harbor statement outlined in today’s earnings release also pertains to this call. If you have not received a copy of the release, please view it in the Investor Relations or news section of the company’s website at www.voltaire.com. In addition, during this call certain non-GAAP financial measures will be discussed. These are used by the management to make strategic decisions, forecast future results and evaluate the company’s current performance. Management believes that the presentation of non-GAAP financial measures is useful to investor’s understanding and assessment of the company’s ongoing core operations and prospects for the future. A full reconciliation of non-GAAP, GAAP financial measures is included in today’s earnings release. I will now hand over the call to Mr. Ronnie Kenneth, Voltaire’s Chairman and Chief Executive Officer, Ronnie?

[Ronnie Kenneth:]

Thank you Kristin, good day everyone and thank you for joining us for our second quarter 2010 earnings conference call. On the call today, I will highlight our second quarter 2010 results and achievements. I will then turn the call over to Josh Siegel, our Chief Financial Officer, who will discuss the financial results in more detail. After that, we will be happy to take your questions. Again we presented another strong quarter with 54% year-over-year growth in revenue and significantly reduced operating and net loss also by more than 50%. We remain on track to achieving our financial goals in particular that are reaching a sustainable profit by Q4. Our bookings increased during the quarter and we enter the second half of the year with substantial pipeline supporting our ongoing confidence. George will elaborate on the financials in a minute, will tell you the very different company than it was only a year ago, we have expanded from being a InfiniBand provider into an end-to-end scale-out data center fabric solutions provider. Today, in addition to InfiniBand we are delivering 10 Gigabit Ethernet so we chose an unique fabric management and application acceleration software. It is giving our expanding customer base performance and efficiency with the choice of underlying fabric technologies. While the InfiniBand market is in its growth stage and Voltaire continue to dominate the switching segment it is our Ethernet and software offering that we think will further part the companies mid to long term growth and then for the years to come now on the quarter in more detail, we continue to be market leaders in selling switches for InfiniBand scale-out environment. As we announced a few weeks ago, we had a major win this quarter at the Tokyo Institute of Technology with selected Voltaire scale-out fabric for Japan’s most powerful super computer. When the top 500 list of the world’s largest super computers was announced this quarter, Voltaire shares over the InfiniBand deployments on the list moved up by 50% to 55% putting us at more than double the share of any other InfiniBand systems vendor. Looking back at the first half of the year, we have seen our Ethernet strategy begin to take hold. We had installation of our Vantage 10 Gigabit Ethernet switches across multiple industries including cloud and web to all government education and oil and gas. Furthermore, our Ethernet switches are now being sold though multiple OEMs and resellers and over the next several quarter this will enable us to accelerate sales of the 10 Gigabit Ethernet switches through a growing channel network. We are winning business against the competition because as customers redesign the data centers with flatter network, they are evaluating networking partners that can bring efficiency through innovation. And here we win because of Voltaire switches deliver better scaleability performance and efficiency at half the price than traditional networking vendors. During the quarter we also announced and began shipping the Vantage 6024 a new smaller code count led 2 to 3 top of direct switch to complement our Vantage 8500 core switch. This gives us an end-to-end Ethernet portfolio of switches to build scale-out data center fabrics for customers. These switches also an attractive solution for collocated high frequency trading where rack space is limited, yet performance and obtaining the lowest latency is a must. Another hot selling product this quarter was our new InfiniBand to 10 Gigabit Ethernet gateway. Second quarter was the first full quarter of the product availability and we have already taken more than $1.5 million in order for this product. Now I would like to move onto our key software products which are application acceleration and unified public management software. We see continued momentum for application acceleration software. Last month the Singapore exchange announced that it will develop the world’s fastest trading platform using Voltaire switches and application acceleration software along with product from NASDAQ OMX and HP. NASDAQ OMX CEO commented in the press but it was the Voltaire’s VMA software that provided most of the latency improvement to drive the record-breaking average order response time of less than 90 microseconds door-to-door. In terms of UFM, we sold more licenses in Q2 than we have sold in the total since the product was launched nearly a year ago. We now have over 70 different companies using UFM ranging from both the enterprise to HPC and altogether UFM is managing nearly 30,000 nodes worldwide. All of our winds into oil and gas vertical in second quarter included UFM and we have been selling it to HP, IBM and other resellers. In addition to often being the differentiator for the solution sale, the software product together with our host tech licensing and support product have begun to contribute over 5% of our quarterly bookings. And with that, I would now like to turn to our CFO, Josh Siegel for the financial review. Josh.

