Gary B. Smith, President and CEO Joseph R. Chinnici, CFO Stephen Alexander, CTO Suzanne DuLong, Chief Communications Officer

Ehud Geldblum, JP Morgan Cobb Sadler, Deutsche Bank Tim Daubenspeck, Pacific Crest Securities. Nikos Theodosopolous, UBS Simon Leopold, Morgan Keegan Joe Chiasson, Susquehanna Paul Silverstein, Credit Suisse John Marschetti, Morgan Stanley Subu Subrahmanyan, Sanders, Morris, Harris Marcus Cooperschmidt, Lehman Brothers Gina Sockolow, Buckingham Research Todd Hoffman, Raymond James Suzanne DuLong, Chief Communications Officer.: Thanks Gwen. Good morning and welcome everyone. I’m please to have with me Gary Smith, Ciena’s CEO and President, and Joe Chinnichi our CFO. In addition, Steve Alexander, our Chief Technology Officer will be joining us for the Q&A portion of today’s call. Gary will provide some brief introductory comments, Joe will review the quarter’s financial results, Gary will then discuss the business in the quarter and our outlook for our fiscal 2nd quarter and Joe will wrap up our prepared remarks with guidance for Q2. we’ll then open the call to questions from the analysts. To ensure we answer as many questions as possible during the time allotted for this call, we ask that sell-siders limit themselves to one question. This morning’s press release is available on national business wire and persol and also on Ciena’s website at ciena.com. Before I turn the call over to Gary, I’ll remind you that during this call we will be making some forward looking statements. Such statements are based on current expectations, forecasts and assumptions of the company and include risks and uncertainties that could cause auctual results to differe materially from the statements discussed today. These statements should be viewed in the context of the risk factors detailed in our 10K filed with the SEC on January 12. we have until Thursday March 9 to file our 10Q for first fiscal quarter. And we expect to do so by then or before. Ciena assumes no obligation to update the information discussed in this conference call, whether as a result of new information, future events or otherwise. Gary? Gary B. Smith, President and CEO: Thanks Suzanne and good morning everyone. With our Q1 results we again demonstrated evidence of our execution and focus on driving operating performance improvements. In addition to our 8th sequential quarter of revenue growth, we again delivered gross margin improvement and lowered our ongoing operating expenses. Overall, we’re tracking to plan and we continue to see signs of improving market strength across our portfolio and solution set and we believe that our strategy our investments and the resulting changes in our business have positioned us to take advantage of the market opportunity that for the first time in many years is growing as a result of fundamental demand drivers. I’ll discuss our discuss our business in the quarter and our progress toward profitability and earnings growth in more detail after Joe reviews the quarterly results. Joe? Joseph R. Chinnici, CFO: Thanks Gary and good morning everyone. This morning when we reported first quarter revenue totaling $120.4 million. This represents an increase of 1.9% sequentially and 27.1% year over year. There were three 10%+ customers in the third quarter that combined, represented 45.3% of total sales. All three customers purchased access gear, long distance and metropolitan optical transport solutions. One also purchased our DN multi-service switching product and another was the single 10% customer in the fourth quarter. US sales represented 85% of total revenue for the first quarter, up slightly from the 78% level in the fourth quarter. Moving now to talk about quarterly revenue contribution from our business units. Revenue from our transport and switching group or TSG, increased slightly sequentially from $74.1 million in the fourth quarter to $74.9 million in our first quarter, representing 62% of the quarter’s total revenue, consistent with the fourth quarter. This group consists of core transport and core switching, multi-service access, metro transport switching and storage extension solutions. Although optical transport and core switching both increased sequentially, and were the largest contributors to TSG’s revenue in the quarter, representing roughly 47% and 19% of the group’s total revenue respectively. Metro optical transport ran a close third, representing roughly 16% of the group’s revenue. For the third quarter since it’s launch in the third quarter of ’05, we also took revenue from our CM4200 advanced services platform. And while it is not yet a meaningful contributor to overall revenue, we’re pleased with the traction and ramp of this product which broke through the $2 million mark on the quarterly revenue and is shifting into all of our customer segments as well as through several channel partners. Revenue from our data networking group was flat at $6 million in the first quarter, representing 5% of the total revenue. Revenue from our broadband access group increased slightly, as expected, from $22.3 million in the fourth quarter to $25 million in the first quarter, representing 21% of total revenue. Revenue form our global networking services business unit decreased slightly quarter to quarter from $15.3 million in the fourth quarter to $14.5 million in the first quarter and represented 12% of total revenue. Turning to our quarterly operating results. The press release includes a GAAP only presentation of our results as well as detailed information about the adjustments that as management we make to Ciena’s GAAP earnings in our analysis of Ciena’s ongoing business. In general, these adjustments which are identified in the tables in the press release share one or more of the following characteristics: they are unusual and we do not expect them to recur in the ordinary course of business, did not involve the expenditure of cash, they are unrelated to the ongoing operation of