Good afternoon. My name is Jeremy and I will be your conference operator today. At this time, I would like to welcome everyone to the ADC first quarter earnings conference call. (Operator Instructions) Mr. Borman, you may begin your conference.

Thank you, Jeremy. Good afternoon and thank you for joining us today. Bob Switz, ADC's President and CEO, and Gokul Hemmady, ADC's CFO are with me today. Before we get started, I need to caution you that today’s conference call contains forward-looking statements and that future events and results could differ materially from the forward-looking statements made today. Actual results may be affected by many important factors, including risks and uncertainties identified in our earnings release and in the risk factors included in Item 1A of ADC's annual report on Form 10-K for the fiscal year ended October 31, 2006, and as may be updated in Item 1A of ADC's subsequent reports on Form 10-Q or other reports filed with the SEC. This earnings release can be accessed at the investor relations section of ADC's website at www.adc.com/investor. ADC comments will be on a continuing operations and GAAP basis. Bob will provide an update on ADC's strategic direction. He will then turn the call over to Gokul, who will cover the financial results first and then provide forward-looking financial model guidance. I will now turn the call over to Bob. Robert E. Switz: Thank you, Mark, and good afternoon. I will start my discussion with comments on our first quarter results and fiscal 2007 sales opportunities, and then provide a directional update on our long-term growth strategy and plans to grow sales and earnings. First, our first quarter sales and earnings in 2007 were certainly stronger than we had expected. We were pleased with this performance in the face of several customer timing variables, including merger and integration in the United States and regulatory reviews in other countries. There are a growing number of worldwide opportunities to sell our broad range of communications network infrastructure solutions. Timing variables related to these opportunities, however, may cause our actual results to fluctuate around quarterly expectations. While acknowledging the near-term uncertainty caused by these quarter to quarter fluctuations, we remain focused on our work to build ADC's long-term value as a leading global network infrastructure company. We believe that the strength we saw in our first fiscal quarter of 2007 may have been a result of some of our U.S. fiber-to-the-x customers purchasing earlier than we had expected when we provided guidance in December of 2006. We also believe that we have significant long-term growth opportunities ahead of us. Forecasting the timing of these opportunities remains difficult due to the uncertainty of how long and to what degree spending by our customers will be deferred during the integration of mergers in the United States and, as I mentioned, regulatory reviews in other countries and capital allocation to new initiatives. These factors could shift some sales opportunities from fiscal 2007 into fiscal 2008. While it is conceivable that we could exceed our full-year guidance, we are not inclined to increase our guidance at this time due to the lack of clarity around the timing of many market variables, but certainly we see growth opportunities in several areas: fiber-to-the-x projects, with expected high-growth potential; steady growth projects expected to grow at the rate of industry CapEx growth; and upside potential projects which, if realized, are expected to accelerate our growth rate. Starting with our fiber-to-the-x projects, which are well-known to most of you, Verizon has been a key customer over the years and we continue to supply their fiber-to-the-premise deployments in 2007. They have been very committed to this project and are a leader in the space. We expect to assist them as they connect to the 6 million homes they have passed already and the 3 million additional homes they expect to pass in 2007. Verizon was a major reason for our strong first quarter results and until we get through our second quarter, we will be cautious on our 2007 sales growth rate due to the FTTX quarterly sales fluctuations we encountered in both 2005 and 2006. As Verizon connects more FiOS customers, ADC's opportunity will shift from today’s mix of 67% homes passed and 33% homes connected to more of a 50-50 mix over time. The reason for this shift is our new product launches for terminals, cables and adapters that are used as homes are connected. We will also benefit by our continued shipping of additional splitters as subscriber penetration requires more capacity in the fiber distribution hubs in the neighborhoods. In dollar terms, we believe that on a homes-passed basis, the FTTX opportunity ranges from $50 to $120 per home. This includes all products from the central office through the outside plant. For fiber-to-the-premise builds, the high-end of this range is only achievable after several years of high take rates by the carrier subscribers. We do believe that many FTTN networks may eventually be upgraded to FTTP networks. Competitive factors and the performance limits of DSL will continue to result in the shortening of copper line lengths in the access network. When this FTTP upgrade happens is uncertain at this point in time. A key driver for the eventual upgrade of FTTN networks to FTTP architecture is the increasing bandwidth demands by subscribers for richer content and faster access. FTTP can support all manner of growing bandwidth services, such as large-size file sharing, multi-HD TV channels, IP video data, voice services, online video websites like YouTube, as well as multi-player gaming. AT&T is another large and important customer buying ADC's FTTX infrastructure solutions. While spending on FTTP is on track, until the merger integration with BellSouth is further underway, we do not expect a full return to spending on the broad line of products of the combined company until at least the second-half of the year. Deutsche Telecom is currently the European leader in FTTX and we are pleased to be a supplier of cabinets and connection solutions to them. They have announced plans to build out a VDSL network in 50 cities. We believe that the resolution of a regulatory review by the European union will determine the growth rate of future spending on DT’s VDSL network, although a recent statement by DT has indicated that they do plan on proceeding according to their original schedule. This potential regulatory delay is similar to the pattern we saw in the United States in the 2002-2004 period before FTTX spending increased following favorable regulatory resolution. Other potential FTTX opportunities