[Josh Siegel:]

Thanks Ronnie and hello everyone. Before I begin as usual I would like to remind you that in order to better understand our business, my upcoming review relates to our non-GAAP results and a full reconciliation between our GAAP and non-GAAP results is available in our earnings release published earlier today. So let me begin, revenues for the quarter totaled $16.6 million up 6% sequentially and up 54% over the second quarter of last year. IBM and HP were both 10% plus customers for the quarter. Gross profit for the quarter totaled $8.5 million, up slightly by $260,000 compared to the first quarter but up 49% for $2.8 million over that of the second quarter of 2009. Gross margin for the quarter totaled 51.2% compared to 52.6% in the first quarter and 53% in the second quarter of last year. As we discussed in the past few quarters, our gross margins continues to be sensitive to small changes in our product mix sold in the quarter. For example, during Q2, we saw continued increased portion of sales of 4 Gigabit solution versus the higher margin 20 Gigabit products. This was offset partially by increased Ethernet sales with higher margins and a decreased percent of lower margin adapter sales. On a year-over-year basis, our margins were affected by the overall increasing portion of 40 Gigabit solutions. Operating expenses for the quarter over $9.3million that’s up slightly from $8.9 million in the first quarter and the $7.9 million reported in Q2 of last year. As guided we have increased our expense level year-over-year and sales and marketing and R&D to reflect the additional head count and marketing program expenses for supporting and selling new Ethernet an software products into the incremental available markets. We recorded a net loss of $882,000 for the quarter roughly flat in the first quarter but improved dramatically when compared with the net loss of $2.3 million in Q2 of last year. With regard to our balance sheet we ended the quarter with net cash equivalent marketable securities in deposits of $41.8 million and zero debt. Cash used in operating activities during the quarter was $1.8 million, our cash position remains strong and more than adequate for all of our working capital needs. We have reduced our inventory in the quarter by $1.7 million from the $9.9 million last quarter to $8.2 million as of June 30th. Our DSO remains stable at 63 days compared to 66 days in the first quarter of 2010. So we are on track and confident to meet our goals for 2010 and as such we are reaffirming our guidance, we continue to expect 2010 revenues to be in the range of $67 million to $70 million reflecting the growth rate of between 33% and 39% over 2009 revenues with the second half as usual being seasonally stronger than the first. We continue to anticipate the annualized growth margin to be between 51% and 53% similar to 2009 with some fluctuations on a quarterly basis driven by the change in product mix. We note that our growth margin for the first half of the year comes favorably in this range at 51.8%. We also reiterate our non-GAAP operating expense forecast to increase by up to 15% over the last year to between $38 and $39.5 million in 2010. With the increase being primarily in R&D and sales and marketing, in order to capitalize on the current and future market opportunities that we are currently seeing. And finally we are guiding through non GAAP sustainable operating profit by the fourth quarter of this year. So from our financial perspective we have returned to aggressive year-over-year revenue growth creating strong leverage in our operating model. As we progress through 2010 and 2011 we will improve our operating leverage moving across to a target financial model, a quarterly operating profit in the mid-teens, that’s something we are targeting by the end of next year. Now with that I will now like to turn the call back to Ronnie for some closing comments before we move on to the Q&A.

[Ronnie Kenneth:]

Thank you Josh, in summary we are well on track to achieve the goals we have set for the year. As I said it earlier Voltaire is not the same company we were a year ago. We now have an end to end portfolio of 10 Gigabit Ethernet product that allow us to penetrate deeper into cloud and enterprise data centers, enabling us to expand our total addressable market by several times. Today’s networks are being designed differently. The architecture of yesterday is not optimized for today’s scale-out network. In fact today’s architecture is the way we envisioned it many years ago. The landscape is changing and Voltaire is in the right place at the right time. Further we are seeing the server OEM preparing for volume shipments of 10 Gigabit Ethernet LAN on motherboard and believe this will have a very positive impact on 10 Gigabit adoption into data center. Our software plan is also on track. Orders for our management and application accelerating software are higher than ever before. These products lastly differentiate Voltaire from the competition and are an important contributor to improved margins. Year after year Voltaire continues to expand its leadership in InfiniBand switching as evident by analyst projections and our growth in the top 500 list. We continue to innovate in this area to maintain our position. Q2 was a strong quarter for Voltaire and we have the key growth engines in place for the company, for the month and years to come. With that I would like to open the call for questions. Operator.

