Greg Klaben – VP, IR Ken Kannappan – CEO and President Barbara Scherer – SVP, Finance & Administration and CFO

John Bright – Avondale Partners Reik Read – Robert Baird & Company Paul Coster – J.P. Morgan Tavis McCourt – Morgan Keegan Rohit Chopra – Wedbush Morgan Bill Dezellem – Tieton Capital

Good afternoon. My name is Clayton [ph] and I will be your conference operator today. At this time I’d like to welcome everyone to the first quarter fiscal year 2010 financial earnings call. All lines have been placed on mute to prevent any background noise. (Operator instructions) Thank you. Mr. Klaben, you may begin your call.

Thanks, Clayton. Joining me today to discuss our first quarter fiscal 2010 financial results are Ken Kannappan, Plantronics’ President and CEO, and Barbara Scherer, Senior Vice President of Finance and Administration and CFO. I’d like to remind you that during the course of today’s conference call we may make certain forward-looking statements that are subject to risks and uncertainties as outlined in today’s press release. As we have highlighted before, the risk factors in our press release and SEC filings are not standard boilerplate. We update these risk factors every quarter, adding and dropping language and changing the order depending upon the timing and potential impact of the concerns that we foresee. We believe forecasting our results of operations is difficult and we ask you to focus particular attention on these risk factors that could cause actual results to differ materially from those anticipated by any such statements. For further information, please refer to the company’s forms 10-K, 10-Q, today’s press release and other SEC filings. Plantronics first quarter fiscal 2010 net revenues were $160.1 million compared to guidance of $145 million to $150 million. Plantronics GAAP diluted earnings per share were $0.22 in the first quarter of fiscal 2010 compared with earnings per share of $0.42 in the same quarter of the prior year. Non-GAAP diluted earnings per share for the first quarter of fiscal 2010 were $0.36 compared to guidance of $0.08 to $0.12. The difference between GAAP and non-GAAP earnings per share for the current quarter includes restructuring and other related costs, purchase accounting amortization and the cost of stock-based compensation. I’d like to remind you that on the Investor Relations section of our website we have an updated PowerPoint presentation as well as an analyst metric sheet with all of the financials and metrics released today. With that, I’ll turn the call over to Ken.

Thank you, Greg. And thanks to all of you who’ve called and for taking the time to listen to our call. Our first quarter results reflect stabilization in our major product groups and geographies. Demand was better than we expected in the office and contact center market as a result of improved business in healthcare and government. In addition, we’ve seen an increase in work-at-home programs among Fortune 500 companies. This has offset what remains a globally weak economic environment. Turning to some of the key takeaways of our first quarter, overall revenue declined by 27% from the first quarter last year to $160 million as a result of comparative economic weakness. In fact, we had a benefit from the California to Washington hands-free laws in Q1 last year. Increasing our gross and operating margins has been a critical objective, and both were above expectations in Q1. Results have several factors. First, higher product margins in all major product groups. Secondly, a favorable mix shift towards higher margin products. Third, achievement of break even impact on our P&L from our consumer business on a contribution margin basis. And fourth, a favorable impact from our previously announced plan to a wider cost structure with the current market environment. Our Q1 operating margin of 14% is higher than last quarter. It is even higher than the same quarter last year as a result of focus on improving profitability and efficiency. Our inventory level was at the lowest in several years, and our cash, cash equivalents, short-term investment position were at just over $250 million, as we generated over $35 million in cash flow from operations during the quarter. The operating results of the Audio Entertainment Group improved markedly compared with both the same quarter last year and also the prior quarter. There are no options off of the table in regard to AEG, and we hope to update you by the end of the September quarter. I’d like to turn for a very brief update on Unified Communications or UC for short. In the June quarter we continued to see a strong level of interest in our solutions for Unified Communications, which include voice. We are seeing global growth in trials and future plans for UC adoption. While a few large deployments were underway, most corporations are still early in their evaluation. We are tracking hundreds of major companies, which appear to be moving forward with some level of UC adoption. While initially many will retain their hardphone solutions, we expect over time that softphones will increase, precipitating a large increase in headset adoption potential. Compared with the year ago, it is clear that corporations worldwide have placed UC with voice into their future plans. In order to secure leadership position, our R&D investments are primarily focused on UC. We are also working hard to secure strong alliances with the largest UC vendors. In the June quarter, Microsoft selected us from an international field of 2,000 top Microsoft partners as their OEM Hardware Solutions, Device Manufacturing Award winner at their 2009 worldwide partner conference. We are pleased with this award. We are also working very hard and very well with Cisco, Avaya and IBM and other important UC partners. We continue to be committed to executing on our goals for fiscal 2010, which are, number one, to be profitable and cash flow positive; number two, to establish strong UC market position for future growth; number three, to improve consumer profitability; and finally, to improve return on invested capital. Now I would like to turn the call over to Barbara to give you a little more insight into our results.