in Europe, which may not result in full-scale deployments until after 2007, have been announced by carriers in Austria, Belgium, Denmark, Finland, France, Iceland, Ireland, the Netherlands and Switzerland. In the Asia-Pacific region, a growing number of potential FTTX opportunities, based on expressed interest and public announcements, have already been announced. Many of these opportunities will likely take beyond 2007 to develop into full-scale deployments. They include carriers in Australia, China, Malaysia, the Philippines, Singapore, Taiwan and Thailand, to name a few. All told, we are aware of about 17 opportunities in the region. We are very pleased to see the pick-up in the activity in markets outside of the United States for FTTX opportunities. From our perspective, these opportunities are developing a little faster than we would have thought a couple of years ago. In our steady growth markets, we have opportunities for next-generation core fiber expansion, data center builds, and enterprise network projects for new buildings and upgrades of existing facilities. With increasing subscriber demand for high-bandwidth video and data services, we expect these markets to provide solid fundamentals for capital spending growth. In terms of upside to our run-rate businesses, network infrastructure automation, deploying our new ACX and AVX automated copper and digital cross connect products, is in front of us. Wireless capacity and covered solutions with Digivance as well as our new WFX WiFi and WMX WiMAX solutions also present upside potential opportunities, and of course wireless back-haul solutions. Since the start of the year, we have seen an increase in the level of activity in our wireless business. Our current pipeline, active pipeline, is in the $30 million to $35 million range. So keep in mind that pipeline is the number of projects bubbled up through our sales organization, handicapped for dollar value in probability and not specific orders. But we are obviously very encouraged by this level of activity. It is certainly increasing and is a higher level of activity than we have seen in the past. So let’s review ADC's long-term growth strategy and plans to grow earnings. First, we are focused on targeting key growth segments and geographies to achieve balance sales growth as well as pursuing a competitive cost leadership position to grow earnings. First I will address balanced sales growth targeting key growth segments and geographies. As we continue transforming ADC into a global company, we have been successful in entering new markets. With our broadband fiber initiative, our fiber-to-the-x solutions give us a leading market share in that market worldwide. We have achieved that position in about three years from not being a participant in that market at all to becoming one of the world leaders today. We have other initiatives underway where we are targeting parts of the global market that offer growth opportunities, such as our ACX and ADX automated cross-connect products, converged wireline and wireless enterprise solutions, and wireless capacity in covered systems. We also continue to pursue market share gains in our core connectivity markets. With about 42% of our sales outside of the United States, we have a significant opportunity to participate in the high-growth areas of developing countries, particularly in the Asian markets. Our long-term goal is to get ADC back to around 50% of sales outside the United States, which is where we were when we acquired KRONE, back in 2004. Recent strength in the United States has pushed the U.S. to about 58% of ADC sales. We also recognize that in a more global and consolidating market, size, scale and customer relevance is extremely important, so we have been actively trying to grow ADC through acquisitions. We have been and continue to look at acquisitions that would increase our size, scale and relevance over time, as well as give us a greater ability to compete in global markets. Other drivers for acquisitions include gaining new product and technology capabilities, mainly in the form of smaller acquisitions where they offer new technologies or a part of the market that we would like to integrate into our portfolio. These acquisitions would be used to enhance our current product lines, or presences, in important geographic markets. Looking to our competitive cost transformation efforts, we have many initiatives underway to improve our efficiency and reduce our cost structure. These initiatives are designed to change the way we do business in the following ways. First, improve our delivery to customers by streamlining our product portfolio. For example, in Q1, we achieved 80% of our sales in one of our product lines from 50% fewer SKUs, enabling us to improve our delivery times and gain efficiencies in our manufacturing and distribution. Two, transfer our manufacturing and support processes to lower cost operations in China, the Czech Republic, and Mexico. Third, design our products for modular production to reduce time to market, leverage offshore manufacturing, and move us toward a configured order manufacturing process. Fourth, consolidate our logistics and distribution networks and suppliers for economies of scale. And fifth, continue to drive for additional supply chain efficiencies. We continue to work a strong pipeline, competitive cost reduction projects that will improve our speed, simplicity, innovation, cost, cash benefits, and customers’ experiences. To conclude my remarks, we continue to drive toward our long-term goal of achieving scale that will provide us with increased global capability, balance worldwide sales and customer mix, and larger economies of scale. Since we have a highly-leverageable cost structure, increased sales should significantly enhance our profitability. I will now turn the call over to Gokul who will comment on our quarterly financial results. Gokul. Gokul V. Hemmady: Thank you, Bob, and good afternoon, everyone. It is my pleasure to share with you the highlights of our strong first quarter results. First, we had strong year-over-year sales growth of 9%, driven primarily by 17% growth in global fiber connectivity solutions, 34% growth in global enterprise connectivity solutions, and 6% growth in professional services, partially offset by 3% decline in our global copper connectivity solutions. Second, our gross margins improved to 32% in the quarter compared to 30.2% in the fourth quarter. Third, better-than-expected GAAP diluted earnings per share of $0.08, and finally, total cash provided by operating activities from continuing operations was $31 million. In the past 12 months, we have generated $137 million in cash provided by operating activities from continuing operations. Now