John Eldridge - Director of Investor Relations John McAdam - President and CEO Andy Reinland - SVP and CFO Chris Lynch - SVP, Data Solutions Dan Matte - SVP, Marketing

Troy Jensen - Piper Jaffray Samuel Wilson - JMP Securities Ittai Kidron - CIBC Mark Sue - RBC Capital Markets Matt Robison - Ferris Baker Watts Bill Choi - Jefferies Ken Muth - Robert Baird Sanjiv Wadhwani - Stifel Nicolaus Rohit Chopra - Wedbush Morgan Saud Masud - UBS Paul Mansky - Citi

Good afternoon and welcome to the F5 first quarter fiscal results. All participants will be in a listen-only mode. (Operator Instructions). Today's conference call is being recorded, if you have any objections, please disconnect. I would like to turn the call over to your conference host, Mr. John Eldridge, Director of Investor Relations. Thank you, sir, you may begin.

Thank you, Katherine. Welcome to our conference call for the first quarter of fiscal 2008. The speakers on today's call are John McAdam, President and CEO; and Andy Reinland, Senior VP and Chief Financial Officer; John Rodriguez, Senior VP and Chief Accounting Officer; Chris Lynch, Senior VP of Data Solutions; Dan Matte, Senior VP of Marketing; Karl Triebes, Senior VP of Product Development and CTO are also with us to answer questions following our prepared comments. If you don't have a copy of today's release, it's available on our website, www.F5.com. In addition, you can access an archived version of today's live webcast from the events calendar page of our website through April 23. From 4:30 p.m. today until 5:00 p.m. Pacific Time, January 25, you can also listen to the telephone replay at 866-357-1405 or 203-369-0111. During today's call, our discussion will contain forward-looking statements which include words such as believe, anticipate, expect, and target. These forward-looking statements involve risks and uncertainties and may cause our actual results to differ materially from those expressed or implied by these statements. Factors that may affect our results are summarized in our quarterly press release and described in detail in our SEC filings. Please note that F5 has no duty to update any information presented in this call. Now, I will turn the call over to Andy Reinland.

Thank you, John. For the first quarter of fiscal 2008, we achieved revenue of $154.2 million within our guided range of $154 million to $156 million. These results reflect 6% sequential growth and 28% growth on a year-over-year basis. Book to bill for the quarter was greater than one. Although, revenue was at the low-end of our guided range, we delivered GAAP EPS of $0.21 per share at the upper end of our guidance of $0.20 to $0.21 per share. Excluding stock based compensation expense, non-GAAP EPS was $0.33 per diluted share. Product revenue of $110.2 million represented 71% of total revenue. Service revenue of $44 million was 29%. On a geographic basis, the Americas represented 57% of revenue, EMEA accounted for 21%, and Japan and APAC each represented 11%. Beginning this quarter, we are changing the way we discuss revenue on a product line basis to be more consistent with the way that we manage, analyze and forecast internally. As a result, we will no longer breakout application security and WAN optimization revenue separately, but we will begin including this revenue within our core application delivery networking. We believe this provides a more appropriate view of our overall business. With that in mind, Q1 revenue from our core ADN was $139.4 million or 90% of total revenue. In its first full quarter with F5, Acopia contributed $7.7 million of total revenue from the ARX product line, 5% of total revenue. Revenue from FirePass was $7.1 million, also 5% of total revenue. Looking at revenue by vertical, the finance sector comprised 23% of total revenue, up from 17% in the prior quarter. TELCO and service providers represented 23% of total revenue and the technology sector was 18%. U.S. Federal accounted for 3% of total revenue, below expectations. During Q1, we had two greater than 10% distributors, Davnet Technologies which accounted for 13.9% and Ingram Micro which accounted for 11.5%. Moving down the income statement, GAAP gross margin in Q1 was 77.1%, excluding approximately $1.1 million of stock-based compensation expense, non-GAAP gross margin was 77.8%. GAAP operating expenses of $95.9 million were within our target range of $94 million to $97 million. This includes $14.3 million in stock-based compensation expense. Our GAAP operation margin was 15%. Our non-GAAP operation margin, which excludes total stock-based compensation, was 25%. Our GAAP effective tax rate was 39.1%. Excluding stock-based compensation, our non-GAAP effective tax rate was 35.2%. On the balance sheet, cash flow from operations was $42 million and we ended the quarter with $517 million in cash and investments. Accounts receivable DSO ended the period at 58 days. Inventories at quarter end were $10.2 million. Deferred revenue increased 9.6% from the prior quarter to $110.2 million. Capital expenditures for the quarter were $4.9 million. And depreciation and amortization expense was $5.5 million. During Q1 we increased our headcount by approximately 45 people ending the quarter with 1,625 full-time employees. Moving on to the second quarter outlook: As discussed during our October conference call, we continue to believe that we can achieve quarterly sequential growth throughout fiscal 2008. We also noted that we have historically seen seasonal softness during the March quarter in North America. With these factors in mind combined with the current macro environment, we are targeting Q2 revenue in the range of $158 million to $160 million. We expect GAAP gross margin in the 76% to 77% range. This includes approximately $1 million of stock-based compensation expense. We expect operating expenses between $97 million and $100 million including approximately $14 million of stock-based compensation expense. We are forecasting our effective tax rate at 39%. Excluding stock-based compensation, we expect our non-GAAP effective tax rate to be 35%. Our GAAP EPS target is $0.21 to $0.22 per diluted share. Excluding stock-based compensation, our non-GAAP EPS target is $0.33 to $0.34 per diluted share. Our current plan is to add 30 to 50 employees for the quarter. We estimate DSO's will be in the mid-to-upper 50 days range. We expect inventory levels within the range of $12 million to $13 million. And we believe our cash flow from operations will be in excess of $30 million. This reflects lower cash flow from operations than in the prior quarter, a result of seasonality in our U.S. Federal tax payment schedule. Finally, as we announced in today's press release, our Board of Directors has authorized a $200 million stock repurchase program. This move by the Board underscores management's confidence in the fundamental strength of our business and then the company's ability to grow sequentially throughout fiscal 2008. With that, I will turn the call over to John McAdam.

