Tom Fitzsimmons – Director of IR Gary Greenfield – Chairman & CEO Ken Sexton – CFO & CAO

Steven Frankel – Canaccord Adams Paul Coster – JP Morgan Jim Ricchiuti – Needham & Co. Mike Olson – Piper Jaffray Andrew Abrams – Avian Securities

Good day and welcome everyone to the Avid Technology Second Quarter 2008 Earnings Results Call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations, Mr. Tom Fitzsimmons. Please go ahead, sir.

Good afternoon. I'm Tom Fitzsimmons, Director of Investor Relations for Avid Technology. I’d like to welcome you to today's call. With me today are Gary Greenfield, Avid's Chairman and CEO, Ken Sexton, Chief Financial Officer and Chief Administrative Officer, and Joel Legon, Vice President of Finance will join us for the Q&A. Before we begin, please note that this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 including statements about Avid's performance. There are a number of factors that could cause actual events or results to differ materially from those indicated by such statements, such as competitive factors including Avid's ability to anticipate customer needs, pricing pressures, our ability to execute our strategic plan, and adverse changes in general economic or market conditions, particularly in the digital media industry. Other important events and factors appear in Avid's filings with the US Securities and Exchange Commission. In addition, our forward-looking statements represent our estimates only as of today, July 24th 2008, and should not be relied upon as representing our views at any subsequent date. Avid undertakes no obligation to review or update these forward-looking statements. During this call, we'll be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. The most directly comparable financial measures calculated in accordance with GAAP and a reconciliation of GAAP measures to those non-GAAP measures are contained in the press release announcing this quarter's results, and are available in the Investor Relations section of our website at www.avid.com. And now, I would like to turn the call over to Gary.

Thank you, Tom and welcome everyone to our Second Quarter 2008 Results Conference Call. I'll go over a few highlights of our second quarter, Ken will provide the financial details and then I'll cover the outline of our corporate strategy and organization initiatives, then Ken will wrap up with an update to our 2008 guidance, and Ken, Joel and I will take your questions. Even as Avid is in the midst of significant transformation, we are maintaining our focus on achieving long-term profitable growth and progressively improving our performance across a number of different business metrics. With that in mind, I'm happy to report a sequential revenue increase of about 12% to 223 million as well as improved margins, resulting in a quarter that was break-even on a non-GAAP EPS basis. While we're certainly not satisfied with breaking even, we do believe that top line growth with improving margins is an indication of continued customer confidence in Avid during our transformation and that we are delivering on our commitment to progressively improving our results during the year. ,: In the second quarter, we also successfully launched the latest version of Pinnacle Studio, our consumer video editor helping us to drive sales of our consumer editing software line to its highest level in more than two years. We do not expect linear increases in studio line across the year due to seasonality, it is indicative of continued strength for us and it's important in marketplace. Continued innovation, improved quality and reliability and on-schedule delivery of our core product platforms is an important part of our commitment to our customers and business partners, and I am pleased with the early marketplace acceptance of these products. We are also making progress in the modernization of our infrastructure that are in full swing with our worldwide CRM implementation, which will enable us to better serve existing customers as well as reach new prospects across our consumer and professional brands. This new system will also allow us to become more efficient in our sales and marketing efforts, which we believe will be a component of lowering our overall operating cost moving forward. Taken as a whole, we're happy to be hitting key milestones and showing improvement in top and bottom line results, but that's obviously not the end game here. As I mentioned on last quarter's call, a lot of hard work being accomplished currently will not show up in the financial results until future quarters. We're not looking for the quick, one-time payout instead for our shareholders we are targeting long-term shareholder value increase. Once Ken is done reviewing the second quarter numbers in detail, I'll provide a more comprehensive review of our revised corporate strategy and organizational initiatives which we believe better aligns us for success. Ken?