Thanks, Ken. Overall our quarterly results were better than expected with net revenues exceeding the high end of our guidance provided on May 5th by approximately $10 million, primarily due to the strength in OCC and Bluetooth, which were up sequentially. We had expected revenues in those product lines to be similar with fourth quarter levels. Our non-GAAP earnings per share of $0.36 was also well above our guidance of $0.08 to $0.12 per share, primarily due to the higher revenues and higher gross margins. Our cost reduction efforts were on plan and contributed significantly to our operating results for the quarter. For example, compared to Q1 last year, non-GAAP expenses decreased by $14.5 million or 23%. We had expected a small GAAP loss per share, but ended the quarter with GAAP net income of $10.7 million. One of the big differences between GAAP and non-GAAP net income in our Q1 results are the accelerated depreciation and restructuring charges totaling $4.1 million. The level of these charges was consistent with our expectations in previously announced plans to close our manufacturing plant in China and transition to an outsourced model. Specifically there was $3.5 million of accelerated depreciation within GAAP cost of revenues in Q1 related to the upcoming closure of our manufacturing plant. And that closure is on track to be complete in Q2 and $600,000 of restructuring charges in GAAP operating expenses. Turning to the Audio Communications Group, revenues of $141.2 million were down approximately 29% or $57.4 million compared to the first quarter last year. The decline was primarily driven by poor global economic conditions and manifested itself as a decrease in net revenues in all regions and all product categories. OCC net revenues decreased $26.9 million. The decline was broad-based and again a result of the global recession. We believe our market position is stable and that we are well positioned for future growth in this category as global economies begin to recover and as you see gained momentum. Revenue from Bluetooth headsets decreased 45% or $24.9 million compared to Q1 a year ago. Please do recall that in Q1 last year we had begun to enjoy higher demand brought on by the hands-free legislation in California and Washington, and part of the year-over-year decline is related to that. 55% of ACG segment revenue or $77 million was derived from wireless products. And that breaks down as 61% office wireless, 39% Bluetooth. While understanding wireless versus corded product group was important for a number of years, in a UC world both corded and wireless products will be needed by customers depending on their application and other factors. Therefore we believe data on wireless versus corded within OCC is no longer particularly helpful in terms of understanding growth or profitability of our business, and we intend to discontinue providing it in the future. Geographically, ACG’s decline in net revenues compared to Q1 last year was down 28% domestically, down 30% internationally, which resulted in a 63/37 domestic to international mix, which was fairly consistent with Q1 last year of 62/38. In the last point I want to make on revenues is that they were higher than our guidance forecast primarily because the level of demand we experienced throughout the quarter was relatively stable with no down months such as we experienced in Q4. I’m really pleased to report that ACG’s non-GAAP gross margin was 49% compared to 45.4% in the June quarter last year. This 3.6 point improvement was primarily due to 3.2 points from higher standard product margins due to a higher OCC mix, higher Bluetooth product margins, and lower discounts on OCC products. Also a 1.5-point benefit from lower E&O and warranty provision requirements; 1.1 points of benefit from lower freight expense due both to lower inventory purchases and lower fuel surcharges. We also had 0.9-point benefit from a one-time correcting adjustment due to the overstatement of duty expense in prior periods. We discovered an error, which had been small in each of the 18 quarters since Q3 2005, which cumulated to $1.3 billion and was corrected in Q1. Partially offsetting those positive impacts on ACG gross margin were 2.8 points from the impact of lower production volumes and absorption of factory costs. ACG had a non-GAAP operating margin of 17.9% in Q1, up from 16.9% in Q1 last year. The increase in operating margin was primarily due to higher gross profit as a percentage of revenues and significantly lower operating expenses as a result of execution on our cost reduction plan. Our long-term target model for ACG remained 18% to 20% operating margin, and it is really exciting to be able to get this close to the target range at this level of revenue in this weak economic environment. I’ll now turn to the AEG segment summary. The Audio Entertainment Group first quarter net revenues of $19 million were flat compared to the prior quarter and represented $1.7 million decrease compared to Q1 last year. AEG revenues for the quarter were generally in line with our expectations. The docking audio line was flat versus a year ago quarter on the strength of the iM600USB in particular while the PC audio line declined. PC audio revenues were affected by the phase-out of an older product portfolio during the quarter, partially offset by sales of the new replacement line. Placements of the new PC line are good and this category should grow from here. AEG non-GAAP gross margin was 13.8% compared to 12.7% in the June quarter last year, primarily due to material cost reductions and lower freight costs, partially offset by higher promotional activities due to customer mix. AEG has been working to reduce its costs for well over a year and has been making steady progress. The cumulative benefit of the substantial completion of the product portfolio refresh as well as the restructuring efforts resulted in OpEx down 26% year-over-year. Due to these efforts as well as the strong placements in mostly in line revenue performance, our quarterly non-GAAP operating loss decrease $1.8 million year-over-year and $2.1 million sequentially. On a consolidated basis below the operating income line, we had $1.3 million in other income compared to $1.5 million in the year-ago quarter. And that was actually a result of a decrease in interest income from $1 million last year down to just $100,000 in Q1 this year as a result of the significant decline in interest rates, offset by a larger FX gain. And our consolidated effective non-GAAP tax rate for the quarter was 27% compared to 24% in the year-ago quarter. On a GAAP basis, our Q1 tax rate was 32.4% compared to 14.4%, primarily due to very limited tax benefit on the accelerated depreciation and other restructuring charges we incurred in the quarter. Also, our year-ago rate was unusually low as we needed to release tax reserves when the statute of limitations expired on the matters for which those reserves had been originally booked. As a result of all the above, our Q1 consolidated non-GAAP net income decreased from $23.3 million in the year-ago quarter to $17.5 million, but does represent a strong level of profit and is a nice recovery from the March quarter net income of $0.5 million. On the balance sheet, our $253.6 million in cash, cash equivalents and short-term investments is up from $218.2 million at the end of last year, a $35 million increase. Cash collections were strong and DSO dropped to 50 days. Due to our continuing effort to reduce inventory, inventories were down $10.4 million sequentially. Despite the good reduction in inventory, turns were flat at 3.2 due to lower cost of sales given our improved gross margin. Inventory turns were 3.7 in the same quarter last year. Our strong profitability and inventory reduction helped to generate approximately $38 million in cash flow from operations in the first quarter. At the outset of the year, we said we would cut CapEx by approximately 50% from fiscal ’09. In Q1, capital spending was $1.7 million, down from $4.8 million in the year-ago quarter and lower than depreciation and amortization of $5.4 million, and continue to expect CapEx to be approximately $11 million to $12 million for fiscal ’10 and for us to achieve our plan of cutting CapEx by 50%. Given the strong increase in our cash position coupled with the fact that we brought our cost structure into alignment with the current environment, and as we announced in May, we resumed repurchases under the stock purchase plan that our Board authorized last fall. While the economic news is still fairly negative, there are signs that the rate change is lessening. In May, when we last spoke to you, we said that our order rate appears to have stabilized over the last several months. And that continued to be true throughout the June quarter. We have thus experienced five months of relative stability in our core OCC bookings, which contributes to our belief that in fact we may have stabilized at about this level. The September quarter has tended to be down a bit for ACG, particularly for our Office and Contact Center product lines, and we are therefore guiding flat to down a bit for Q2. Specifically we believe consolidated net revenues will be in the range of $155 million to $160 million. Depending on the revenue mix and other factors, we believe non-GAAP EPS will be $0.27 to $0.32, with a 27% non-GAAP tax rate. The GAAP charges we currently expect include approximately $1.5 million to $2.0 million in restructuring charges primarily for accelerated depreciation and a recurring GAAP items are $3.6 million in equity compensation expense and $0.6 million in purchase accounting amortization, bringing total estimated GAAP charges to $5.7 million to $6.2 million pretax. We thus expect GAAP EPS of $0.17 to $0.21 in Q2. I also wanted to note that the transition to GoerTek, the contract manufacturer we are using for Bluetooth, has been executing on or ahead of schedule and we will be finished with that transition this summer. That means we are also on track to get the lower cost in place for Q3 on our Bluetooth products. Last quarter we indicated that gross margin for Bluetooth had historically been around 10%, and that we expected to get that to 20% to 25% based on the changes we are making. We made good progress on our plan in Q1 and continue to expect to achieve 20% to 25% in the second half. During the first part of this call, Ken highlighted that our consumer businesses broadly were about break even in terms of the impact at the corporate level. What this means is that while the fully burdened P&L remained negative, the contribution margin was break even. The difference between fully burdened and contribution margin in the allocation of largely six corporate overheads to the consumer business. And with that, I will turn it back over to our conference facilitator for the Q&A session.

