Kathleen Bela - VP of IR Scott Kriens - Chairman of the Board Kevin Johnson - CEO Robyn Denholm - CFO

Scott Coleman - Morgan Stanley Nikos Theodosopoulos - UBS Tal Liani - Merrill Lynch & Company Ehud Gelblum - JPMorgan Jeff Evenson - Sanford Bernstein Jeff Gable - Barclays Capital Troy Jensen - Piper Jaffray Paul Silverstein - Credit Suisse Tim Long - Banc of America Ittai Kidron - Oppenheimer

Welcome to the Juniper Networks Q3 2008 earnings results conference call. At this time, all participants are in a listen-only mode. (Operator Instructions). It is now my pleasure to introduce your host, Miss Kathleen Bela, VP of IR for Juniper Networks. Thank you, Miss Bela, you may begin.

Thank you, Doug, good afternoon, and thank you all for joining us today. Here today are Scott Kriens, Chairman of the Board; Kevin Johnson, our Chief Executive Officer; and Robyn Denholm, Chief Financial Officer. Before we get started, I would like to remind everyone that statements made during this call concerning Juniper's business outlook, future financial operating results, and overall future prospects, are forward-looking statements that involve a number of risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including: economic conditions generally or in the networking industry; changes in overall technology spending; the network capacity requirements of service providers; the timing of orders and shipments; manufacturing and supply chain constraints; variation in the mix of products sold; customer perceptions and acceptance of our product; litigation; and other factors listed in our most recent report on Form 10-Q filed with the SEC. All statements made during this call are made only as of today. Juniper undertakes no obligation to update the information in this conference call in the event facts or circumstances change after the date of this call. In discussing the financial results today, Robyn will first present results on a GAAP basis and for purposes of today's discussion will also review non-GAAP results. For important commentary on why the management team considers non-GAAP information a useful view of the company's financial results, please consult our filings with the SEC. For the detailed reconciliation between GAAP and non-GAAP, please see today's press release. In general, non-GAAP results exclude certain non-recurring charges such as amortization of purchased intangibles, other acquisition-related charges, and expenses related to stock-based compensation. In today's call, Robyn will also be providing forward-looking guidance. As a reminder, guidance is provided on a non-GAAP basis. All guidance is forward-looking and actual results may vary for the reasons I noted earlier. A GAAP EPS target is not accessible on a forward-looking basis, due to the high variability and low visibility with respect to the charges, which are excluded from the non-GAAP EPS estimates. Please note that today's call is scheduled to last for one hour, and please limit your questions to one per firm. With that, I will turn the call over to Scott.

Thanks, Kathleen, and good afternoon to everyone. Since Kevin and I shared the duties at the helm for this quarter, I would like to take just a few minutes here, before turning the call over to Kevin and Robyn, to share my perspective on two points with all of you. First, as we announced on our July earnings call, Kevin started September 8th, so I would like to begin with an update after these first seven weeks since Kevin's arrival as our new CEO, and then second, some observations on the quarter we've just reported and our belief on what makes these results possible in what anyone would agree are challenging times. So, as you may remember from earlier updates on the hiring process that brought Kevin to us at Juniper, we approached the search with two criteria of utmost importance to us, one being the right cultural fit with our beliefs and our values, and secondly, the skills and the experience that would help us realize the potential we have before us here at Juniper. It's been both fun and exciting to get the chance to begin working together in these first weeks. We have been able to confirm shared beliefs about how a company and the community that it represents should be built, and for me to roll up my sleeves with a leader with whom I can have every type of conversation, from cultural to technical, and from operational to strategic. It's already very clear, Kevin has seen this kind of growth before, and with that the challenges it brings, so we are having a lot of very short discussions on the needs and the opportunities, because that's all it takes before we move into what choices we might make, and the priorities we should have. Kevin will offer his comments in a few minutes here as well, but our team today is stronger than ever before, and Kevin's impact and his value-added are already apparent to all of us. What's also apparent from our results is that Kevin's joining a very strong team. This team has not only welcomed Kevin to his role, but also John Morris, who joined us in July as our new leader of Worldwide Field Operations, with responsibilities for the revenues we posted this quarter and a significant share of the expenses that were managed under the top line in order to achieve our 25% operating margin model earlier than we had expected. The entire team, of both executive leadership and the almost 7,000 others who support those leaders, have proven their focus and their commitment to operational excellence by delivering outstanding results through times of change and uncertainty, and that's really the strongest test possible of the underlying strength of any team. This quarter, we saw compelling evidence of our customer's confidence in Juniper, which is apparent in looking at virtually every metric we manage. Robyn will cover these results in detail in a moment, but suffice to say we're very pleased with our performance in Q3, and thus far this year, as we continue to meet and exceed our goals for operating margins, market share gains, and overall performance in our markets. The question anyone might ask is, “How is this possible in these times?” And the answer, quite simply, is that our strategy is working. There is a very distinct market within the overall communications industry for high performance networking, and our leadership in that market is emerging even more rapidly in challenging times. People are buying only what they need, and we are responding to those needs with a superior operating system in JUNOS and a portfolio of hard-hitting product cycles with immediate benefit in both operational savings and value added to our customers in their markets. With that backdrop, and in the continuing execution of our transition, I will now turn this call and future earnings calls over to Robyn and Kevin to bring you their perspectives on both the details behind the strength of our performance and the outlook for the company. Kevin?

