Randi Feigin - Vice President of Investor Relations Scott Kriens - Chairman and CEO Bob Dykes - CFO and Executive Vice President of Business Operations

Scott Coleman - Morgan Stanley Nikos Theodosopoulos - UBS Tal Liani - Merrill Lynch Jeff Evanson - Sanford Bernstein Tim Long - Bank of America Jiong Shao - Lehman Brothers Paul Mansky - Citigroup Tim Daubenspeck - Pacific Crest Securities Mark Sue - RBC Capital Markets

Ladies and gentlemen, thank you for standing by and welcome to the Juniper Networks fourth quarter and yearend results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded, Tuesday, January 30th 2007. I would now like to turn the call over to Randi Feigin, Vice President of Investor Relations. Please go ahead, madam.

Thank you. Good afternoon, everyone, and thank you for joining us today. With me is Scott Kriens, our Chairman and CEO, and Bob Dykes, our CFO and Executive Vice President of Business Operations. Today, Scott will provide a biz review of Q4 and the full year of 2006 for both our service provider as well as our enterprise markets. In addition, he will address some of the trends and opportunities that we see for 2007. Following Scott's comments, Bob will briefly review the status of restatement of our historical financial statements, some financial statistics for the quarter ending December 31st 2006, as well as for the full year of 2006. At the conclusion of the formal commentary, Bob will share some insight regarding our financial goals for 2007. And we will open up the call for questions. Before I turn the call over to Scott, I'd like to remind that you the matters we will be discussing today may include statement forward-looking statements and, as such, are subject to the risks and uncertainties that could cause the actual results to differ from those contained in the forward-looking statements, including those risks and uncertainties discussed in our most recent 10-Q filed with the SEC. We will also be discussing some preliminary non-GAAP financial information. But until we file our restatements relating to the stock option investigation, we are not presenting complete GAAP financial statements, including the reconciliation of non-GAAP to GAAP items. However, a description of the items excluded in the non-GAAP financial information can be found on our "Investors Relations" webpage. Juniper Networks assumes no obligation and does not intend to update the forward-looking statements made in this call. Scott, I will now turn the call over to you.