Thank you. (Operator instructions) Your first question comes from the line of John Bright with Avondale Partners.

Hi, John. John Bright – Avondale Partners: Ken, hello. Barbara, hello. OCC was strong this quarter. Did pent-up demand exist throughout the quarter? And is this the reason that maybe the sequential guidance is slightly below?

I don’t really think so. Of course, there could have been some here and there, but I don’t think as an overall explanation that’s the case. As Barbara said, we really had five fairly flat months in a row, representing that as we declined to kind of a sharp trough level and then had a slight rebound for those five months representing what we think is a fairly steady pattern of demand over that period.

I think if there’s been kind of a hidden demand or pent-up demand, what else (inaudible) itself more as maybe really a large month and then something less. But in fact, the weekly order rate and shipping rate has been pretty stable since February. John Bright – Avondale Partners: Can you then – talking about Unified Communications for quite sometime, it’s very important to Plantronics story, is there a way that you can tell us how much maybe it might have represented in this quarter or maybe you can give us some signs that we should watch for its investors that it is growing?

I mean, it is a little tough, and so we’ve been struggling ourselves with how can we communicate it given the reliability of the data, the fact that it’s a two-step and the fact that certain products can be bought for UC but not currently used for UC. In other words, people buy to future proof their solutions. Couple of comments on this. Right now, clearly UC is not a significant part of the total revenue mix, but I will tell you it dominates the discussion that we are having, particularly with the large customers at this point in time, because that is very much what they are looking towards. And many of them to most of the large companies are in fact piloting, trialing these types of units looking at UC on a go-forward basis and very concerned to make sure that the solutions they buy will be compatible with whatever UC solution they go forward with. So it’s important to them even in advance of actually deploying UC solutions. So at present, a small part of the business, but a critical strategic part of our relationship with them as a supplier. Going forward, we expect it will be much more significant. We do internally track – and I can’t give you anything on a quantified basis that we know that we’re going to be in a position to feel like it has the type of data integrity to constantly go forward and compare to. Again, we have seen a significant increase since the last quarter in the number of corporations that have decided to move forward with UC deployments over time. We feel very good about that momentum. John Bright – Avondale Partners: Any feedback on attach rates given the early stage? I think the slides (inaudible) 50-plus enterprise. You see telephony trials going on. Any feedback on their take rate?