Great, thanks, Scott. Well, first of all, I'm delighted to be here at Juniper, and to participate in this discussion about our Q3 results and the outlook for the future. I've had a chance to meet some of you on the call today, and I do look forward to meeting many more of you in the weeks and months ahead. I would like to share some thoughts on my transition into Juniper, and offer some early observations about our business and the opportunities ahead. As part of my transition, my initial focus has really been in three areas. Number one is making connections, both internally as I meet with Juniper employees around the world, as well as externally as I meet with customers, partners, analysts, and investors. Number two is driving execution through a hands-on engagement with the management processes that we use to run the business. I've been conducting individual and group meetings throughout the organization, really focusing on understanding how we do business and identifying the levers we have to improve our performance. Number three is about shaping our three-year plan as part of a well-defined planning process that engages leaders throughout Juniper. This process is really focused on delivering a three-year plan with a clear set of goals and an operating plan for 2009. Engaging in these areas, there are some key observations about the industry, and how Juniper is positioned in the industry, that I think are relevant. From a high level, I think the long-term growth fundamentals of the high performance networking industry are good. The number of people using the Internet will continue to grow, and digitization of content, including video content, is accelerating. Consumption and protection of that digital content across a broad range of devices continues to expand. Businesses will continue to pursue productivity increases through communication and collaborative solutions, and [client-based] computing will evolve and play a larger and larger role in applications for both consumers and businesses. All of these trends create long-term demand for high-performance networks, as the network is really the enabler in all of these scenarios. When I step back and look at the industry, the long-term growth fundamentals are good. Near term, there's a lot of uncertainty in the economy, and many questions as to how the economic conditions will affect the short-term outlook for the industry. Even with the recent economic uncertainty, we delivered a solid Q3 and we are optimistic, yet cautious, about our opportunity going forward. Given the uncertainty in the economy, I think there are many questions that prompt all of us to step back and be thoughtful about the near-term approach. Questions like, ”How will the credit markets impact the capital spend of service providers and enterprise customers?” “How will the economic situation impact consumer demand for communication services from service providers?” “How will the economic situation impact enterprise IT spend and enterprise investment in infrastructure?” These are a few of the questions that we're exploring as we chart our course for the near term. Looking ahead, we remain cautiously optimistic about Juniper, and our ability to drive growth even in a challenging economic period. I think there are five factors that work in our favor. Number one is our expanded product portfolio. Number two is our value proposition as it relates to providing customers a lower total cost of ownership. Number three is our people and continued improvements in execution. Number four is, the expanded depth and breadth of our customer base. Number five is our favorable position to take market share. Let me comment on each of these five in a bit more detail. First, our expanded product portfolio is delivering value to our customers. I look at the EX switch offerings. They've been a hit with industry watchers and customers alike. We are readying the next products in this family with the EX 8208 and the EX 8216. The EX 8208 switch is currently in beta testing with customers, and it will ship with JUNOS 9.4 in Q1 of 2009. The 8216 will follow shortly thereafter. The MX product family was released last year, and has been the fasting ramping product in our company's history, with more than 300 customers worldwide. This week, we announced the Intelligence Services Edge, which is an integrated portfolio of new features for our M and MX-series that extend JUNOS to a broad range of new applications. We introduced the industry's first Dynamic Services Architecture in a new category of extensible networking products with the SRX. Organizations such as Raymond James and the University of Frankfurt are attracted to the Juniper approach and this new architecture as a way to help them maximize their technology investments and address their ever-changing business requirements. Our product portfolio is strong. It is expanding, and we have more coming in the R&D pipeline. The second key point, then, in the challenging economic period. One element of our value proposition is a lower total cost of ownership for our customers. Core to Juniper's differentiation is our strategy to provide a comprehensive high-performance network portfolio powered by JUNOS. This enables customer to increase the performance, reliability and security, while simplifying their operations and lowering their operating expenses. In the enterprise setting, companies such as Technicolor, AmazingMail, AdvancedMD Software, Ferrum College, have all deployed Juniper solutions to lower their IT cost and complexity. On the service provider side, we're enabling customers like XO Communications to accelerate new service introductions for business customers while reducing their operational cost. We are also providing enhanced network security, and more efficient responsive service delivery, for customer facing providers, including Telecom New Zealand International. Amplifying this customer benefit of the lower total cost of ownership is something that resonates in a period of economic uncertainty. Number three, our people and execution, continues to improve. We've got a great team here at Juniper, and that team is focused on excellence, execution, and driving results. I've seen evidence of this in many parts of the business, whether it's our R&D organizations that are executing on the product creation side or field organizations driving execution across the regions. Our enterprise go-to-market is making progress as our EX products offer a compelling sales opportunity for our challenge partners. There's certainly much, much more that we need to do in the area of excellence and execution, but we are making progress and our people are really focused on it. Fourth area is expanding the depth and breadth of our customer reach. I think it's important to me that we as a company stay very focused on the customer, and driving deeper relationships with service providers enables us to participate in more projects and earn more of their business. In the Enterprise segment, we're growing our reach. In Q3, over 30% of our EX enterprise customers were new customers to Juniper. Expanding the breadth of customers we do business with, and expanding the relationship with existing customers, will create opportunity. And finally, as a challenger in the market, I think we are well-positioned to take share. A strong product portfolio with the customer focused value proposition, great team of people focused on execution, and an increased depth and breadth of customer relationships, all support a growth agenda. Certainly, we have great competitors, but we will stay focused on the customer, and we will deliver great solutions that enable customer value. I think these five points support a view that even in a challenging economic period, we can be cautiously optimistic about our near-term prospects, recognizing the long-term growth fundamentals of the industry are good. In a moment, Robyn will take you through our results and provide some detail around our outlook for the balance of the year. We believe the company will deliver on its objectives for 2008, and in the meantime, will work through our planning process to gain more insight on the broader macroeconomic environment. As we enter Q4, we will continue to be thoughtful and responsible with our investments as we execute in this uncertain economic period. As you will hear, we plan to continue to execute against the philosophy of driving top-line revenue growth, while also increasing operating margins through productivity gains and economies of scale. We will be financially responsible in this time of economic uncertainty while maintaining a proactive posture of driving growth in our top-line revenue. Now I'll ask Robyn to take us through the numbers, and we'll come back to take some questions. Robyn?