Thanks, Andy, and good afternoon everyone. With our Q1 results, the F5 team has now delivered sequential revenue growth every quarter for the last five years, with Q1 being up 20th in a row. From a geographic perspective, the star of the quarter was our EMEA team, which delivered strong performance across the region with some excellent large customer wins. In the U.S., Enterprise business in our core application delivery networking market was up modestly from the previous quarter and this was combined with strong growth with Acopia ARX products. U.S. Federal on the other hand was relatively smooth during the quarter and below our internal forecast. Similarly, we experienced slowness in Japan and APAC, both of which were down sequentially from the previous quarters. We expect to return to sequential growth in Federal, Japan and APAC this coming quarter and I will comment more on that when we discuss guidance. Once again, our professional services business delivered solid growth. With yet another significant increase in the Fed revenue which bodes well for continued growth in services, throughout fiscal 2008. We also saw a continued increase in customer satisfaction levels from our customer base as we maintain our investments in the service organization and product quality initiatives. I was delighted with the first two quarter business from our new ARX range of file virtualization products which were added to our portfolio with the Acopia acquisition. We acquired a terrific team at Acopia and I'm very pleased with how quickly we have progressed in this integration. Not only did we exceed our internal forecast, but the quality and number of large new business wins was very impressive. File virtualization is a nascent market opportunity with a very strong value proposition for reducing OpEx and capital spending at larger enterprises. We believe the ARX range of products, are best of breed and we intend to take advantage of this opportunity by accelerating our integration plans and ramping up sales of ARX who have [current] F5 channel. Our goal is to complete ARX sales and product training for the entire sales force by the end of the second month of this coming quarter. Given the ARX sales momentum, we experienced in Q1, combined with a growing pipeline for the ARX file virtualization products, we expect revenue to exceed our original estimate of $25 million to $30 million for fiscal 2008. We continue to be pleased with the ramp of our WebAccelerator and ASM software module sales which were responsible for leveraging significant big IP sales last quarter. Also, we are starting to see more activity and a bigger pipeline of WAN optimization opportunities, especially through our EMC partnership, though this opportunity is still in early days. From a product perspective the TMOS, is one of the more significant milestones in the company's history with the announcement of our new flagship VIPRION product. Known internally as [Montreal], VIPRION with its revolutionary chassis based multi-blade architecture delivers exciting new functionality and performance capabilities that set a new bar for the industry and significantly increases F5's technology leadership in the application delivery networking market. VIPRION is the world's first on-demand application delivery controller solutions. Customers can now turn up performance without any network changes. VIPRION provides multi-level redundancy for high availability mission critical applications. To date, the modular portion of the layer 4 to layer 7 market, has been dominated by Cisco. We believe VIPRION will gain share in that market over the next few quarters and F5 will become a key player in the modular space. We also believe VIPRION provides an unmatched offering for the web monster, service provider and large enterprise markets for they have experienced 90% to 100% increases in Ethernet traffic over the last couple of years. With its significant performance advantages and pricing structure, VIPRION is extremely price competitive. For example, for asset sale solutions the equivalent CISCO 16GA solution is three times more expensive, requires four times more management, consumes 65% more watts and uses 70% more rack space. Given the sophistication of the solution, we expect VIPRION sales to be modest in the coming quarter and start ramping in the second half of fiscal 2008. In his guidance, Andy has indicated that we believe our sequential growth will continue this quarter and throughout fiscal 2008. We also indicated in our October call that from a seasonality perspective to expect some seasonal weakness in North America enterprise, which we expect to be roughly flat to slightly down over last quarter. EMEA had a very strong Q1, so we are not expecting sequential growth from EMEA in Q2. We do however expect to see healthy sequential growth in Japan this quarter from fiscal year end business. We also expect to see growth in APAC under U.S. Federal business. As I mentioned earlier, our services business should also deliver solid growth in Q2 as well. Clearly there are uncertainties and concerns about the state of the global economy and impact of this could have on IT and overall capital spending in 2008. We do not treat these concerns lightly, but we do believe that the compelling value proposition of our core application delivery controller and our file virtualization product plays F5 in a position, where we can deliver continued growth throughout the year. I would like to thank the entire F5 team and our partners for their efforts in Q1 and with that we will hand the call over for Q&A.