let’s review consolidated earnings in more detail. Our GAAP diluted earnings per share from continuing operations were $0.08 in the quarter, compared to $0.38 sequentially and a loss of $0.01 last year. In the fourth quarter, GAAP earnings included a net tax benefit of $46 million, or $0.35 per diluted share on an as-converted basis. Gross margins of 32% in the quarter were improved from the fourth quarter of 30.2%, primarily as a result of an improved mix of connectivity sales. We are also getting some early benefits from our competitive cost transformation initiative, which is a multi-year process to achieve cost leadership in our business. Selling and administration expense increased to $64 million in the quarter, compared to $56 million in the fourth quarter and $62 million last year. The quarterly sequential increase was due primarily to the fourth quarter reversal of fiscal 2006 incentive compensation combined with the first quarter 2007 increases in fixed and variable compensation, and the related benefits in the new fiscal year. In addition, we incurred increased legal costs related to the protection of our intellectual property rights. Moving to working capital, DSOs at 46.4 days were again better than our 50-day goal and a substantial improvement from 49.6 days in the fourth quarter and 56.6 days one year ago. Our first quarter inventory turns were at 4.8 times, down from 5.2 in both the fourth quarter and one year ago. We need to improve on our working capital efficiency. In the short-term, this will be a challenge as we extend supply lines to low-cost regions. Strong collections on accounts receivables supplemented by earnings was a primary driver in generating $31 million in total cash provided by operating activities from continuing operations in the first quarter. Depreciation and amortization expense was $17 million in the first quarter and $18 million in the fourth quarter. Property, equipment and patent additions net of disposals were a net expenditure of $8 million in the quarter compared to $10 million sequentially. As a result of our strong cash flows, our total cash, cash equivalents and available-for-sale securities, totaled $582 million at the end of our first quarter, up from $562 million at the end of Q4. I will now provide annual financial modeling guidance. As Bob mentioned, the sales lift we saw in our first fiscal quarter may have been a result of some of our U.S. FTTX customers purchasing earlier than we had expected when we provided guidance in December, 2006. We have significant long-term growth opportunities ahead of us. Forecasting the timing of these opportunities remains difficult due to the uncertainty of how long and to what degree spending by customers will be deferred during the integration of mergers in the U.S., regulatory reviews in other countries, and capital allocations to new initiatives. These factors could shift some sales opportunities from fiscal 2007 into fiscal 2008. Consequently, we are keeping our fiscal 2007 guidance unchanged at this time until the uncertainties of the quarterly signing and extent of our 2007 growth opportunities are resolved. It is important to remember that in fiscal 2005 and 2006, our sales fluctuated from quarter to quarter, something that is likely to continue in fiscal 2007 and beyond. Additionally, the sequential percent increase of sales in the second quarter of 2007 may be less than the sequential percent increase in comparable quarters in fiscal 2005 and 2006, depending on when the timing of uncertainties of some sales opportunities are resolved. If the current uncertainties are favorably resolved, we would expect to see a positive impact on our business. Gross profit margins are expected to drive and decline following sales volume levels from quarter to quarter. On a continuing operations basis, we currently expect fiscal 2007 sales to be in the range of $1.26 billion to $1.29 billion. Based on this sales guidance and subject to sales mix and other factors, GAAP diluted EPS from continuing operations in fiscal 2007 is estimated to be in the range of $0.53 to $0.63, which includes the following estimated EPS charges, net of tax: restructuring charges through the end of Q107 of $0.01; amortization of purchased intangibles of $0.20; and stock option compensation expense of $0.07. This guidance excludes potential future restructuring impairment and acquisitions-related charges and certain non-operating gains and losses, as well as benefits from any reduction of the deferred tax asset valuation reserve, of which the amounts are uncertain at this time. Moving to EPS, the calculation of our GAAP diluted EPS from continuing operations includes the if-converted method, which assumes that our convertible notes are converted to common stock if dilutive to EPS. This EPS calculation is specified in our earnings release. Ending with income taxes, as of February 2, 2007, we had a total of $1 billion in deferred tax assets that have been offset by a valuation allowance of $976 million. This net asset is primarily in other long-term assets on the balance sheet. Approximately $222 million of these deferred tax assets relate to capital loss carryovers which can be utilized only against realized capital gains through October 31, 2009. During the fourth fiscal quarter of 2006, we reduced the valuation allowance by $49 million, attributable to deferred tax assets that are expected to be utilized over a two-year period. For financial modeling, we expect the effective tax rate to be 10% for each quarter, similar to 2006. As we generate pretax income in future periods, we currently expect to record reduced income tax expense until either our deferred tax assets are fully utilized to offset future income tax liabilities or the value of our deferred tax assets are fully restored on the balance sheet. Excluding the deferred tax assets related to capital loss carryovers, most of the remaining deferred tax assets are not expected to expire until after fiscal 2021. So in summary, we remain committed to strategically managing our business for long-term growth as well as profitability. We are executing a multi-faceted, multi-year approach to growing value for our shareholders in a market with ever-increasing competitive pressures. We intend to continue building ADC into the leading global network infrastructure company. We have established balanced sales growth, competitive cost transformation, and business execution excellence as the main priorities in our plan to grow sales, profitability and value. We are going to do our best to successfully execute this plan for the benefit of our shareowners, customers, as well as employees. That concludes our remarks, and Jeremy, we will now open the call to questions.