Thank you, Gary, and good afternoon, everyone. As Gary mentioned earlier, revenue for the second quarter was $222.9 million, and the GAAP net loss was $10.4 million, or $0.28 per share on 36.9 million average shares outstanding. Our earnings release provides a table of certain items that are excluded from our non-GAAP results. For the second quarter, these items total 10.5 million and consisted of amortization of intangibles, stock-based compensation, restructuring cost and related tax adjustments. Adding these charges back to our GAAP net loss results in a non-GAAP net income of $119,000 for the second quarter, and a break-even non-GAAP EPS. Our GAAP gross margins was 48.6%, including 2.3 million of amortization of intangibles and 337,000 of stock-based compensation. Without these charges, the gross margins would have been 49.8%. Our non-GAAP gross margins was up over 1% sequentially, but down slightly year-on-year. The company's operating expense, excluding amortization, stock-based compensation and restructuring was 109.5 million. This was approximately 600,000 higher than last quarter, and 2% higher than the second quarter of 2007. To assist shareholders in understanding our results, we have been separately reporting our business transformation costs. These costs include third-party consulting, severance, recruiting and retention cost related to changes in senior staff. Included in our operating expenses for the second quarter was approximately 1.4 million of these transformation costs not charged to restructuring or about $0.04 per share. Year-to-date costs of this nature are approximately 4.9 million or $0.13 per share. Our non-GAAP operating income, which excludes amortization, stock-based compensation and restructuring, but included transformation costs was 1.5 million for the quarter and as I mentioned, after tax and interest, our non-GAAP net income was $119,000. I would now like to focus on operating performance of our three business segments. Please note that the following items are excluded from the business unit results. Interest income of 617,000, 19.7 million of corporate infrastructure costs and operating expenses, 5.6 million of non-cash amortization of intangibles, 4.6 million of non-cash stock-based compensation, 937,000 of restructuring cost charges primarily related to severance cost and income taxes. Starting with the professional video, revenue for the second quarter was 116 million, up 23%, and down 4% year-on-year. On June 6th we began to ship our new line of Professional Editors. This release combined with the recognition of several large transactions from our deferred revenue were the primary reasons for the sequential revenue growth. Professional Video gross margins of the percentage of revenue were up sequentially and down year-on-year. The sequential improvement was a result of higher revenue on relatively fixed overhead and recognition of higher margin deals from deferred revenue. Year-on-year decline is attributable to changes in business mix. As expected, expenses were up sequentially with increased marketing due to our presence at NAB, but down year-on-year on lower head count. Video contribution margin was $11 million or approximately 9% of revenue. Turning to audio, revenue was 75 million in the second quarter, up 3% sequentially and down 2% year-on-year. The year-on-year decline is attributable to the delay until the end of the quarter of releasing our Apple Leopard operating system compatible version of Pro Tools LE offset somewhat by strong sales in the M-Audio line. We're also pleased with the continued growth of our live sound product line, which improved 50% year-on-year. Gross margins were consistent with the first quarter of 2008 and up year-on-year. Audio operating expense was up sequentially in year-on-year reflecting increased investment in new product development. Audio's contribution margin was $11 million, or 14% of revenue. Finally, looking at consumer video business unit, revenue was $32 million, up 3% sequentially and 13% year-on-year. : Now, turning over to the balance sheet, we ended the quarter with cash of $138 million, down $12 million since March 31st 2008, and 86 million since December 31st 2007. While we didn't repurchase any shares in the second quarter, we did repurchase $93 million in the first quarter of 2008, and have $80 million remaining of the share repurchase authorization. We're pleased with the improvement on our inventory and accounts receivables, which have both improved sequentially and combined are down $44 million year-on-year. Inventory turns were 3.7 million and days sales outstanding was 46 days, both improvements over the prior period and prior year. Our deferred revenue was flat year-on-year, but down 12 million sequentially, with a significant amount of revenue recognized from our video backlog in the second quarter. I'd now like to hand things back over to Gary for a discussion of strategy. Gary?