(Operator Instructions). Our first question is coming from Troy Jensen, Piper Jaffray. Troy Jensen - Piper Jaffray: Hey, good afternoon gentlemen.

Hi, Jensen. Troy Jensen - Piper Jaffray: Hey, so a couple of questions here, sort of financial stuff for Andy, could frame up maybe how much of the Acopia revenues fall into financial services. I guess I was surprised to see financial go from 17% to 23% in the quarter here?

Yes, historically we haven't broken out our verticals by product line, but I will let you that Acopia is strongly in the financial sector. Troy Jensen - Piper Jaffray: Okay. Okay, fair, and then Andy, its kind the same thing, I know you are not going to give specific guidance, but: what's your sense for financial services this year? Obviously, your core business: do you think that that's in a situation where financial vertical will be up for you guys, this year, axing out Acopia?

Hi Troy, it's John here. Obviously we've been watching really, really closely, in fact frankly, all of the enterprise businesses we [cannot put] guidance for this coming quarter. First of all; we have got pretty compelling value propositions for finance both with the Acopia ARX products and with BIG-IP. And as you know, we didn't see any significant downturn last quarter but clearly we were watching it. We believe, we have taken a pretty conservative view overall in terms of U.S. enterprise including finance and the guidance. And we've done that by looking at bottom-ups forecast. We've done by looking at the pipeline and where the projects are in terms of buying cycles, so, I think, we got it under control but clearly, we are taking a reasonably conservative view. Troy Jensen - Piper Jaffray: Okay and then the last one for you, John, Montreal released today, should we expect: is it just going to be like data site conversion here in the March quarter for revenues?

Yeah, I have seen in the script, there, we do think that we are modest, yes, absolutely. We know how the [Evals's] are ongoing, so Evals's are happening as we speak. We do expect to see revenue but we think it be modest. Its a pretty sophisticated solution its a non-trivial deal for the customer to make this decision but the value proposition during the -- during the second half of the fiscal year, is something when you see that in the fidelity of the product. Troy Jensen - Piper Jaffray: Okay, is it safe to say sales cycles six to nine months, given the complexities of the system?

No, I think what will happen is that: “you'll see”, that's why we're moving to Evals phase at the beginning and that's because it's a totally revolutionary architecture with high availability, the performance stats that we're giving with it. So that will be an Evals. Once that gets proven, that word gets around pretty quickly and I think you see the sales cycles, out of guess and this is very subjective. But by the end of this fiscal year the sales cycles will probably be similar to the high end of the current BIG-IP. Troy Jensen - Piper Jaffray: Okay. All right, well keep up the good work guys.