the business in the ordinary course, or their magnitude and timing is largely outside of our control. In my comments today I’ll speak to both the GAAP results and to what the results would have been if we had excluded those items detailed in the perss release. With that background, let’s get started. The first quarter’s gross margin of 41.9% improved 200 basis points from the 4th quarter level of 39.9% as a result of our ongoing product and manufacturing related cost reduction efforts as well as product mix in the quarter. The quarter’s gross margin includes a charge of $300,000 for 123R related equity based compensation expense. Product gross margin increased from 42.2% in the fourth quarter to 43% in the first quarter. Our services gross margin also increased from 24.5% in the fourth quarter to 33.9%. Service gross profits benefited from an unusually favorable mix of deployment service engagements with higher than normal margins as well as higher margin related training related revenue. We expect our global networking service (inaudible) business to generally track closer to the 20-25% gross margin range. Turning to operating expenses. On a GAAP basis our expenses for the first quarter totaled $65.6 million. In addition to the first time 123R related equity based compensation expenses of $3.5 million, the quarter’s GAAP operating expenses reflect non-operating related or non-cash charges for the following: amortization of intangible assets, restructuring costs, a credit on long-lived asset impairments, recovery of doubtful accounts and a gain on a lease settlement. Let me add some color on some of the larger of these items. On the $2 million in restructuring costs from the quarter, roughly $1.5 million was attributable to workforce reductions we discussed last quarter. The $6 million gain on the lease settlement came as a result of our early lease termination on an unused facility in Fremont, California. The $2.6 million recovery of doubtful accounts was related to a single customer. Adjusting for these and other non-operating or non-recurring charges detailed in the press release, our R&D, sales and marketing and S&A expenses for the quarter, exclusive of stock compensation costs, would have been $62.4 million. This is down 8% from the 4th quarter’s total of $67.5 million. The first quarter’s $6.3 million GAAP net loss or loss of $.01 per share also reflects a $733,000 loss on equity investments and a $6.7 million gain on extinguishment of debt. The gain on the extinguishment of debt changed as a result of our debt repurchase which I will review in more detail shortly. This compares to a GAAP net loss of $57 million or a loss of $.10 per share in the same year ago period. Prior period’s GAAP results do not include the impact of FAZ 123R, but do include share based compensation expense recognized in accordance with APB25 as interpreted by FAZb interpretation number 44. exclusive of the $3.8 million 123R related compensation expense, our GAAP results for the first quarter of ’06 would have reflected a loss of $2 million or breakeven on a per share basis. Adjusted for the unusual or non-operating items I discussed earlier including 123R related compensation expense as well as APB25 related share based compensation expense, our loss for the first quarter would have been $8.7 million or $5.5 million if tax effected, or a loss of $.01 per share. This is better than the per share guidance range that we offered in compared with adjusted loss of $.05 per share in the same period a year ago. Now turning to the balance sheet. Cash, short term and long term investments at the end of the fourth quarter totaled $961.6 million, representing a quarter to quarter change of $131.9 million, of which roughly $32 million was used for operating purposes. Of that $32 million operating cash, roughly $18 million was associated with increased inventory to support our future demand. $12 million was associated with the early lease termination of our unused Fremont, California facility and $11.5 million was used for our semi-annual interest payment. The balance of the cash inflows and outflows were associated with other general operating activities. In addition, we used $98.8 million to repurchase $106.5 million par value of our outstanding 3 ¾ convertible notes due in February of 2008. with this purchase, we reduced our outstanding principal on these convertible notes to $542.3 million. Our accounts receivable balance at the end of the quarter increased to $81.1 million from $72.8 million at the end of the fourth quarter, in part as a result of order shift toward the latter part of the quarter. DSO in the first quarter were 61, up from the 55 level in the 4th quarter. We expect our DSO’s to increase in the 2nd quarter and during 2006 a result of what we anticipate will be a larger percentage contribution from our customers outside of the US who generally have longer payment terms. We expect our DSO’s going forward will be in the range of 65-70 days. Inventory levels ended the first quarter at $64.4 million, up as expected from 4th quarter’s $49.3 million as a result of purchases made to support demand. The inventory breakdown for the quarter was as follows: raw materials $24.3 million, work in process $3.5 million, finished goods $58.8 million and a reserve for excess and obsolescence $22.2 million. The largest increase came in finished goods which was up roughly 23% from the 4th quarter. Product inventory turns were 3.7 in the first quarter, down from 4.8 in the 4th quarter. As expected given the anticipated and actual increase in inventory. As a reminder, finished goods inventory for us generally represents equipment awaiting revenue recognition as opposed to equipment awaiting shipment. We expect the 2nd quarter’s inventory levels to increase from the first quarter as a result purchases will be able to support demand and as a result of shipments on which revenue recognition will likely be pending. Finally, headcount. Our