Hey, thanks, Ken. I'd like to talk for a few minutes about where we're taking the company and why. I said that we’d outline our strategy after a six month period and now at that point and after having visited with more than 100 customers, dozens of business partners and employees in offices around the world a clearer picture is emerging. I think everyone on the call is aware of Avid's strong legacy and our heritage of innovation in the digital media marketplace. Not only are we are a leader in the majority of the markets we serve, but many of these markets also offer a great deal of opportunity with the majority growing at annual rates well above technology industry average. We also have a broad customer base. We compete successfully in both the consumer and professional segments (inaudible) creative individuals as well as large media enterprises. This passionate customer base is eager for us to succeed to discover new ways of helping them solve the challenges they face in their everyday work. We also have the industry's best and brightest talent, who continue to demonstrate their commitment to serving to ever changing needs of our customers. However, we recognize that we haven't been taking full advantage of these strengths in order to realize the economic benefits that typically come from being a market leader. Although our products are among the best in the industry, in the past, we have missed opportunities to capitalize on new revenue streams by not refreshing our technology architecture quickly enough, and by offering a disconnected set of proprietary point products. We also haven't been cross selling the products and services that each of our business segments offer even though many of our customers depend on multiple Avid's brands to get their jobs done every day. In addition, these multiple brand identities often send conflicting messages to our global audiences which limits our ability to fully leverage these customers as a vocal network of brand evangelists who can influence others. Moreover, we have maintained separate businesses in video, audio and consumer without much combined strategic vision. So, we have had challenges, but we also have great opportunity. Now, I'd like to outline the strategy to capture those opportunities, the team that will take us there, and the action plan that is going to deliver on the strategy moving forward. First strategy, it's important that our employees, business partners and customers, all have a very clear picture of where Avid is headed, and what our core value is in the marketplace. As you know, Avid has a very diverse customer base from the millions of consumers using our audio and video products to the world's largest and most complex media enterprises, but these customers all share desire to use their creative talents to accomplish their objectives and bring their dreams to reality. We're reflecting that passion in a new mission statement. Avid's mission is to inspire passion, unleash creativity, and realize dreams in a digital world. This mission gets to the heart of what is driving not only our customers, but our employees as well. To add further simplicity and therefore clarity to our strategy, we have summarized our approach into a set of five strategic principles that along with our mission define our focus for the coming years and how we will deliver increased value to the marketplace. They are number one, drive customer success. Avid is committed to making each and every individual customer successful period. It's that simple. We are promoting that mindset and culture in everything we do. Number two, serve customers from enthusiast to the enterprise. Whether performing live or telling a story sharing a vision or broadcasting the news, we will create products to support customers at all stages. Number three, provide fluid dependable workflows. That means making reliability, flexibility and ease-of-use the cornerstones of our design center. It also means continuing to be the best-in-class in terms of making our customers more productive and competitive. Number four, emphasize collaboration in our products. For the individual user, the workgroup, a community or an enterprise, we will enable collaborate environments that help differentiate our offerings and propel our customers to success. Number five, optimize Avid within an open ecosystem. We will work in partnership with a community of third-party developers to create solutions that are open and best of breed while continuing to optimize Avid products to provide superior performance and value. Second major point is the team. A critical component of executing our strategy, ensuring that we have the right leadership in place to guide our business transformation process and direct the talent we have. As a result, we have recently made several changes to the senior management team. One of the most obvious changes to the structure is that the leadership team will no longer be centered around separate, independent business units, instead, we are creating a much more integrated, customer centric structure that will facilitate our goal of operating as a single company. Here's a snapshot of the new structure. First, we are combining all of our sales, marketing and service across the company into one common organization, customer operation led by Kirk Arnold. Customer operation to act as a single, integrated unit, representing the majority of the customers, based in teams such as sales, marketing, product marketing and service, and for our all the top level markets we serve including video, audio and education. Second, we are realigning our business units to have a full attention focused on product development. These units will include a video business unit led by Paul Lypaczewski and an audio business unit led by Tex Schenkkan. Paul joins Avid with more than 25 years of deep industry experience, having led leadership positions at ATI and Autodesk Media and Entertainment, and Tex is stepping up to this role having been the COO of the audio group for the past 2.5 years. Both the video business unit which includes all of our professional and consumer video lines, and the audio group which includes Digidesign, M-Audio and Sibelius will be integrated teams composed of both engineering and project management. On the service and support side, Beth Martinko will continue to lead our customer success organization. Customer success is an integrated team chartered with our technical service and support efforts for all of our offerings from professional consumer and video to audio. Next, we have administrative operations, led by Ken. Ken has been overseeing our finance, HR, IT and legal functions since he joined the company earlier this year. Ken's group will now include operations, for example, manufacturing, quality assurance, strategic supply chain, et cetera, for all of our lines from professional to consumer and video to audio. We also have a new Chief Technology Officer, Dave Lebolt. Dave, who moves over from General Manager of the Audio group, has technical knowledge of our entire company's audio and video product portfolio that far surpasses the many external candidates who interviewed for this position. As we moved forward, Dave's strong Avid expertise will play a pivotal role insuring that we are setting the right technology priorities across the entire company aligning the appropriate technology resources that will be needed to execute our strategy. Finally, corporate development. We are currently identifying a candidate to fill this role which is to examine our growth strategy with respect to addressing industry trends through acquisition, third-party partnerships, and other strategic business development opportunities. As you can see, we have strengthened the management team by combining proven business experience with deep industry expertise. Although this top level organization structure is now in place, we will be continuing to do the next level of integration and re-alignment work in the weeks and months ahead. This will include additional actions to align our expenses with revenue and create a more competitive cost structure that allow us to invest in new areas of our business that are strategically important to our future. Third, the implementation plan. Transforming our business to fully execute on a new strategy is not something that will take place overnight. In fact, we've outlined a three phase approach to ensure that we focus on the right elements of the strategy at the right time, and that we don't take a (inaudible) approach towards fixing everything without having certain foundational elements in place upon which we can build our future. Here is a snapshot of the three phases of our transformation process. Phase I, get healthy. As we’ve said, the first objective to successfully grow our business is to set a clear strategy and then take some critical steps to repair the business to execute that strategy. Some of these steps include leveraging all parts of Avid and over time consolidating under a single brand. Continuing to target customers from consumer to enterprise, increasing our focus on capturing the next generation of creative professionals, becoming more open and working more effectively to integrate with third-party products while optimizing our own products, building products and providing services that engage our customers for the long-term, ensuring they know they can trust Avid to support them, establishing a more efficient business model and proving our sales effectiveness and capturing a larger share of the customers wallet, improving our margins by expanding recurring revenue streams and investing in higher margin businesses such as software, adjusting our comp space including selectively offshoring and streamlining the product portfolio to invest where we have critical mass or a significant share, instituting a larger number of more efficient and effective processes to return better value from our operating investment, refreshing our technology architecture and better integrating our past acquisitions as appropriate. These steps form the foundation of the first phase. Phase II is centered on building core momentum and expanding our margins. Once we've established a healthy foundation for growth, we can begin to focus on maximizing our revenue and profitability from leadership positions. This will come from expanding our customer footprint, leveraging the combined strength of our audio and video technologies, growing to come near organically or through acquisition, and targeting a healthy cash balance that will allow us to invest when and where it makes sense for the business. Phase III is about unlocking new sources of growth. With growing momentum within the business and the markets we serve, Avid will be in an excellent position to expand into new products and customer adjacencies, either organically through acquisitions, the goal is sustainable, meaningful growth. It's important to note that these phases will overlap, and we're already undertaking elements of phase II and phase III as we work to complete phase I over the next 12 to 18 months. I will now ask Ken to review our outlook. Ken?