Our next question comes from Samuel Wilson, JMP Securities. Samuel Wilson - JMP Securities: Good afternoon gentlemen, two questions. I guess mainly for John, but anybody can fire in. I just want to get a sense on the wireless TELCO side: what you thought the general tone of business was there? And: if you are seeing any sort of change in the environment? And then secondly, just sort of John, you mentioned as of you're aware of the economic situation and the cautiousness and blah, blah, blah, by the stock marketing out. How are you feeling in general about sort of [gnawing] that grow headcount? Why don't you expand the business over the next four quarters? So what's your thought process going into '08?

Let me answer that one first of all Sam and then Dan actually can talk more about that, the wireless and the TELCO. The answer is: “absolutely more cautious”. I mean: if you look at the head count that we are at and of course I will just finish this, clearly the low previous levels and that's because we keep an eye on the pipeline, we keep an eye on the linearity. And we keep an eye on the operating margin and they are still very, very important metrics for us. And if you look at the guidance we have given for this quarter, again it's -- at least probably conservative. But what we're not doing, this is cutting by, we are still growing and we still see the growth. So, definitely cautious optimism I think would be a good phrase. Samuel Wilson - JMP Securities: Got it.

And Sam as far as the wireless piece goes, this is Dan. We actually we saw in the mobile portion of our service provider business actually some good strengths within that. So we're seeing ourselves being deployed in front of more and more revenue, generating applications and that's in contrast too, some of the more the traditional providers where we saw that the lock down occurring over the holiday period and their spending slow down to what we compared or seen previously. Also in the mobile space too, we are seeing interest in the VIPRION product too, as we have good aspirations there.

Yes, some of the Evals's are going on right now and that's specifically mobile related. Samuel Wilson - JMP Securities: Perfect, thank you very much gentlemen.

Thank you.

Our next question comes from Ittai Kidron, CIBC. Ittai Kidron - CIBC: Hi guys, congratulations on a good quarter, in a very nervous environment. Andy can you us a little bit color on the buyback? Is that going to be automated? Or: are you going to have full control on how you execute it? And: what's your thought process behind that?

Well, the Board has authorized [SP's] in open market plan and we're currently developing that plan with our advisors. So, it will be under a plan that we set forth based on stock price and volume. Ittai Kidron - CIBC: Fair enough.

We are going to make it as fast as soon as we can. Ittai Kidron - CIBC: Okay. And that's good to hear. With regards to your guidance for the March quarter, is it fair to say, I mean it seems like your services revenue is really growing nicely outpacing products for last four, five quarters now, quite consistently, assuming that process: should we actually think about product revenue declining quarter-over-quarter going into March?

No, I don't think so at all. I think if you look at all of our products in total, we expect to see growth there. Ittai Kidron - CIBC: Okay. And lastly, with regards to Acopia, very nice job on the top-line: also fair to assume that the return in your accretion, or back to breakeven in that business, are also ahead of schedule?

Yes, I think that's fair to say. I mean as long as are we moving forward, as John said, we expect to, that we'd be disappointed if we didn't exceed the $30 million. We're investing in Acopia by continuing to manage it closely and realize that we're managing an entire business and we'll do so as we go far but that would accelerate to breakeven there. Ittai Kidron - CIBC: And lastly, may be you can comment on the increase in the accounts receivable: how do you think about that, going forward?

Yeah, I mean, the DSO at 58 days. Actually our accounts receivable are very clean, very current the make up there hasn't changed at all. The increase in our deferred revenue affected that to some extent and some of our international business but we're not concerned with that. We think it'll probably stay in this mid-to-high 50s day range going forward and we're very comfortable with that. Ittai Kidron - CIBC: Very good, good luck guys.

Thank you.

Our next question comes from Mark Sue with RBC Capital Markets. Mark Sue - RBC Capital Markets: Thank you, John, any anecdotal comments from your North American customers are there if any plans for this year, perhaps the willingness this time to purchase orders: how back end loaded spending might be overall?

Not really, we actually did, we completed the U.S. quarterly business review. We did that last week and that was a fairly significant process for those in terms of getting a view of the business so we have all the sales management going through that, the forecasted data as well as, you know what happened last quarter. We did see some deals pushing last quarter, no question about that and we did see that, most of the feedback we gotten out, was that we do expect to see that in this quarter, but no, we didn't see a significant difference, I mean, we did see some deals pushing and just by definition and that means, there was some lengthening of our sales cycles and I think, we've taken a pretty conservative, given the data. Mark Sue - RBC Capital Markets: Got it, and John, how are you feeling about the overall sales force productivity with all the new sources that you hired over the last six to nine months?