(Operator Instructions) Your first question comes from Nikos Theodosopoulos.

I have a couple of questions. Can you comment on the number and size of your 10% customers this quarter? Robert E. Switz: We have two customers, I would say, during the quarter. One customer that is more than 10% at this point in time.

Just one? Robert E. Switz: Well, let me adjust that. If I combine, yes, probably two if I combine in BellSouth now with AT&T and Cingular, we have two that are over 10%.

The second question I had was on the operating income breakdown that you gave. In the global connectivity business, the business was generally flat and the operating margins were down. It was not a down a lot, but I am just trying to understand the moving pieces there. Why were the operating margins down? Was it the mix shift to fiber away from copper? Is it as simple as that? Or are there other factors changing that? Gokul V. Hemmady: What happened from Q4 to Q1 is that our core copper connectivity business, the sequential decline was more in line with what we have seen in the past, whereas as you heard from remarks that Bob and I made both, most of our out-performance came from FTTX and that is clearly one reason why you are seeing some of that.

I’m sorry, just one last question, on SG&A, you mentioned wide was higher this quarter. Should we look at this as a base level that would increase throughout the year as sales increase, or what is going to happen to that going forward? Gokul V. Hemmady: The way I would think of this is relative to our guidance, let’s take the midpoint of our top-line guidance. I think if you are modeling something like the mid-point of our top-line guidance, you should probably take operating expense, what we have in Q1, as a base and it will be relatively flat from there on for the balance of the quarters. With increasing -- if we do with some of the upside opportunities that Bob talked about, if we do exceed that midpoint of the guidance, then operating expenses will go up but not by too much, I would say.

Your next question comes from John Anthony. Mr. Anthony, your line is open. There is no response from Mr. Anthony’s line. We will proceed to the next question in queue. Your next question comes from Eric Buck.

A couple of questions for you. First of all, looking at the acceleration that you talked about, this is almost the opposite of what you were anticipating from the standpoint of some pick-up, but not a rapid pick-up, particularly out of Verizon. I am wondering if you can identify what the reason was for an acceleration of the purchases, because I do not think there has really been any change in their deployment plans through the year. Robert E. Switz: A couple of things; they have placed orders earlier this year than they did in prior years. I think we also anticipated it would take more time to work off some of the inventory that they had as we exited last year. Probably the third thing that comes to mind is the spending on splitters so to some degree, we did not anticipate in our first quarter the splitter spending that took place, which is related to populating hubs and homes connected.

Then, in your comments regarding the perhaps the stuff being pushed out from ’07 into ’08, and it sounded like you were looking primarily at AT&T and Deutsche Telecom with those comments, is that just your read of what you are kind of feeling in the marketplace or are there specific things they said to you that suggested that kind of delay? Robert E. Switz: They have not said anything directly. I am not sure that they can. But in discussions with them, personal observations that I have taken away suggest to me that we need to be conservative on this particular issue because this is a large-scale combination. They are changing the way they run BellSouth. BellSouth will run differently under AT&T’s management from an operating perspective. The regions will no longer be run more or less like P&Ls where they control most of the facets of what they need to do to run their business and region. It is moving more towards a functionalized structure, which means responsibility is divided and you do not control all the pieces. On the surface, things like that do not seem like much but it does impact. There is a learning curve for people to adjust to the new way of doing business. There are a lot of reviews going around regarding capital spending and in what areas, analyses of existing inventories relative to needs and various rollout plans. I think what we are doing is anticipating the complexity and at least at this point, reflecting concerns that it could take a while before we see normal spending coming out of that account, which by the way would include Cingular as well.

