Kevin Kennedy - President, CEO Dave Vellequette - CFO Michelle Levine - IR

Subu Subrahmanyan - Sanders Morris John Harmon - Needham & Co. Brant Thompson - Goldman Sachs Kim Watkins – JP Morgan Ajit Pai - Thomas Weisel Partners Jeff Evenson - Sanford Bernstein Todd Koffman - Raymond James

Welcome to the JDSU fiscal 2007 fourth quarter earnings call. (Operator Instructions) I would now like to turn the call over to Michelle Levine, Director, Investor Relations. Please proceed, ma'am. Michelle Levine: Thank you and welcome to JDSU's fiscal 2007 fourth quarter and year end financial results conference call. Joining me on the call today are Kevin Kennedy, Chief Executive Officer and Dave Vellequette, Chief Financial Officer. I would like to remind you that this call is likely to include forward-looking statements about the future financial performance of the company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to look at the company's most recent filings with the SEC, particularly the risk factors section of our Form 10-Q filed for our quarter ended March 31, 2007 filed May 9, 2007; and our most recent report on Form 10-K filed September 18, 2006. The forward-looking statements, including guidance provided during this call, are valid only as of today's date, August 22, 2007 and JDSU undertakes no obligation to update these statements as we move through the quarter. Our comments today will include non-GAAP measures. A detailed reconciliation of these non-GAAP results to our GAAP results, as well as a discussion of their usefulness and limitations, is included in today's news release announcing our results, available on our website at www.jdsu.com. Finally and as a reminder, this call is being recorded and will be available for replay from the investor portion of our website at jdsu.com/investors. I would now like to turn the call over to Kevin. Kevin Kennedy: Thank you, Michelle and good afternoon. Highlights for JDSU's fiscal fourth quarter non-GAAP results include, but are not limited to, fourth quarter revenue of $351 million; overachieved the high end of our forecast range, due to two in-quarter acquisitions which together contributed mid single-digit millions of dollars to our revenues. The book-to-bill ratio for the entire company was greater than 1. The book-to-bill ratio for the Optical Communications business was also greater than 1. For the second consecutive quarter, the company was free cash flow positive. For the fiscal year, non-GAAP results show revenue for the fiscal year reached $1.4 billion; growth of 16% when compared to revenue of $1.2 billion in fiscal year 2006. All four constituent business segments grew revenues in fiscal year 2007, ranging from a high of 25% for our CommTest segment to 4% for the Advanced Optical Technologies business. Commercial Lasers and Optical Communications grew 19% and 9%, respectively over the prior fiscal year. JDSU's adjusted EBITDA was positive 5% of revenue for the year, and the highest in five years. For the first time in more than five years, the company was net earnings per share positive in all four quarters of the year. Cash flows improved, and the company was free cash flow positive for the second half of fiscal 2007, and balance sheet metrics continued to improve as inventory levels declined and reductions were made to our debt balance. Before discussing the more detailed segment reports, several points regarding JDSU's strategy and markets are warranted. First, our strategy continues to be to execute as a company comprised of a portfolio of businesses with a focus on optical and broadband innovation. We embrace this view such that the composite company will be better able to navigate downturns in any one constituent business, as was the case in Optical Components this past quarter. As a result of this strategy, the company remained cash flow positive in the quarter, despite this downturn. Second, indicators continue to be generally favorable for the end-market demand for communications products, including optics and broadband products and services. The indicators of the strength of the market for broadband products and services can be observed in the trajectories of the network equipment manufacturers; the growth of JDSU's CommTest business that directly sells to network operators, which grew 25% year over year; and our Optical Communications business, primarily selling to network equipment manufacturers was on one hand impacted mainly in the second half of the fiscal year by customer inventory initiatives and consolidation, yet on the other hand exited the quarter with a book-to-bill ratio greater than 1. Relative to our commercial and consumer markets, the Advanced Optical Technologies business, which includes our variable optical pigments and coatings, evidenced revenue growth amid transitions and an improving margin structure. Some of this strength through technology transitions has been enabled by expanding market opportunities for our new process technologies. Our Commercial Lasers business, focused on the transition from gas lasers to more reliable solid-state lasers, experienced double-digit growth rates during the fiscal year as it served four main market spaces. They are semiconductor manufacturing, government and defense, biomedical and machining. Most recently, two of these areas or specific customers related to semiconductors and defense have been associated with order softness. With these facts in mind, I will now provide more detail on the business segments. First, Optical Communications. We continue to see favorable end-market indicators for broadband services and network buildouts. We believe broadband capacity continues to expand as higher data rates are being delivered to the access edge, accompanied by video applications. We also believe that as network operators respond to changing loads and consumer dynamics, networks must be agile in order to rapidly respond to the resulting changes in traffic patterns. According to external research we recently reviewed, IP traffic is estimated to nearly double every two years through 2011. Consumer IP traffic is expected to surpass business IP traffic next year. Accordingly, industry