You know, obviously it won't yet increase, I mean, as a new brain that answers everyone is out to see an increase. The reality is, I think that has been cushioned some what by the environment we're in but I think over time you are going to see it increasing. Mark Sue - RBC Capital Markets: Okay. And have -- are you seeing some delta as of yet or its more work in progress?

It's work in progress. Mark Sue - RBC Capital Markets: Okay. And lastly, the deferred revenues, usually you have a higher rate of growth there: any thoughts?

No even at 9.6% we felt that was very strong and in line with what we were expecting for the quarter.

No we haven't, we certainly haven't seen any deference in the attachment of maintenance contracts and yields, all those math metrics was really good. Mark Sue - RBC Capital Markets: Got it. Thank you gentlemen and good luck.

Thank you.

Our next question is coming from Matt Robison, Ferris Baker Watts. Matt Robison - Ferris Baker Watts: Hi, good afternoon. Most of my questions have been answered but I would like to get the numbers for DevCentral and maybe I'll ask you to comment a little bit on: how the gross margins were actually compared to the rest of the corporation? And maybe, if it's possible to do a quick version of the valued proposition [for there Accenture] selling it into a tough vertical with this financials and you did mention in your release that you did employ that the value you bring to the market maybe gives an economic alternative to your customers in tougher times?

Yeah, I shall work onto that. First, Chris, do you want to tell us about that one?

The value proposition? Matt Robison - Ferris Baker Watts: Yeah go ahead, in the DevCentral and gross margin.

By the way Chris is in Boston, so I guess we may have a connection problem.

Can you hear me?

Yeah.

Well, okay. So the Acopia ARX platform saves customers typically 50% on their capital and operational expenses related to the storage of unstructured data. So it's a compelling CapEx-OpEx story. And we find that in type with tightening budgets there is more demand in interest for the deployment of virtualization at the file layer because of that. Matt Robison - Ferris Baker Watts: That's a pretty quick elevated pitch, I think it only took me to the fourth floor.

Okay, [down you go]. Matt Robison - Ferris Baker Watts: What about the gross margins and the DevCentral.

On the DevCentral front Matt, we're at 21,833, so we are still seeing a good growth in the registered users there.

And for the gross margins, we made great progress over the quarter just bringing in Acopia as a part of F5 and immediately, being able to impact thus. With that being said, we still see some room for improvement to get it up to our kind of standard 80% level for our overall products. Matt Robison - Ferris Baker Watts: And the DSO, I guess it was really not up a lot sequentially a little bit. Did you see some back loading or is it pretty linearity in the quarter?

Our linearity was pretty consistent with the last year with 50% in the third month and it went up about a day, I mean not much that concerned us there. Matt Robison - Ferris Baker Watts: Okay. So, and then that gross margin that you mentioned getting it 80%, I mean: is that a reasonable goal or is it more of a traditional, kind of a switch rather kind of a margin?

Given the value and comparing it to our overall business, we think it's reasonable, we're not going to get there overnight. We're going to integrate them into our gross margin taskforce and go after each element of improving the gross margin as we can, but we do see the opportunity to get to that.

I mean our optimism to get out there is pretty high.

Yes. Matt Robison - Ferris Baker Watts: Good, okay.

Our next question comes from Bill Choi of Jefferies. Bill Choi - Jefferies: Okay, thanks. Several questions, first on the U.S. Federal business: could you talk about what's happened there? Where any deals put there that you have some high consensus that it will close this quarter to give you that up? And then I have a couple of more.

Yes, I know we did see a number of deals slipping actually. All related to budget, the issue is not competitive, really budget issues were effectively, we won the business and you are trying to push it through the system, so we did see that. In term of our optimism, that's related to two things. One is, do we believe these deals can happen in this current quarter with majority of them, not all of them but assuming that majority of them but we do think that, but also the pipeline getting bigger as well. And quite frankly, the comparison gets a lot simpler. 3% of our overall revenues are pretty low [water marks] of our Federal business so we definitely expect, time to get by for more normal levels. Bill Choi - Jefferies: All right: can you also discuss the same thing on Japan?

