Michelle Levine - Director of IR Kevin Kennedy - CEO Dave Vellequette - CFO

Ehud Gelblum - J.P. Morgan Jeff Evenson - Sanford Bernstein John Harmon - Needham & Company Paras Bhargava - BMO CapitalMarkets Cobb Sadler - Deutsche Bank Dayle Hogg - GMP Securities Subu Subrahmanyan - Sanders &Morris

Good day, ladies and gentlemen.And welcome to the JDSU Fiscal 2008 First Quarter Earnings Call. My name isEric and I will be your coordinator for today. (Operator Instructions) I would now like to turn yourpresentation over to your host for today’s call with. Michelle Levine, Directorof Investor Relations. Please proceed.

Thank you, operator and welcometo JDSU's fiscal 2008 first quarter financial results conference call. Joiningme on the call today are Kevin Kennedy, Chief Executive Officer and DaveVellequette, Chief Financial Officer. I would like to remind you thatthis call is likely to include forward-looking statements about the futurefinancial performance of the company. Forward-looking statements are subject torisks and uncertainties that could cause actual results to differ materiallyfrom management's current expectations. We encourage you to look at thecompany's most recent filings with the SEC, particularly the risk factorssection of our report on Form 10-K filed August 29, 2007. The forward-looking statements,including guidance provided during this call, are valid only as of today'sdate, October 31, 2007 and JDSU undertakes no obligation to update thesestatements as we move through the quarter. Our comments today will includenon-GAAP measures. A detailed reconciliation of these non-GAAP results to ourGAAP results, as well as a discussion of their usefulness and limitations, isincluded in today's news release announcing our results, available on ourwebsite at www.jdsu.com. Finally and as a reminder, thiscall is being recorded and will be available for replay from the investorportion of our website at www.jdsu.com/investors. I would now like to turn the callover to Kevin.

Thank you, Michelle and goodafternoon. Highlights for JDSU's fiscal first quarter 2008 non-GAAP resultsinclude, but are not limited to, first quarter revenue of $357.2 million growthof approximately 2% from Q4 of fiscal 2007 and 12% from Q1 fiscal 2007. Grossmargins are 41.3%, an improvement from 37.4% last quarter and 34.7% one yearago. For the second consecutive quarter, the book-to-bill ratio for the OpticalCommunications business was greater than 1. JDSU's adjusted EBITDA, as apercent of revenue was positive 6.6% twice that of last quarter. Operatingmargins were 2.2% within our near term target of 2% to 5%. Three out of four ofour business segments with operating margin improvement compared with lastquarter. And finally, we were free cash flow positive for the third quarter ina row, and balance sheet metrics continued to improve as reflected in our lowerday sales outstanding inventory levels and debt balance. To summarize, we saw keyfinancial metrics improved sequentially as well as year-over-year, as wecontinue to focus and execute on our goal of improving our business model.Before discussing the more detail segment reports, I’d like to reiterate thatour strategy continues to be to execute as a company comprising the portfoliobusinesses for the focus on optical and broadband innovation. We embraced this new sets ofcomposite companies will be better able to navigate fluctuation in anyoneindividual business. We continue to see favorable end market indicators forbroadband services and network ROADMs and we believe broadband capacity willcontinue to expand at higher data rates are being delivered through the accessedge accompanied by video application. We also believe that as networkoperator’s response in changing loads and consumer dynamic, networks will beagile in order to rapidly respond to the resulting changes in traffic patterns.Online customer visit this quarter, number of observations within the market,which are relevant are as follows. In general, network equipmentmanufacturers in Optical Communications expressed cautious optimism in theforeseeable future based on their awareness of our [fee] activity. Relative toa sampling of conversations with European customers there are number of forcesconspiring to potentially increase the emphasis on fiber extending closer tothe subscriber include the following. One, depending upon a number offactors, there is sense at operational costs and maintenance of fiberinfrastructure can be as much as in order of magnitude less expenses tomaintain than copper. [Viewing] at least one domain, our regulatory body is consideringinfluence that we are driving earlier embrace of fiber reach into exit player. Free video on HDTV update mayberequired a need to optic sooner going to originally forecast due to capacityand [pull] power limitation of copper. Both copper costs are increasing as themetal sells with license value at broadcast of copper raises the affordabilityof optics improves. And fifth as soon as theeconomics improved, due to more and more optimize configuration, but is morelikely to service providers will embrace modem architectures and smaller ormore fragmented optical domain. The end results that the opticallayer and components business, as well as test and measurement equipment, couldsee an increasing demand as the realization of deeper fiber penetration firston horizon of several years. For example in Europein-house work With that I will now provide moredetail on the business segments. First Optical Communications, I would like tobegin by reminding you that we will be hosting a virtual analyst presentationnext week on November 8. The virtual analyst presentation will be led by DavidGudmundson, President of our Optical Communications segment. David will discussthe businesses, market opportunity, strategy, growth drivers, and productportfolio. In our Optical Communications segment,total revenue was $121 million in the first fiscal quarter, compared to $113 millionin the fourth quarter of fiscal 2007. The segment experienced