participants who enable agile optical networks, as JDSU does, should benefit. This said, as we indicated on our last call, a number of challenges confronted the flow of orders in Optical Communications. First, in the Optical Communications market, several of our largest customers are involved in a number of order-throttling initiatives which include product platform transitions, changes in supply chain, remanufacturing and demand pauses related to consolidation activity. As a result, we experienced lower demand from these customers over the last several quarters of the fiscal year. Our response to these customer initiatives was twofold. We reduced a portion of our manufacturing cost structure and we reduced our inventory exposure. Because of our belief that the order flow reduction from some customers is temporary, we've maintained a manufacturing capacity that is 15% to 25% greater than our fourth-quarter production activity. This decision was made with the realization that gross margins would suffer for a period. We believe that the impact of the customers' initiatives will be realized over a timeframe of two to four quarters, which began in the second fiscal quarter of 2007. We note that our fourth quarter bookings increased when compared to the third quarter. Structurally by reducing are inventory exposure, we improved free cash flow for the quarter. In summary, while positive end-market indicators exist, network equipment manufacturers' supply chain forces resulted in reduced order flow and visibility relative to historical levels. In our Optical Communications business, total revenue was $113 million in the fourth fiscal quarter, compared to $129 million in the third quarter of fiscal 2007 and $133 million in the fourth fiscal quarter of 2006. The sequential decline was 12% and year over year the quarterly business experienced a decline of 15%. Revenue for the fiscal year for Optical Communications was $512 million, up 9% compared with $471 million in fiscal 2006. We saw booking strength during the fourth fiscal quarter, as total bookings increased from the third quarter levels. We closed our acquisition of Picolight, enhancing our portfolio of pluggable optics and improving the level of vertical integration in our product portfolio. For the quarter, new product families such as our agile optical products evidenced less weakness or alternatively, greater strength in legacy products that would have greater exposure to customer inventory positions. More generally, we are continuing to invest in pluggables, agile products such as ROADMs and tunables and product for the metro. Year-over-year metro long haul, with and without undersea, and datacom all grew in revenues. During the quarter, we saw healthy sequential bookings in our agile optical network portfolio for ROADMs and tunables. This quarter also realized ramping volume shipments of SFP+ transceivers to several key customers. JDSU's SFP+ transceivers enable 8-Gig and 10-Gig connectivity with data centers, enterprise LANs and SANs and metro access networks. Our SFP+ portfolio comes from the Picolight acquisition, which closed in May. Picolight has been shipping SFP+ transceivers for revenue since our third fiscal quarter, and we continue to maintain a strong market position. The Picolight business creates opportunities for us through vertical integration of key components, especially VCSELs or laser sources required for the datacom side of the business. When we look at our long-haul business, we noted that a portion of this business was impacted by the customer inventory initiatives. At the same time, the undersea portion of this business experienced increased demand in the fourth fiscal quarter and over the past year. Relative to the Optical Communications organization, David Gudmundson was appointed President of Optical Communications in late April, in a dedicated role that integrates management of sales, operations and product development. Since being appointed President, he has begun to fill out his team, including adding a leader for manufacturing operations. With David's leadership, we will drive further aggressiveness on our core initiatives for this business. I will now provide some thoughts on gross margin improvement. First, we are focused on driving our revenues to a higher post-pause level, which will improve factory utilization and allow cost reduction work to flow through to the revenue and margin lines, rather than be delayed due to finished goods inventory buildup. Second, mix will continue to play an important role. As we mentioned on our last call, roughly one-third of this business has a gross margin structure that is at or above our long-term objective. When the mix of this business is favorable, our overall gross margins will have a favorable bias, albeit the reverse can also be true. Additionally, we anticipate structural improvements to gross margin from having VCSELs and other Picolight products in-house. Third, we have a significant amount of work underway that could be operationally classified as lean initiatives. These include manufacturing overhead reduction, manufacturing headcount reduction, variance reductions, inventory reductions, procurement spending reduction and bill of material localization. Finally, there is a renewed level of focus on value engineering that is redesigned to products and processes to improve gross margins. These initiatives, taken together, are necessary to expand Optical Communications gross margins by double-digit percent of revenue, in line with our stated objectives. Now for Communications Test and Measurement. In the Communications Test and Measurement segment, our business benefited from favorable bookings across all our geographies. We see this as a positive indicator of broadband build out momentum in the US and internationally. CommTest revenue grew above historical industry ranges on a year-over-year basis. Our fourth-quarter fiscal 2007 revenue reached $171 million, up 5% as compared to $163 million in this year's third quarter and up more than 36% compared to the fourth quarter of fiscal 2006 revenue of $126 million. The revenue results reflected strength in all regional markets. For the