Thank you, Kevin, and good afternoon everyone. I'm pleased to report that in the third quarter, we met or exceeded all guidance metrics, including delivering on our goal of 25% operating margin one quarter earlier than targeted. Given the developments in the global economic environment, we are being thoughtful in how we assess the state of our business, but with that said, our demand metrics remain strong, through the end of the quarter. Our product book-to-bill ratio remained above 1, we have good visibility into our pipeline for Q4, and our deferred revenue balance remains strong. Scott and Kevin have shared insights with you about the strategic factors that drove our growth this quarter, so I would like to focus my comments on the improving execution in the business that has enabled Juniper's profit growth to accelerate. I will discuss revenue and earnings on a GAAP basis first, and then shift to the non-GAAP discussion as we dive deeper into our operating performance. Total revenue for the third quarter of 2008 was $947 million, up 29% from the prior year and up 8% sequentially from the second quarter. Juniper earned net income of $148.5 million on a GAAP basis, or $0.27 per diluted share, up 77% from the $0.15 reported in the 2007 third quarter. During the quarter, as anticipated and on schedule, we delivered an essential element of the Verizon FiOS network build. This event triggered the first revenue recognition for this project. As can be seen from the balance sheet, our deferred revenue balances reduced on a sequential basis as a result of this, with the majority of the recognition of revenue in services. The diversification of our revenues, from both a geographic and customer perspective, again aided our results. The Americans represented approximately 51% of total revenue in the third quarter, as compared to 44% in the second quarter. Europe, Middle East, and Africa, represented 29% of total revenue in the third quarter, as compared to 33% in the second quarter. Asia Pacific represented 20% of total revenue in the third quarter, as compared to second quarter of 23%. Regionally, the Americas had a strong quarter, growing total revenue 39% year-over-year, with our largest single region, the US, also growing at 39%. Service provider revenues grew 46% year-over-year, and enterprise 21%. In APAC, they also had a good quarter, with year-over-year growth of 27%. This growth was led by Japan and ASEAN with year-over-year growth rates for service provider and enterprise at 31% and 16% respectively. EMEA grew 16% with good year-over-year growth in the Middle East and in Eastern Europe. On a segment basis, total IPG revenue of $729.3 million was up 34% on a year-over-year basis, and total XLT revenue of $217.7 million, was up 14% on a year-over-year basis. IPG revenue includes $18 million of EX switch revenue and EX bookings more than doubled quarter-over-quarter from $10 million to over $20 million. As Kevin mentioned, our switch products continue to receive great customer and industry reviews. Within each of the segments, IPG product revenue was up 31% year-over-year, and IPG Services revenue was up 50% year-over-year. IPG product growth was primarily due to the increases in T-series, MX, and E-series products. SLT product revenue was up 10% year-over-year, and SLT Services revenue was up 25% year-over-year. The SLT product growth was mainly driven by access solutions, branch solutions, and high-end firewall systems, partially offset by declines in the WX products. On a sequential basis, total IPG revenue was up 8% and total SLT revenue was up 5%. Looking at the markets we addressed, service provider sales were 72.7% of total revenue, up 31% year-over-year and up 8% sequentially, with strength in the America and APAC regions. Total sales into the enterprise market were 27.3% of revenue, an increase of 24% year-over-year, and 7% sequentially, with the Americas region showing the best growth and showing continued improvement from selling more infrastructure solutions, both switches and routers to enterprise customers Verizon was our only customer to exceed 10% of revenue for the quarter. Total revenue with Verizon for this quarter was 13%, and this was a result of both new business and the deferred revenue recognized. Turning to our non-GAAP results, total gross margins for the quarter were 68% of revenue, at the top end of our long-term model range of 66% to 68%, and slightly higher than our Q2 gross margins. Product gross margins were 70.3% of revenue, slightly lower than the second quarter. On a quarter-over-quarter basis, geographic mix contributed favorably due to our strong Americas performance, and this was offset by product mix being relatively lower due to a larger proportion of E and MX-series products and a lower overall pick mix. Product gross margins are strong. Services gross margins were 58.3% of revenue for the quarter, up 53.7% from Q2. This increase was primarily due to the increase in revenue and the ongoing productivity and cost initiatives the team has undertaken. Operating expenses totaled $406.4 million, or 42.9% of revenue. This represents an improvement of 5 percentage