Very similar, I mean, the difference with Japan is that this is a fiscal year end and typically, we see a strong business in the fiscal year end and that's why we feel good about the forecast. We also had a specific issue in Japan last quarter, with one, some re-organization was going on and one of our big partners has done. So we expect that issue to be over. But really, it's the fiscal year end it gives us the optimism, along of course for the pipeline and forecast. Bill Choi - Jefferies: All right and then, just trying to get a sense for your guidance here, obviously you did mention several deals slipping. Would you say that embeds like half of the deals getting done in the quarter? Or: is that a higher percentage just some thoughts on the guidance there?

I think our process on our guidance was similar to how we always approach it looking at the pipeline, going through our QVRs, with our sales people and developing a range that we feel comfortable, we can achieve. Bill Choi - Jefferies: Okay and then a question on VIPRION. It's a pretty sizeable box that you guys mentioned. How are you looking to roll that out? Is that all going to be direct sales, or are you looking to leverage some of your [wires] and other channels and how soon would that occur?

This is Dan. Absolutely, we are going to be leveraging our existing channel partners for VIPRION. The initial evals that we've been doing, obviously a lot of hand holding that we're doing directly but our goal is to have our channel be able to handle it just like the other products. Bill Choi - Jefferies: And is that largely, OEMs, like mobile OEMs or are you also going to your regular enterprise wires and when would that happen?

Through our regular enterprise wires and that's in the process of happening right now. Bill Choi - Jefferies: Okay, great. Thanks.

Thank you.

Our next question comes from Ken Muth, Robert Baird. Ken Muth - Robert Baird: Hi, first of all: could you just give us the worldwide government number? Just for comparison to what you did there versus just the U.S.?

Yeah, our government was 7%. Ken Muth - Robert Baird: Okay. And then just noticing kind of Cisco came out with some stuff, yesterday the day before, and Layer 4-7, I mean: how do you look at the competitive positioning now? They still kind of look like that's a more of a low to mid-end product. You guys are kind of moving up more of the high-end. Do you expect to run into them less? Or: how would you kind of judge the comparisons right now?

Yeah, Ken this is Dan. Yes, they did introduce something called the 4710 yesterday. That's I think their sixth product in this space that they have come out us with and I believe that also makes it the fourth architecture that's currently offered for sale. Anyway, when we look at that and going through what they are building out, what the product is capable of, we feel really good about our products out when we compare it to things like our 3400 out there, with things like the WebAccelerator and pieces like that that we can offer against it. We think we're in really, really good position. Obviously at the high-end it doesn't touch anything that we have got. So it does make for some good interesting news out there, it's been available to some customers for some number of months now. But we really haven't been encountering it all that much in the marketplace. So, we are equipping our sales force to be able to deal with this, just like many other Cisco announcements that we've seen. And then also on the competitive front too, we heard in the news yesterday that Juniper is [pointing] the DX platform which is the red line acquisition out. So, we are going out to our channel partners with an aggressive trade in program for people that may stranded by that as well. Ken Muth - Robert Baird: Okay. And then just a follow-up on the WAN op, and we would, John you talked about the Montreal kind of ramping the second half of this year. What would be kind of your expectations or hopes for the WAN product line ramping?

Pretty similar, I think that the main focus we have got there is really twofold. One is the EMC relationship that I mentioned, the pipeline is growing there and I think that's a good opportunity for us. And then the second area is that, we have integrated the WAN optimization, WANJet products under the data solutions group which is also running under Chris, Chris Lynch that includes Acopia products as well because we see some synergy there. Yes, I think it's a very similar second half. Ken Muth - Robert Baird: Great, thank you.

Thank you.

Our next question is coming from Sanjiv Wadhwani from Stifel Nicolaus. Sanjiv Wadhwani - Stifel Nicolaus: Thank you, congratulations on a good quarter. Couple of questions, Andy might have answered this on or off the call, but as far as March quarter is concerned for the core business axing out Acopia: are you expecting that business to grow? And: what sort of growth rate should we look out for Acopia for the March quarter?

Right, lets remember we don't break, we normally breakout in the guidance here product line. We do expect both to grow. Sanjiv Wadhwani - Stifel Nicolaus: Okay.

Yes, we do. I did say that North America we're expecting to be flat to maybe slightly down, but we see growth in other areas and EMEA given that it had such a solid quarter, we don't expect to see much sequential growth there either. Sanjiv Wadhwani - Stifel Nicolaus: Got it. But: both businesses should grow basically sequentially?