Yes. Well, two points. One, in terms of attach rates, it’s actually so far been more positive than that 50%. But I want to caution that we’re dealing with a very small sample at this point in time, so not necessarily expecting the early adopters will be characteristic of the rest of the market. Some of the early adopters are technology aggressive. Some of the laggards are going to be all the more inclined to keep legacy phone solutions, and we’ve got to bear that in mind. And that is – that is a really, really important issue for us, because if you keep a legacy telephony infrastructure, there is not necessarily an increased need for a headset for attachment. The second thing is that I think that if anything the market has begun to believe that they are going to be using, to a greater degree, phones and you see soft solutions at the same time for a longer period of time to ease that transition, we believe and we hope that that will still give us an opportunity to sell headsets for attachment for UC voice sort of soft phone even while people continue to retain the hard phone. But I think if anything, the momentum is shifted towards, as people are looking at it going forward, keeping some sort of an IT fund in their deployment. John Bright – Avondale Partners: Barbara, you’re building a pretty strong cash balance, is that happening domestically as well? And then maybe give us an update on your share buyback efforts.

Our cash balance domestically is – it is – it's only $87 million of the $254 million. So it’s not growing as fast right now as international has been, which is partially because of the inventory reductions, which generate a lot of the cash flow. That inventory is basically held by our international subsidiaries. So it’s $87 million, and we have 865,000 shares left to repurchase under our authorized plan, which at today’s sort of prices will use about 21% of our domestic cash balance. So we – you know, we fully intend to continue to use excess cash to buy back stock. I think we’ve got an absolutely terrific record of doing that. This is our 19th stock repurchase plan. Over the years we bought back over 21 million shares and we’ve spent $425 million doing that. John Bright – Avondale Partners: Thank you.

Welcome.

Thanks.

Your next question comes from the line of Reik Read with Robert Baird & Company.

Hi, Reik. Reik Read – Robert Baird & Company: Hey, good afternoon guys. Maybe just back on Unified Communications, looking at it more broadly, can you give us a sense what the pilot activity that you’re privy to? What are they telling you about the actual savings that they may be getting from Unified Communications? And how much might that drive it? Because I think that’s kind of the hard thing for people to get their arms around right now as we go to this new technology and what does it really give you.

It’s a great question. Let me just separate out that of course the pilots are the ones that are assessing the savings. And then there are the ones who have decided and committed to the rollouts who are typically much more advanced in terms of their P&L impact thinking. So I can talk a little bit about that and then I’ll kind of come back to the pilot. First, amongst those who rolled that out, there is actually a group that doesn’t see the hard cost savings. They see that collaboration and productivity benefits were a little less impacted by this economy. These include resource companies, government agencies, some other parts of the economy that are more shielded. Of those that are going forward due to the cost savings, let’s say that there’s three primary groups. One part really looking at their real estate cost. Your typical organization has got 20%, 25% vacant offices at any point in time. Okay? And so if you go in there (inaudible) Wednesday, it’s Monday, it’s Friday, there are people who are traveling. They are vacation. They are out sick. They are doing something else that for whatever reasons leaving their office, take it all day. A lot of companies are saying that is a pretty significant expense. We pay 7% of revenues for our real estate cost. If we could monetize that 20%, we would be able to save 1% of revenues or alternatively lift our profit margins by 1 point, which is a pretty significant boost to the average company’s profit margin. We cannot, by the way, take that a little bit further. We can look at encouraging people to be remote workers, to work from home. We can even look at people who, during the day, are not occupying the office all day long. I’m in the office the day, but I probably only spent an hour in my office. I didn’t really need it all day, and in fact if I walk ten minutes to a room and then ten minutes to another room, had a 0.5-hour break, it would be a lot of efficient for me to just use any queue. With Unified Communications, you have the great capability that somebody simply is calling you, just like they are emailing you right to your computer. I can have a fully functional office absolutely anywhere. And on the one hand, office has traditionally been a nesting site where you’ve got photos of your family and you’ve got the ability to keep papers, but nowadays with a computer you keep a lot of your paperwork there. We can provide them with a locker and you can – for whatever personal items you want there. But, from the standpoint of needing the office anymore is a place to receive your phone calls. That’s not as necessary in the Unified Communications. So with Unified Communications, you can lock up – unlock, excuse me, a lot of that cost and there are companies that are looking at it and looking to justify more than the entire cost in a very small number of months through this. Some corporations are locked into leases not willing to make those changes yet. So they can’t look at those cost savings, but many are, and particularly some financial services firms and very expensive real estate and money centers are working [ph] at this. The second big area is travel time and cost. A lot of companies are looking at the fact that Unified Communications and it’s probably more video than voice, and of course we’re part of the video solution on the audio cap are saying, you know what, we don’t need to go all the time and visit people, particularly internal meetings. We can really cut down on the amount of these meetings that are taking place. We can have a much more effective remote meeting with video and actually it’s the travel time that’s even bigger than the travel cost. One organization we know believes that they can justify the entire Unified Communication with very high feedback just on the savings of travel time and cost. And they are even looking to federate their UC solutions with suppliers and in some cases, with customers through reduce the amount of travel that goes there as well. The third big bucket is the infrastructure cost. Some companies have still got legacy, PBX or paying annual software license fees, laying out money if they are expanding for phone. They have got IT department for managing this, and they are seeing that they can get savings from this as well as by implementing a solution that’s easier and more effective for VoIP cost to cut their actual telco charges. So we’re seeing all of those cumulate to being big sources of cost savings. And I would say that most of those who are deploying are not in the first category in terms of collaboration. They are after these hard targets. They are determined to make those happen. And I would say that of those who are the pilot face [ph], more of them are in the category of looking at probably the travel, because so often real estate winds up being a target that you can only get at a certain point in time when you have the lease running out and depending upon your view and your ability to change work habits into sublease that facility. Reik Read – Robert Baird & Company: Great. And just on the trend that you were talking about a little bit before, it seems like people are more inclined to keep their IP or their VoIP system. What does that say right now about the traction that the PC side is getting?