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Thanks, Randi. Good afternoon to everyone, and thank you all for joining us. Today, I'd like to start with the review of the fourth quarter and then the full year of 2006 for both service provider and enterprise businesses and markets and then look forward to trends and opportunities we see for 2007. And after that, I will then turn it over to Bob to review more of the details of our recent performance and provide you with some thoughts on guidance. So first to the fourth quarter's performance. From a financial perspective, we had the largest revenue quarter in the history of the Company. We met many of our internal targets and metrics, and we're pleased with the mix of business. Revenue grew to $595.8 million in the fourth quarter, representing growth of 4% quarter-over-quarter and 4% year-over-year. Both Ericsson and Siemens were each responsible for 10% of the revenue for the quarter, with Siemens being the larger of the two, which has been typical over the past quarters. And on the balance sheet, cash increased by more than $200 million for the quarter to total cash balances of more than $2.6 billion at yearend. This was made possible by progress in both of our markets, service provider and enterprise. Let's look at each separately, as well as our services business overall. On the service provider side, we've recognized infrastructure revenues of more than $350 million for the quarter, an increase of 2% from the third quarter. And this was driven by a good balance of business in wireline, wireless, cable and the emerging content providers. These are the segments we track within the general category of service providers. And clearly, all are responding to the market opportunities they see and making decisions accordingly. On the product front, we saw increasing traction on the multiservice edge for the recently released M120, witnessed by orders for more than 200 units from a variety of customers. And carrier customers are very interested in our new Carrier Ethernet product, the MX960 where we received orders there as well. We also continued to see a very strong performance from the T-series product line and a very high percentage of network traffic worldwide passing through the Juniper core backbone networks deployed throughout our global service provider customer base. And while E-series' recognized revenue was down due to deferrals and product transitions, orders were solid. We saw a good growth in security products overall, as I will describe in a moment, when we talk about the enterprise business. But we also specifically saw security products growth in the service provider markets. While we're encouraged by the early signs we've seen in this most recent quarter, it also remains true that we're in the early stages of several new product cycles. And we'll need to see more design wins, more testing by our customers, and overall more confirmation of our technologies to be convinced of our momentum. From a market share perspective, Synergy Research Group and the most recent reports continues to rank Juniper as the number two supplier worldwide in total service providing routing, core service provider routing, BRAS or broadband access, and multiservice edge. So now, let's shift and take a look at the enterprise business. We recognized SLT revenues of more than $130 million for the quarter, an increase of 7% from Q3, which was driven by a good balance of business across each geography as well as strength in our federal marketplace. The strength was a function of both typical yearend seasonality and solid execution from our enterprise go-to-market programs. Much of this effort was made possible this quarter by the continuing performance of our partners and the improving reliability of our distribution model. I'll talk more about this in the full year review and the 2007 outlook. On the product side, I won't comment on every product here, as Bob will provide details in a few minutes, but the headline is that routing and security and application acceleration solutions are being sold together and the assumptions on which our development priorities are founded that these trends will continue and accelerate are continuing to play out in the marketplace. We also remain in the Gartner leader's quadrants in each of the product categories in which we participate, which is further evidence of not just the right technology, but the right technology roadmaps as well. Overall, we're pleased with our continued momentum in the enterprise market, as evidenced by our number two market share position in both the high-end enterprise routing market and the worldwide security market according to Infonetics Research. And finally, a few comments on the services business, which we report as a combined business in support of both the enterprise and the service provider markets. This is an easy story to tell, with revenues in the fourth quarter of approximately $113 million, up 6% from Q3 due to an increase in the installed customer base. Also important here is that we're improving our customer satisfaction levels, an important metric -- it may be the most important metric, actually -- but certainly one that we must constantly increase in parallel with our financial growth to be sure that the Juniper brand is represented properly. And we expect that this aspect of our business will continue to meet our financial and customer goals in both marketplaces. So with that said about the fourth quarter, I'd like to provide you a perspective of 2006, which was also the year that Juniper celebrated its 10th anniversary. The first thing to know is that there's more to say that we have time for, since our beginnings now more than 10 years ago -- a time during which we have seen astronomical growth, historic downturn with bursting of the bubbles, and lots of lessons learned both before and after. And so, therefore, I will only offer a few numbers to provide a perspective of where we have come to from literally zero not long ago. Today, we have a total installed base of $8.6 billion across more than 100 countries worldwide, which comes from more than 400,000 units shipped to more than 20,000 customers through the help of more than 9,000 partners. We've invested almost $2 billion and more than 7,000 person years of research and development during our now almost 11 calendar years of innovation and have a broad portfolio of technology, products and patented intellectual property, with which to enter our next decade as a company. And our sales and marketing machine has grown to more than 1,500 Juniper employees, and we'll spend more than $0.5 billion dollars in 2007 to further capitalize on our position, in addition, of course, to the many partners that I mentioned earlier. More recently, and as we look back across 2006, we've intensified the focus on our two markets. We were presented with many opportunities for distraction, both inside and outside of the Company, with industry consolidation, speculation, a typical competition, and as always plenty of declarations from all of the participants. And in 2006, coming off a year of 50% growth in 2005, we're able to grow our business in 2006 by approximately 12% year-over-year. And very important to our strategy, we were able to generate increases to our cash balances of approximately $650 million in 2006 compared to the cash with which we began the year. As we discussed late last year, the stock option investigation findings have shown that we should have had better stock option granting processes, controls and oversight in place and we did not. I would like to reiterate that while we can't change the past, we continue to focus going forward on the filing of our financial statements in this first quarter of 2007, further improving the robustness of the company's stock option granting procedures and the ongoing cooperation with government agencies. As always, we remain focused on our strategy, and the associated execution required to capitalize on our position. In 2006, we sought significant opportunity in the market for network infrastructure and our overall focus as a company will remain on developing the leverage from crosspollination of our technology, between service providers and enterprises, and the expanded presence with both types of customers, which in effect doubles our total addressable market. In the service provider marketplace, we saw major NGN wins, witnessed by over 2,500 units of the T series installed base in North America, EMEA and selective countries in Asia, as well as numerous multi-play decisions that went in our favor. As I mentioned in the examples during Q4, we have seen keen interest in our new products and more broadly, the general direction of our portfolio. We would all like to see our new products delivered faster, especially our customers, who have confirmed both the demand for our technology and their alignment with our development priorities. We have begun to see an increasing level of interest in the Juniper security portfolio and a growing number of service providers using our security products. In fact, a number of service providers buying our security products is up by 50% in the last 12 months. Products for both managed service offerings and outsource solutions for their customers, which is especially important because these value-added examples are highly strategic for providers in their markets. We delivered the products we had planned to deliver in 2006 and we did so with the knowledge that the length of the development, the testing and the acceptance cycles involved with these products in these markets are long. We'll see as the full year of 2007 unfolds just exactly how these products and programs will translate into revenue growth, but our investment cycle is far from complete, and we have a lot of work to do. We have made good progress in this last year, and we're building a portfolio in a market with solid demand