points from the third quarter of last year when expenses were 47.9% of revenue. On a sequential basis, we contained our expense growth to just 5%, a good result compared with our 8% sequentially revenue growth. R&D expenses totaled $181.2 million, or 19.1% of revenue, an increase of 15% on a year-over-year basis. We continue to invest in the areas that will ensure we maintain product momentum. Sales and marketing expenses totaled $189.5 million, or 20% of revenue, a reduction as a percentage of revenue of nearly 3 percentage points in a year-over-year basis. Operating profit for the quarter was strong at $237.6 million, resulting in an operating margin of 25.1% of revenue. Solid revenue growth, good gross margins, and a disciplined focus on our expense management have resulted in our achievement of this target that we set out at the beginning of the year, and we achieved that a quarter earlier than we committed. I am very pleased with the continued improvement in execution, and we expect to sustain these operating margins into Q4. Looking at our segments, operating margins for IPG were strong at 29.7% for the quarter, and SLT operating margins increased to 9.5% for the quarter. Operating margins for both IPG and SLT demonstrate good sequential improvement, and SLT operating margins increased for the third successive quarter. Turning to the bottom line, Juniper posted non-GAAP net income of $175.6 million, an increase of 41% from the year ago results. Net interest in other income was $9.7 million, down 26% sequentially, and 46% year-over-year, as a result of lower net returns on our investments. The non-GAAP tax rate for the quarter was 29%, and diluted earnings per share were $0.32, up $0.04 from the second quarter, and up a substantial $0.10 over the prior year figure of $0.22. Looking at the balance sheet, as of the end of September, we ended the quarter with over $2.1 billion in cash, cash equivalents and short- and long-term investments. This is down from about $2.3 billion in the second quarter due to the share repurchase activity in the quarter. We generated cash flow from operations in the quarter of approximately $205 million, up slightly from $200 million in the second quarter, and during the quarter we repurchased approximately 80 million shares at an average price of $24.56, or approximately $440 million. We have been conservative in our investment strategies with regards to our cash, and with no debt on our balance sheet we are in a very comfortable position to continue to grow our business and execute on our R&D priorities. For the quarter, our share count was approximately 554 million shares. CapEx for the quarter totaled $40.9 million, and depreciation and amortization was $38.9 million. DSOs decreased to 35 days in the third quarter, from 43 days in the second quarter. This was mainly as a result of the increase in revenue and the strong cash collections, and well within our range of 35 days to 45 days. Deferred revenue was $562.5 million, down from the $592.8 million reported at the end of the second quarter. Product deferred revenue decreased by approximately $10 million and service deferred revenue decreased by approximately $20 million. At the end of September, we had 6,830 employees, an increase of 299. The increase was primarily in the research and development, and included approximately 120 new employees being hired in India. We have slowed the increase in headcount quarter-over-quarter to ensure the flexibility in the operating model as we move forward in these uncertain times. Let's turn to our guidance. As Kevin discussed earlier in our call, over the long term, we believe the fundamentals of the markets we serve are sound. Given the near-term uncertainty around the credit markets and the economic environment in general, we are being cautiously optimistic about our near-term revenue guidance. We have shown that the productivity and operating efficiency programs that we've already had in place are delivering, and our operating expense control is working to ensure our operating model performance. For the fourth quarter, we expect revenue to be between $921 million and $971 million, and our non-GAAP earnings per share for the quarter to be between $0.30 and $0.33. This includes a $0.01 one-time benefit from the renewal of the US Federal R&D Tax Credit in October 2008. Our Q4 quarterly non-GAAP tax rate is expected to be 27%. We expect gross margins to be between 66% and 68%, and operating margins to be consistent with Q3 at 25% or higher. This is calculated on a share count of 545 million shares. For the full 2008, this brings our revenue range to be between $3.57 billion to 3.62 billion, roughly in line with our previous quarter full year outlook. Due to our improving operational efficiencies, we have increased our guidance for full year EPS to between $1.17 and $1.20 per share. This is up from our previous full year guidance of $1.14 to $1.17 per share. Our 2008 annual non-GAAP tax rate is expected to decrease by 0.5% from 29% to 28.5% due principally to the R&D Federal Tax Credit renewal. So with that, I'll turn the call over to Kathleen to initiate the Q&A session.