Finally, for Gokul on the gross margin, assuming that we did have this acceleration from Verizon later in the year, should gross margin then return close to the 30% or is there a meaningful improvement that has already been driven by the cost improvement efforts? Gokul V. Hemmady: No, if I understood your question right, you said do gross margins return to the 30% level, I don’t think -- you saw gross margins at that 30% level in our fourth quarter. I think 2006 was a different year for us with lots of issues around mix that impacted our gross margins. Think about ’07 as a year in which we are going to have much more stability around our gross margins. I think we have started off the year well in Q1 and we expect that kind of stability or that kind of performance to be there for the balance of the year. I do not expect gross margin necessarily to get back to that 30% level. Now, there are some worst-case scenarios that could get us there but that is not what we are forecasting.

Your next question comes from George Notter.

I wanted to ask about the gross margin performance sequentially. Obviously it was up on a lower revenue number. Earlier you suggested that there is an increased mix of splitters in your fiber-to-the-premise content, but your overall fiber-to-the-premise content seems like it was up sequentially. I guess I am just trying to figure out what the different moving parts within that gross margin are. Gokul V. Hemmady: You are right. I think it is a mix issue within our overall FTTX business. Our FTTX business was very, very strong; was the bigger cause of our out-performance. Within the FTTX business, I think we are seeing more, although it is part of homes passed, we are seeing more success-based kind of spending, i.e. more connectivity, if you will, within that spending, which probably is at higher margins. So that is one reason. Second, we are starting to see the impact of our competitive cost transformation initiatives. I would say that is probably the smaller piece of the gross margin increase from Q4 to Q1, but those are the two big ones that took our gross margins from 30.2% to 32%.

And one other question on profitability. Professional services business, it looks like the loss there was a good chunk higher again sequentially. I know you are cutting costs there internationally in particular, but what is motivating that and how do we get that business back to profitability and what is the timeframe for doing that? Thanks. Robert E. Switz: We made a conscious decision in the quarter not to reduce headcount in that business. We did reduce as much as we could around our contractor base of employees but we chose to maintain a reasonably high level of capability there, mainly because we know we are going to have to support AT&T and BellSouth when they want those services, as well as potentially driving for new business inside of that account. So as we have seen in the past, that business can turn on very quickly with a customer. You could wake up one morning and find yourself with nice bookings and expectations that you are going to begin servicing them immediately. Without labor on the bench, you can’t do that, so we made a conscious choice that we would carry more labor than we otherwise might with the full expectation that we need to support AT&T, BellSouth, Cingular and also use our track record in both of those accounts to try and drive for some additional business.

Your next question comes from Simon Leopold.

I wanted to go back to the SG&A topic that you did run through briefly in the prepared remarks what led to the increase. Maybe if you could give us a more detailed breakdown on the sequential increase in your SG&A. And I just want to clarify your answer to Nikos’ early question, I assume you were talking about it as a percent of sales. That is the first part, if you could take that and then I will come back with a follow-up. Gokul V. Hemmady: On SG&A, it went up sequentially by about $5 million to $8 million, somewhere in that range. First, as I have said on our earnings call at the time we announced Q4, we had a reversal of incentive in our Q4 of about $2 million to $3 million, so our Q4 op-ex should have been higher by that amount. That is the first reason. The second one is the out-performance that we had in Q1, we have started accruing for annual incentives, days incentives as well as incentives to our various businesses starting in Q1. That is about again of that same range, about $2 million to $3 million. Finally, we had $1 million in legal costs related to an intellectual property matter that came in our Q1 that we do not expect to have going forward. In response to Nikos’ question, I was referring to the actual dollar amount of operating expenses, so if you take the mid-point of our top-line guidance, I believe that we have operating expenses dollars that are pretty much flat with what we had in our Q1.

And then a second question I wanted to ask about is to go back and visit the gross margin question. Clearly you guys have given us the heads-up that mix is a key factor, as well as volume. This quarter, you had good volume yet the gross margin, still with what seems like an unfavorable mix, was still better than we expected. It seems like there is more that has changed for the story other than the elements within the FTTX. Are you getting better prices? Is there something in the operations or your supply? Was there leverage on materials? If you could give us a better sense of where we are, what drove the upside this quarter so that we can understand where it is moving for the rest of the year? Thanks. Gokul V. Hemmady: Think about the leverage that we get on gross margin as follows, Simon: 10% of our revenue is included in the cost of goods sold line that is fixed. So for example, if we have a 10% increase on the top line, that creates leverage of about 100 basis points on the gross margin line. So that is one thought I leave with you. Second, I think we are getting some benefits out of the competitive costs transformation. I would not say that those benefits are more than 25 to 40 basis points in the quarter. So they are not small but at the same time, they do not explain the 180 basis point sequential improvement. That is the second thing. The third is really related to better mix within our FTTX business. Those three account for most of the 180 basis point improvement. Now, on the third point on the mix, although the volumes of the revenues that we expect from FTTX, from Verizon may fluctuate from quarter to quarter, as it did in 2005, as well as 2006. We believe that the mix is generally going to stay the same as we saw in our Q1, and therefore expect our gross margin in the FTTX product line to be quite similar to what we are seeing in our first quarter. In terms of trying to explain the sequential improvement in gross margin, it is volume leverage, it is cost transformation initiatives, as well as mix in our FTTX product line.