for IP infrastructure. In the enterprise business, there's also metrics to indicate our progress. We saw growth in SLT revenues of 20% for the year, and with over 20,000 enterprise customers and the investments we made in over 9,000 channel partners, we saw our enterprise business grow more than 25% since the beginning of the year. This was made possible primarily by increasing momentum in the second half, which gives us better visibility, as we enter 2007. We're coming up on the third year of entering the enterprise market since we made our NetScreen acquisition decision in 2004 and several observations can be made in hindsight. First, it's taken longer than we would all have liked to get the traction and to establish the go-to-market momentum that we'll ultimately need. And in fact, it's an ongoing project today, even though we've seen good progress in these recent quarters. That said, we have seen the primary principle of the market entry division prove to be increasingly correct. We had the opportunity to leverage our best in class technology and the ability to double our total available market and therefore we remain committed to our strategy. In fact, year after year, we have been consistently positioned in Gartner's leader quadrants in all the areas and the security in which we focus. Fire wall, intrusion protection, SSL/VPNs, IP Sec VPNs as well as WAN, optimization. And we have also seen standalone products in the market begin to give way to increasingly integrated products as reflected by the success of our SSG and ISG families. And we are breaking into accounts and developing new partners where we haven't had the chance to participate in the past. A point that underscores the more recent impact of our increased focus of our dedicated resource alignment with the enterprise partners and the customers we serve together. In the final analysis, at least for the story that's unfolded thus far in the early years, across this enterprise market, a higher degree of difficulty than we anticipated, with growing evidence of the efforts being worth the work and a lot of work to do to realize our full potential. And for our services business, the foundation that has been built as the source of solid results for the year, we grew the services business a significant 40% from 2005 to 2006. We realize that 25% increase in the number of strategic consulting engagements in the year, as we increasingly assist both service provider and enterprise customers in designing, implementing and optimizing their networks. And as I said earlier, it's very important that we continue to improve upon our customer service and support as well, and we have done just that throughout the year. As an example, when we surveyed our enterprise customers and asked which of them are willing to recommend Juniper security products to others, we saw double-digit percentage improvement over last year. And in our service provider market, we enjoy satisfaction levels among the highest of any of their vendors. So while 2006 certainly presented its challenges, it also gave us considerable evidence and confirmation in the assumptions on which our strategy is based. But as we also know, that was last year. And so with that, let's look forward to 2007, and I'll talk about the challenges and the opportunities we see in what can certainly be called the dynamic marketplace. Our number one challenge, and therefore our priority for 2007, is to improve and scale our ability to execute. We've shown that when we focus, we can do this, and that we can earn the opportunities and the potential that we see as a result of being the best at what we do, and sticking to the markets in which we have differentiation and value to offer that is strategic to our customers. The first news of 2007 and our first investment of the New Year in delivering on that execution priority is the appointment of Stephen Elop as our Chief Operating Officer, which we announced a few weeks ago. Steven and I have been in discussion about working together for many months. And the fit of his operating skills, his proven track record, and his past experiences in both the COO and CEO roles with public companies, and his alignment with the culture and the values we believe in here at Juniper make him an extraordinary fit for the team and the company. And we're already making strides together in the early days. Steven reports directly to me and has shared responsibility for the business results and the delivery of the outlook we'll share with you today. And he's directly focusing on daily execution and what we call as operational excellence. And as CEO, I will continue to be ultimately responsible for the company's overall business and financial results and performance, as well as the company's strategy, positioning, communications and our talent development. In 2007, our strategy remains as we shared with all of you in the past, be the best supplier of traffic processing infrastructure. This is a $20 billion market and we're a $2 billion company. So the headroom and the opportunity we see in our markets remains intact. With that, there's also risk. And we evaluate our risk of success with our strategy on several fronts. Firstly, technology. Can we leverage our learning and real world experience with continued investment to preserve our competitive advantage? On this front, the short answer is yes. And we see a clear path to leverage our portfolio systems and software, particularly our JUNOS operating system, and barriers to entry in the network infrastructure and integrated security markets are high and getting higher. While competition will always be respected and analyzed here at Juniper, we see and our customers reaffirm that what we do is important to them and where we are going is where they need to go. Secondly, distribution. Can we get our advantages into the hands of our partners and customers and could we deliver the value proposition over the noise of others in a way that will resonate with buyers? Here we see a market where there's room for a very limited number of suppliers and what we offer is both scarce in the marketplace and strategic to our customers. This reduces the degree of difficulty with distribution, even with the frenetic marketing that we see from others in this industry. So while there's never ending work to do here and plenty to improve upon, as I spoke of earlier, there's more opportunity than risk to Juniper. So the third risk is demand. If we build it and we take it to the market, do people need it and will they come and then need more of it after that? The answer in numbers is that the market is projected to grow by double-digit percentages for many years for everyone, before any share gain opportunity for Juniper. And every indicator is that demand will increase before it decreases. So this is probably the lowest risk of all. In fact, in a recent keynote, Michael Bell noted that YouTube by itself uses as much bandwidth as the entire Internet did in the year 2000. And that's only one example. And then, finally in this market and the service provider market in particular, is the risk to Juniper of consolidation. Will the convergence of either suppliers or customers somehow fundamentally impair our ability at Juniper to participate in these markets? Well, first and most straightforward probably is customer consolation, which has been long predicted and is happening as many have forecasted. And the overall effect is to build stronger customers through needed consolidation in markets where scale is important. Stronger customers make for better markets, as long as there are not more suppliers than customers and overall demand. So when suppliers consolidate, it's also healthy in that as we say here it gets the spectators off the field. It also makes for larger competitors. So we're not naive to think that there's no issue to address. And so, here's the guiding principle. It doesn't matter what suppliers want to sell. It matters what customers want to buy. And customers who build and depend on their businesses running on the network can't afford to compromise in their decisions about how to deploy and secure that network, and those networks have to be smart, because they are strategic to the success of the business. A dumb strategic asset is a bad business decision. So that means that the quality of the solution and the underlying technology matters a lot. If this market one day becomes more commodity-like and convenience matters more than performance, then we'll change our strategy accordingly, but not only is that not happening, the needle is pointing in the opposite direction. Networks and the security of the network are more strategic and valuable than ever and in that environment, being the best matters. And so our strategy will remain focused on what the customers want to buy. These are the rules that we all, the suppliers, must live by and this belief will continue to underpin our strategy at Juniper. So as we look across our marketplace in 2007, we see more opportunity than risk, and therefore, the need to prioritize the improvement of our own execution. We've made a lot of progress, and we expect continuing evidence of that progress in the quarters to come. And with that said, we still have a lot of work to do. We will continue to invest and to look outward to capture more of the $20 billion market opportunity that's out there to be addressed. And we'll also continue to look inward to deliver the operational excellence and to invest in the talent we have assembled and the technology that we have developed. All of this is possible, only with the support of our employees, whose continued commitment and incredible efforts make three results possible as well as our many partners, our customers, our suppliers and our long-term shareholders. I'd like to thank you all for your continued support and confidence in Juniper Networks. And, Bob, I'll now turn the all over to you.