[Operator:]

Thank you. Ladies and gentlemen at this time we will begin the Question-and-Answer Session. (Operator Instructions). The first question is from Tal Liani of Bank of America. Please go ahead.

[Tal Liani:]

I have two sets of questions. The first one is sensitivity of demand to euro changes, kind of about the European region. Can you remind us your exposure to Europe overall? And also any trends you see in the industry, I'm talking about the macro trends about spending. Do you see any sensitivity to the current concerns in the economy or not? That is the first question. That is more about the macro. The second question is more about your partners. 3Com acquired by HP, and HP is claiming to have higher-end solutions now. And also Juniper is about to launch their own Stratus, and that goes through IBM. Two of your major customers are going to have some solution, and I'm wondering how much overlap there is with your solution. Is it complementary or is it competing? Can you discuss two, three years kind of two three years out how you see yourself in an environment with more vendors at this point?

[Josh Siegel:]

Tal thanks for joining the call this is Josh I’ll take the first question and then hand it over to Ronnie for the second question. with regards to Euro we are not sensitive at all to the euro all of our sales are in US Dollars so our exposure to Euro is really very limited and not material, I think overall when we look at the macro economy we don’t see any real impact on our plan and on our business looking forward that’s being affected by the macro, I think with regards to spending in our spaces its stable we haven’t seen any pull back. Ronnie?

[Ronnie Kenneth:]

In respect to HP acquisition of 3Com and then Juniper relationship with IBM I think it’s very important to understand that we are focused on scale-out computing and this is based on our switching offering as well as end-to-end software for fabric management application acceleration. So all integrated into an end-to-end solution, we think that we are uniquely positioned and as a result see the business happening as we speak, and looking forward growing because I don’t believe that these companies can help for something that is comparable to our solution when it comes to our scale-out environment.

[Tal Liani:]

Follow up on the first answer about the euro exposure. So you said in dollars, but the euro went against you by about 10% this quarter have you seen increased demand for discounts or was the demand insensitive to price?

[Josh Siegel:]

No we haven’t seen a big demand for discounts because of the Euro impact.

[Operator:]

The next question is from Mark Moskowitz of JPMorgan. Please go ahead.

[Mark Moskowitz:]

A couple of questions. Firstly, Ronnie, can you give us a sense here in terms of the composition of your revenues currently in terms of InfiniBand targeted versus Ethernet, versus just software, and how investors should think about that mix trending over the next two years or so?

[Ronnie Kenneth:]

I can give you some color on this but as you know we don’t break down the revenue mix for different product lines but as I indicated earlier and I can start with software, we clearly see software gaining a very significant momentum; in fact in the first half of the year, we sold more software than we sold in the entire more licenses that we’ve sold in the entire previous year. So clearly software is moving in the right direction. I think we would like to see if you talk about the next two years or so, we would like to see software in the double-digit as share of the total revenue product in respect to software bottom-line really moving ahead very nicely. And in respect to InfiniBand and Ethernet, InfiniBand still has more than 50% of our revenue and simply because the Ethernet business is much bigger in terms of the market opportunity, I would expect that to change over the course of the next two years and I will leave it at that.

[Mark Moskowitz:]

Then following up on that part around the Ethernet, just in terms of the bigger opportunity, obviously related to the prior question, there will be more competition though. Can you give us a sense in terms of your early stage wins in the Ethernet? Are those with new or existing Voltaire customers?

[Ronnie Kenneth:]

I would say that’s more by far most of the wins are with new customers, customer that we haven’t been engaged with before and remember some of them are being sold by the OEM, directly without our involvement. In some cases, we are involved but I would say that the majority of the installations are new installation.

[Mark Moskowitz:]

Then as far as the LAN on the motherboard commentary, that clearly that has been gaining a lot more attention lately with investors. How should investors think about the LAM opportunity in terms of what does the interconnect technology displace, or is it additive to the existing storage and server connectivity solutions out there?