worldwide headcount at the end of the first quarter totaled 1,442, a decrease of 55 from the 4th quarter. And now, I’ll turn the call back over to Gary. Gary B. Smith, President and CEO: Thanks joe. We continue to execute on a plan that has us simultaneously driving revenue growth, gross margin improvement and operating cost reductions. As I noted previously during q1, we delivered our 8th sequential quarter of revenue growth and our fourth sequential quarter of gross margin improvement as well as meaningfully lower, ongoing operating expenses. In addition to improvements in our financial performance, we continue to see evidence of improving market strength as carriers look to converge disparate networks and to offer bundled video, voice and data services. As enterprises look for in house network reliability and security, and the ability to address industry specific applications. And, as more and more networks look to (inaudible) friendly carrier Ethernet as a converged enabler. We’re gaining increasing confidence overall that our network specialist strategy and our vision for network transition has positioned us to capitalize on these trends. With our flex-select architectural vision, we’re showing both service provider and enterprise customers how to get unprecedented network flexibility, manageability and lower costs as they transition to packet-based networks. We’re also taking an aggressive position in defining how to optimally deliver Ethernet and (inaudible) services. From the initial traction we’re seeing for our CM4200 Flex-select advanced services platform provides tangible evidence we believe that our vision is resonating. Not only is this product part of BT’s 21st century network, but it’s also being deployed by SwissCom and during Q1 we also announced it’s selection by Slovenia’s T2 for a new nationwide next generation BDSL network and by Progress Telecom in the US with NGDWDM Metro and Regional transport. Ciena’s key differentiator has always been the practical application of technology and an appreciation of the business needs of our customers. And this continues to be a fundamental part of our approach to the market. We expect a significant portion of our 2006 revenue growth will come from existing customers where we’re leveraging our incumbency and proving our value as a strategic partner to them. With service providers, our recent announcement with TelMex is an excellent example of this. As many of you may remember, we started selling our core directed multi-service optical switch to TelMex several years ago. As a strategic vendor to Telmex we’re now providing the value of our FlexSelect architecture including core stream agility long haul optical transport for scaleable capacity, design flexibility and network coordination across the telmex network. Touching briefly on our other customer segments. In the government space, specifically, over the last year, we’ve worked to enhance our support for government customers with a government dedicated subsidiary and advisory board. As a result of our actions and high profile government activity like (inaudible) we’ve begun to build significant brand awareness in this important market. And this quarter, we announced that we’ve expanded our involvement with the US Department of Energy, with product deployments at the Oak Ridge National Laboratory and the Ferme National Accelerator Laboratory. Finally, in the Enterprise market, capacity demands for bandwidth intensive applications and business continuity concerns are driving forces behind enterprise activity. And while still a small overall percentage of our business, enterprise users are more and more demanding extreme network reliability and are turning to carrier class solutions, like Ciena’s, to address general business continuity applications as well as a variety of industry specific applications. This is particularly true in the financial, healthcare and retail verticals where we’re getting involved with enterprise build through our service provider partners as well as through channel partners like EMC. For instance in healthcare, Ciena’s adapted plan solution enables HIPAA compliance, remote storage expansion and picture archiving communications systems. Recently announced healthcare users include UC Davis medical center, (inaudible) health and the children’s hospital in Denver. Whilst we’re seeing signs that the overall market is improving, we clearly still have some work to do to continue to drive operating performance. I’ll spend the remainder of my prepared remark addressing this topic. Firstly, let’s focus on gross margin. As Joe noted, we delivered gross margin improvement for the 4th straight quarter. We’ve consistently stated our goal to return Ciena’s business to one that operates with a gross margin of 40% or better. Delivering a first quarter of better than 40% margin is clearly a big achievement, but we can’t stop there. Much of our gross margin improvement to date has come as a result of our efforts to reduce product and manufacturing related costs and we’ll continue with our efforts on this front. In addition our gross margin improvement is evidence of the results of our efforts to diversify our portfolio over the last 2 years, both through acquisition and through internal development. On a quarter to quarter basis, we continue to see the potential for a certain amount of gross margin volatility, based on product mix, customer mix and volume. But at this point, we feel strongly that we’ve established a new gross margin baseline of 40%. Joe will speak to our Q1 expectations in more detail during the guidance portion of our prepared remarks later. In addition to gross margin improvement, we’re also focused on driving continuing operating expense reductions. And as Joe noted, (inaudible) adjusted operating expenses in Q1 were down from 8% in Q4, further evidence that we’re continuing to execute on a plan that drives towards a more normalized operating