Thanks, Scott. As a reminder, Juniper is not in a position to announce detailed financial results for the fourth quarter and 2006 as we are in the process of restating historical financial statements. Juniper will not be discussing any GAAP metrics that are affected by stock option expense. Although, we are unable to announce these GAAP metrics, we are providing as much information as possible around most non-GAAP metrics. Please note that these numbers are preliminary and represent our forecast of what we believe the numbers would be without any impact or changes resulting from the restatement. I would like to reiterate that we intend to file our 10-Qs for the second and third quarter of 2006 during Q1 and come in compliance with the NASDAQ listing qualifications at that time. As previously announced, NASDAQ listing panel had given Juniper until February the 12th to make these filings to avoid delisting. Recently, the NASDAQ Listing and Hearing Review Council advised us that any delisting determination has been stayed pending further review by the review council. We have been given until March the 30th to submit additional information to assistant their review. We anticipate filing -- our standing SEC filings before that date. Now, let me get to Juniper's results for the fourth quarter with which I'm pleased. Now, as I take you through some of the detailed metrics, please remember that our business will be lumpy across all key metrics, including application and geography as well as by product mix and market segments. Total reported revenue for Q4 was 595.8 million, an increase of 4% from Q3. I'm pleased to report that this is the largest amount of quarterly revenue recorded in Juniper's history. For the full year, 2006, revenue was 2.3 billion, an increase of 12% versus 2005. Looking back, you will see that in the last three years, we have almost doubled the size of the business from a revenue perspective. We are very pleased with this achievement and level of growth. Having been able to report a full income statement on a non-GAAP basis and assuming no incremental stock-based compensation expense, our EPS results are in line with the guidance we provided last quarter of 19 cents. For our infrastructure products, we recognized product revenue of 352.6 million where we saw a 2% growth from Q3. The infrastructure products for the full year compared with 2005 increased by approximately 3%. The slower than historical review growth is mainly due to revenue deferred from Verizon as well as the NGN pause in Asia. We are pleased, however, with the level of growth we saw in infrastructure product shipments, which grew approximately 12% for the full year of 2006 compared with 2005. We recognized revenue on a total of 2,452 infrastructure units this quarter, and we shipped 39,326 infrastructure ports, both down from last quarter. The decline is due to a mix of higher end products. This quarter, the core represented greater than 50% relative to the edge. We are extremely pleased with our continued strength in the core. Here are a few data points. We sold over 200 units of T-series in Q4. In fact, during the fourth quarter, we had the largest number of units booked ever. For 2006, we recorded over a 0.5 billion in T-series revenue, which is up over 40% from '05. This represents these products as we support NGN build-outs and further reinforces the fact that our customers have accepted the JUNOS operating system and architecture for scaling the core and for based on the market. On the edge, we saw some good strength with the M120 Multiservice Edge Router, which we announced this summer. And we have already received orders for the M960, which is currently scheduled to ship by the end of Q1. The service led technology segment performed well. The segment includes firewall, SSL, IDP and other security products as well as J Series and application acceleration solutions. Revenue for Q4 totaled $130.5 million, up over 7% versus Q3 due to typical Q4 enterprise seasonality and the improved focus of our sales effort in penetrating the enterprise market. Quarter-over-quarter, we saw especially good growth in SSL, IDP and J Series; in addition, the DX and WX warp. We also saw good growth from the ISG 2000 and the SSG family as we are starting to see the market transition towards integrated security platforms. We are pleased with the full year SLT growth of 20% versus 2005, as our investments in sales and R&D are beginning to pay off. Now for some detail on elements within our business. The total service revenue was $112.7 million, up approximately 6% from last quarter. This increase was due mainly to growth in the contract and install base. For the full year 2006, service revenue was $410.2 million, up 40% from 2005. The total book-to-bill ratio was greater than one in the quarter. Siemens was a strong contributor in the fourth quarter, representing approximately 13% of total revenue and for the full year of 2006, Siemens represented approximately 14% of total revenue. Ericsson represented 10% of total revenue this quarter. Ericsson revenue was from sales to customers from both Europe and Asia, the majority for core applications. From a geographic perspective, the Americas represented 44% of total revenue in Q4, up slightly through Q3. The Americas group, 11% from 2005 to 2006. We have a very strong core in EMEA, representing 38% of total revenue in Q4 with particular strength in the UK, Italy, Germany, the Netherlands, Sweden and Norway. EMEA grew 33% from 2005 to 2006, showing good strength across the region. We have seen very good momentum in the areas where we have made investments, including Russia, the United Arab Emirates and other parts in the Middle East. Asia represented 18% of total revenue, a decline from last quarter due to strength in Europe and the service provider lumpiness. If you may recall, we saw particular strength in China in Q3, given the wins in China telecom and China mobile. Asia was down 4% from 2005 to 2006, primarily due to NGN pause which we've discussed last year. With regards to Japan, we expect decisions to be made over the next couple of quarters with revenue implications for '07. However, the choice of formal public comment and timing of the network rollout is up to our customers. We expect to see continued seasonality and lumpiness by theatre as quarterly trends fluctuate. Revenue through our direct sales was approximately 26% versus 23% last quarter, as we saw some strength in our America service provider business. We remain pleased with the expansion and the leverage of our channel presence. Non-GAAP gross margins were up from Q3, slightly better than expected due to a good mix of products and seasonality. Non-GAAP operating expenses, which excludes amortization of purchased intangibles, stock compensation expense, stock option requiring tax expense and acquisition, restructuring and related costs were up by approximately 8% compared with Q3. On an absolute dollar growth basis, the primary increase was in sales as we continue to invest in our global sales force. We saw an increase in R&D on an absolute dollar basis, as we focus on internal product integration and innovation. We're also making good progress in the cost reduction efforts. This past February, at our Analyst Day, I set out a goal for the Company to enter 2007 with 30% of our manufacturing in Asia. And I'm very pleased to report that we have achieved this goal. In 2007, we'll continue to focus on low cost geographies for both the R&D and manufacturing. Non-GAAP, net interest and other income was up about 8% versus Q3. This increase was primarily due to an increase in our cash position. Operating margin came in slightly lower in Q3, as we increased operating expenses, offset by the one-time credit received in the renewal of the US federal R&D tax credit in December of 2006. Our 2006 annual non-GAAP tax rate decreased by 1% from 29% to 28% to principally to the renewal, which for our Q4 tax rate down to 25%. I will speak more about our operating margins later in my comments. Now, a few comments regarding the balance sheet. I am pleased with our cash flow this quarter. Cash, cash equivalents, short and long-term investments creased by $200 million to $206 billion. Net accounts receivable was $249 million, and day sales outstanding was 38 days compared with 45 days last quarter, due to the strength of our internal collections effort and quickly in the R&D for the quarter. As stated last quarter, we expected DSOs to be in the range of 40 to 45 days, depending on the mix of partners and linearity. Total deferred revenue was $386 million, compared with $346 million in last quarter, mainly due to the increase in service contracts. As a reminder, deferred revenue is made up of service, channel inventory, and product currently unrecognizable for revenue. CapEx was $33 million. Depreciation was $20.7 million during the quarter. We ended the quarter with 4,833 in total headcount, up from 4,613 at the end of Q3. The majority of the headcount increase was in sales, service and R&D, with almost 50% of the total increase in the low-cost geographies of China and India. Now for guidance. We will continue to focus on our financial fundamentals and please remember, it is difficult to predict the level of business each quarter but we are managing the financial plan and we would like to share some data with you. We will be providing guidance for the first quarter and for the full year of 2007. As the business grows larger and more diverse, the performance has become somewhat more predictable and we are able to make a reasonable judgment on longer term horizons. The following forecast and guidance is non-GAAP and forward-looking statements, actual results can vary for a number of readings including those mentions in the most recent 10-Q filed with the SEC, as well as in the impact resulting from the further restatement. We expect revenue for Q1 in the range of $615 million to $625 million. For the full year 2007, we expect revenue in the range of $2.06 billion to $2.7 billion. For the first half of '07, we expect to recognize revenue from Verizon of over $40 million. That was deferred as previously discussed this last year $40 million. We will use this as an opportunity to increase backlog, which improves linearity and predictability of shipments in future quarters. As a reminder, in any given quarter, there are product and service-related entries in and out of deferred revenue as required by GAAP. For Q1, we expect gross margins to come down from Q4, and fluctuate slightly for the reminder of the year. The expected tax rate for the year is 28%. We expect non-GAAP EPS of $0.19 for Q1 and $80 to $0.81 for the full year. For Q1 and the full year, we expect expenses to grow in life with revenue. As a result, we expect operating margins to stabilize and remain at the current level of approximately 20% in order to sufficiently invest in our growth. We are committed to growing revenues, earnings and cash generation on an absolute basis and market share and we intend to do so at the highest level of operating margin as possible. We return to the long-term operating model as a function of significant sustained revenue growth. The book of the investments being made will be in sales and R&D as we continue to focus on internal innovation. The investments have been driven by the demands of our customers and the increasingly strategic network of their networks. As Scott, discussed earlier, we are confident for the opportunities in a market place. Juniper is a $2 billion company and a $20 billion market. On the service provider side, we see NGN build outs and IP video as substantial opportunities over model for years, based on trends in the enterprise, we have a huge opportunity to leverage our strength in routing, security and application acceleration. As usual, a GAAP EPS target is not accessible on a forward-looking basis due to high variability and low visibility with respect to the nonrecurring charges, which are suited for the non-GAAP estimates. So that completes my remarks and now we would like to take questions. Please limit yourself to one question. Thank you.