[Ronnie Kenneth:]

So first of all the comment I want to make is basically by, I think what we have done with our switches, the architecture, the simplicity is really taking down the price per port for a non-blocking 10 Gigabit Ethernet switch. We haven’t seen the same phenomena happening on the server side yet, and we believe that the LAM will reduce the price for 10 Gigabit Ethernet port on the server side which is good for us because the overall point-to-point price of a 10 Gigabit Ethernet link will go down all together. So, the moved forward LAM in fact this is something that we have been anticipating and waiting for a long time because we think its good for us, its taking the price on the server side down and will increase the adoption of 10 Gigabit Ethernet across the verticals we are engaged in. Now I believe that 10 Gigabit is something that especially when people are now deploying virtualized data centers they clearly need more bandwidth, in some verticals they also need the latency that comes mainly from the switch side, so we see the demand coming for that primarily for bandwidth and low latency and of course as we move forward than people also move to file based systems versus lock based, I would see a further demand for Ethernet versus other process calls. I hope that answers the questions Mark.

[Mark Moskowitz:]

Yeah that’s helpful. I guess that the follow-up then how should we think about the LAM versus the HBA battle is that even relevant going forward as we hear more and more, now that’s the (Inaudible).

[Ronnie Kenneth:]

Not to us I mean as I just said I think people need the 10 Gigabit Ethernet for virtualized environment, they simply need the more bandwidth, no other alternative to have many, many NICs on the service side. So that’s going to save that. And then obviously as I just pointed out, people in virtualized environment use more and more file systems that our Ethernet based typically or InfiniBand then fiber channels. So I think what we would see is where people are probably moving forward will use any kind of scale out environment will see more 10 Gigabit Ethernet cards versus fiber channel cards I would say.

[Mark Moskowitz:]

Okay, that's helpful. Then just shifting gears here will quickly to Josh. I just want to get a sense, Josh, if you could talk more about how we should think about philosophically the cash burn rate here going through the rest of this year and into next year? Should we think that once you get the back to breakeven or profitability that we'll start seeing cash flow from operations or will there still be some what overhang on cash flow?

[Josh Siegel:]

I think with regard to cash if we look back historically, we very closely follow our P&L. they maybe shifting over a quarter or two prior or following the P&L but overall in terms of they get it over a fourth quarter basis, you should follow the P&L. And I think as we get closer and closer to profitability, as we get to that point and we will get to see a turn back on cash flow positive.

[Operator:]

The next question is from Daniel Meron of RBC Capital Markets

[Daniel Meron:]

Congrats on the ongoing execution here. A couple of questions for me. Now that you have moved into further along with the Ethernet plan and the deployments are happening, can you quantify for us maybe the 2011 opportunity? And also what kind of growth rate, when you talk about double-digit operating margin in 2011, what kind of growth rate should we look at in 2011 compared to 2010, just in broad strokes? That would be helpful.

[Ronnie Kenneth:]

Daniel its Ron here, thanks for joining the call. I will start and then Josh may add some more colors to that. We clearly see when we look into next year we clearly see Ethernet growing quite rapidly for us; A, because we think we are well positioned with our hardware and software solution for 10 Gigabit Ethernet sailing out. So this will clearly grow percentage wise as a mix in the product and as we said, significantly increased the growth that will be together with software, a very significant growth engine for us next year. I don’t think we are prepared to give any forward-looking statement in respect to 2011 other then what I just said.

[Josh Siegel:]

Yes Daniel, I think I will add here and take may be the opportunity to again kind of address where we see Voltaire’s long-term financial model is, and how we going to get there as you brought it up. We believe that Voltaire by already the end of next year should be in as you said double-digit operating profit. As you look at our operating expenses and the leverage available to drive through the model as we get closer and closer to break even. You see really it’s on the R&D point, which right now were in the high-20s in terms of percentage of revenue although that’s already come down, it was at 29 last quarter and now it’s at 27%. You see our sales and marketing in the low 20s and our G&A around 8%. So, really the main point I would want to drive home here is as we cross-over the break even mark which as you see is getting very close then as we talked about happening in the fourth, targeting for the forth quarter of this year, every dollar going after the break even will be very highly leveraged in order to drive at to the double-digit operating profit by the end of next year. So, we see the breakeven point nearby in fact over the last two years we’ve seen Voltaire break even at $16 million to $18 million level. And I think after that you can assume that a good portion of the incremental revenue will go to the bottom line.