But we don't give out guidance. Yes. Sanjiv Wadhwani - Stifel Nicolaus: And then, in the push outs that you mentioned: is that happening sort of primarily financial services? Is it particular industry? Is that across the board, any sort of color that would be helpful?

Not really, it's pretty much -- it was pretty much across the board, and let me just put this in perspective, all right, it wasn't like 50% of our business was pushed out or anything like that. But we did see more than normal and when we tend to see that, is one of the, a key metric for us is we look out at the fact of the pipeline. In other words the fact that pipeline is what we think that it has a high probability of all happening and the percentage that we look out in a quarterly basis. We did that dropping a little bit last quarter and that's why we have taken that conservative view for this current quarter. Sanjiv Wadhwani - Stifel Nicolaus: Got it.

It was pretty much across enterprise. Sanjiv Wadhwani - Stifel Nicolaus: Got it and one last question, as you know, Cisco obviously continuing to not deliver a good enough product and given sort of macro conditions: are you seeing them play any unusual pricing games or not really?

Not any different from the last five years. Sanjiv Wadhwani - Stifel Nicolaus: Nothing different, okay. Perfect. Thanks so much.

Thanks.

Our next question comes from Rohit Chopra with Wedbush Morgan Rohit Chopra - Wedbush Morgan: A few questions for you, first one is: can you kind of go through the geographies and talk about the sales cycle? I just want to see if there: is there a change in the sales cycle as you go around the different geographies that you've noticed over the last quarter?

Not noticeably by geography. We haven't seen any shifting -- significantly shifting patterns. Rohit Chopra - Wedbush Morgan: Okay. And then deal size in the quarter: does it start to move up? Is it sort of staying stable? Or: is that trending?

It's actually been moving up. I don't have the exact number but we've been seeing it go up and definitely with the inclusion of Acopia in their deals and deal sizes, we're going to see that go up.

And then obviously with VIPRION as well, yes I think you're going to see the deal size continue to go up. Rohit Chopra - Wedbush Morgan: Yeah?

Over the foreseeable future actually. Rohit Chopra - Wedbush Morgan: [Dan] can I just talk about your partners, Microsoft, Oracle, SAP or may be some other big people that you are working with? I just want to get a sense of: what they are doing? Are they slowing down? Are they helping? What's going on with some of the big partners?

Yeah, Rohit this is Dan. I think in terms of what's going on with the other partners, we're a [micro-cause] obviously, they are a larger business but we continue to see just an enthusiastic cooperation with us. Taking Microsoft as an example, we released a white paper that we talked about in the last call talking about how we can accelerate share point or the performance of SharePoint deployment. It got picked up in turn by Hewlett Packard, who is one of the largest deployers of SharePoint in the world and, now we're finding ourselves invited to SharePoint user groups all over the place, North America. So we're seeing -- and then I can give you similar stories in Oracle and SAP and, so we continue to see great enthusiasm there for what we're doing with them to help their applications. Rohit Chopra - Wedbush Morgan: So really: no change in the quarter. You are not seeing any different trend as you begin January or anything like that?

No, that's correct. Rohit Chopra - Wedbush Morgan: Okay. And then, I just wanted to try to understand something with VIPRION. As you move up market, do you -- are direct sales still involved at the lower end or do you shift people to the higher end? Does somebody else take over the lower end? Do you push that out to the -- to distributors and resellers? What happens?

I think with VIPRION there is no question there will be more direct touch, in other words, our sales force will be involved more typically than there would be but we still expect it to be very, very much a partnered product moving rather through the channel. And we will assist the partners especially in the first six to nine months as we are rolling out the product. But just like the ATA-100 that's very partner friendly switch that VIPRION is going to be as well. Rohit Chopra - Wedbush Morgan: Right. And what I was trying to do is get the answer: if you are vulnerable there, to any competitive forces at the lower end trying to grab the chair from you, as you start to move upwards?

That's an interesting question: we're putting a lot of focus into that area right now. We think we could be doing better in the lower end and we think there is more opportunity there and by doing things opposite now, we're not going to be talking a lot. In fact we discussed this before, but not really talking a lot of detail yet because it is still premature. But we believe that from our product perspective and [F5's] perspective, that during this fiscal year, we think we can actually gain some more share in that space and we're focused on doing that. But that's our way for watch the space type of answer. Rohit Chopra - Wedbush Morgan: Okay. And then I just had one last question, you mentioned last quarter that was, I guess it was two quarters ago, there were some TELCO deals that flipped into last quarter, you were expecting it close. Did that one close that is a big one I think?