Dave, can you please instruct the audience regarding the queuing process? Dave?

[Operator Instructions]. Our first question comes from the line of Scott Coleman of Morgan Stanley. Please proceed with your question, sir. Scott Coleman - Morgan Stanley: Sure. Thank you and good afternoon. If I could just ask if you could go over your comments on operating expenses in the quarter. I'm not sure I got all of the details on that. And secondly, I'm wondering if you could help us understand from a partner perspective what your expectations are from Alcatel, Lucent as you go into 2007. Thank you.

Well, what I said on our non-GAAP operating expenses, which is amortization of purchase intangibles and stock compensation expense that they are up approximately 8% compared with Q3. And I said on an absolute dollar basis, the primary increase was in sales as we continue to envision our global sales force and also increased R&D on an absolute dollar basis.

And on the partner side of things with Alcatel Lucent. We continued to see, particularly with John Meyer and the system integration business there, continued opportunities. One of the things we announced last quarter was the renewal of a three-year agreement, which will take us out over now the next three years with them as partners in both the continuing support of a number of existing networks that we have developed together, as well as opportunities in new markets and new networks. So we're not unaware of the other aspirations that some of the product groups inside Alcatel Lucent have, but, again, the customers continue to drive us to working together and both companies realize that. Not only have John and I had the conversation but Pat and I as well, but the commitment between the two companies to continue and develop their relationship is ongoing. Scott Coleman - Morgan Stanley: So if I could just ask one follow-up, you are obviously guiding for very strong topline growth next year. Is it reasonable for us to assume that revenue through that particular channel is going to grow in line with company expectations a little more or a little less?