Thank you, Gary. Earlier this year, we indicated that our plan going forward was to provide annual guidance with updates on a quarterly basis. With that in mind, I would like to share our thoughts regarding the business outlook for the second half of 2008. We remain somewhat cautious about the general economic conditions and the effect they can have on our business. In addition, we are in the process of realigning our sales organization to be more customer-focus. Therefore, assuming no significant changes in economic conditions and based on the strategy outlined today, we expect our revenue for 2008 to be in the range of 880 million to $910 million, or 2% to 5% below 2007 levels. As discussed earlier, there are several phases in transforming Avid's business to execute on a go-forward strategy. As a result, 2008 is a year of transition in which we realign our cost structure to expand our operating margins for 2009 and beyond. Because 2008 is a transition year, we expect our non-GAAP earnings per share to be in the $0.25 to $0.35 per share range. I’d like to highlight certain assumptions used in these 2008 estimates. Gross margins on a non-GAAP basis are expected to improve slightly in the second half. Operating expenses for the second half, excluding charges related to amortization, restructuring and stock-based compensation are expected to be flat to down compared to current levels. In the next step in implementing our strategy, we are closely evaluating our cost structure to become more efficient business. Other income which is primarily interest income should be about 1.2 million for the second half. In addition, the tax provision adjusted for differences between GAAP and non-GAAP earnings is estimated to be 9 to 10 million for the full year 2008. On a GAAP EPS basis, we expect to report a loss of $0.70 to $0.80 per share for all of 2008. Estimated GAAP results include amortization of intangibles and restructuring items, stock-based compensation, impairment charges and tax adjustments of about $20 million in the aggregate for the second half of 2008. Restructuring charges could exceed this estimate. In fact, earlier today, we took action by consolidating a portion of our manufacturing and product operations. These actions will result in the elimination of roughly 50 positions. I'd like to talk to you about 2009 and beyond. Our ultimate goal is to achieve operating margins in the mid-teens along with revenue growth in line with the markets we serve. As stated earlier by Gary, this transformation will not happen overnight. For 2010, we expect to reach double-digit operating margins, and we anticipate making meaningful progress towards this goal during 2009. We are in the process of building our financial plans in support of our new strategy, and expect to make substantial progress with this effort in the third quarter of 2008. When we release our third quarter results in October, we plan to share some additional high level goals for 2009 and beyond as we transform Avid. We also plan to hold an Analyst Day in Boston on October 27th 2008. This venue should give analysts and shareholders a view of our products first hand and a chance to meet many of our senior executives and customers. This concludes our remarks. Now, we would be happy to take your questions.

Thank you, gentlemen. (Operator instructions) And we'll hear from Steven Frankel with Canaccord Adams.

Good afternoon. So, Gary, you did a good job laying out the high level restructuring, but I wonder if I might press you for a little more detail especially in consumer. That's a business that has lots of hardware seems to not quite be totally into the enthusiast market like you talked about, so could you tell us a little bit about what you have in store for the consumer business over the next couple of months?

Good afternoon. So, Gary, you did a good job laying out the high level restructuring, but I wonder if I might press you for a little more detail especially in consumer. That's a business that has lots of hardware seems to not quite be totally into the enthusiast market like you talked about, so could you tell us a little bit about what you have in store for the consumer business over the next couple of months?

Well, I think as I commented in general, I think it applies to -- certainly applies to consumer. We do see more of a focus on software. During the quarter, we had really strong performance of Studio 12, which is a software-based product, of course, and we want to be doubling down our efforts on software as well as recurring revenue, update revenue, maintenance revenue, et cetera. And in fact, part of (inaudible) customer success team is going to have a revenue component associated with it rather than just simply being a cost center for what we're doing. So, you will see us emphasizing this -- you will see us emphasizing the software components of what we're doing, and I think you point out peripherally that consumer does have some hardware products. We have hardware products in every part of the company as you know, and we will be taking a close look at -- we take a look at streamlining our products which ones are appropriate, where things do have a strong IP or software component and can be differentiated.

And how quickly will some of those changes happen in the consumer business? Will it happen between now and the holiday season, or you'll carry some of those low margin hardware products through the holiday season?

And how quickly will some of those changes happen in the consumer business? Will it happen between now and the holiday season, or you'll carry some of those low margin hardware products through the holiday season?