Your next question comes from Christian Schwab.

Thank you. So Verizon’s inventory issues are resolved? Are they going to be sequentially up again in April? Robert E. Switz: I did not say their inventory issues are all solved. Certainly they seem to have made significant progress around that. But related to your other question, I would expect to see increased sales from them in the second quarter.

What is the gross margin difference between splitters and cabinets? Robert E. Switz: We do not break that information out. When we look at the FTTX business, we have bid this business according to a formula over time that involve a multitude of products where we attempted over time would achieve a blended acceptable margin to us. So there is a lot of variability in the different pieces of our FTTX offering.

How about just generically, so we make 15 to 20 and then we make 30 to 35? Gokul V. Hemmady: I would say that -- I am not going to give you the exact numbers but in general, I would say that connectivity is higher than corporate average margins and the cabinets are lower than corporate average margins.

Okay, that helps. And then, on the gross margin stability we talked about, we don’t think it can get any -- you know, a lot of bad things would have to happen to get to 30%. How many good things have to happen to get to 34%? Gokul V. Hemmady: I think you might see, in a given quarter, you might see gross margins getting to 34%. I think it is going to be more volume-driven than mix. I would still expect mix to be relatively stable. I think over a longer period of time, I have said this in the past, I do expect our competitive costs -- this is longer term, so two to three years -- I do expect our competitive costs transformation project to achieve gross margin improvements of anywhere between 100 to 150 basis points. But in 2007, can in a given quarter we get to 34 basis points? It is possible, volume driven. If some of those timing or uncertainties around AT&T BellSouth come about, as well as what we expect from ATX with DT.

Great, and then AT&T BellSouth as a combined customer last year was roughly what, 15% of sales? Gokul V. Hemmady: Approximately, yes.

And then I guess the conservatism towards when they will come back is just the fact that you do not have the orders in hand so we will just be conservative about it? I mean, their implied wireline guidance for CapEx was very positive. Robert E. Switz: You know, it is like trying to predict the future, right? We do not have orders that go out over that timeframe because we are pretty much a book-and-ship business. We know there is a lot going on. We have looked at past history in terms of time it takes to get a resumption of relatively normal activities and don’t forget you are on the heels -- you are putting several companies together. I mean, we are just coming off putting SBC and AT&T together and now add BellSouth and Cingular to the mix, that is quite an undertaking. I think we are wisely taking a wait-and-see approach, rather than speculate on what may take place inside that company.

Your next question comes from Marcus Kupferschmidt.

All right, in no particular order, my first question would be about expenses. If I remember correctly, a quarter ago we were talking about how op-ex would be flat to down in dollars in ’07 versus ’06, and now we are talking about $80 million or higher in a given quarter, depending on where the revenues shake out for the year. That is a change. So let me ask you, what has changed in your investment in the company? Gokul V. Hemmady: If our midpoint of our top-line revenue guidance will come through, I think you will expect if you see our pro forma op-ex in ’06 relative to the guidance that we have given now on this call, I think it is in the ballpark relatively flat. Now, I do not have the numbers exactly in front of me but I think it is somewhere in that $310 million to $315 million range. That is where we ended up op-ex in ’06. I think we would be relatively in that range for all of ’07.

-- about $80 million in the first quarter times four, which is 320? Gokul V. Hemmady: Right, so there could be some changes as we enter the balance of the year. That could take us in that 310 to 315 range, if we get to the midpoint of our top-line guidance.

So 310 to 315 for the midpoint of the revenue? Gokul V. Hemmady: Is absolutely a possibility, yes.

So there could be some cost savings, reduced op-ex over the course of the year? Gokul V. Hemmady: We are continuously working, Marcus, on cost-saving initiatives as we have said in the past. I think we could get to those kinds of levels as we move forward.

All right, and then two other things. If you think about the Verizon, probably the prem contribution in the Jan-07 quarter, can you tell us how that compares to what it was in the year-ago period, how much dollar growth you are seeing? Gokul V. Hemmady: I think it was about a 50% growth from a year ago.

50? Gokul V. Hemmady: Yes.

Okay, and then -- so should we assume in terms of your commentary that you are not expecting any improvement on the BellSouth AT&T activity in your April quarter for what you see today? Gokul V. Hemmady: I think we will expect some small improvements but we are not expecting anything major in our Q2.