Actually, the -- it would probably be false precision to make the -- in guidance we have given more granular than it's been. I don't know -- I don't have any reason to suspect increases or declines, but, you know, the years got a long ways to go and the strength of the guidance that we've given, is not a function of any particular relationship or any particular account for geography. It actually reflects more the diversity of the business and what we see across the geographies, the emerging markets and countries in the world, the vertical segments we focused on, the service provider, the enterprise. So the guidance is much more a function of that diversity than it is any particular partnership or account situation. Scott Coleman - Morgan Stanley: Great. Thanks, guys.

All right, thanks, Scott.

And next question please.

Thank you. Our next question comes from the line of Nikos Theodosopoulos of UBS. Please proceed sir. Nikos Theodosopoulos - UBS: Yes, thank you. I had a clarification and a question. On the Verizon deferred revenue of $40 million, do you expect that to get recognized all in one quarter or spread out over the first two quarters? I'm trying to understand how that's going to flow. And then my question is, you know, given the -- we haven't -- the 10-Qs haven't been filed in the last couple of quarters, can you give us some kind of estimate on the operating margin of infrastructure versus SLT? If I go back to the first quarter, where the Q was published, you know, you gave us some operating margin in the Qs there. I'm trying to get a sense over the course of the year, what's happened with the margin of those businesses? Have they stayed the same or changed? Thank you.

Well, the fifth item on the infrastructure business, the SLT profitability, you know, we haven't actually provided anymore detail than, you know, we actually been -- because we can't promise those GAAP results. We haven't provided that type of information, but, you know, there isn't any reason to believe that there would be wild fluctuations from the historical, we continue to invest in both areas quite heavily. So I wouldn't -- I don't think that there is worth while having further granularity than that. And on your first question, on Verizon, we -- as I said, we expect to recognize that during the first half. The time we recognized it, it will probably all happen in one step, but we haven't indicated exactly when that would be. But I do want to stress that we're planning to use that really to help us build our backlog during that period. So please don't be looking for any one-time blips in revenue. You know we have given our guidance for the first quarter and for the full year and, you know, expect all of those things to be taken into account. Nikos Theodosopoulos - UBS: Okay. If I could just clarify a little bit, I guess while I was going on that question on the margin and SLT and infrastructure, you know, in the first quarter your operating margin was about 25%, this quarter was about 20%. I'm trying to get a sense that both SLT and infrastructure see a decline in margin from the first quarter or was it skewed to one of those two?

We continue to invest across the board in -- you know, we brought out a lot of new products in the IPG space. We continue to invest in the SLT, well our enterprise sales force, but it partly affects the SLT, etcetera. So, you know, we've been quite aggressive across both aspects of really investing heavily for the growth of our business in 2007. So I don't want to give a specific answer to your question, but you can be sure that we were investing across the board. Nikos Theodosopoulos - UBS: Thank you.

It's also, Nikos, our last perspective on that for you. That the -- a lot of the investment we make in R&D is leveragable across both markets. And so sometimes precise allocation is a bit, not arbitrary, but it's certainly not scientific as if they were two totally different markets. So the resulting margin contributions are a little difficult to be precise with even as we do look to understand that better ourselves. And that's actually a strength, because the leverage of being able to make an investment in router development or security development and then be able to present that across both markets is -- is part of the strategy. It's certainly true that they go to market cost, marketing and sales is higher in enterprise and therefore the operating contributions are lower. But it's a little bit hard to split the entire thing for that reason.

Dave, next question please.

Thank you. Our next question comes from the line of Tal Liani of Merrill Lynch. Please proceed. Tal Liani - Merrill Lynch: Hi, guys. Question -- just a clarification and the question. First, any tax credit you had, R&D tax credit you had this quarter? And what is the sort of EPS impact of it, just to adjust your guidance for the year, to compare to consensus, if there was any credit? My question goes back to the question that, Nikos asked, but I want to ask it in a different way. If you look at the margin evolution since June of '05, your operating margins went down every quarter, operating margin from 28% down to 20. There were some market share losses in router and there was a mix shift to enterprise and you had the buildup of enterprise channels, so all of these factors were in there. Now you are saying that margins will stabilize at 20%. So what -- what do you expect to change in this equation, in this factors, that drove margins down going forward? What do you expect to change that will drive stabilization of operating margin? Thank you.

So first of all, on the tax credit, as I mentioned, this year will be running with a 29% tax rate, and we indicated that for the full year that tax credit pulled our tax rate down from 29 down to 28%, in the fourth quarter it reduced to 25%. But before you add that difference back in and say, well, you know, that was a difference that we should have recorded as an overachievement, in actual fact we saw that coming and we deliberately decided to accelerate some of our investments into Q4, so that we would meet the analyst expectations. So it was a deliberate investment by our part to do exactly what the government intended, which was to use that tax credit to invest in R&D in the United States, and so we are able to do it quite efficiently at the end of the quarter, so I don't think you should add that money back. We anticipated coming down to that and spent accordingly. With regard to the decline in margin from 28% down to 20% as you mentioned. The way you described it, it makes it sound like the margins were coming down because of pricing or other things like that. We should note that our gross margins actually stayed very stable, right through this period, so that decline doesn't represent pressure from our customers or pressure from the marketplace. That decline represents a very deliberate effort on our part to increasing investments in the business. And so just deliberately, we believe that we can hold it at the 20% that I've mentioned here. So we're not under competitive pressures, we are not under pressures from the market. We are deliberately investing in our business to grow through the next few years. So that's what gives us confidence that we can hold it at that number. Tal Liani - Merrill Lynch: So the Delta should be going forward what the implied guidance, is that, or the implied direction is that operating expenses going forward should remain at a constant level as a percentage of sales?