Explicitly it did. Rohit Chopra - Wedbush Morgan: Okay. That's it, thank you.

Okay. Thanks.

Our next question comes from Saud Masud, UBS. Saud Masud - UBS: Yes, thank you. Good afternoon guys. Just wanted to get a little bit more color on your hiring strategy. You seem to have hired 45 in the quarter, I think it was expected to be around 60 to 80. So: how should we view your hiring plan going forward? Are you going to be focusing more sales force productivity improvements in a potentially more challenging end market? And: do you expect 2008 to be a slower hiring year for you guys compared to last year?

Yes, when we said that for the coming quarter we were planning on adding 30 to 50. So, if you look at the first half and definitely we're hiring at a lower rate than we did last year. But that being said, given the environment, John mentioned this, we're approaching this cautiously, but still with optimism about our top line growth and specific investments we're going to make in the business, so…..

The other thing on headcount is what I think is that a lot of our priorities right now is focused on the ARX, the Acopia, the data solution space, and because we can see faster leverage there, that's what happened last quarter, and its going to be the same this coming quarter as well and then we'll take a view in the second half. Saud Masud - UBS: Okay, so if I would just ask you sort of more of a macro question on sales versus productivity: do you believe the improvements do not impact different products differently? Or: is it essentially just a rising tide, lifts all both? Even though you focused on ARX: do you believe that, when overall productivity levels have improved, you'll end up selling, more of WAN optimization or security along with ARX?

Right, I mean, there's no question in my mind, this is the very opinion that I've held for a long time, is that, obviously, the more competitive your product is, the more you're going to see increase in the sales productivity. If you look at two particular products moving into this quarter, moving into the second half, clearly one is that the ARX line and the other is Acopia -- sorry, is VIPRION. So, there's two years work. Our competitiveness we believe is very, very strong, with absolute best of these, so we'll focus a lot on that and then I also mentioned that we believe in the bottom end. We can do stuff there with some product refresh overtime. So, they are main areas, but definitely product competitiveness and technology leadership is absolutely linked to sales productivity. Saud Masud - UBS: And just one last question, this is a side question on cash flow from operations. I believe the guidance was greater than $45 million for the quarter and you came in at $42 million, if it didn't come around: what happened there? And also just on inventory, I think, it came a little bit leaner, around $10 million versus the $13 million to $14 million. Just some color on both of these would be great.

On the cash flow from ops specifically, our contract manufacturer was acquired recently and with the new relationship in place, we just have different payment timing agreements and it's because of that we ended up below the range. I mean that's a one-time thing that should work out going forward. And then: the other question? Saud Masud - UBS: The inventories….

Well, the inventory being down, so if you look at what we carry on our books and inventory for a lot of raw materials, some specific components and that was really just a timing element of orders coming in. Saud Masud - UBS: Okay. Thank you very much.

Our next question comes from Scott McKieb, Lehman Brothers.

Hello?

Mr. McKieb your line is open you may want to un-mute your phone.

Hello? Katherine can you hear me?

Yes, I can.

Hey Katherine, we're going to hold to take one more question and then we're going to end the call, okay?

Okay. Would you like to into the next question?

Let's take one more, thank you.

Paul Mansky from Citi has the next question. Paul Mansky - Citi: In under the wire, thanks a lot. A lot of the questions have been answered but I did want to touch base on something different: whether or not you wish to kind of take us out with providing us the number of data customers and maybe a mix between carrier and enterprise?

I think we were asked before, the number of data customers was reasonably small and that's because this is a very sophisticated product and frankly its tough to actually get customers to really, really appreciate given the -- what would have come through. The number of Evals which isn't data, which is potential revenue, is increasing and as I say, we would expect that to increase during the quarter as well. So we think we're going to see modest in terms of revenue this current quarter and then a ramp up for the second half. Paul Mansky - Citi: And the mix?

In terms of: what was the question? Paul Mansky - Citi: Enterprise versus carrier?

Initially, it's an interesting question. Probably more towards web monster and carrier, but that can change with a big deal. So, being [below over the lot], but definitely the first interest is definitely web monster and TELCO. Paul Mansky - Citi: Okay, great. Thank you very much.

Okay.

All right, thank you very much for joining us and please give us a call, if you have any questions. Thank you and we'll talk to you next quarter.

Thank you.

This will conclude today's conference, all parties may disconnect at this time.