I think you'll -- I want to enter next year with a streamlined product portfolio. In other words, as we build next year's budgets and -- next year's budgets, I want to be sure that we've made the decisions, strategic decisions on all of our, of anything that we want to do on our product portfolios whether it be a double down, whether it will be streamlining, it's hard to make every -- we can't do that between December 25th and January 1st so I think you -- as Ken pointed out, I think we'll have visibility and do all of that by the time we have the Analyst Day at the end of October. And it may be a day -- maybe before then could be a hereafter that's our target, and that's one of the reasons we're not doing the Analyst Day now, because we want to have that type of visibility then.

Okay. On the broadcast business, you recognized some large deals in the quarter, how many more large deals are left, or give us a ballpark figure for what's in that deferred revenue balance that might be recognized over the next six months?

Okay. On the broadcast business, you recognized some large deals in the quarter, how many more large deals are left, or give us a ballpark figure for what's in that deferred revenue balance that might be recognized over the next six months?

So, we still have a healthy list of backlog transactions out there. As we mentioned last couple of calls, it's-- we've cleared out a lot of the technological commitments that was causing us to really highlight backlog in the past. It's now more of a normal churn and a normal rate, and we feel comfortable with our backlog that we add to it every quarter, and there's ins and out every quarter, and we still continue to have substantial transactions sitting in there to be recognized in the future.

What was cash flow from operations in the quarter?

What was cash flow from operations in the quarter?

Cash flows from operations, we used $7 million of cash from operations during this particular quarter, with the decrease in the changes in working capital being some of the bigger components, but we did use -- we did spend $5 million on capital expenditures which of course is probably somewhat near the normal phase anyways.

And could you give us some comment on what the channel and customers are saying about the new release of Media Composer?

And could you give us some comment on what the channel and customers are saying about the new release of Media Composer?

Yes, I will tell you, it's all pretty positive, and I'm not just meaning that up actually I'll read you something, literally, I just got it in an e-mail, actually while I was (inaudible), but it's -- to tell you the truth. This was compared to Media Composer 3.0 and this was from the Associate Producer of ABC Family Channel's Greek, who is in studio daily. He anticipates a switchback to Avid among next gen filmmakers, Final Cut Pro is by far an inferior platform, and now that Media Composer is available to the masses, the price point that allows people to truly invest and sells in the craft, I think we will see better film making and more college kids that are destined to be great editors. He reverted back to a true professional product. The Avid HD workload doesn't cost you more money, it saves you money. And I could probably point you at -- that 50 of these quotes by the way. That would be one from today. I would say Media Composer 3.0 where we did focus on the stability that I spoke about, the stability and reliability as well as put in place for the right value proposition for our customers has just gotten very, very good reviews.

Okay. Great. I'll let someone else ask a question. Thank you.

Okay. Great. I'll let someone else ask a question. Thank you.

Thank you. And we'll hear next from Paul Coster with JP Morgan.

Hey, thanks very much. Helpful conference call. I appreciate it. Couple of questions. Do you have a boycott of U.S. versus non-U.S. revenue, and was there a currency benefit this quarter?

Hey, thanks very much. Helpful conference call. I appreciate it. Couple of questions. Do you have a boycott of U.S. versus non-U.S. revenue, and was there a currency benefit this quarter?

Ken?

Geographically, I believe we had somewhere around 57% internationally and 43% domestically. There was some positive effects in the quarter, but nowhere is near what has been in the past, the balancing out a bit (inaudible) currencies.

You mentioned that your outlook is couched within a sort of conservative outlook and obviously we know what's going on in the real world. Are you seeing any change in the close rate on your pipeline for the broadcast business in particular? Is it improving, deteriorating, what can you tell us in terms of the color there?

You mentioned that your outlook is couched within a sort of conservative outlook and obviously we know what's going on in the real world. Are you seeing any change in the close rate on your pipeline for the broadcast business in particular? Is it improving, deteriorating, what can you tell us in terms of the color there?

You know, I would say we had a strong quarter and a lot of the Media Composer 3.0 in fact did go not only to craft editors, but to broadcast as well. You know, so, I won't say that we've seen a slowing of the close rate at all. You know, there is still the transition to HD and stuff. That being said, in the time that I've spent with customers and as you know, I've spent a lot of time with customers, I'm seeing some caution -- what I would say is caution, and I think that's what Ken commented -- the way Ken commented on the -- on our concern about the economy. You know, if advertising slows down, these guys will slow down. These are capital, there are definitely some people that are doing some things to get prepped either for HD, there was clearly some customers that are trying to have -- wanted to have HD in time for the August conventions and such, but we're being cautious about it.

The presidential elections, the Olympics, the European Championships, you've got kind of a tri-structure of good things happening there for the industry, doesn't the year-on-year comps get a bit tougher moving forward, or is this not such a big kind of catalyst as it’s been in the past?

The presidential elections, the Olympics, the European Championships, you've got kind of a tri-structure of good things happening there for the industry, doesn't the year-on-year comps get a bit tougher moving forward, or is this not such a big kind of catalyst as it’s been in the past?

You're saying are those not catalysts?

I think they are catalysts.

I think they are catalysts.