That's exactly what I said, yes.

Dave, next question, please?

Thank you. Next question comes from the line of Jeff Evanson of Sanford Bernstein. Please, proceed, sir. Jeff Evanson - Sanford Bernstein: Thanks. In your EPS guidance for 2007, what assumptions did you make about share count and in particular the use of the $1 billion share buyback that was approved in 2006?

If we didn't, there is not specific because such a share buyback of these types of stock prices would result in about, you know, no change to the EPS, so you can actually do it either way. Jeff Evanson - Sanford Bernstein: Thanks.

Dave, next question, please.

Our next question comes from the line Tim Long of Bank of America. Please proceed, sir. Tim Long - Bank of America: Thank you. Just a question on the Carrier Ethernet side, can you talk a little bit about the MX960, you said you'll be shipping the end of the quarter and you have been taking some orders there. Just give us a little bit of color, are these mostly existing customers? How much interest has there been so far? And if at all at this point, do you think there's potentially any cannibalization of other Juniper edge products with the Ethernet product going out to the customers? Thanks.

Tim, on the subject of Ethernet and MX960 in particular, it's a little early to know on the question of cannibalization or other impact. Most of it represents new market opportunity. So I -- while there maybe some of that, I don't expect it to be pervasive. And in terms of the early trials and adoptions here, it is primarily within our existing customer base. But then it's also important to remember that the top 40 customers are all Juniper customers. So it would take a lot of work to find a non-Juniper customer to take it to, and especially in the early days. So I would say, although, we've seen some -- what I call encouraging early activity, that really we have to watch and see the acceptance cycles run through beyond just the first examples of revenue recognition that we expect to see and through full qualification, network design, deployment activities. So I don't -- I think the jury is going to be out on that until beyond the first quarter even with early revenue recognition. That said, remember, that what's really happening here in the carrier Ethernet segment with the MX960, is the beginning of the end of the entire segment. Because what we're really deploying is a pervasive operating system footprint that goes across the core, the aggregation, the multiservice edge within that work, and a single operating system footprint that is capable of being deployed from boundary-to-boundary and the service actually eliminates the reason for anyone to make a segmented decision, because that would mean unrelated operating systems, a checkerboard of architectures to try and pass seamless service through, and no one will do that once they see a proven alternative. So, I don't think the segment disappears tomorrow. But clearly if what we believe to be true continues to play out and the feedback we've gotten materializes in the form of designs and deployments following these qualifications, then we're going to continue to see a lot more opportunity for MX960.

Dave, next question. Tim Long - Bank of America: Okay.

Thanks, Tim.

Thank you. Our next question comes from the line of Jiong Shao of Lehman Brothers. Please proceed, sir. Jiong Shao - Lehman Brothers: Thank you very much. I have a clarification and a question. In your OpEx for Q4, I think, if my math is roughly right, it's about $280 million. How much of that was for the sort of accounting restatement and legal expenses? How shall we think about that sort of going forward when that would taper off? And then my question is on your guidance -- revenue guidance for Q1, obviously, you know, seasonally not so strong quarter. You're guiding sort of growth. I was wondering if you could expand a little bit on that, sort of -- some of the drivers behind that. Was that because of deferred revenue or is that because of orders you have on hand? Thanks a lot.

Okay. Well, what you got to the OpEx that we have in Q4. There is no expense there for the stock option inquiry. I intend to take that out of our non-GAAP numbers. So that the historical numbers have a good basis for looking at the future numbers. I would normally exclude that type of thing from non-GAAP results.

And then, Jiong on the subject of guidance and the source of it for the first quarter here, you are right, often it can be a somewhat softer quarter seasonally. We'll see if that proves to be true. But our guidance really is a function of two things. One, we do have a little better visibility as we look across the quarter and also that drove the reason for guidance over the full year. And what we see is diversity. It's contributions from geographies and obviously established markets and countries throughout Europe, Asia and the Americas. And also, there are emerging markets, Eastern Europe, Middle East, the places where we're seeing increasing opportunity. And then, as we look across government, research, education, financial services, various cuts of the vertical marketplace we see opportunities. So -- and then again, it runs across product in both the security and the routing and the application performance areas and the strength of our position in many of the installed networks and customers both on the enterprise and service provider side. So I guess the good news is the visibility and the reason for our perspective on all of this, from a guidance point of view is not really dependent on any one particular factor. It -- if he were to -- I suppose look for any downside in all of that, I guess there's also not any one dramatic spike in all of this. So what we do see is, is steadying opportunity and diversity across many, many factors of the business. Jiong Shao - Lehman Brothers: Okay. Thanks.

Yeah. Thank you, Jiong.

Dave, next question, please.

Yes. Our next question comes from the line of Paul Mansky with Citigroup. Please proceed. Paul Mansky - Citigroup: Right, sir. Thank you. A quick clarification and then a question. Going back a few questions ago, you mentioned that you accelerated operating expense investment in Q4. Revenue is obviously up in March. Why shouldn't we be thinking about better than 20% operating margins for the March quarter. And then longer term, you mentioned several times in the script about, you know, improved visibility and long-term cyclical strength, evidence of past expenses paying off and yet we're talking down operating margins, penning evidence of sustained revenue strength. Maybe just to help us calibrate our models a bit here, can you give us a sense as to what you consider sustained strength either in absolute dollars or growth rates?