Well, I think the PC side is having good traction. But having said that, most end users still want to have their traditional phone. And IT departments are responsible to that. The vendors are responsible to that. And so the real question for us is, do they implement UC where there is significant voice use on a soft phone or does it wind up coming on the – on any kind of an IP phone. If it comes on the soft phone, then clearly have the need whether you keep the legacy phone or not that have the audio I/O that we can provide. If by some chance you implement, you see where you’re using an IP phone, then we become potentially only the same sort of adoption level that we have today. And so it’s an opportunity for us to sell and perhaps replace the equipment, but it’s not a catalyst for a big increase in adoption. Reik Read – Robert Baird & Company: Okay. And then I know, Ken, that you said that you’re going to get us an update in September on your thoughts with Altec. But can you give us an update maybe on the strategic thought process to discuss how important it is to be in consumer? And if that is the case, is it necessary to have an Altec, can it be divided, things of that nature?

I’m not going to get into that too much right now, but I would say just kind of broadly on the topic consumers, there is no question that, number one, we are seeing a consumerization occurring within business and increased important of remote workers and then understanding of IT department that these individuals will have both personal and business applications and that they need to have a somewhat holistic view to support those requirements. And what they use at home, they will bring back into the office as well. Reik Read – Robert Baird & Company: Okay, great. Thank you much.

Thank you.

Your next question comes from the line of Paul Coster with J.P. Morgan.

Hi, Paul. Paul Coster – J.P. Morgan: Hi, good afternoon, using my Plantronics headset here. So –

You sound terrific. Paul Coster – J.P. Morgan: Yes, thank you. It’s not the headset, it’s me. So, Ken, the way I understand it is Unified Communications product is not yet sort of material. Is that correct? Is it a component of OCC even though you see this terrific pipeline? Is that a correct statement? And then looking forward, when do you think it will be material? When do you think it will be – really start to take off?

Well, so it is correct when I measure it in terms of our revenues from these products. I mean, bearing in mind, we just launched Savi Office last quarter, right? So it’s pretty new. But again, I think it’s already material, very material to our relationship with most of our key partners and with our largest end users because they understand it’s the future and they want us as a partner to help them understand how they need to get there. I think that the timing of its materiality may actually, again, anticipate UC deployments to some degree because people want to be prepared in future proof for those applications. And you can use these new systems, even if you’re not going to use it. I mean, just as an example, I have – we have customers who want to be able to use audio on their PC. They are in a queue and they are saying, I’m getting e-training, I’m getting video mails, I want to listen to the streaming audio for whatever reason, then I’ve got phone calls, and I can’t really do that with speakers without bothering other people. And therefore having a headset allows me to take phone calls and receive the audio out of the PC makes a lot of sense. So there is a lot of reasons why it’s a good and appropriate solution again independent of whether or not I’m actually deploying UC right now. When do I expect to be material? I didn’t really kind of go over our materiality definition, but I guess I would have to say we do expect that this will be a significant mix shift. And certainly in the next fiscal year, I would expect it to be a material part of our total revenues. Paul Coster – J.P. Morgan: In fiscal year ’11?

Yes. Paul Coster – J.P. Morgan: Say, more than 10% –

Well, again, we didn’t – I'm not sure, I don’t want to be tripped into disclosing this before we’re prepped to do that. But suffice to say, I would expect it to be material in the next fiscal year. Paul Coster – J.P. Morgan: Okay, got it. Talk a little bit about the channel inventory, both the OCC enterprise channel and the consumer channel. Where do we stand in terms of weeks of inventory and how will that evolve do you think?

As you know, we’ve continued to see inventories as measured in weeks on hand, actually continuing to drop. And they were down to about 3.3 weeks in the US commercial distribution channel and that was down several tenths of a point from last quarter, which had been down quite a bit from the December quarter. So –

We’ve also see drops internationally.

Yes. And then internationally we’ve seen drops and we’re expecting a further drop. I don’t really expect further drops domestically because 3.3 is a pretty low number, but internationally I do think we’ll have some further reductions. Paul Coster – J.P. Morgan: Okay, got it. And in the consumer space, do you have any estimates there?

I’m trying to remember the data, but fundamentally I would say that the overall inventory remained pretty lean. We’ve had a little bit of a supply constraint on a few products as we’ve been working the transition in our Bluetooth business. So we really think that the overall levels are fairly low. Paul Coster – J.P. Morgan: Okay –

Yes, those don’t roll up quite as nicely into sort of a uniform sort of reporting package, at least not where we are right now on that, but kind of account-by-account there is – we're not worried about inventories. They don’t seem to be worried about inventory. They seem to have hit the level whatever it is for that account that they want to be at and are continuing. Paul Coster – J.P. Morgan: Finally, can you just talk a little bit about the competitive landscape as it relates to your sort of – your core businesses? And then what you see in mind – who do see in the UC space? Is there any change there? And how do you feel you’re positioned relative to them and why?