They absolutely are catalysts. You know, whenever you have a big event like the Olympics or whatever, they absolutely are a catalyst for people to upgrade their kits. You know, at this stage, we have a strong pipeline. Customers are clearly talking about doing things. Some of the studios missed their summer -- their upgrade cycles because of the series and the writers strike, because of doing the late series, and so there's some pent up demand there that people want to do, so the answer is yes, every quarter is tough, year-on-year is always a tough comparison.

One last question. The digital terrestrial transmission deadline is February 2009, does that have any bearing upon the upgrade cycle for you, or is that just a neutral?

One last question. The digital terrestrial transmission deadline is February 2009, does that have any bearing upon the upgrade cycle for you, or is that just a neutral?

Could you-- I missed the sentence right before that. Could you just repeat it, please?

February 2009, we have the cut off for analog terrestrial transmission domestically, and we're moving to digital, does that have any -- is that a catalyst when you’re talking?

February 2009, we have the cut off for analog terrestrial transmission domestically, and we're moving to digital, does that have any -- is that a catalyst when you’re talking?

Yes, I missed the 2009, sorry. The answer is it is. Then when we talk about a transition to HD, people aren't waiting until 2009 of course to get there. That is more on the transmission side than the preparation of the material. That doesn't mean people can't be -- but even SD material is at higher than what some people may think of is HD. Some people may think of HD for broadcasts, but for digital cable and all that, people, that's really not driven by February 2009. So, at some level, it's the margin particularly for letter stations here in North America, for the local stations, there is a little bit of pent up demand going on for that, but a lot of people are just changing their transmission engine for that, and actually upgrade cycle for actual HD content and some of the other things for doing that will continue beyond -- will continue beyond February.

Okay. Thanks very much.

Okay. Thanks very much.

Thank you. And we'll hear next from Jim Ricchiuti with Needham & Co.

Thank you. Gary, question, you are trying to accomplish this transformation at least over the near-term in a very tough economy as we all know, and I'm wondering, are you prepared if you have to, to maybe absorb a little downside to your general guidance that you’re giving rather than cause additional disruption to the organization as you go through this? Needham & Co.: Thank you. Gary, question, you are trying to accomplish this transformation at least over the near-term in a very tough economy as we all know, and I'm wondering, are you prepared if you have to, to maybe absorb a little downside to your general guidance that you’re giving rather than cause additional disruption to the organization as you go through this?

Well, the question, of course is about profitability -- I assume about profitability when you say guidance what so on this. You know, the revenue, we're obviously going to try to maximize revenue, and we're going to continue to try to improve our profitability. We don't want to do -- we don't want to be penny wise and pound foolish. As I did comment, we are trying to build long-term value, and it's not just about the individual quarters. That being said, as we do think there are several areas of efficiency for us, we talked about some of the consolidation of our manufacturing operations, we've spoken to taking advantage of global workforce and doing some selective offshoring, which we've begun, but we believe that without a disastrous economy, we don't see that. We can continue to improve our profitability as well as drive the top line to some degree. But, we are sensitive to that, and don't want -- we're going to try avoid doing anything crazy. On the other hand, we don't want to be out there losing money.

Okay. And you mentioned longer-term you would like to be able to see Avid grow in excess of the markets it's going after, and I wonder if you be willing to maybe share with us in general terms what do you think the growth rates are for the professional video business, audio, and consumer? Needham & Co.: Okay. And you mentioned longer-term you would like to be able to see Avid grow in excess of the markets it's going after, and I wonder if you be willing to maybe share with us in general terms what do you think the growth rates are for the professional video business, audio, and consumer?

I don't have the individual -- first of all, we don't look at the markets by consumer, professional, et cetera, we break them down a little bit finer (inaudible) granular detail than that. That works for professionals, we think of content producers, et cetera, but (inaudible) short to answer-- probably answer your question, as we see the technology market in general growing at about 7%, we see the markets that we want to focus in on growing at an aggregate at about 9%, we see individual segments growing as high as 20 or 30 as high as -- not 20 or 30, 15% to 20% that are out there. There is no doubt that (inaudible) brought higher growth at the lower end of the market as digital media whether it be audio or video growth, those actually have growth rates in excess of that, but those are -- that 7% to 9% range is where we sort of see the markets growing, and we want to grow in excess of that.

Okay. And lastly, do you anticipate any product rationalization as you go through this process that should be of any significance, any pruning of product lines? Needham & Co.: Okay. And lastly, do you anticipate any product rationalization as you go through this process that should be of any significance, any pruning of product lines?

Yeah, the – so -- of significance do we see any product trimming of significance? I think there will be (inaudible) if you take all the trimming together like if you have a yard and you trim your oak a little bit, you trim your evergreen a little bit, it might all adds up to – might all add up to significant, but I don't think there is any one product that there is -- there's any one product line that I would say is significant, but I think you will see a (inaudible) it's like the overgrown yard, we have to clean up our overgrown yard.

Well, if you do that, if you clean up the overgrown yard and you begin to carry some of that out to the sidewalk, what would we be talking about in terms of revenue? Needham & Co.: Well, if you do that, if you clean up the overgrown yard and you begin to carry some of that out to the sidewalk, what would we be talking about in terms of revenue?