So with regard to the Q4 flowing into the Q1, it's really the same reason that we had that spending increase in Q4 really raised to our plans for Q1. We've indicated that we're already invested in those business for growth. We are a $2 billion company and a $20 billion market. And we have just a tremendous opportunity to invest in those business and gain market share on both the service provide and the enterprise side. And so, you know, we already spending against that objective of staying above the 20% operating margins. So it's really, you know, there is always more things you can invest in than you could afford. But we think that we can optimize shareholder value by making these investments and continuing to grow our market share on both of those areas. And, you know, again, I would reiterate that our gross margin has stayed reasonably stated. I mentioned that it might decline a little bit in Q1, but relatively steady during the year. So despite the increased visibility, it's our investment and our intention to make those investments that's causing us to say that that net operating margin is the most appropriate one to be guiding to. Scott, would you like to add anything?

Well, you know, Paul, I was just going to say, I asked that same question actually when people came to me with their spending plans. But the answer that I got back that was most compelling was here is the particular customer who is requesting this capability or this support or this coverage. And it was marquee customer after marquee customer. And so what we set as a priority was growing absolute revenue, growing absolute operating income as opposed to percentage, and then growing and continuing to sustain the strong cash flow. And with that, we are also able to control the reporting of these kinds of numbers to grow market share. And it isn't that the model and the operating percentages don't matter, and thus to Bob's point, drawing the line at 20% operating margin, but really the quality of the customers and the urgency of their requests is what convinced me that this is the right way to drive the business, presuming that we can deliver the absolute growth and sustain the cash flows from the business that we demonstrated in this most recent quarter, and then also as we are guiding to on our outlook for the year. So essentially, that's the thinking here and thus the guidance. Paul Mansky - Citigroup: All right. Thank you.

All right, Paul, thank you.

Dave, next question, please.

Our next question comes from the line of Tim Daubenspeck of Pacific Crest Securities. Please proceed. Tim Daubenspeck - Pacific Crest Securities: Yes. Just maybe, you know the clarification question. Clarification, are you still committed to the $1 billion buyback? And the question is, is this a change in your gross margin outlook for the company? You kind of said that Q1 gross margins would be down and do you still think, you know, 25-plus Op margin is the long-term target?

So with regard to the buyback, that was announced last July, and it that would depend upon the market conditions at the time. So you know, when we executed on the last buyback, it was on -- either as -- among opportunist basis and so we will see how that evolves. With regard to the gross margin outlook, actually, what I indicated isn't actually a change to our outlook because I've indicated previously that we expected a gross margin decline. We have actually been surprised with the strength that we've been able to achieve with that our gross margins, so it really isn't a change. The 25% you say, there still is our objective to get back up to that number when we see strong sustained revenue growth. Tim Daubenspeck - Pacific Crest Securities: Thank you. Randi Feigin:: Dave, we have time for one more question, please.

Absolutely. The last question comes from the line of Mark Sue of RBC Capital Markets. Please go ahead, sir. Mark Sue - RBC Capital Markets: Thank you. Scott, the top line growth numbers for 2005, what are you assuming for market growth. There's some indication that router growth may accelerate you know 15% because of video. Is it a market growth story, when it comes to Juniper routers or is there a specific plan to regain market share?

Mark, the growth numbers of that compound growth numbers and the forecasts that I've seen across the next couple of three years depending on who you ask are somewhere in the low to mid-teens. And we are in the growth -- the guidance we've given or represent growth between 13% and 17%. So its quiet possible there will be some share growth on our part assuming perhaps false supposition in all those guesses over the course of the year for years to come. But I think that what we see in the market -- and this is really the heart of why we see the opportunity as we do here. There is an escalating strategic value to the portfolio and the expertise that we have. It's increasingly important to our partners and to our customers and to the customers of our customers, both employees and their customers in the enterprise marketplace as well as obviously subscribers in the service provider marketplace. So the thing that drives us to the growth guidance we've given and to the strength we see in providing the visibility across all of 2007 is really the belief that while there is plenty of activity, there is consolidation right, left and center going on and there's marketing like crazy going on out there, there really still remains a very compelling strategic need for an increasingly scarce resource, which we are fortunate in enough to be building here and to have then building across, as we mentioned, now almost 11 calendar years and 7,000-plus person years of development. And so while there's plenty of surrounding activity and commentary here, what we see is remaining completely and utterly focused on both execution, the accountability that goes with that execution and the demands that are being placed on the Company by these marquee customers I mentioned. Those priorities drive, what Steve and myself, the management team here and now almost 5,000 people get up and do every day. And we see all of that translating into opportunity to perform and depending on how the market takes shape potentially to outperform. So we're going to stay focused on the customers and on the things in which we believe and I'm sure the market share will take care of itself. Mark Sue - RBC Capital Markets: Okay. Thank you, and good luck.

Thanks, Mark. We'll talk soon.

We'd like to thank you all for your participation today. There will be an audio replay available of this call in the investor relations section of our website. In addition, you may call 800-633-8284 and enter the reservation number, 21321540. Again, those numbers are 800-633-8284, reservation number 21321540. We currently plan to report our first quarter 2007 results in the week of April 16th of 2007. And if you have any additional questions, please feel free to call the investor relations department. Again, thank you for your participation on the call today and have a nice evening.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.

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