[Daniel Meron:]

Okay, that's very helpful. Thank you. Then on the competitive positioning, it seems like you guys have expanded your abilities in the software arena. Where do you think you stand with respect to the systems in general? And who do you see out there when you try to get that share with existing OEMs like IBM or HP or both?

[Ronnie Kenneth:]

Well Daniel, I think I want to make this point clear here when you talk about scale-out environment one thing is to build high density, low latency, non-blocking switch that we have done obviously very well. But also from a focus standpoint it requires you to take a completely different approach to manage the scale-out environment with hundreds and thousands of servers connected as a one holistic fabric versus managing their switches, managing their mix, managing their servers and storage and so on. And our UFM together with the server side software is providing exactly that which is holistic complete view of the fabric that enables people to dramatically reduce the complexity of dealing with this scale-out environment and ensure that manageability of many, many virtual machines and consistent quality of service to these virtual machines that are being deployed dynamically. And I think that if you take all our competitors big and small, one after the other, you will see that why they have been able to come up with the switch, with some given characteristics, I think they all fall short against UFM fabric management software.

[Operator:]

The next question is from Glenn Hanus of Needham & Company.

[Glenn Hanus:]

Maybe I will first take a shot at some of the verticals, could you give us some color on sort of what seemed strong or weaker. And in particular comment on the HPC market in the government space in both the US and in Europe?

[Ronnie Kenneth:]

So first of all I would say that both government and FSI when up for us, I think FSI, Financial Services continues to be the leading vertical for us, the largest and growing the fastest. In US both for InfiniBand and Ethernet as well as internationally, we mentioned earlier, the Singapore win and in financial services once and again we see how ourselves are differentiating us for managing the fabric but also taking the latency down like nobody else can do. So I think the software is playing a very important role here in FSI. Interestingly and I have also indicated earlier is that we will see a very high tax rate also in oil and gas where we sell switches alone with our fabric management software UFM. So again financial services went up continues to be the leading vertical for us, our government went up and so is oil and gas. I think Glenn you also asked me about government business. So we clearly see projects in the US and Europe. We indicated earlier that we had a very large win in Japan with Cytec this quarter as well.

[Glenn Hanus:]

So specifically Europe, the spending in the government sector seems to be holding stable?

[Ronnie Kenneth:]

It is holding stable. Obviously, we are seeing some softness in Europe but this is being compensated for by a firm demand in the US and Far-East.

[Glenn Hanus:]

Could you clarify a little bit in light of your introduction with top-of-rack switch, your relationship with BNT now?

[Ronnie Kenneth:]

We focused for the scale-out solution in developing the core switch, the Vantage 8500 as well as the UFM fabric management software. And obviously at the UFM being an open architecture product, enable us to connect on the edge, total direct switches from other vendors. And be able to manage them as part of the fabric and we have done it with several vendors. And in the case BNT so we can really, when needed provide a complete end-to-end solutions sales that it would be appropriate to have an OEM relationship with them. Also I would point out that their top of direct switch has today the lowest latency that is needed for financial services and we felt that integrating that top-of-the-rack switch with our software as a bundle and promoted to customers and financial services could be very attractive.

[Glenn Hanus:]

So they have a top-of-rack switch that you are working with, but then you announced your own, can you just clarify that?

[Ronnie Kenneth:]

Yes, so they have their own product and they have some products that they OEM and you know our main differentiation is the rise mostly from software and the cap of financial services it’s the VMS software that has the lowest latency in the industry so a combination of their switch with our software that is bundled together is a very uniquely positioned product. And then when we sell a complete end-to-end solution in the scale-out environment that we use it as an edge switch and UFM is basically managing all of that as a single fabric and obviously being a single vendor that is providing a full solution is a benefit by itself.

[Glenn Hanus:]

You mentioned the gateway product was strong. Could you just elaborate on the trends you are seeing there and reasons?

[Ronnie Kenneth:]

As I think InfiniBand is gaining popularity, we see a lot of people connecting InfiniBand networks that they have deployed for low latency and high bandwidth such as financial services in oil and gas. And then want you to connect to their 10 Gigabit network in the data center and they want that to be done in a simplest way, very reliable way where they don’t give up on the latency advantage of InfiniBand network. So that’s clearly the main reason for growing demand for this product.

[Glenn Hanus:]

And lastly could you give us an update on the Ethernet channel progress and how you feel you are doing there and challenges are ahead?