year, CommTest fiscal year 2007 revenue was $619 million versus $495 million in fiscal 2006, an increase of 25%. Our Test and Measurement products address the needs for rapid network and service deployment, efficient installation and maintenance, and quality assurance, which are key competitive elements for our customers. The telecom operator market was particularly receptive to new modules and enhancements introduced to the T-BERD 8000, the modular test instrument for access and fiber network installation and maintenance; the HST, a field instrument for broadband access in triple-play service installation and maintenance, also continues to enjoy strong customer adoption, with more than 25,000 units shipped during the year. In cable, the DSAM, the triple-play field tool for the cable segment, and the PathTrak network monitoring system were key growth drivers as successful deployment of Voice over IP service has increased demand for field tools and quality assurance. Growth of our fiber test portfolio was particularly strong in North America, as network operators increase capacity and extend fiber optic networks closer to the home. The release of our 40 gig test solution on the ONT-506 platform positioned JDSU in a leadership position for 40 gig testing equipment. 40 gig deployment started on several fronts in fiscal 2007 by tier one telecom service and cable service operators. Analysts' projections suggest we will see a significant increase in the number of ports deployed in the next two to three years. Our initial sales of 40 gig systems were to network equipment manufacturers supporting development, and are now extending to service providers implementing expanded network capacity, particularly in North America and Europe. In the second half of fiscal 2007, we added two strategic acquisitions to our CommTest business. Casabyte expanded our presence in wireless service assurance and positioned us to leverage our product portfolio to enable service assurance from the head end to the handset. Innocor expanded our 10 gig Ethernet and fiber channel expertise into the network equipment manufacturers for lab and production testing and expanded our 40 gig set of solutions. Relative to the organization, Helmut Berg, a veteran of our Test and Measurement business, took over leadership as President of the Business Segment in May. Helmut joined JDSU in 1993 and holds the distinction of having managed each of the product lines in the business across lab and production, field service, service assurance solutions portfolio during his tenure. While our revenue growth in CommTest was very strong in fiscal 2007, we have more work to do on gross margin expansion. Relative to this initiative and consistent with what was discussed on our CommTest analyst update in March, gross margin expansion has three primary levers. Mix is primary and has two areas of focus. The first is to increase the mix of sales of our organic products versus those that we simply resell. The second is to concentrate on increased sales to North American network operators of more fully configured units. An increased North America mix will typically buy us gross margins toward the higher end. Over the past year, as North American communications providers paused and slowed purchases, the North America mix was suppressed. Our next area of focus is on our own lean-based initiatives to improve cash flow and drive improved supply chain management results. Finally, as in Optical Communications, there is an increased focus on value engineering. In aggregate, these gross margin levers should, over time, move our CommTest gross margins into a range of 57% to 61%, as mentioned on our March analyst call. Moving on to Advanced Optical Technologies, fiscal fourth quarter revenue for AOT was $45 million, a 2% decline compared to $46 million in the very strong third quarter and up 22% compared to $37 million in the fourth quarter of fiscal 2006. For the full fiscal year, revenue in this unit was up 4% at $170 million, compared to $163 million in fiscal 2006. The AOT business continues to generate operating income of approximately 30%. The currency market has provided a recent upside for this business unit, making strong contributions in the third and fourth quarters, driven by new currency note introductions around the world. As we have noted before, the trending of this business will have some level of surges and ebbs. Anti-counterfeiting labels for our customers in the pharmaceutical and other industries are growing in popularity. This element of brand protection, that is, non-currency, is growing faster than the whole of our AOT business. Our coated optics business is transitioning to new market targets, demonstrating promising strength in the fourth quarter. We have captured a new strategic multi-million dollar opportunity in this business using the universal coating platform. Through improved gross margins in the AOT segment again, consistent with the May analyst call, the team is focused on loading our legacy applications in concert with adding new business to our universal coatings platform; this will drive greater volume and utilization. And, achieving further improvements in lean manufacturing initiatives on coated optics, labels and other applications will continue. Volume will accelerate gross margin improvement for the coated optics and labels businesses. Working together, these initiatives should be able and capable of driving a sustainable gross margin improvement of 1 to 2 points. In Commercial Lasers, fourth quarter fiscal 2007 revenue was $22 million, down by 10% from the $25 million in the third fiscal quarter of fiscal 2007 and down slightly compared to $23 million in the fourth quarter a year ago. Full year fiscal 2007 revenue was $96 million, an increase of 19% over fiscal 2006 revenue of $81 million. Our Commercial Laser business serves a relatively small number of customers, and so quarterly performance may be impacted by spending cycles. Furthermore, semiconductor industry activity has declined, which we believe to be temporary, in concert with the conclusion of a sizable service contract for a defense customer. On the other hand, biomedical and