model. In addition to prioritizing our forward investments, focusing our dollars on the most significant opportunities where we have the highest probability of executing successfully, we’ve also been working to fully optimize and leverage each dollar spent. For instance, over the last 12 months we’ve been moving away from our traditional product-based R&D organization to a model of one of core competency based R&D, where we’re able to leverage our engineering resources and expertise across a broader range of products and solution sets. Convergence in the network is driving convergence in traditional product lines and functionality crossover. Going forward we believe these lines will only blur further. And thinking about our R&D resources and our technology expertise as a palette we can apply across our solutions sets, vs. as product specific, will we believe stimulate and encourage that convergence. For instance, we’re already applying the Ethernet based competency and functionality gained from the development of our CM4200 Flex Select advanced services platform to our core switching and multi-service switching development efforts. In addition to better leveraging our R&D model, we also believe we can get more leverage from our overall business model. We can and will get more efficiency gains. In part, by improving our processes and our systems to enable us to scale our business without necessarily scaling our headcounts at the same rate. We’ll also look to augment our partnership programs, to enable us to expand our portfolio and sales reach without adding incremental relative costs. In summary, we continue to make good progress on a number of fronts. Revenue growth is coming from improved market strength and as a result of our role as the network specialist and our vision for network transition. Gross margin improvement will come from our evolving product mix as well as from additional product and manufacturing related cost reductions. And our operating cost reductions will come as a result of our working toward additional efficiencies. Going forward, the challenges we’re facing will be substantially different than those we’ve faced for the last several years. Going forward, I believe more of our challenges will be tied to growing and scaling the business. For instance, last quarter we talked about the onset of what seemed to be a trend toward larger order sizes for many of our service provider customers. The good news is, we’re seeing this trend continue. But in addition to driving fluctuations in cash use as was the cash with our increased inventory this quarter, larger order sizes can introduce the potential for quarter to quarter revenue fluctuation on top of what is otherwise a steadily growing business. We’re not saying this will happen, we’re just reminding you that it could. In addition, for the first time in many years, we’re facing challenges associated with ramping to meet demand. These are challenges we’ve faced before and we’re working through them but it does require working closely with our supply chain including contract manufacturers and component suppliers. To recap on our expectations for 2006 overall, we expect our specialist positioning will enable us to continue to grow faster than the market. New bandwidth demands and the need for network transition are fueling what seems to be the onset of a new spending cycle and Ciena is well positioned to benefit from this. During 2005, Ciena grew faster than the market because the areas that we chose to focus on, our specialties, are growing faster than the overall market and because we were able to take share from competitors. At the highest level, our sales plan for 2006 is to keep doing exactly that; focus on our specialties and continue to take share. As a result of our revenue growth and the steps we’re taking to improve our financial performance, I’d like to reiterate what I said last quarter. Though we’re not willing to provide an estimate on the quarterly timing today, if we execute on plan, we do expect to achieve profitability on an as adjusted basis during the quarter prior to the end of fiscal 2006. With that, Joe will you walk us through the guidance for Q2 please? Joseph R. Chinnici, CFO: Before I begin to offer our guidance I will remind everyone that the statements Gary just made and those I’m about to make are forward looking. It is important to review these risk factors detailed in our 10K in order to understand the factors that might cause actual results to differ materially from this guidance. As stated in the press release, depending on the timing of revenue recognition associated with quarters from several larger customers, we expect our fiscal Q2 revenue could increase by as much as 7% sequentially from our fiscal first quarter revenue. Gross margin is difficult for us to predict with accuracy, as it ultimately depends on the combination of volume, product mix, customer mix and the affects of ongoing cost reductions. That said, we expect the Q2 gross margin will be roughly flat with the first quarter’s at 42.1%. We also expect overall operating expenses in the second quarter, exclusive of any unusual or non-operating items, will be roughly flat with the first quarter’s reflecting our ongoing efforts to gain operating efficiencies. We expect other income expense in the second quarter will be income of approximately $4 million. We estimate the Q2 share count at approximately 584 million total shares. And as a result we expect that exclusive of unusual or non-operating items and exclusive of share based payment related 123Rs, our adjusted net loss for Q2 will be a loss of approximately $.01 per share. Finally on cash, while we will not be making our semi-annual interest payment in the second quarter, we expect overall operating cash needs will be roughly flat with the first quarters at $32 million as a result of increased working capital needs. And now operator we’ll take questions from the sell-side analysts.