a sequentialincrease of over 7% mainly due to increased shipments of agile optical networkor AON products as well as the full quarter of Picolight revenue. We sawbooking strength during the first fiscal quarter, as total bookings increasedfrom the fourth quarter level and the book-to-bill ending the quarter was greaterthan 1. With the second consecutivequarter of book-to-bill greater than 1, there is a cautiously improving trendin the network equipment manufacturer market. And we saw an improvement ofgross margin relative to the last quarter. For the quarter, nine out of 12product lines experienced sequential increases. Of those nine product lines,eight experienced double-digit percent and sequential growth. For the agileproducts evidenced some strength relative to the legacy products. During the quarter, we sawhealthy sequential bookings in our agile optical network portfolio for ROADMsand tunables. And indicators are beginning to show more than evolution to abroader market. We are continuing to invest in pluggables, agile products suchas ROADMs and tunables and products for the metro markets. All three of ourmajor Optical Communications market segment including long haul, which includesundersea, metro and datacom saw sequential growth. We continue to focus oninnovations. Specifically, we are focused on functional integration as serviceproviders strive for greater efficiencies in their networks and networkequipment providers look for decreases in cost, power and equipment. Forexample this quarter, we announced a new photonic integrated circuit that combinesa tunable laser and an optical modulator. Tunable lasers are key elements inpart for the success of the deployment of agile optical networks. This newsolution maybe introduced into existing network without architectural changes. During the quarter, we alsoannounced a strategic partnership with Mintera, a high bit-rate opticaltransport system solutions leader to support 40 gig capabilities. Thepartnership offers network equipment manufacturers of 40-Gig transmissionsolution combining Mintera’s 40-Gig technology with the JDSU’s 40-G opticalcommunication products. JDSU and Mintera will join forcesto create a go-to-market strategy that includes joint product development and linemanufacturing for new 40G solutions starting with a creation of a multi-sourceagreement or MSA 310 transponder module. As discussed on our last call, wehave initiatives in place to continue to improve gross margin in all businesssegment. In Optical Communication, we are doing the following. First, we arefocused on driving our revenues to a higher post past level, which will improvefactory utilization, well at the same time we are reducing our inventoryinvestment. During this quarter revenuegrowth did help improved gross margins as we have realized slightly improvedfactory utilizations and benefits from our cost reduction activity. There wouldbe more growth is needed to fully absorb our current overhead charge. Second, mix will continue to playan important role. By the end of fiscal Q1 '08 two of our three OpticalCommunications businesses have obtained gross margin of 25% or greater.Additionally, we anticipate structural improvements to gross margin havingVCSELs and other Picolight products compound. Third, we have a significantamount of work underway that could be operationally classified as leaninitiative. These include manufacturing overhead reduction, manufacturingheadcount reduction, variance reduction, inventory reductions, procurementspending reduction and bill of material localization. And finally, we have renewedlevel of focus on value engineering that is redesigned to products andprocesses to improve gross margins. We believe healthy gross margins for thisindustry are 30% to 40% with top line growth and execution against our notedinitiatives. We will continue to target our execution in this range. Now on to Communications Test andMeasurement, the complexity associated with the service provider transition toIP networks and broadband triple-play service installation as well as theexpansion of fiber optic network capacity continues to drive growth in ourCommunication Test and Measurement sector. JDSU is well positioned toaddress this trend across the network and service delivery cycle. For example,our 10 gig and 40 gig test solutions address the increase in capacityrequirements, while equipment manufacturers and service providers. Our modular field services andpremises instruments provide field technician with all in one tool for theefficient installation and maintenance of IPTV, voice-over-IP and high speedaccess and other services. And our service assurance system enable network andservices monitoring to ensure quality of service therefore our customers reducesubscribe return. Our first quarter fiscal ’08revenue was $168 million down 2%, as compared to $171 million in the priorquarter and 44% growth compared to the first quarter of fiscal 2007 revenue.Year-over-year revenue growth was driven by our field service instrument, thebroadband access networks and fiber optic test solution as well as acquisition.The revenue results reflected strength in all regional markets. Businessexperienced typical order patterns in the summer months with lower bookings inthe quarter, as compared to the prior quarter. Bookings were up year-over-year. Finally, gross margins improvedin Q1, when compared with each of the last two quarters. We did see strengththis quarter for products such as the HST, the triple-play, field serviceinstrument for telecommunication service providers, T-BERD platforms for fiberoptic network testing versus high growth opportunities such as fiberverification and grow the network fast and our net complete portfolio of thebroadband and IP service assurance. We also continue to bringinnovative new products to the market including the recent introduction of theONT-503, a portable 40-Gig solutions for lab and service verification sector.This quarter we appointed Thomas Waechter as President of the CommTest