machining-related customers continue to be healthy. Our solid state laser offering continue to replace our gas lasers as customers transition their laser platforms. In the solid state market, our FCD488 blue solid state laser, at one-third of the size and generating one-third the seat of competing products, continues to gain extremely positive marketplace traction. As with all our businesses, we are driving for gross margin improvements in lasers as well. While the drivers to gross margin improvement were discussed during the presentation in March, let me summarize again. The critical factor is mix, with solid state revenues having a favorable impact on gross margins. Note that during the fourth quarter, our mix of solid-state declined as service revenues for gas lasers outpaced new product absorption. Gross margin upside can also come from increasing volumes in concert with lean manufacturing initiatives already in process. For example, we are moving manufacturing of our FCD488 blue solid state laser to Shenzhen, and we expect we will have completed that move in early calendar 2008. Finally, we anticipate the recent price increases on some of our gas lasers will have a favorable impact, albeit several quarters are required for the results to reflect these changes. We believe that the aggregate of these initiatives, once fully implemented, will result in gross margin improvement on the order of a double-digit percentage of revenue. Previously, our margin goals were set against an anticipated revenue run rate greater than $25 million per quarter. Given the recent lull in demand from the semiconductor manufacturing space, we are now adjusting our manufacturing investments so that we can meet the margin goals at an even lower revenue level. At a corporate level, we will remain focused on improving our business model. For fiscal 2007, we reported year-over-year revenue growth of 16% and four quarters of non-GAAP positive earnings. Adjusted EBITDA was positive 5% of revenue for the year, up from 1.4% in fiscal 2006. As we noted earlier, we achieved positive free cash flow for the second consecutive quarter and we reduced our inventories and debt balances. Dave will provide more detail on these initiatives. Each of our businesses in our portfolio faced challenges during the year, and each of them grew. We operate in several dynamic markets, and we continue to expect challenges. This said, with 53% of our business in the fourth quarter associated with the Americas, our non-North American business has grown to deliver the most favorable balance in years. As described on our last call, fiscal year 2008 will be a year in which JDSU intends to advance its business model, as each business within the portfolio expects to continue to improve individual operating results. Clearly, more execution improvement is ahead for the team. Our focus will be primarily on gross margin improvement and cash flow improvement in all operating segments. At the same time, we will continue to seek opportunities to strategically expand our product portfolio through acquisitions. With that, I'll hand the call over to Dave. Dave Vellequette: Thank you, Kevin. Before I start, please note that all numbers are non-GAAP unless I state otherwise. Fourth quarter revenue of $350.8 million was down 3% from the third quarter, due to the anticipated reduction in Optical Communications revenue, and was up 10% from the fourth quarter revenue of a year ago. Additionally, fourth quarter revenue included mid-single-digit millions of dollars from our recent acquisitions of Picolight and Innocor. For the fiscal year, total revenue was approximately $1.4 billion, up 16% from the prior year's $1.2 billion. We saw growth in all our geographic regions and business segments in fiscal 2007, compared to fiscal 2006. In fact, our Test and Measurement segment was up 25%; the Optical Communications business grew 9%; Advanced Optical Technologies grew 4%; and Commercial Lasers grew 19%. Fourth-quarter gross profit of $131.1 million or 37.4% of revenue was down slightly from the third fiscal quarter, due to lower revenue and lower factory utilization in the Optical Communications segment. For the fiscal year, gross profit of $526.5 million or 37.7% of revenue was up from $422.8 million or 35% of revenue for fiscal year 2006. Operating expenses for the quarter of $135.4 million were 38.6% of revenue. Operating expenses exceeded our target range of 35% to 38%, due to the decline in revenue and due to the incremental operating expenses associated with the acquisitions we completed in the quarter. Our operating loss for the quarter was $4.3 million. This was primarily driven by the decline in gross profit and the higher operating expenses. For the fiscal year, operating profit was $11.5 million, which compares to an operating loss of $40.2 million for fiscal 2006. For fiscal 2007, each of our segments saw improved operating results. Adjusted EBITDA in the fourth quarter was $11.7 million or 3.3% of revenues. For the year, adjusted EBITDA was $72.9 million or 5.2% of revenue, which compares to adjusted EBITDA of $17.2 million or 1.4% of fiscal 2006 revenue. Fourth quarter net income was $15 million or $0.07 per share. This compares with third quarter net income of $12.3 million or $0.06 per share. Net income was impacted favorably by tax provision adjustments associated with two of our international entities. Net income for the full fiscal year 2007 was $64.1 million or $0.29 per share. In fiscal 2006, we had a net loss of $23.8 million or a net loss of $0.12 per share. A detailed reconciliation of our non-GAAP results to our GAAP results is available in today's press release. Our fourth quarter non-GAAP results exclude, among other items, amortization of acquired technology and intangibles of $17.4 million; a $6.9 million charge related to stock-based compensation; and a $7.6 million inventory write-off related to portfolio rationalization after the Picolight acquisition. Including these items, quarterly GAAP net loss was $17.9 million or a loss of $0.08 per share. Moving to the segments, in the Communications Test and Measurement or CommTest segment, fourth quarter revenue of $171.3 