And then, to get you to the midpoint of the guidance for the year, let’s say, do you expect increasing contribution in 3Q and 4Q, which would feasibly offset a decline in Verizon? How should we think about those two factors to get you to the midpoint of your guidance? Thank you. Gokul V. Hemmady: You should think about some improvement in BellSouth as well as some revenues from the ATX, Deutsche Telecom. They do not represent the full potential. They do not represent return to normal spending but some incremental revenues from BellSouth as well as some revenues from ATX, offset by a decline in Verizon revenues. Robert E. Switz: The other thing, Marcus, that we have not figured in at all, because it is really hard to determine when it will happen, but traditionally we see in addition to business as usual, we normally see a bit of a pick-up in our service and connectivity business when merging companies tend to put their networks together, so we have not planned for that outside of the scope of our current thinking at the moment.

Your next question comes from Paul Silverstein with Credit Suisse.

A couple of clarifications, if I might, back to the guidance issue. Bob, I just want to make sure I understand, when you talk about a range and then you said if certain things pan out, we can be above the range, I want to make sure I understand what is in the guidance and what is not in the guidance. In response to Marcus’ question, I thought I heard you say that you are assuming some revenue from DT as well as from AT&T BellSouth in Q3 and Q4. In terms of things that are not in the guidance that could meaningfully drive revenues above the guidance you gave us that is not in there? Robert E. Switz: It might not be a matter of what is not. It might be more a matter of how much is not. There certainly could be more DT spending than we have put in our outlook. There could be more BellSouth spending and Cingular spending than we have in our outlook. There could be -- we could achieve more wireless business than we have in our outlook. Services as well, but that could be linked to the same accounts. So those things could clearly create some upside for us. So it is not so much a matter of what is not there; it is a matter of the magnitude of how much we do have in there.

Bob, that was a great set-up for my next question which is coming, which of course is what is that magnitude? Robert E. Switz: What’s that?

What is the magnitude when you talk about -- Robert E. Switz: I would like to be able to share that with you, but I am not sure I am going to. The way we look at it is when we put our guidance together, we make a set of assumptions. I think it is fair to say that when we looked at DT, we were concerned about regulatory matters, we were concerned about how fast we might be able to go through trials with our product, how fast they will actually get going and physically be able to deploy, so we make some judgments around that. We make some judgments around how fast BellSouth/AT&T Cingular will resume, and so on and so forth. What we are saying is we think we have put a somewhat, as best to our ability, somewhat of a realistic assessment around those activities but clearly they could -- all these things could move faster and be stronger than what we have in our current outlook. Also, as I mentioned earlier, the incremental spending around network connectivity, we have not factored -- that is something that is missing. We have not put anything in for that, so if we start to see some of that then clearly that could be helpful to us. That is probably the most that I could tell you.

Two more quick questions, if I might. The 3% decline you saw in your copper connectivity business, what is the risk from where you are sitting that this is the beginning of the much-discussed or long-discussed secular decline in that business and it just gets worse from here? That is the first question. The second question is about strategic M&A possibilities for the business. Robert E. Switz: What was the last thing, Paul? You faded out. Gokul V. Hemmady: Strategic M&A possibilities.

M&A possibilities, and I know there is only so much you want to say on this, but once upon a time you obviously felt wireless was extremely important and requisite. How important, how strategic is wireless to you now? Robert E. Switz: I will tackle that. Wireless is still attractive to us. We think, as we look at a balanced approach to serving the infrastructure side of the market, we clearly would like to be a converged supplier, so strategically, we have said at the time of the Andrew transaction, we still believe that today. So it is something that obviously if we could accomplish in a manner conducive to our objectives, then that remains strategically attractive. There are emerging parts of the wireless business that also are attractive to us. As architectures change, as WiMAX and WiFi continue to present opportunities, that is an area that we see is an area of potential growth as well as the whole in building side of the wireless market. Then, if you look further down the road, there is all types of opportunities that could emerge as things become more and more mobile and as wireless becomes an even stronger network tool inside factories and enterprise and so forth. So we like the general space and we would like to be able to add assets to address that part of the market. The enterprise area, the greater enterprise area, things that would support our current efforts there and our structured cabling business continue to remain attractive. That would bring some diversity and some balance in the customer base, relative to the high carrier exposure we have today and certainly play to multiple strengths that the company has, so that continues to be attractive. In the general connectivity space, things that might enhance our position in outside plant as well as central office fiber offerings continues to remain attractive, and we are starting to see emerging developments in the greater connectivity space around adding more intelligence and more capability to both fiber and copper termination products, such as the ACX. There are opportunities out there today to explore doing similar things around fiber, so the general connectivity space again would be attractive to us as well. Those are some general guidelines. Not dramatically different at all from what we have been saying for quite some time now. Gokul V. Hemmady: To your question on copper, we generally see declines, seasonal declines in Q1 that are anywhere from 8% to 15%, so the 3% decline that we saw in our global copper connectivity business is much better than the historical seasonal declines that we have seen, so we do not really see that as any indication of is the decline in copper finally here. I think we are still some ways away from that.