Okay. Well, first, I don’t think that there has been a major change since our last quarterly call in the competitive landscape. We continue to see occasionally aggressive price actions. We saw one this past quarter of a piece of big business. Half our price type of stuff, and we do see that. They have had a change in leadership and it’s too early to see whether that will continue this kind of out of control, the centralized price sort of focus or whether we’re going to see a shift towards growth from that, more obviously interested in seeing what happens. But I think we’ve managed to, despite that kind of stuff maintained overall our market share and our margins. And if there is a change then perhaps there will be better that we’ll see either way. We’ve tended to compete successfully. I think that to date we haven’t seen a new entrant. As I’ve said before, unfortunately many organizations do want to have more than one player in the market and at the same time, this space has yet not been one where people – particularly the large infrastructure ventures want to deal with a lot of different players. So we haven’t as yet seen more than our primary competitor involved in most of the competitive situations. Paul Coster – J.P. Morgan: Thank you very much.

The next question comes from the line of Tavis McCourt with Morgan Keegan. Tavis McCourt – Morgan Keegan: Thanks. Hi, Ken and Barbara.

Hi, Tavis. Tavis McCourt – Morgan Keegan: My question, I guess the first one is on operating costs. Obviously you guys have done a tremendous job of cutting both R&D and SG&A out year-over-year. Now that you see the business stabilized a bit, to what degree you committed to kind of keep the operating costs where they are, or are there areas where you feel like it would make sense to do some investments now that at least Armageddon is not coming?

I think that there is a mix on that. I mean, clearly part of what we did, we believe, is a reduction in our cost structure and improve efficiency that we believe can be systemic. There are, at the same time, areas where – you know, it’s true the business is at a slightly higher level than we thought and Unified Communications coming along the pike pretty well. And so there are certain opportunities for us to be ready for that. And so we gave a number earlier as to our OpEx expectation for the year, and I think that there could well be a little bit of increased investment in a couple of areas to prepare for those opportunities. Tavis McCourt – Morgan Keegan: And then I know, Barbara, you said you didn’t want to give the corded and wireless breakout within OCC. But could you talk about maybe sequentially where did you see similar strengths in both or was it more in the traditional call center space or more in the traditional office space?

Tavis, we were saying that we think it was important and we intend to discontinue it in the future, but we didn’t mean that we are just stopping kind of on a dime. And so the cordless number was 46.6 million, which is down 27% versus the year-ago, and the corded was 49.4%, which was down 17%. So the wireless does still map a bit more to – well, it definitely maps more to office. That is somewhat more discretionary than some of the applications within the corded piece. So the corded was – I mean, they were both down double digits, but corded not quite as affected. Tavis McCourt – Morgan Keegan: And I guess, Ken, a follow-up on some of that you see commentary. I guess, two things. How should we think about peace for this business? Are they more like the corded business or are they more like the cordless business? And then secondly, I mean, when I look at the barriers to entry to your traditional business, a lot of it was building the backward integrations, all the various PBX systems out there and there just weren’t a lot of vendors that that did that. How difficult is it or how much of a head start do you have working with all the existing UC software vendors? And then kind of maybe compare and contrast that to be the technical barrier you have in the traditional voice world.

First, let me answer the first part of it. I think it’s going to be more comparable to our corded business than the wireless part of it. Bear in mind that our existing customer base is largely comprised within the enterprise of the 7% to 10% of people who are adopting it. In general, those are people who are on the phone a lot. And therefore, number one, the headset is very important to them; number two, there is a heavy mix of people with either help-desk requirements, mobility, and that’s a critical tool for them or upper end execs [ph] who are able and willing to say, you know, I want to have a wireless product. As we are mixing it out into a much broader demographic where people are in some cases not on the phone very much at all. They need to have a headset because they need some voice I/O tool to check voice mail or to listen to other stuff, but they don’t make a lot of calls necessarily. Those people, the average company is simply not going to pay for a wireless headset. They will believe that a corded solution is adequate. So we expect the mix to shift towards corded, and you see and in fact, just to be clear, that is what we have seen with the initial deployments, is a very, very high mix of corded solutions. So that’s our expectation. In the second question you asked about relative to integration with vendors, and you’re right. On our legacy infrastructure, those are typically closed systems where we’ve had proprietary product that we offer that provided interface between those closed systems. Now even in traditional telephony, that had actually begun to erode a little bit as they were vendors that have come up with direct connect type solutions, and our business and our market share and our margins have still persisted for some period of time. As we are looking towards, you see the integration is less about the physical connection because clearly if it’s a PC, you are dealing with either a USB interface or some kind of wireless interface, be it Bluetooth or something else. But it is still about the integration from a software perspective in terms of the applications and the ease of use and the ability to command and control them. And it’s not just with Unified Communications, but it’s also with the other audio you’re using on your personal computer. So at this point in time, we do think we have a leadership position. We think there are at least a couple of major players with whom we are the only party that they are working with to integrate it. It doesn’t mean that others cannot create a level of integration, but it’s more difficult and it’s not necessarily as good an experience. And right now, again, there are only two major players working on this. And I think probably both of us have achieved a fairly significant ease of use experience in broad plug-and-play compatibility. On top of that, of course, this is also a fertile field. This is an opportunity for us to create further value-add for the end user in terms of the experience they can have and in terms of the functionality that they can create in terms of use of these products. Just to give you a single example to make it little bit more tangible. With our product as an example, if you are using – and I’m talking about our Savi Office here. If you are using that on a – you get a call coming in, for example, on a telephone line. Your e-training application, for example, will automatically pause, okay, rather than continue. You will then go ahead with the call if you wish them to conference at that point in time with someone internally using a UC system so that you know that they are available. You can do that actually mixing within our unit between a VoIP call through that UC system on the PC and a traditional landline call. So that’s a level of functionality that we’re able to add. So I think that it’s a different type of value-add and it’s very, very early in the game in terms of what’s going to be the level of competition, but we’re certainly completely focused on trying to make sure that we’re successful in winning, and winning with margin. Tavis McCourt – Morgan Keegan: Okay. And the final one is just kind of running through some rough numbers here. It looks like kind of once the Chinese outsourcing plants are complete, you’ll be kind of at or near, if not all-time high, then gross margins for ACG certainly relatively close. What is your viewpoint on the sustainability of that? Or does that all depend on kind of the pricing environment out there?