million was up 5% from the prior quarter revenue of $162.9 million. For the full year, CommTest revenue of $619.2 million was up 25% when compared with $494.5 million for fiscal 2006. In the fourth quarter, CommTest gross margins improved slightly from the third quarter. Operating profit also increased for the quarter to $26.2 million or 15.3% of revenue, versus $22.1 million or 13.6% of revenue in the third quarter. For the year, the operating profit for the segment was $90.9 million or 14.7% of revenue, which was up compared to operating profit of $70.7 million or 14.3% of revenue for fiscal 2006. Optical Communications revenue of $112.7 million, which included revenue from the Picolight acquisition, was down by $16 million when compared to the third quarter, due to the customer initiatives, which included consolidation, manufacturing lean initiatives and platform transition activity, as Kevin noted earlier on this call. For the full fiscal year, Optical Communications revenue was $512.1 million, up 9% over the prior fiscal year. We believe many of the current initiatives in the Optical Communications market are temporally impacting demand. Therefore, we maintained a level of capacity in the factory that was above the fourth quarter demand levels. The impact of maintaining this capacity, which more than offset the cost reductions we realized in the quarter, resulted in lower gross margins and an operating loss for the quarter. The fourth quarter operating loss in this segment was $9.2 million. For the full fiscal year, the operating loss for Optical Communications was $8.4 million, which compares to an operating loss of $26.6 million for fiscal 2006. Our Advanced Optical Technologies, or AOT segment, quarterly revenue was $44.7 million, down slightly from the prior quarter. For the year, AOT revenue was $170 million, an increase of 4% from $162.8 million for the prior year. AOT operating profit for the quarter was $13.1 million or 29.3% of revenue. For the year, the AOT operating profit was $52.6 million or 30.9% of revenue, which compares to $36.2 million or 22.2% of revenue for fiscal 2006. In Lasers, fourth quarter revenue of $22.1 million declined 10% from the third quarter. For the full year, Laser revenue was $95.9 million, an increase of 19% over the prior year. Due to lower fourth quarter revenue, Lasers had a slight operating loss for the quarter. For the full fiscal year, lasers had an operating profit of $4.2 million, which compares to breakeven for fiscal 2006. Now, looking at revenue by region, during the year, the geographical dispersion of our revenues became more balanced. In the fourth quarter of fiscal 2007, the Americas contributed 53% of revenues; EMEA was 28%; and Asia-Pac, 19%. A year ago, the split was Americas contributing 61%, EMEA, 22%; and Asia-Pacific, 17%. Moving to the balance sheet, for the second quarter in a row, the company was free cash flow positive, generating more than $25 million in the fourth quarter. This was the result of lower capital expenditures and reduced inventory levels. We also reduced our debt balance by $71 million during the quarter. Our cash, cash equivalents, short-term investments and restricted cash at the end of the fourth quarter totaled more than $1.1 billion. Also, we just completed a sale-leaseback transaction for our Santa Rosa facility. We have leased back our manufacturing facility for up to 10 years, with rights to extend. The sale generated more than $26 million in cash for the company. We will continue to use this site as the hub for our AOT operations. Finally, headcount as of June 30, 2007 was 6,688 down from 6,834 last quarter. Headcount includes additions of approximately 108 employees from the two acquisitions that were completed in the quarter, which was offset by reductions primarily in Optical Communications of 350 headcount. While our markets range from soft to favorable, we remain focused on improving our operating model. Our near-term operating model targets are sustainable gross margin of approximately 40%, operating expense in the range of 35% to 38% of revenue and an operating margin of 2% to 5%. We believe we can achieve this level on a sustainable basis by the end of the calendar year. Longer-term, we believe we can achieve gross margins of 43% to 47% and an operating margin of 10% or more. Some other points to consider as you think about our financial performance over the coming quarters. First, our revenue and operating expenses for the first quarter will include full quarter impacts from the Picolight and Innocor acquisitions. As previously noted, due to these acquisitions, operating expenses for the first fiscal quarter of 2008 may exceed the upper end of our targeted range of 35% to 38%. Next, with regards to gross margins, the product platform and supply chain transition initiatives in the Optical Communications market may result in incremental excess and obsolete charges over the next few quarters. Additionally, in the first quarter of fiscal 2008, as part of the cost reductions we have announced on the last call, we expect to reduce our costs, primarily in the manufacturing area, by another $2 million. This reduction, plus the $4 million in reductions we implemented last quarter, will bring our total cost reduction run rate to $6 million per quarter. Our current identified quarterly cost reduction opportunity is $8 million as we exit the second fiscal quarter of 2008. These savings are relative to our Q3 fiscal 2007 spending levels. The savings realized in the fourth quarter were offset by incremental costs from the recent acquisitions and the variances from lower factory utilization. Also, due to the debt retirement activity, our interest income will decline by more than $1 million per quarter, as compared to fiscal Q4 2007. Finally, we expect our quarterly tax provision to range between $4 million and $6 million. Now, to our financial guidance for the first quarter. Based on our current visibility, which reflects the full quarter revenue impact from our Picolight/Innocor acquisitions, we expect first quarter revenue to be in the range of $345 million to $360 million. Operator, we are now ready to begin the Q&A.