Well, I think we need to come back to you all with that. We have it on the Analyst Day, the estimate that Ken has provided (inaudible) in the current product set, and not us -- none of us are in a position to provide that level of detail today. And by the way, at the Analyst Day, we do have to add more of that detail. We're certainly will care with our individual markets (inaudible) pretty well.

Terrific, that's helpful. Thanks a lot. Needham & Co.: Terrific, that's helpful. Thanks a lot.

Yes.

Thank you. And we'll go on to Mike Olson with Piper Jaffray.

Alright. Thanks. Good afternoon. Couple quick questions. One is, just looking at the uptick quarter-over-quarter for the PRO Video business, was it more attributable to the recognition of the broadcast deals that were in deferred, or more to the new lineup of post products that you launched in the quarter, or was it kind of a combination of the two?

Alright. Thanks. Good afternoon. Couple quick questions. One is, just looking at the uptick quarter-over-quarter for the PRO Video business, was it more attributable to the recognition of the broadcast deals that were in deferred, or more to the new lineup of post products that you launched in the quarter, or was it kind of a combination of the two?

I would say it was a combination of the two. There is no doubt the -- some of the larger deals that we told you have flipped out of other quarters suddenly had an impact -- caused an impact on the quarter. But I will tell you, Media Composer exceeded our expectations a bit. You know, we were very cautious because there's no -- it was a new release, it was late in the quarter, it was June 6th that we announced -- that we delivered it rather not announced it, but delivered it. As you know, we had some pricing changes going on with it, so it was a combination of the two, and what was pleasing on Media Composer was we had very strong upgrade cycle for it -- or having a very strong upgrade cycle as well as very strong sales and new units.

And to add to that in fact probably almost two-thirds of the uptake wasn't related to recognition of items from deferred, but really just the overall business growth, a lot of driven from the first Media Composer.

Okay. And then I guess we had -- in talking with the channel, we had heard some pretty positive feedback on the post products as well, and you mentioned it was late in the quarter, I guess it you -- there's probably no way to quantify this, but just qualitatively do you feel like the initial launch of the new products has kind of -- we've hit a spike and now it will plateau from here, or do you feel like we're still in kind of the upswing of it and people are just in kicking tires mode and kind of pulling the trigger mode starts in the next one to two quarters?

Okay. And then I guess we had -- in talking with the channel, we had heard some pretty positive feedback on the post products as well, and you mentioned it was late in the quarter, I guess it you -- there's probably no way to quantify this, but just qualitatively do you feel like the initial launch of the new products has kind of -- we've hit a spike and now it will plateau from here, or do you feel like we're still in kind of the upswing of it and people are just in kicking tires mode and kind of pulling the trigger mode starts in the next one to two quarters?

You know, I think people are still taking a look at these budget cycles, there are a lot of people that want to -- as you describe it want to kick the tires, so I think we're still in the (inaudible). I mean, we were only selling this product for 20 days and less – less than 20 days including weekends, and the -- o, I think people are still trying to see -- take a look, I think it will continue for months, even more than that.

Okay. And then one last one. I guess to get to the full year '08 EPS guidance, we’d probably need to see OpEx coming down versus what we have modeled at least, and what are the primary areas of cost cutting that we're going to see in the back half of the year to get a fairly significant back half ramp in earnings?

Okay. And then one last one. I guess to get to the full year '08 EPS guidance, we’d probably need to see OpEx coming down versus what we have modeled at least, and what are the primary areas of cost cutting that we're going to see in the back half of the year to get a fairly significant back half ramp in earnings?

Ken?

Okay. Well, I think when you look at it that as Gary had reviewed earlier, we've tried to do some things where we're really kind of organizing to become a more effective organization, and you really can kind of say across the board, but just to kind of take just a few examples, we have now combined the sales, marketing and service areas, all kind of focused on more customers as opposed to products. And I think by doing that, we believe that there's going to be leverage not only from the -- because I think in many cases we had sales -- we had two to three sales forces sometimes calling on the same channel or customer. Another example would be is, when you get into the manufacturing operations, which we're now trying to focus on, trying to maximize best practices across manufacturing and the strategic supply chain, we're now able to leverage company wide purchasing power, we're able to leverage best-in-class processes. That would be a couple of the examples. And also as Gary had mentioned we haven't really completed a lot of the acquisitions even in the past so that if you – like I should say, completed the mergers of the acquisitions and really fully integrated them, and we're basically going to do that. So, even if you look within some of our business units today, you’d find that you’d have what I would call smaller sub-optimized operations which may have had almost full service admin functions sitting in them and everything else kind of full service, sales force, admin and so on, working on their own independent systems, and we're really kind of like looking to bring all those things together. So, that's just kind of a sprinkling of some of them. Of course, as Gary mentioned, we're putting in a new CRM system which hopefully provides leverage. We're also looking to selectively offshore or outsource certain items when we get leverage, and those are all the things across the board that I think will help us expand margins as we move into 2009.