The first question is from Ehud Geldblum, JP Morgan.

Thank you. A couple of things. First of all if you could talk a little bit about the market that you’re saying is expanding and continuing to grow with these large order sizes. Two things I’m wondering, one you said you grow faster than the market. Can you pinpoint the areas that you think you’re growing faster? Aside from the 4200 which seems to be a separate piece, looking more at your optical business, what areas are growing the fastest within optical and where are you taking share? Who are you taking that from? And why do you think that you’re being as successful as you are there? Gary B. Smith, President and CEO: Let me answer that Ehud. I think if you were to summarize it and it is getting more difficult to talk about the segments because they are in fact converging. It’s an overused word but, that’s what’s happening. I think if you summarized is as really anything that’s requiring sort of an Ethernet transport, you know if you were to keep it simple, we see that market growing faster than the overall market and really that’s where we’ve invested over the last few years. 4200 is one articulation of that and in the metro space you’d probably say that you’ve seen stronger growth there than elsewhere, I think that’s fair to say. But I’d really characterize it as the Ethernet transport space.

This quarter you said that long haul actually grew faster than metro and metro was growing faster than long haul.

Yeah, but from quarter to quarter you’re going to get product fluctuations and that’s really my point Ehud. Calling it metro and long haul is really quite (inaudible). You’ve got a lot of capabilities now on the regional line system that you could classify to metro. You’ve got a lot of reach on the 4200 that you could class as regional or even long haul. But look at some of the applications. That’s why you know, the more traditional segments that grew in the late ‘90s and early 2000’s are being blurred now when you’re really looking at the edge demand driving the metro and the core and as we look at our product families, there’s a blur across them because you’ve got capabilities for long haul in the metro and metro in the long haul. And I think you’re going to continue to see that.

And you think you’ll continue to gain share over the next couple of years or do you think business will be kind of out of the starting gate as the market begins to (inaudible)?

I think we refreshed our portfolio and we’ve invested to make sure that we’ve got the right kind of value propositions to what we thought the market would do and that’s certainly our goal. And I think we’re well positioned for it but we’ve got to execute well.

Thanks.

The next question comes from Cobb Sadler with Deutsche Bank.

Thanks a lot. I have a quick question on the DSL business. Can you tell us kind of where you are in the upgrade cycle? So, what portion of the business is line card as in existing DLCs that you upgraded and then what is kind of new footprint expansion? Also could you tell us roughly what the mix is between the lucent upgrades versus (inaudible) and Fujitsu? Thanks a lot.

Cobb, that sort of detailed information, we don’t think appropriate to divulge. I understand the question. What we are seeing is that the Ciena’s (inaudible) platform sells into all of the RBOCs and most of it is replace segments of line cards and that’s a mix in any quarter you know between cards and new chassis. I think it’s fair to say that we’re seeing a fair mix of both new footprints and cards going into the existing chassis. Cobb Sadler.: Great and just a follow up on British telecom. I know you don’t want to talk about how big the deal is, but could you tell us if you’re chasing or if you’ve won business at BT outside of the 21CM deal? And then also, could you give us relevant contributions for the 3 products within the 21 CM deal if you can’t give us the overall (inaudible).

That was pretty good, Cobb.

Thanks a lot.

Let me try and answer what we’re prepared to answer of that. I think it’s fair to say that we’ve received our first orders from BT. The second part of your question is have we got any orders outside of century 21? I think we can confirm that as well. We are broadening our reach within BT and various operating activities as well. So, its so far so good.

Okay, thanks.

The next question comes from Tim Daubenspeck with Pacific Crest Securities.

Thanks. The three top 10’s. how many international and how many domestic?

Let me take that one. They were all domestic.

And then I know the product lines are kind of blurring, but what’s been your expectation for the traditional long haul transport market as we move into calendar ’06? We had a solid ’05. are you seeing any indications at least with your customers that the traditional long haul market is seeing profits strengthen and some of this is sustainable?

Let me answer that one. To follow up from what Gary said, that as you drive demand in at the edge of the network, that drives bandwidth demand back into metro and what you would call intercity corp. but the real issue is you’re seeing blurring of the definitions of what is long haul and what is metro application space. So the overall bandwidth demand on the networks are increasing, and they’re moving from Sonnet SDH based services over to (inaudible) Ethernet based services. And so all of the platforms that we’ve got now provide that kind of a service. They do it over varying distances. It’s a very flexible platform architecturally put together.

Okay, thank you.

The next question comes from Nikos Theodosopolous with UBS.

Yes, thank you. I had a clarification first and then a question. You gave the breakdowns within TFG this quarter. Do you have the breakdowns for last quarter specifically, as well?

Nikos, this is Joe. No, I do not but we can get that to you later.

Okay. My question then is on BT. How do you expect this contract to ramp over the next couple of quarters, now that you have initial orders? Do you expect like a gradual revenue ramp over the next 2-3 quarters or would you expect a big, one time pop in quarters that would be recurring, whatever that number is on a quarterly basis. And, what does the BT contract do, if anything, to your margin profile?

Nikos, let me take that. My overall comment is that it’s very early days and it wouldn’t be appropriate to guess as to how this is going to roll out. I don’t think based on what I’m seeing right now I don’t expect it to be a huge initial pop and then go down. I think from what I can tell right now I think it’s going to be a fairly steady ramp as we roll out this network. One of the benefits is we’ve got three of our portfolio platforms out there so it gives us a little bit of balance when they’re building the core and when they’re building the edge on the Metro. We’re participating in a lot of that so, you know, that should help balance it out. But I think we’re at the fairly early stage of it. I would say that we do expect to recognize some initial revenues in q2 and I think you can tell from the margin guidance that Joe was talking about, fairly flat with q1, so I think that you can draw some conclusion from that. But I don’t think it’s appropriate to be more specific than that.

Okay and just one last one on BT. Your comments earlier Joe on DSO’s going more infernational. Does BT fall in that commentary? Is that an example of an international customer that’s going to have longer payment terms?

As it relates to this, yes. But I would caution you don’t be real focused on BT as a part of that issue. It’s just as you go more and more international, Nikos, it is just…they want longer payment terms. The revenue recognition cycle is a little bit longer as well. And a lot of the growth and stuff that Gary was talking about earlier, right now from what we see there is probably more in the European arena than there is in the US arena. So that’s why we said that.