[Ronnie Kenneth:]

So when we introduced the product we said that, we are first of all going to rely on the existing channels that we have today namely HP, IBM and just increase the portfolio of products but it’s the same entities that we have been dealing with and we feel very comfortable so we clearly see that moving in the right direction and they simply add the Vantage and our software to their portfolio. So that’s something that is progressing well and as I indicated earlier some of the winds that we had so far was Ethernet where a result of the OEM selling the product, in parallel to that as obviously Ethernet is most pervasive than InfiniBand, we are aggressively building a network of resellers and we have a specific program called adVantage where we recruit resellers around the globe and the number of the additional resellers on a weekly basis is growing very nicely for us.

[Operator:]

The next question is from Rajesh Ghai of ThinkEquity, please go ahead.

[Rajesh Ghai:]

My first question is that you talked about the growth in the Ethernet market. I wanted to get your perspective of the growth of the InfiniBand market in the second half of this year and next year. Are you seeing, or do you see Ethernet being preferable over InfiniBand as long as they would have there, you’d have expected InfiniBand to be deployed in the past or are you seeing an increase in the [combo deployments] where your gateway products are being used increasingly?

[Ronnie Kenneth:]

First of all I don’t see right now and I don’t anticipate necessarily any kind of utilization of the InfiniBand business. InfiniBand is in at very high-end unmatched in terms of bandwidth and latency by Ethernet bit 10 Gigabit. So I see clear market segments where people just want to have InfiniBand, they need the power and they are not going to compromise and so, I see that infra growing as I indicated financial services market and people are adopting low latency technologies across the globe, all of that is fueling the growth of financial services segment for us and I see InfiniBand continue to grow but in the same time there an opportunity where people are moving from 1 gig to 10 gig, they need the bandwidth as I indicated for virtualization, they need the bandwidth. They have now SSD storage. All of that is really requiring much bigger pipe and 10 gig is now in the right price range, I think to adopt to really fuel a very quick adoption moving forward on that. So, I can see InfiniBand growing in parallel to a nice ramp that we anticipate for 10 Gigabit Ethernet. And then on top of it, as we discussed before, I also believe that the loan will have a positive effect and further stimulate demand for 10 Gigabit Ethernet switches.

[Rajesh Ghai:]

I actually wanted to follow up on that. Last sentence, so (Inaudible) just announced product transition of InfiniBand for the LAM. So I was wondering what you thought of the significance of that announcement and what you thought the effect this development will have on the overall InfiniBand market. If you could give us some more color?

[Ronnie Kenneth:]

I strongly believe that price is going down are simulating the demand for products and so by putting InfiniBand or 10 Gigabit Ethernet on the motherboard and replace a NIC or communication card will further take down the price per port on the server side. So it will be cheaper for customers to deploy these kind of technology. Net net I think that trend is clearly good for us.

[Operator:]

(Operator Instructions) The next question is from Apurva Patel of Ticonderoga securities. Please go ahead.

[Apurva Patel:]

Thank you just a follow up on the last question on the LAM side. Ronnie and Josh when do you expect the volume to kick in? Because we are offsetting the ASPs from the cards the LAM which is great for long-term but when do you expect the volumes to offset the pricing?

[Ronnie Kenneth:]

I can clearly see the trend but when is the inflection point for the NIC vendor is its really a question for the NIC vendors and I would like to address we are on the switching side of the business. And as I said when the server side price goes down its good for the switches, people will deploy more equipment. So I think that this is as far as I would go and I don’t want to speculate on when that inflection point will take place. I think the trends are heading in the right direction to further fuel, the adoption of 10 Gigabit Ethernet, on that I am completely confident.

[Operator:]

There are no further questions at this time. Mr. Kenneth, would you like to make your concluding statement.

[Ronnie Kenneth:]

Thank you everyone for joining us today and for your ongoing support and interest in our company. In the coming weeks, we will be presenting in August the Canaccord Conference in Boston as well as the Rodman & Renshaw conference in September. At the same time we continue to meet with existing and new investors on the road. I would also like to remind you that we are always open to calls, comments and questions so please fee free to contact our IR team. With that I would like to conclude the call and we look forward to hosting you again on our next call, have a great day.

[Operator:]

Thank you this concludes Voltaire’s second quarter 2010 results conference call. Thank you for your participation, you may go ahead and disconnect.