Well, so you’re right. I mean, the steps we can take on the cost structure and then after that some of it does depend on by competitive forces, which are both based upon the value that we’re able to bring to our products and clearly to the last point, we’re trying to have more and more value to be brought in software. In the case of some of the Bluetooth products and DSP and algorithms and other things that don’t actually affect the product cost, design value. But it also depends upon the behavior of competitors, and those are both a function of their business strategy as well as whether or not they have excess inventories in a moment of time. So it’s hard to fully predict. We are expecting and hoping that we will have improved industry structure and improved margins going forward, but it’s a function of those other things. Tavis McCourt – Morgan Keegan: And then the final one, Barbara, if – is there an impact that the Audio Entertainment Group has on your tax rate at this point? If that went around, would there be a different tax rate for the company or is it roughly similar to the consolidated?

When we are losing money in AEG, which obviously regardless of whatever option we follow, we don’t intend to keep losing money, but we have been. And those losses are basically they are all US losses, so they are deductible at a full US plus the California share of that. So you get a benefit of about 38%. So, as AEG becomes profitable or as those losses are eliminated, it does tend to have the effect of raising the tax rate. Tavis McCourt – Morgan Keegan: Okay. I think that was it. Great quarter.

Thank you.

Your next question comes from the line of Rohit Chopra with Wedbush Morgan. Rohit Chopra – Wedbush Morgan: Hey, Barbara and Ken. I had a few questions here. I just wanted to get a sense of where you saw some geographic strengths and weaknesses.

Sure. In general, I would say that the United States held up reasonably well. China was reasonably good. And certain parts of Europe held up reasonably well. There were some other parts of Asia that were a little bit more affected and some parts of Europe that were also weaker. Rohit Chopra – Wedbush Morgan: Okay. And then the other question is, given that guidance is roughly flat, given (inaudible) this quarter, do you think we are now in a normal seasonal environment and at a lower demand level? Do you think that’s where we are now?

Well, so as we are putting together our forecast, that was one of the things we were trying to most assess was, would we see a traditional strengthening in September? Was the economy going to affect that? And I think we’re still so early into this economy that we can’t be completely confident that we will see the types of normal pick-ups that we’ve seen in the past. So we’re not totally sure. But how are we planning the business? We are planning the business expecting that at least on a slightly muted basis we will see seasonal patterns. Rohit Chopra – Wedbush Morgan: Okay. And then I just want to get a sense – maybe this will help me out when I’m trying to model it up. But what is your level of visibility as you usually report a month into the quarter? What is your level of visibility?

We really operate a book and ship business candidly. And so when you see visibility, I mean, we ship most orders same day, next day type of things. So there is – the only visibility is what people are telling us. And we have good relationships with everybody, but we’ve seen before that when there are macro events, macro economic events, and for whatever reasons people change their plan, we don’t get any notice of this. If there is an example, companies suddenly decide, hey, you know, things are good and I want to get in front of this curb and I want to get going. We’ll see a pick-up in our orders pretty suddenly. On the other hand, people start to get really nervous and voluntary turnover declines further and people are very, very fearful for whatever reasons. We’ll see the negative effect on us. So we don’t really have a great deal of visibility. We tend to know whether we’re going to win or lose business, but it’s much harder to figure out how much business there will be.

Let me just add that in a normal environment, when you’re not in a recession, you’re just in some kind of a normal GDP type environment. Then our historical patterns are actually quite helpful and really are fairly helpful in terms of predicting where we’re going to be. But since we’re not – certainly no one would call this environment normal yet, we look at all that history, but it doesn’t help nearly as much as that would in a different sort of environment.

Yes. Just to Barbara’s point, I mean, so we track all of the historic data and the lines for this year are not really tracking as yet, or at least they look quite a bit different in terms of their cyclicality than we’ve seen in prior periods. Rohit Chopra – Wedbush Morgan: Okay. Couple other questions for you. I just want to get back to AEG and I remember a conversation that we had, but I just want to paraphrase you at that time when I asked you about AEG. You said it would be difficult to remove – it would be difficult to remove it from the business because it would have a negative impact on the overall. Is that somewhat still the case?