Okay, thank you.

The next question is from Simon Leopold, with Morgan Keegan. Simon Leopold.: Thank you. A clarification and then a question. Joe, when you ran down the GSG breakdown, you talked about long haul switching and Metro and I think the percentages were 47, 19, 16. what’s missing? What’s the other part to get us to 100%?

I do believe it was the internet storage, CM4200. those three lines. We haven’t given you the detail in each of those three, Simon.

Okay. I just want to make sure I kind of have apples and apples. Great. Now the actual question: looking at some of the post merger environment of the old SDC buying the old AGT and us getting used to calling it AT&T and now Verizon merging into MCI. If you could talk about your exposure, your outlook, your sense of what the implications are for your business, the role you can play and your confidence in those expectations and maybe put it in commentary related to the sense that maybe these carriers try to reduce their number of suppliers and how you end up in that race. Thank you.

You get good questions, Simon. I think it’s pretty safe to say overall, things are still shaking out, but I think from the early indications I’m happy to share those with you. I think we feel pretty positive about it from what we can see so far. I think we’re fortunate in that we, we’re predominately providing different sets of products to the various merged companies before they got together so, the good news from our point of view is we now provide multiple products to these new merged carriers. And I think we feel that we’re pretty well positioned to leverage that and work with them. There’s always some uncertainty there as these things happen but I think generally speaking, from what we’re seen so far, we view it pretty positively. And it leverages off a lot of those solutions sets that’s we’ve got across multiple products. And I think as they look to transition their networks, we can help them put that together with our flex select architecture and our vision I think is pretty well suited to what they’re trying to do. You know you’re always cautious when these things happen and historically in the late ‘90’s early 2000’s we’d have concluded it was just definitely bad news for everybody. But I think we have to pick through the details of each of them to conclude whether it’s good or bad for us and I think so far we feel pretty positive about it.

Now is it your assessment that because of some of the regulatory issues related to 271 that AT&T may move slowly where Verizon may move more quickly? Is that what you’re seeing as well?

I really think that’s too early. I’m not dodging the question completely Simon, but I really think it is too early to tell. We’re seeing the new AT&T be pretty aggressive about its architecture plans. We they’re certainly going to be moving at a similar kind of pace, is my take on it.

Okay. Thank you.

We’ll go next to Paul Silverstein with Credit Suisse.

If you’ve already answered these questions I apologize. Can you talk about 4200 trial activities and perhaps in relative terms what you’re seeing today vs. a quarter ago and how that’s tracking? And also if you could talk about non-BT international demand.

I think we’ve covered part of them but I don’t think that we’ve talked to those explicitly. 4200 demand across those platforms, generally we’re just seeing it grow quarter to quarter. We’re very pleased with it. That’s gone nicely. Steve, I don’t know if you want to talk about any specific applications. Stephen Alexander, CTO: I think one of the things to realize with that platform is that it plays into so many application spaces out there, it works into healthcare, it works into the financials, it works into the carrier space, it works into (inaudible) extension. The use of all the flexiports where you can define them to be pretty much any type of service port you want and then change it in the future. That makes it a very widely attractive platform for a number of spaces. Generally it’s a very broad base of interest in it.

Before you go off on the next question, the non-BT international question, can you give us any metrics in terms of percentage increase in trial activity and customer activity? Any metrics that you could throw our way in tracking the progress of this platform? And also, in terms of the gross margins on that box, as volume increases I assume you’re seeing a positive impact on the gross margin line a well.

Let me answer that Paul. I think it’s from a fairly small base, so it’s growing exponentially on its…if you want a statistic I’ll say we’ve got more trials going on now and more activity than we had last quarter and you could say it’s doubled. To give you some idea about the kind of activity we’ve got. It’s very positive. In terms of the European or international growth and I think from my comment you can tell where I think it’s coming from, outside of BT, we’re seeing good opportunities throughout Europe, both in eastern Europe and in other countries outside of the UK, continental Europe. we’ve got a pretty good user base now. You know you’ve got (inaudible), France Telecomm, SwissCom, they’re all looking to do things. We’ve got a number of channel partners that are addressing eastern Europe and the enterprise markets in Europe as well. So I think we’re seeing it across the board in all segments. And also in the government and research areas in Europe as well, as we’re seeing in north America.

Gary, has there been any change on the competitive landscape? It seems like it’s more of a forest. Have you seen any of your traditional competitors become more competitive, less competitive? Anybody dropping their shorts on pricing, etc.?

It’s been a competitive landscape for a while. I think those of you who will know, we’re still seeing, particular in Europe, you’re still seeing Alcatel, particularly. You’re seeing a number of other vendors. You’re seeing some of the more traditional players I think not focus as much on this space. And I’ve described that some of atrophied out of it. And that’s helping a little bit. But there’s plenty of other competitors to take their place. I’d describe it about the same.

Thank you.

We’ll go next to Joe Chiasson with Susquehanna.