Your first question comes from Subu Subrahmanyan - Sanders Morris. Subu Subrahmanyan - Sanders Morris: One clarification on the revenue from the acquisitions. Can you give any color between Picolight and Innocor, where the split was? Were they more or less equal? Then I really wanted to focus on two things. One is your revenue guidance, given improving orders in OpticalComm. Just trying to figure out what that implies for OpticalComm sequentially and what it implies for CommTest, since it has been growing at such a strong pace, and whether that is sustainable? Second, if you could talk about some timing around the operating margin targets you're talking about. I know you said end of year for the first target, but for the 10% plus, if you could put some sort of timeframe around that? Kevin Kennedy: Just to restate the benchmark for the combination of Picolight and Innocor, we said that the combined contribution was in the mid single-digit millions of dollars. Given the timing of those and the amounts, there was not a significant difference in those, a slight bias towards Picolight. But I think that's about as good as I can help you with on that one. On the OpticalComms and CommTest, maybe to emphasize some points, one is that OpticalComms with a book-to-bill greater than 1 and the advent of a full quarter of Picolight, should give you a sense of the direction of that business. Secondly, if you are mindful of the fact that historically, at least as I reflect upon last year, in the CommTest business we tend to see a slow August and then a vigorous September. So what we have to deal with is how much can we make or turn, based upon the orders that come in September? So the downward pressure comes with our ability to convert turns in the end of this quarter for CommTest. The direction of OpticalComms, I think, is clear from the confluence of the full quarter of Picolight and the book-to-bill of the business. Dave, any thoughts? Subu actually had three questions. Dave Vellequette: What was the third question? Subu Subrahmanyan - Sanders Morris: It was on operating margin, timing. I know you said end of calendar year for the near-term target, but for the longer-term target, any kind of timeframe that you could put around that? Dave Vellequette: When we talked about, generally, this longer-term target, we talked about by the end of calendar year 2008. So let us get through the near term and the successful execution there, and then we will talk, maybe provide some more specifics about our ability on the longer term.

Your next question comes from John Harmon - Needham & Co. John Harmon - Needham & Co.: Can you talk about the performance of your CommTest business, given last year what looked like less normal seasonality? Last year, revenues declined throughout the fiscal year. But in fiscal 2007, they have sort of been increasing on a quarterly basis. Is that all due to the Oracle installation, or what else is going on there? Kevin Kennedy: I'm going to try to respond to your question in my own words, rather than use the frame that you provided me. At the end of the day, what we know for sure and what is repeatable in history is that the December quarter tends to be a strong quarter. Typically, as I've explained to others, this is due to basically an order, use-it-or-lose-it phenomenon at the carriers. So that, I don't think, has changed. We have had a number of things that have changed the trajectory. That being said, given that December is the peak, the nadir tends to occur sometime thereafter, during the year. I think we have modulated some of that impact out. Clearly, the August month is a slow month, relatively speaking, and I don't think we will see a repeat of what we saw last year, where we had multiple factors in the September quarter. But nevertheless, we do have a lot of business to turn in the September quarter. Obviously, the growth rate of CommTest, one has to observe that it has been quite significant and stellar, compared to the market more generally speaking. We have invested in a number of new areas, anything from growth outside of North America has been very strong in the cable operators to beginning to emerge, which was a growth area for us, in the network equipment manufacturers around 40 gig. In fact, our strength in 40 gig worldwide has been very supportive. So I'd say identifying the pillars of strength, those are the things that are driving us. So hopefully, I've given you some rationale. But obviously I'm very pleased with the performance of that team.