Thanks, Robyn. Doug, you can go ahead and open up the call for the Q&A.

(Operator Instructions). Our first question comes from the line of Scott Coleman with Morgan Stanley. Please proceed with your question. Scott Coleman - Morgan Stanley: Thanks, and good afternoon. Obviously a very wide range of guidance, and prudent, given the circumstances, but Kevin and Robyn, I'm wondering if you could walk us through some of the specifics as to what would get you to the high end versus the low end? Are you more concerned about the carrier market or the enterprise market? Are there specific products or product categories that you are more or less concerned about? Just so we can understand some of the swing factors in the range here.

Yeah, Scott, this is Kevin. Let me answer the question. First of all, I'll go back to the fact that we increased guidance at the end of Q2 for the full year, and certainly at the high end of revenue, we're maintaining that full year guidance, based on our optimism of performance. Now, at the same time, this quarter, we're increasing our EPS guidance, due to our improvement in execution and performance, which is leading to some growth in the margins. Certainly the widening range is more reflection of just the unknown in the current economic situation, and the speed at which the credit markets begin to shift and the speed at which that propagated to other aspects of the economy raises many questions. And so the widening of guidance is more a function of just being realistic about the fact that there is a number of unknowns in the market, and it's less about any lack of confidence or optimism about the value that we're delivering to customers. So I just pause there and see if that helps. Scott Coleman - Morgan Stanley: Do you have any particular view on whether it's the carrier or the enterprise market that you're more concerned about as you go into Q4 with a book-to-bill greater than 1, and strong order trends through the quarter? I understand the caution, but I'm just curious if there's any area in particular you're more concerned about.

There is not a specific area that we're concerned about and I think clearly there's different sets of issues related to credit available for capital spend in the service provider segment, and how cautious will enterprise IT. So this is really receipted to the macro level economics, and just being prudent in the fact that there's a lot of uncertainty and that we as a company, I want to make sure, first of all, we recognize that, two we're being thoughtful of that. And that as we look at our investments and the way that we're executing throughout the quarter, that we execute in a disciplined way. But to answer your question, there is not a specific concern that we would point to that says this is what would lead us to the low end. It's more macroeconomic related. Scott Coleman - Morgan Stanley: Okay. Thank you very much.

Thank you.

Our next question comes from the line of Nikos Theodosopoulos with UBS. Please proceed with your question. Nikos Theodosopoulos - UBS: Yes. Thank you. I had a couple of questions, hopefully both of them are pretty quick. Can you give an update on the IBM relationship and whether or not there has been any sell-through of the EX product through that relationship at this point or are the sales of the EX pretty much through the traditional channels? And my other question was on the services gross margin, which went up pretty strongly, was there any one-time benefit due to this large deferral recognition of the Verizon revenue or is this something we should look at as productivity that can continue? Thank you.

Thanks, Nikos. I'll take your first question and then I'll hand the second one over to Robyn. First of all, to answer your are question, certainly IBM is an important partner, and they are reselling our EX switches, and we're going to continue to focus on strengthening our partnerships with all of our channel partners, IBM included. And so they're an important part of our work in the market. And Robyn, do you want to take then second question?

Yes, on those services margin improvement, the sequential improvement, there's definitely some cost savings, you can see the trend throughout the year increasing quarter-over-quarter, but there was some favorable impact due to the services revenue recognition in the quarter with Verizon. Nikos Theodosopoulos - UBS: Can you kind of quantity how much of the improvement was due to Verizon?

What I can say is that if you look at the trends in terms of the actual productivity improvements, they are increasing over time. Nikos Theodosopoulos - UBS: Okay. Thank you.

Thanks, Nikos.

Our next question comes from the line of Tal Liani with Merrill Lynch & Company. Please proceed with your question. Tal Liani - Merrill Lynch & Company: Thank you. My question relates to the question that Nikos asked at the end. Is the decline in deferred revenues, I think $30-plus million, short-term deferred revenues, is this predominantly related to Verizon? Do we look at it as a good proxy for the recognition at Verizon? And then would you mind to comment on the breakdown between service revenues and product revenues? You did say a lot of it went to service revenues, if you can give some kind of to quantify it? And third, is this one-off or should we see a decline in deferred revenues for a few quarters because of the Verizon deal? Thanks.