Thanks, good morning. Gary I wonder if you would talk a little bit about a trend that has been alluded to by Cisco and others with respect to the fact that optics are increasingly being integrated into things like routing platforms. How you guys sort of see that trend progressing and what specifically any moves you might be making to reconcile your product portfolio with that trend? Thanks.

So we’ve seen the emergence of what you would call the kind of small form factor portable markets for quite a while. That’s one of the big global market trends that we’ve kind of identified early and hope that our product designs onto. We’ve (inaudible) solid optics to show off in platforms all across the board and kind of from the beginning all of our line systems were designed to handle that exact scenario. That’s how we in fact inner work thinks like core (inaudible) and core director and 4200 is we use the same technology. So we’re well positioned for it.

Okay, thanks.

We’ll go next to John Marschetti with Morgan Stanley.

Thanks. Just a question for you Joe on the India operations. How fast do you think those can ramp? Where are you looking to take that to and sort of the impact that it might have on some of your opex lines?

Well, John I’m going to hand that over to Steve since that’s his responsibility and he can give you first hand knowledge. It’s a very good question. Stephen Alexander, CTO: The facility provides for about 300 people. We’re early in the ramp. We haven’t officially opened the building in some sense. We are hiring, we are training people. At any given time there’s probably more people (inaudible) for training than there are actually in the facility. But it is going quite well. We expect to realize the benefits of it over the next couple of quarters.

We’ll go next to Subu Subrahmanyan with Sanders, Morris, Harris.

Thank you. Can you talk a little bit more about the DN platform and the CMX. Because of the new distribution in growth it seems like a lot of it continues to be from TSG. If you look at it through 2006 do you still expect that to be the trend?

Subu, I think as I was talking about earlier with the development that was going on with DN, we’re taking a lot of that functionality on the Ethernet side and putting that into the other products. You’re also putting some of transport’s capabilities into the DN piece. So the product lines are getting blurred from that and I think we need to look at our segments very carefully and from a reporting point of view. Because I think that is one of the challenges we’re having. We see good opportunities for the functionality of DN be it in that platform or in other platforms that we’ve got and we’re developing. I think on the CNX side, Steve do you want to comment on some of the technology things that we’re doing with that? Stephen Alexander, CTO: Sure. So it really falls along the same themes. What you’re seeing is really blurting of the product lines and then the application spaces. So the model that Gary alluded to earlier as moving toward the R&D centers being core competencies, you’re going to find that the kind of Ethernet IPMPOS core competency that the DN represents, those feature sets are going to show up on more and more platforms. So you’re going to see them incorporated into ones that have (inaudible) which are things like (inaudible) and such. You’re going to start to see those integrated into the Flex Select architecture story with flexi ports showing up on those platforms as well because of the rich variety of services that it can create.

Back on TSG, what would you think is the percentage of revenues in those (inaudible) and I’m just wondering, does that have any implications for more of a long term revenue trend quarter to quarter fluctuations as more comes from TSG? Gary Smith.: I think that how we’re currently looking at that, I would say that TSG covers a multitude of centers. It (inaudible) a lot of platforms and technologies in that it’s a very big bucket, which is what I was talking about earlier trying to articulate what’s going on in the business. As you get the convergence going amongst those platforms its more and more difficult to talk about them as homogeneous segments. And so that transport, the TSG segment has a lot of pieces to it. So it really does.

Alright. Thank you very much.

We’ll go next to Marcus Cooperschmidt with Lehman Brothers.

Good morning everyone. I wanted to clarify a couple of things. We talked about the gross margin outlook for the business, you continue to be optimistic about improvements with quarter to quarter volatility. Can you give us a better sense of what are the pressure points that you worry about in terms of what creates that quarter to quarter volatility?

It’s a complicated mix of products and customers. And the cost reductions and the timing of those, when you get them on the components, when you get them out there, when you get the revenue recognized. So there’s a lot of aspects and dimensions to this. And that’s probably why all the aspects of our business are most difficult to predict with great accuracy on a quarter to quarter basis. But I think you’ve seen us in the last four quarters improve our gross margin and that activity and focus that we’ve got there, we’re working on more cost reductions. We have line of site as to how we can get more cost reductions. We expect a better mix as a result of our overall product portfolio; focused on higher margin products. As you get to this convergence as well, which generally means Ethernet etc., the gross margins tend to be as a general rule somewhat better the higher you go up the stack. So I think you’d got some positive overall trends around improving gross margins. The things that impact that are quite simply the product mix, if we’re doing a big build on a transport build that the customer is putting a lot of chassis and not a lot of cards in. that could impact it. As you get to the core of the network with more software, that’s generally positive. So there’s a lot of moving parts to that. But I think we’re confident overall, given what we’ve seen in the last 4 quarters. Pricing pressure, generally in the market place, it’s been tough but it’s been tough for a number of years. And our value proposition is not about being the cheapest product company, truly about the value we have as a solution. So we think that overall we can improve the margin from where we are.

Okay. And a couple of clarifications thinking near term. Your comment was the operating expenses should be flattish next quarter. Could I understand a little bit more about that, given your emphasizing your plans to take down the R&D going forward?