Okay. Can you just repeat too what you said earlier about 50 employee head count reduction? Is that coming from any one particular area, or a bunch of different areas?

Okay. Can you just repeat too what you said earlier about 50 employee head count reduction? Is that coming from any one particular area, or a bunch of different areas?

It's coming from manufacturing and product operations.

Okay, thanks a lot.

Okay, thanks a lot.

Thank you. And we'll hear next from Andrew Abrams with Avian Securities.

On a more general note, the sales consolidation that you were talking about makes logical sense. I was wondering if you could talk a little bit more about the R&D side given the fact that there are a large number of products, I think 300 on the website, is there going to be a time frame in which some of that spread out R&D from the acquisitions and generally in the company are going to be able to be centralized and is there a point at which you can create a more common platform for the various software products that run up and down the line?

On a more general note, the sales consolidation that you were talking about makes logical sense. I was wondering if you could talk a little bit more about the R&D side given the fact that there are a large number of products, I think 300 on the website, is there going to be a time frame in which some of that spread out R&D from the acquisitions and generally in the company are going to be able to be centralized and is there a point at which you can create a more common platform for the various software products that run up and down the line?

Yes so yes on question about the products, and I think in there were -- there's sort of a multitude of questions there and I'll try to address them. Number one was just the 300 products issue, we have 300 products, and the answer is no, I mean I've spoken to that and that -- having these five strategic principles move may go here well that sort of encompasses everything, but in fact it doesn't. And what it does is as Porter says -- as most of you have followed Michael Porter know, he says it's about making choices. Well, that gives us the chance to make a choice about all the things that don't meet those criteria, and we have many things that fall into that. I also think I mentioned that we will be emphasizing products, you certainly want to take advantage of hardware platforms such as just phenomenal mixing consoles and live consoles we have is one example, that are there, but there are some things that don't really work leverage the IP that we have in the company, and we will be taking a look at that -- we will be taking a look at those across the company. First of all for (inaudible) by the way. So, I think you will see us using -- we now have the springboard -- and we’ve begun by the way, making some of those decisions, and then hopefully 90 days time, the company will have that for next year. There are some overlapping product lines in fact and that really -- in a certain fashion addresses your question about a common platform to a certain effect. One of the things that we've done as an example is we had speaker lines, it's not a Digi, and inside of M-Audio and instead of introducing a new speaker line, which we were thinking about doing -- had been thinking about being done, the Digi, we said we don't need the two lines, we might need this higher end product, let's do it under the -- within the M-Audio line as an example. Similarly, by moving consumer video inside the video group, we are -- we had two codec – codec sort of things that, you're different that actually allow you to play the individual types of media. We had two codec development teams where we will take a strong look at leveraging a single codec -- a single codec team, I mean the teams have been meeting together already to do that or on user interface, et cetera, et cetera. The idea of going to a single platform, why it always sounds good, I think we will take a look for where we can have shared code, but actually, by going to the single platform you actually lose the agility of your business and the ability to respond to its needs in the community assembly. You know, a release of Pro Tools can come out without a release of Media Composer, on the other hand, we want to have shared audio components between Media Composer and Pro Tools. So, we're taking a look at those types of opportunities as opposed to some monolithic approach.

Got it. Thank you.

Got it. Thank you.

Thank you. And next we'll go to Paul Coster again with JP Morgan.

Going down to the bottom of a model and trying to figure out the -- some of the charges, can you just repeat please what you said about the tax guidance for the current year, and what we should expect in terms of non-cash charges?

Going down to the bottom of a model and trying to figure out the -- some of the charges, can you just repeat please what you said about the tax guidance for the current year, and what we should expect in terms of non-cash charges?

Sure. I said $9 million to $10 million for taxes for the full year 2008….

Okay.

Okay.

…and then for the non-cash charges or that non-GAAP reconciling items, I had said that, that item should be about the same for the second half as it was for the first half which is $20 million, which makes it $40 million for the full year. Paul Coster – JP Morgan: Okay. Thank you.

Sure.

Thank you. (Operator instructions)

It doesn't sound like there's another question, so let me try to -- let me just try to do -- summarize a couple of things. One is we're pleased with the sequential growth it -- with the sequential progress that we've had. It is a tough economy out there, but I think it shows the strength of Avid, and also the ability to get three great products out there. We are embarking upon a journey. We are committed to continuing to improve both our top line and our bottom line. We now have the principles to do that and importantly, I think we have an organization that is customer fronting rather than a customer -- rather than organization that is product line. And to go with that organization, I've been -- we've been very fortunate to be able to attract just a terrific leadership team both with broad – with deep experience in the industry and deep management experience. So, I know that we'll have the opportunity over the course of the next few months to speak with some of you all individually. I would encourage you to put October 27th on your calendar to join us -- to join us in Boston and thanks for taking the time this afternoon.

Thank you. Once again, ladies and gentlemen, that does conclude today's presentation. We thank you for your participation, and have a great afternoon.