Thanks, Tal. I'll answer that question. So the first thing that I wanted to make sure I commented on is deferred revenue is a normal part of our business. Every quarter we add deferred revenue, and it comes through the balance sheet and then through the P&L and some quarters we take out deferred revenue depending on when features that delivered and normal ratable revenue recognition on services. For this quarter, we did have the first event in terms of revenue recognition on Verizon, and what I talked about was the deferred revenue balance sheet amounts, $20 million in the services area and $10 million quarter-over-quarter in the product area. They were the sequential movements. In terms of prospective deferred revenue and the balance sheet, we're always going to have projects with customers that are strategic in nature, in which case go over many quarters. So I think deferred revenue as part of our model is actually a very healthy thing as I commented before.

Yes, I'll just add to that, that on a quarterly basis, certainly you look at the book-to-bill being greater than 1. That's reflective of the demand we're seeing in the market. And every quarter, there's a certain set of milestones we hit that we have things coming in and out of deferred revenue all the time. And I think just looking at book-to-bill just reinforces that I think we're moving in a positive direction, and this is the normal course of doing business. Tal Liani - Merrill Lynch & Company: Sorry, I didn't mean to say that it's a reflection of deterioration not at all. The question I had was whether it's a good proxy for what you recognize this quarter with Verizon. And just accounting, whether it's a one-off recognition or it's a project that continues over a few quarters, and therefore you'll have ins and outs from deferred revenues, but at least this part will come out from deferred revenues for a few quarters?

So the project with Verizon is ongoing. This was the first revenue recognition event, but we do over time expect our deferred revenue in total to increase, not just specifically to one customer. Tal Liani - Merrill Lynch & Company: Thank you.

Next question, please?

Our next question comes from the line of Ehud Gelblum with JPMorgan. Please proceed with your question. Ehud Gelblum - JPMorgan: Hi, thank you very much. A couple of questions, if I could. First of all, Kevin, when you said the 8200 is slotted for the first quarter of this year, I seem to remember that in the past it was going to be the end of '08, not in '09, just wanted to get an update on timing, and how that compares to earlier numbers? Second question, you mentioned that there was strength in EMEA and Middle East and Africa, as well as Eastern Europe. Could you comment a little on Western Europe? We have heard from a number of companies naturally Western Europe is weaker, and just what you are seeing there and will the trends remain weak? Or do you expect that to only be temporary, if you have any visibility on that? And in terms of this revenue recognition piece, did you expect to get the recognition in Q3? Or when you originally gave your Q3 guidance and your full year, did you expect to be in Q4, and that this is just bringing forward, say of the $30 million and that your full year is pretty much unchanged, everything else, just you recognized in Q3 what you thought you wanted to recognize in Q4?

Yes, thanks for the questions. I'll maybe take the first two, and then I'll ask Robyn to take the question on the recognition, the third question, Ehud. First of all, on your first question about the 8200, I believe that what was communicated in the past was that the 8200 would begin shipping by the end of 2008. And so the fact that we are releasing that product to the market in Q1 is reflective of the fact that we've really been focused on insuring that the quality of that product meets the needs of our customer, and so that is slightly different from the shipping it by end of 2008, but we're on a good path. It's in beta with customers currently, and we're on a good path to release the 8208 in Q1 with the next product right behind that. Your second question was regarding what we're seeing in Western Europe. I think it's fair to say that we're seeing some softness in the wireline carriers in Western Europe. Certainly wireless and other areas we're not seeing as much softness, but with wireline carriers in Western Europe, we are see something softness, and it's difficult to predict, that it going to be sustained or is that a short-term softness, but we are seeing that in Western Europe. Robyn, you want to take the third one?

Yes. In terms of recognition of revenue this quarter, it was absolutely expected when we put out our guidance. If fact, I can actually say it was expected when we did our planning for this year. It's been a project that's been underway for some time. The team delivered as scheduled this quarter, and therefore, the recognition happened as per expectation. Ehud Gelblum - JPMorgan: So the upside this quarter did not really come versus your guidance did not really come from that recognition that was already in the plan that came from another area?

Yes, that's right. Ehud Gelblum - JPMorgan: Primarily, I assume, on the SLT side, I would assume?

In terms of the revenue upside? Ehud Gelblum - JPMorgan: Right.

It was across the board, both service provider and IPG, SLT, and also EX performed well as we mentioned on the call. Ehud Gelblum - JPMorgan: And better than you thought?

Yes. Better than we thought. Ehud Gelblum - JPMorgan: Okay. And so vis-à-vis, what you had been expecting for Q4, you're now expecting a little bit less than you have before because we've got. Our full year is the same, but we actually had a real, we didn't have a shift from Q4 to Q3, we had a real uptick in revenue and demand in Q3, so Q4 you're being more cautious on than before?

Yes. I think consistent with just looking at the macroeconomic situation, I think we're taking a cautiously optimistic posture, but at the end of the day, we're going to be on the front foot, really driving top-line revenue growth, but there is a lot of macroeconomic uncertainty. Ehud Gelblum - JPMorgan: I understood. It makes sense. Thank you so much.

Thanks. Ehud.

Next question?

Our next question comes from the line of Jeff Evenson with Sanford Bernstein. Please proceed with your question. Jeff Evenson - Sanford Bernstein: Some equipment suppliers have talked about carriers running their networks hotter. How long do you think a typical carrier could cut router spend say by half and not see a customer backlash due to lower quality of service?