Your next question comes from Brant Thompson - Goldman Sachs. Brant Thompson - Goldman Sachs: I was wondering if you could give any color on the pricing environment in the Optical Components segment? As we think about the turnaround that's ongoing in that business, based on your near term guidance, it doesn't appear that you're expecting any kind of significant rebounded in the profitability of that business. I was wondering if you had any extra color on where we were in terms of a fully getting through lean manufacturing and customer consolidation? I know you pointed out that book-to-bill is above 1, but could that be attributed more to one of these factors clearing and not the other? How should we think about that? Kevin Kennedy: I'll take a shot at it, and probably hope that Dave can provide more color. In terms of pricing, we have traditionally observed the range to be between 2% and 4% each quarter. We were probably closer to the bottom of that range this quarter than the top. So fundamentally, I wouldn't say any major change to the general rhythm of pricing in that particular market. Relative to the profitability and gross margin, I would say that certainly we had a very significant in terms of magnitude, correction that we had to deal with. If you went back several quarters to where our peak revenues were, we peaked at around $138 million. As you might guess, in an improving market like that, we probably had capacity that was someplace between 10% and 20% greater than that. We made a decision, as I tried to identify in the notes here, to reset or correct our capacity such that we have capacity at least 15% to 20% ready above where we finished the quarter. That meant that there was a significant correction, in terms of headcount and a number of things. The thing to know about this business, and I've said it before, this is a variable cost structure business, and certainly on the upside. As you begin calling down, you have both fixed and variable costs. Examples could be a reduction of capacity, reduction of headcount and the time that it takes to do that, as well as contract manufacturer minimums required for such. So a key model is variably on the upside, both fixed and variable on the downside. It takes time to correct. We've done a lot in the last couple of quarters. As I said, the first piece to gross margin improvement is to get the revenues back up, followed by the other four items that I enumerated. Hopefully, that helps.

Your next question comes from Kim Watkins – JP Morgan. Kim Watkins - JP Morgan: I wanted to ask a question on the Test and Measurement gross margins. Dave, I heard you say they were up slightly. Were they within the 55% to 59% range, and could you also talk about some of the drivers there that took them either to the lower end or higher end? Dave Vellequette: Yes. They did increase slightly. They are at the lower end of the range. As we noted last quarter, the margins fell below the range. The factors that drove it up by that small amount was basically just a better mix of the product. We don't really see much in the ASP pressure in that environment, so it becomes more of a mix within that product line. So that's what moved it up slightly. Kim Watkins - JP Morgan: Just to follow up on the OpEx level, I know you've said for a while now, with the recent acquisitions you're going to be above your target, 35% to 38%. I was a little surprised by the level of above. Is that a timing issue? How should that trend down from here? How long does it remain above? Dave Vellequette: We are slightly above. We were some 38% plus for the last quarter. We expect it to be slightly above in the current quarter, as we have the full impact of the operating costs with the Picolight and Innocor. So it will be driven as we have basically these revenue levels from the OpticalComms at the current level as they are recovering. As they get to a more normalized level, you'll see that operating expense come down, plus we have always a number of initiatives to reduce those costs slightly. Kevin Kennedy: Let me reiterate though that on one hand, you wouldn't immediately adjust for the acquisitions which, of course, were a partial quarter. We also, as in the case of our manufacturing capacity, we did not chase OpEx down dollar for dollar as revenue in OpticalComms was softer. So 0.6% out of 38% is a reasonable threshold to float as we adjust and normalize. Kim Watkins - JP Morgan: Just an interpretation of that, it sounds like on a percentage of sales basis, it might come down from there as some of the cost savings flow through. Kevin Kennedy: Yes.