I think Marcus, Steve answered some of that. You’ve got the ramp up in India, which is costing us more, but you’ve got efficiencies that we’re getting elsewhere to balance that. We reduced our opex 8% from Q4 to Q1 and I think you can see the overall trend there. Again, a lot of moving parts to that. You’ve got some things that we’re focused on. We’re investing in (inaudible) but we’ve got some efficiencies that we think are going to continue overall to drive our operating expenses down. Not necessarily quarter to quarter, but across the year.

And thinking about the next sequential growth guidance for next quarter, if you think about product types. Which products do you think are going to be the biggest contributors to the sequential growth you’re looking for, for the immediate quarter and let’s say fiscal year ’06?

Marcus, I think you’re going to see it across the board. Both from the access space…if you look between now and the end of the year, I think you’re going to see if on the metro transport, the 4200 as I think Joe said we just started taking revenues and they’re fairly modest right now; that converged Ethernet space of the FlexSelect 4200, is one area that’s clearly going to grow dramatically for us where we only recognized a couple of million in revenue this quarter for it and we expect that to increase substantially over the next few quarters. So, you’ll see it across the portfolio. If I was to highlight those areas around the converged Ethernet space.

And the same would be true for the April quarter? Gary Smith.: Yeah. Those are the trends for the year, barring what comes in and out of that quarter, I think you’re going to see the same things in Q2.

Okay, thanks.

We’ll go next to Todd Hoffman with Raymond James.

Thank you. A strategic question. If you go back a little bit, Ciena had been a pretty aggressive acquirer many times of premium pricetags. It’s been a couple of years since your last notable combination or acquisition. I was wondering what’s the latest thinking on this, particularly given the rise in your currency? Thank you.

It’s fair to say that we’re working hard on leveraging the pieces that we put together there. It’s part of a strategy and as Steve said not necessarily focused on the products and the platforms that those acquisitions brought us, but really the technology palettes and capabilities that I think is very well suited to where we’re seeing the market go now around sort of a converged Ethernet space. I think those acquisitions as part of our longer term strategy to really build a competency around a broader array of technologies. And that’s beginning to work for us. That being said, never rule out an acquisition in the future. But we’re really focused right now on the pieces that we have. We think we’ve got a lot of the things that we need to address the market pieces that are growing right now.

Thank you.

We’ll go next to Gina Sockolow with Buckingham Research.

Thank you. When you look at your international revenue in this past quarter and your outlook. What do you think the mix of chassis to cards were and what the trend will be? And within that answer, can you just clarify if you think what the BT revenue recognition issues are as to how long it will take orders in hand to translate to revenue? Thank you. Gary Smith. (inaudible) about 15% of the total revenues overall. As I said I think we’ve got good growth potential internationally with Bt and outside of BT as well. Place like France Telecom, Sagitel, SwissCom, there’s a lot of activity in Europe right now that we’re seeing. So I think our product profile of cards and chassis is fairly evenly mixed right now and fairly small revenues overall. And we expect that it will change going forward and international – specifically Europe – will be a greater part of our revenues. We do expect initial BT revenue in Q2, the quarter that we’re in right now. We can’t really talk about the size and the scope of it unfortunately, publicly. Clearly it’s a large and meaningful deal for us and we’re in the early stages of rolling that out. That will help, I think, clearly skew the domestic and international revenues to a more favorable mix. But we’ve got a lot of other activities in addition to BT that I think are going to help, Gina.

So when you say the mix between cards and chassis is about even, is that what I heard you say? Then looking out, would you expect higher traffic levels to drive higher margin card sales so that mix and the profitability shifts on the international business?

I think one of the things that we’re dealing with Gina is the traditional markets were on the transport side where’d you ship a chassis and then put cards in. that’s very true and clearly we have some of those. But we’ve also got it you look at the new platforms and some of the flex select architecture on the 4200 family, that really doesn’t apply. You’ve got a more software-based chassis and cards that actually come in with that. So you haven’t got a lot of capacity for increased cards with it. It’s a different model I guess is what I’m trying to say Gina. So you’ve got the more traditional space with cards and chassis and you’ve got the smaller metro platforms that are converged.

So if Ethernet Transport picks up in the US, would you see the scenario following with first selling the chassis in and then getting a better mix of the cards? Stephen Alexander, CTO: A lot depends, of course, upon the size of the platform. Some of the big, more core facing transport platforms can handle a couple of hundred channels over time so you have a lot of potential card adds. Some of the ones out of the edge, people put in 2-4 slot boxes and some of them are full so there isn’t a card add business there. It’s varies tremendously. Gina Sockolow.: Okay, thank you.

Thank you. In the interest of time, that concludes our question and answer session. I would now like to turn the call back to Mr. Smith for closing remarks.

Thank you Gwen and thank everyone for your time this morning and for your continued support. We look forward to seeing many of you at financial conferences during the fiscal 2nd quarter and at venues like telecom next in Las Vegas. Thank you.