Well, Jeff, that's a good question. I'll share my reaction to that. I think the services, the carriers provider are really mission critical to their capabilities, and I just don't see how they could take any kind of pause, especially when they have increasing demand for usage on the Internet. And I don't thick there's a lot of 0 overcapacity right now in the carrier space, and therefore, any kind of a pause I think would be very noticeable to their customer base and be impactful from a competitive situation. So I think I don't see that as a scenario. Jeff Evenson - Sanford Bernstein: And just a follow-up on Ehud's question. When did you decide to move the formal introduction into production shipments of the 8600 into Q1?

Of the 8208? Jeff Evenson - Sanford Bernstein: Yes, sorry.

Well, it was in this quarter, I guess, or just in the recent weeks as we were doing beta testing and making a decision on when the product would be ready. Jeff Evenson - Sanford Bernstein: Thanks.

Next question, please?

Our next question comes from the line of Jeff Gable with Barclays Capital. Please proceed with your question. Jeff Gable - Barclays Capital: Thanks very much. I would like to ask about the backlog from a year-over-year, or deferred revenue from a year-over-year growth perspective rather than sequentially. It seems as though year-over-year, the deferred revenue is up about 10%, which is a little bit lower than revenues. Are there one-time factors that are in there or a how should we think about that Delta? Thank you.

The deferred revenue as you commented is up year-over-year, and I think in terms of the trend that we talked about earlier, deferred revenue, important part of our business model as we work with our customers in terms of the strategic projects that we're involved in. We just commented that we did record the first recognition from the Verizon project that we've been working on for roughly three or four quarters at this point. So that is the first recognition of that project.

Yeah, I'll just ad one other comment, Jeff. You point out that's up 10% year-over-year, and certainly if we look at the mix of products and what customers are buying, the fact is some of the product offerings we have where there's not some new feature, or something that is dependent on us recognizing revenue means that, when we look at book-to-bill being one to one, some of that revenue flows straight through to net revenue. So you may see ebbs and flows in deferred revenue, depending on product cycles and product mix, and that is something to factor into your model.

Yes, and actually, Jeff, I just checked the numbers. The combined deferred revenue is up about 24%. Product is up about 29% year-over-year. Jeff Gable - Barclays Capital: Okay. Well, we'll discuss that offline. Thanks. And then as for book-to-bill, was it slightly above 1, or comfortably above 1, anything you could characterize there?

So the product book-to-bill was above 1 in the quarter. Jeff Gable - Barclays Capital: Okay. Thank you.

Thanks, Jeff.

Thank you. Next question?

Our next question comes from the line of Troy Jensen with Piper Jaffray. Please proceed with your question. Troy Jensen - Piper Jaffray: Yes, quick question for either Kevin or Scott. There's a lot of obviously interesting valuations out there. I'm curious what your guy's appetite would be for acquisitions to maybe fill in some product holes?

Yes. Let me start by just commenting that as a technology company, our value that we create from customers comes really from our organic R&D. That has to be our primary focus. Now certainly when looking at the product cycle we are in, that's reflective of our investment in R&D and the organic innovation that we've been driving in the market. With that said, certainly there are either areas of the product line that we may have gaps, or opportunities to broaden a product portfolio that could involve an acquisition, and we will consider those. Certainly any kind of acquisition opportunity, we've got to look at, first of all, at the strategic rationale, second at the rationale and then we have to balance that with ensuring that we understand the risks and opportunities related to integration. And so I think at the end of the day, we're going to focus on, lead with organic R&D, and if there is places we need to round out the product line, we'll consider our acquisitions, but it needs to meet the test of strategic rationale, financial rationale, and we balance that within some assessment of risks or integration challenges that might be related to an acquisition. Troy Jensen - Piper Jaffray: Got it. Good luck, going forward, guys.

Thanks, Troy.

Next question?

Our next question comes from the line of Paul Silverstein with Credit Suisse. Please proceed with your question. Paul Silverstein - Credit Suisse: A couple of questions if I may. First off, Kevin, can you talk about how much of the upside in going forward what you see from NTT and the Cable/MSOs? I think last quarter those particular were specified or called out. I think NTT was as much as one-third of the sequential increase. Can you give us some insight what's going on there? And I've got another question for you.

Yes, Pail, I am sure I've got the specifics. I do know that our relationship with NTT and the work we're doing in Japan, that certainly we remain optimistic about that, and we're making good progress there, but I don't have any specific numbers. Robyn?

Yes. So Paul, what I called out in the script was that Japan actually led the way in terms of growth, and you can assume that that was driven with NTT, but there is obviously growth in Japan with other companies, as well. Paul Silverstein - Credit Suisse: I guess the real question is when you look forward, how much additional growth of the type that you have seen over the past several quarters, do you anticipate from NTT and from the cable MSOs? I know Cable/MSO is a new market and you're penetrating your gaining share. Can you give us insight in terms of what you're seeing in with both of those NTT and the cable operators?