No, I think that’s probably less the case candidly because – I don’t know exactly when I said it, but I will say that early on we were clearly in a position of being concerned about establishing ourselves on the two key platforms of the future, one being the notebook/netbook, PC, and the other one being the smart phone. And we were very conscious of the fact that in the smart phone business we’ve been told, hey, your guys are voice only, these are voice in and entertainment and music platforms. And at that time, our market share was much lower. We’ve successfully launched and gained a leadership position in the retail CE space, and we’ve done a lot of other things that have given us a strong hand there. On the PC as a platform side, we’ve done quite well preparing ourselves for UC. We’ve, at this point in time, secured a very strong position with Microsoft and other key players in there. We’ve had some other initiatives to deal with the remote worker and to provide other kind of far field types of solutions. So I think we feel that we’re in a much stronger position at this point in time in terms of having secured what we need strategically for Unified Communications than we had in the past. Rohit Chopra – Wedbush Morgan: Okay. And my last question, if can you give me a sense of who you think is driving UC, like who those companies would be, would it be the Avayas and the Ciscos of the world? Is it the software company? Is it the systems integrators like IBMs? And then I wanted to get your relationship with some of these people that you have relationship with.

Yes. So I think that the parties that are driving Unified Communications have been the enterprise communications vendors, which I would say it’s Microsoft, it’s Cisco, it’s Avaya, it’s Nortel, it’s IBM, Alcatel, a variety of other players and of course many system integrators, some smaller players, Shortell, others that are coming along as well. And really if you are a communications infrastructure player and you go to their website, I mean, you just see Unified Communications all over the place. I mean, that’s been their plan and goal for sometime. And so they are selling those solutions. So I think many customers are looking to, one, integrate different parts from different vendors and coming up with a solution that’s their organizational requirement. I’ve got a feeling I didn’t answer all your questions. So tell me if there is a part I missed. Rohit Chopra – Wedbush Morgan: I think what I was really trying to figure out is what is your relationship with some of these major –

We think we have a very good relationship with all of these players. I mean, really we definitely need them. And that was part of the earlier question. We want to work well with all their solutions, we want to help the end user above and beyond what’s in their solution, and at the same time, they want the same thing. I mean, they know that we are a critical part of the deployment in terms of reaching the end user. They know that in many cases it’s not just the communications platforms. And even if it is just the communications platform, they may not be the only vendor. And so for both reasons, they want our functional. They want to work with us. And of course, we’re the market leader in the space. So we think we have a very good relationship with these key players. Rohit Chopra – Wedbush Morgan: Thanks, Ken. Thanks, Barbara.

Your next question comes from the line of Bill Dezellem with Tieton Capital. Bill Dezellem – Tieton Capital: Thank you. Couple of questions. First of all, in the press release you make reference to UC headsets, but also your other UC solutions. But please describe what it is that you are referring to there?

Sure. Well, first of all, much as we have made business out of pushing headsets, we’ve always recognized that not everybody is willing to wear a headset, and some people furthermore are in situations where a headset doesn’t make as much sense. And therefore we needed to have some other solutions. Let me go through that. One is a handset. So this is an alternative headset where you can use a USB port and use a handset, i.e., very traditional set of buttons on a terminal much like you see on many phones that you use with USB. And the advantage of that is number one, some people due to their hair, due to their – they don’t want to wear something on their head, their appearance, or they may be in a common area where it’s the utility phone in a conference room or something like that. And they don’t want to use something that somebody else may use. And so we have handsets – we don’t see it as being the larger part of the deployment, but we understand that it’s part of the portfolio we need to have. Another product is a speakerphone that’s really for UC. And again, this is the example where I built into most – desk phones nowadays is not quite a Polycom level of conference phone, but it’s a built-in speakerphone that provides a reasonable level of functionality if somebody else joins you in your office for a call. And much like that if you’re in your office, you’re using Unified Communications, right now with built-in microphone and a built-in speaker, in most PCs are not very good quality. And so this is a much higher quality, 360 degree speakerphone that you can use as an adjunct for your office when for whatever reasons you need to have a small group type of collaborative call. Bill Dezellem – Tieton Capital: That’s helpful, thank you. And then given the aging population in your clarity business, would you please describe what your product strategy is for clarity? And is our perception that with the population aging that this could create a notable opportunity, probably not as significant as you see, but clearly a notable opportunity?

Yes. I mean, that’s been the strategy of that business for sometime. And clearly what’s happened is that the market is migrated from their historic business, which has been phones for the hearing impaired towards increased use of mobile phones. And so they have brought in their product line in that context. They’ve upped the technology significantly with DSP in their digital clarity product offerings. So that business is undergoing some metamorphosis from somewhat more simple frequency shaping to some more advanced technology, portable form factors and some more of value-add that we can provide, including system level value-add that to some of those people. And clearly again, that’s right in that curve. They actually with the part of the business that they developed, of course, the handset for us for use with the Unified Communications part of the business. And that’s going to go into their business as well. Bill Dezellem – Tieton Capital: And do you sense with some of these things that you’re describing and the demographic shift that their growth can be accelerating, or is that not something you anticipate?

Well, so let me just say that I – we, of course, hope for growth in their business. Having said that, it’s – right now in that business, I think we’re at the early stage of a major step change between that market having used historically phones and shifting to much more modern equipment. So that’s a kind of a significant change, sales cycle and adoption curve. We think it’s going to be significant over time, but we probably expect it will ramp more slowly. Bill Dezellem – Tieton Capital: Thank you.

There are no other questions in queue. I’ll turn the call back over to Mr. Kannappan for closing remarks.

Okay. Well, thank you very much, Clayton. And thanks to all of you. As always, we are available if you have any further questions, and we appreciate your time.

This concludes today’s conference call. You may now disconnect.