Your next question comes from Ajit Pai - Thomas Weisel Partners. Ajit Pai - Thomas Weisel Partners: On the tax front, I think in this quarter itself you had a tax benefit. Were you expecting that? Then on a go-forward basis, what would you want us to assume the tax rate to be? Dave Vellequette: What we had is we had a couple of things. We've had the Acterna acquisition now for two years. We are looking at consolidating some of these foreign entities, and we got a favorable consolidation activity in one of our countries. Instead of having a tax provision in that country, because we had two legal entities, we had one. So that resulted in a favorable result. So that was the primary thing, in certain legal entities with the tax requirements based on the mix of the revenues in those countries. So that's why we ended up with a favorable number for the year. Going forward, as I said on the call, we think the provision will run between $4 million and $6 million per quarter. Ajit Pai - Thomas Weisel Partners: The second question is just looking at your Optical Communications group right now. Could you give us some color as to the initiatives that you have? I know you've talked about further reduction in headcount going forward. What percentage of your products already are outsourced, and how much more potential is for further outsourcing of them? Kevin Kennedy: I don't think the percentage of product outsourced or an implied increase in that percentage is something that is at the forefront of our economic thesis there. I think there are many things such as the level of Asia localized content , and frankly, I enumerated five different pieces that are all elements of improving the gross margins. So there's a lot of work to do. As I tried to mention to you, if you think about our available capacity versus our employed capacity dropping by 30% to 50% in two quarters, and your belief that some piece of that, a significant piece of that, is a correction; let's call it 15% to 20%, then we will have to grow back into a little bit over a quarter or two, and then we've got all these initiatives that are just prudent to do. So there's a number of items, and I tried to enumerate them on the call. Ajit Pai - Thomas Weisel Partners: When you're just looking at that mix, I think you talked about how your geographic diversification has improved quite a bit. In fact, it's pretty remarkable that you've gone North America from 61% to 53%. But when you broadly try to identify the reasons for that shift, more about why the North American business wasn't growing that rapidly, do you think that it was one-time factors that are going to come back? Or do you think that your diversified revenue is right now where you will stay? Kevin Kennedy: It depends upon what your benchmark is. If I were to compare the JDSU three or four years ago, where we were 75% or so North America, it was largely because the North American network equipment manufacturers were concentrated here. We had a very high concentration into a small number of customers. So therefore, the diversification into network operators through CommTest and the diversification of our AOT business, remember, at that same time, we had one customer that was extraordinarily large which was Texas Instruments. That business was jettisoned a number of years ago. So the two non-optical components businesses have a great geographic dispersion, and the relevance of our portfolio to network equipment manufacturers on OpticalComms outside of North America has also improved. So will we continue to do a repeat of the precise numbers that we have now? Probably not. But do I think that we will ebb and flow around? I don't expect to return to where we were three years ago. That's my real message. Ajit Pai - Thomas Weisel Partners: But would you expect a bounce back? How much of that drop on a year-over-year basis in North America is the pause that you talked about in Optical Communications? Do you expect that to bounce back in the near term? Kevin Kennedy: No, I think it's small percentage points, single digits.

Your next question comes from Jeff Evenson - Sanford Bernstein. Jeff Evenson - Sanford Bernstein: You mentioned during the call that some of the softness in Optical Communications revenue was due to product platform transitions and changes in the supply chain. Wondering how you feel about your ability to retain share, and if you could give us some color on some of the indicators you're looking at to make sure that happens? Kevin Kennedy: At some point every quarter, someone else will calculate share and so forth. Let me tell you what I believe and some other anecdotes about the distribution numbers. If I were to look at all of our device categories, whether they be long-haul components, metro components, data components, undersea components, simply in that group, we grew anywhere from 10% to 30% in each of those categories over this last fiscal year. So I think the growth has been reasonably good. I think we have invested very heavily in metro, which was the strongest growth of those four categories. What I think we will minimally see in the numbers is that there are areas where we chose not to invest. For example, we exited 10 gig fixed. I think that particular area has been on a run lately. So those that are there have been great. Meanwhile, the areas that have paused for us most specifically were concentrated around a small number of customers, and they were affiliated with the businesses that were what we have heretofore called subsystems businesses, businesses where we were putting either our components or other components on circuit cards. That business was concentrated to the smallest number of customers, highest ASPs and the ones most likely to be caught in inventory lockups, meaning people saw inventories of it and wanted to purchase. So as we look over the year, the majority of our components businesses all actually grew double-digits. The places where we saw softness year over year were actually in the subsystems business that got caught in the pause. I hope that helps you. Jeff Evenson - Sanford Bernstein: That does. Was book-to-bill greater than 1 in Optical Communications if you exclude Picolight? Kevin Kennedy: Yes.

Your next question comes from Todd Koffman - Raymond James. Todd Koffman - Raymond James: With regard to the Optical Communications profitability levels, this business has lost money. Even when you were doing close to $140 million a quarter, it was barely making a decent return. But very similar trends are experienced by most of the other public optical component companies. Almost everybody is flirting in and out of losing money or consistently losing money. What are your thoughts about the structure and profitability of the industry? Kevin Kennedy: It's certainly a fragile industry from the point of view of profits. Let me characterize in the following way. I believe profits in optics are best observed by what you choose not to do versus by what you do do; and what you do do, you have to be extraordinarily efficient and do very well. Because of that observation that you just made, and the fact that there's a fair amount of capital intensity to the companies that have gone heretofore in those areas and actually the overlap of so many companies, there's a high barrier to exit, meaning there's a very low desire for one public company to use its cash to go restructure another public company. So I don't see a significant change overnight. I do think people will continue to try to get bigger with small adjacencies to their portfolios. I think there will be some subset, call it five, that will actually be the profitable ones over the longer course, and there will be a larger number that are either startups or ones that just chew cash up. So I think it's absolutely of a more fragile nature. Does that help? Todd Koffman - Raymond James: Yes, that's very helpful, thank you.

There are no further questions in queue at this time. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day.