So what I would say in terms of the diversify case of in the diversification of our revenues across both the service provider market, and even geographically, that we believe that we have broad-based strength in both markets and the products that we have, as we said. And we continue to look at new areas where we can take advantage of those strengths, but we have in penetrating new markets as well, just like the cable sector that you called out from our call last quarter. Paul Silverstein - Credit Suisse: Robyn, the current demand strength that you're seeing relative to most of the other suppliers in the industry, how much do you attribute to share gain versus Cisco or others, where Cable/MSOs or other customers, and how much of that is just normal market, at least relative to your positioning?

Yes, Paul, I'll share my perspective. Look, I think we have good momentum across the board. I mean it's, as Robyn said, across products, geographies, customer segments, and I think the much of that is attributed to the fact that we're in a strong product cycle. The expanded portfolio and the value we've created, I think is leading to us being able to take share in the industry, and that's a broad perspective. Paul Silverstein - Credit Suisse: Right. Scott, a quick question for you, or maybe not so quick. If you go back to the bubble, back in 2000-2001, I know it was a long time ago, and unfortunately I don't remember all the details. But when you look at what you're seeing now, in terms of the slowdown and your caution, and what you're seeing in your customer base and go back to the bubble years, do you recall whether you saw similar, I know revenues fell off the cliff, given the dramatic growth you hood back then, but was there any warning signs in terms of a slowing down before it fell off the cliff?

Paul, I think the major difference this time that I would note is that, first of all, the slow down and the hit was a direct one on the networking industry itself, and this one is indirect in the economy, more generally. But specific to our markets, the biggest difference is that the networking industry from a capacity standpoint was dramatically overbuilt in 2001 from massive speculation specific to the industry that we live in and couldn't be further from the truth right now. So we're careful in this market, simply on a macro basis, as Kevin said, but there are far more differences than there are similarities, and as a result for us, far less concern about the industry that we see today compared to 2001, and also far more strength here at Juniper as we run today at $3.5 billion company with over $2 billion in cash, and generating $2 million or $3 million of cash every business day. We're in a dramatically superior position to where we were in 2000-2001. We're today stronger than the small companies in this market, and faster than the big ones. So we're pretty pleased with our position here.

Next question?

Our next question comes from the line of Tim Long with Banc of America. Please proceed with your question. Tim Long - Banc of America: Two quick ones, if I could. First, you mentioned some of Eastern Europe and Middle East, Africa doing well in the quarter, but could you just talk maybe in the Asian theater what you've kind of seen in this quarter and how the outlook is for some of the emerging markets in Asia? Secondly, Robyn, I'm not sure if you gave the Edge and Core split. If you could just give that and maybe just update us on anything that's changed or going on in the competitive front, particularly in the Edge part of the market as other companies are still being pretty aggressive there? Thank you.

So in terms of the Core and Edge split, we will pose that on our website, I don't actually have it here with me. But, what I'll talk about in terms of Asia, so we saw good growth in Japan, as said, and then the [ASEAN] countries, in Malaysia, Singapore, Thailand, Vietnam, that area. And it was good growth year-over-year and quarter over quarter. So I think that was that. In terms Edge versus Core, what I'll say is that I did call out that T and MX and E were strong in the quarter, and that's both the T is Core, and MX and E are Edge, so both of those sets of products were strong in the quarter. Tim Long - Banc of America: Okay. Any comments on changes in the competitive or pricing environment on the Edge side?

Not so, that were noticeable in the quarter, no. Tim Long - Banc of America: Okay. Thank you.

Next question, please?

Our last question comes from the line of Ittai Kidron with Oppenheimer. Please proceed with your question. Ittai Kidron - Oppenheimer: Thanks. I made it. Two housekeeping question. Robyn, can you remind us how much is left on your buyback plan, and how should we think about net interest income? It declined quite nicely. How much of that is just a reflection of your declining cash balance, versus just lower interest income that you're getting on your deposits?

So, Ittai, it's about $800 million that's left on our buyback with the authorizations that we announced back in March. In terms of the interest income, what we did see in the quarter was obviously reductions in rates. We've got a very conservative portfolio, and became even more conservative as things started unfolding over the last quarter and a bit. So we're expecting interest rates to be down and our interest income to be down going forward. And, yes, so I think that answers your question, actually. Ittai Kidron - Oppenheimer: Yes. And lastly, with regards to WAN optimization, you mentioned, if I am not mistaken, another weak quarter in that area, but now you have a new solution. How long before you think we see that business start turning around, get something more momentum behind it?

Yes. So it was a decline in the quarter and we're very pleased with the new platforms that are out there from a WX perspective and we are getting good customer acceptance of the product and good reviews. We will report on the progress as we see the revenue coming in. Ittai Kidron - Oppenheimer: Very good. Good luck, guys.

Great. Thank you very much.

Thank you.

We would like to thank everyone for joining us on today's call, and we look forward to speaking with you again soon. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.