If I may ask this very quickly, if DT happens larger than you are projecting in your guidance, and if AT&T and BellSouth come in larger than you are projecting, can you give us an idea of the impact? I assume one has a negative impact and one has a favorable impact on gross margin? Would that be accurate? Robert E. Switz: I will take a stab at it, and Gokul can certainly help me out. It could be mixed. If BellSouth turns on, then there is traditional connectivity product that would be going in there. We also have our blocks for the competitive broadband offering. But then we also have a lot of services, so services come at lower margin, so we would probably have to blend that. And then, of course, DT which the margin benefit we see there would be the difference between what we sold DT last year in terms of the lower-margin cabinets versus the higher-margin ACX product this year. Gokul V. Hemmady: Relative to last year, that is the right comment. I think relative to guidance or the levels we have seen in Q1, I would say it is relatively neutral for all the reasons Bob talked about. The traditional products are higher margin, but the services are lower margin and ACX, even though much higher than the cabinet business, is still at corporate average or slightly lower. I would say in general, I would put it as relatively neutral to current levels or guidance.

Are there any other callers, Jeremy?

Your next question comes from Nikos Theodosopoulos.

I just have two quick follow-ups. You mentioned earlier in the call about FTTX, a lot of activity globally, more than you would have thought a year or so ago. How would you characterize the dollar opportunity in ’07 versus let’s say Verizon was in ’07? Is it half of what Verizon would spend in aggregate, the same amount? Could you just quantify what it would be in ’07? Robert E. Switz: In ’07, the international activity I would put very low. They are getting started. Let me characterize what is going on. In some cases, we personally are involved in trials and in some places we are involved with RFPs and some place we are involved in discussions and information, so I see the international arena more as an ’08, beginning in ’08 than in ’07. What can it be relative to a Verizon in a ramped-up year? I am not sure I can yet answer that, Nikos, but clearly we expected when we talked about the international market for FTTX several years ago, we were not expecting to see the current level of activity in this timeframe, so it is encouraging to see that come on faster. But I would say this year, very little spend. Next year I am hoping we are going to see the start, so I would look at it in a sense, without being able to give you true magnitude, look at it the way we saw Verizon start in the ’04, ’05, ’06 timeframe. I think that is sort of a bump-up, a ramp will be similar. Will it be as big as a Verizon? I cannot tell you.

So really, if I look at the upside potential in ’07 for ADC, it would be more the magnitude of Deutsche Telecom, Verizon, AT&T BellSouth rather than international just coming on -- Robert E. Switz: Absolutely, yes. What you should do, and I think I characterized it this way quite some time ago, what I said was my hope would be that as Verizon began to flatten and peak, that we would see more participation from AT&T and then we would also see on top of that, the beginning of the international market. That seems to be the way in general it is starting to play out. I see that as a good thing.

Okay, and then just one last numbers question. I do not know if you have this, and if not, I could follow-up later; the $6 million amortization of intangibles, it seems like, unless I looked at this incorrectly, you are including this in your operating income by the four or five reportable segments. Is that evenly spread out just based on percentage of revenues, or is that -- Gokul V. Hemmady: It is just global connectivity and somewhat professional services. I would say, and I do not have it in front of me, but I would say it is 70% or 80% would probably be GCS.

We will take one more question.

Your final question comes from John Anthony.

I hate to beat this to death. I just want to make sure I understand what is going on. Bob, I think you said before that you expect Verizon to increase sequentially in the current quarter from the January quarter. Is that correct? Robert E. Switz: That is correct.

Do you expect them to increase on a year-over-year basis as well? Robert E. Switz: Yes.

So if they increase in the first six months of fiscal ’07, it seems like your business would almost have to tank across the board for you not to exceed your current full year estimates. Gokul V. Hemmady: You are right. Like we saw in ’05 and ’06, I think the second-half will be lower than the first-half, but I think the magnitude of the decline will probably be lower than what we saw in 2006. I think we think we will exceed increased year-over-year growth rate, ’07 over ’06. I think first-half for Verizon is going to be much stronger; second-half is going to be a decline over first-half and we believe that those declines in revenues in the second-half will be replaced by some at AT&T BellSouth and some at ATX with Deutsche Telecom.

Lastly, could you just give us an update on what the pricing environment is like across the board? Robert E. Switz: Where you have existing contracts, for the most part, contracts are being honored. On new projects, the competition is as keen as ever because it is new business and people are bidding for it, so pricing there, front-end pricing is as challenging as it ever was. And then I can certainly say that the new colossus, AT&T, has certainly turned to its vendors for price considerations and I think that is probably an area where even though one may have a contract, you are going to be expected to find some what to reflect the size and scale of a single customer now. So certainly there will be some price concessions that people have to consider around the new AT&T.

That will conclude our call. Thank you for being with us today.

That concludes today’s ADC first quarter earnings conference call. You may now disconnect.