businesswith responsibility for CommTest global sales, product development andoperations. Tom brings excellent publiccompany, new level global operational and management experience along with deepknowledge of telecommunication market segment. Tom’s immediate priorities goodgross margin expansion and continued growth. Helmut Berg will continue withJDSU and will support Tom. The areas that are focus toimprove gross margin include the following. Product mix is primary and has twoareas of focus, first is increasing the mix of our sales of our organic productversus those is we simply resell. Second, we concentrating on increased salesin North American network operators, tend to purchase more fully configuredunits. Strong growth of our field service portfolio was a key driver of ourgross margin improvement this quarter. Our next area focuses on leanbased initiatives to improve cash flow, drive and improve supply chainmanagement. And finally as in Optical Communications, we are increasing ourfocus with CommTest and value engineering. As mentioned in our March analystcall successful execution these initiatives with expected to move our targetgross margin in CommTest from a range of 55% to 59% to a range of 57% to 61%. In relation to CommTest growth,we would like to highlight the following. Year-over-year market or industrygrowth is 5% to 8%. We expect JDSU organic growth to exceed the market by 2.1,we are executing well. CommTest revenue generally peaks in the Decemberquarter, big revenue versus [nearly] between 1.1 and 1.2. The CommTest model isevolving and we are focused on improving predictability. That said the model isone of high turns and visibility as low in like North American wirelessaccount. Moving on to our Advance OpticalTechnology segment fiscal Q1 revenue for AOT was approximately $48 millionrepresenting growth of 7%, deferred to $45 million in the fourth quarter offiscal 2007 and up 22% compared to 39% in the first quarter of 2007. Thisquarter the advanced optical technology segment generated operating income ofapproximately 38% and we saw gross margin improvement on a sequential basis dueto favorable mix and improved operational execution. Once again, the currency markethas provided upside for this business, driven by new currency noteintroductions around the world. As we have noted before, the trending of thisbusiness will have some levels of surge in the [net]. Brand protection labels for ourcustomers in the pharmaceutical, imagining supplies, electronics and otherindustries are growing popularity. This quarter we have announced the additionof Unique Anti-Counterfeiting Covert Security Solution called Charms to expandour portfolio solutions for our communication market. In the Custom Optics business weare beginning to see increases in volumes from the participation in theentertainment market enabled by our proprietary [UCT1] technology. Gross marginimprovements this quarter was mainly due to product mix and improved back toutilization. Our gross margin improvementinitiative in the AOT segment again, consistent with the May analyst call, are focusedon loading our legacy applications in concert with adding new business to ouruniversal coatings platform; drive greater utilization and volume which willaccelerate gross margin improvement for the coated optics and labels businesses. Now to Commercial Lasers, first quarterfiscal 2008 revenue was $20 million, down by 10% from the $24 million in the fourthfiscal quarter of ‘07 and down 17% compared to $24 million in the first quarterfiscal year 2007. Inventory reserves were taken due to end of life exposures,the slow moving inventory that negatively affect the gross margins in thequarter. We are encouraged by bookings inthe quarter that saw growth compared with past quarter. In particular, bookingstraction for our FCD- 488 solid-state fiber laser mostly positive. Ourcommercial laser business service a relative small number of customers. Thequarterly performance is impacted by spending type. Furthermore, semiconductorindustry actively has declined, which we believe to be temporary. On the other hand, biomedical andmachining related customers continue to be healthy. Last month, we announcedthe appointment of Alan Lowe to lead our Commercial Laser Business. Alan bringstwo level public company background and over 20 years experience in generalmanagement, operational sales and business talent to JDSU. Alan’s efforts arecurrently focused on margin expansion, and Lean manufacturing initiatives andworking with customers to accelerate new solid-state design wins. Focusing on our laser platformgross margin expansion initiatives, we note the following. Critical factorsmix, the solid-state laser revenues having a favorable impact on gross margins.Gross margin upside will come from increasing solid-sate laser volumes withLean manufacturing initiatives already in process. For example, this quarter,we shipped our first FCD lasers (inaudible) and to ramp up production forfiscal 2Q, but the full production transport we created in early calendar 2008.Additionally, we are focused on driving inventory turns up and our supply chaincosts down, as a result of improved gross margins. We believe, in aggregate theLean initiatives once fully implemented will result in double digit grossmargin improvement. Now for an update on corporateinitiatives. On October 22nd [the trial] (inaudible) that commenced in March2002. Files expected to continue to or shortly after Thanksgiving. We believethat the factual allegation and circumstances underlying this past action andthe related actions were without (inaudible) we intend to continue tovigorously depend ourselves. For summary of the proceedings and the risksassociated therewith, I’d refer you to our quarterly and annual reports filedwith the SEC in particular our recently filed report on Form 10-K for thefiscal year ended June 30, 2007. Since April, our businessesnavigate a transition of three out of four of our segment business leaders. Thecurrent theme has been assembled mindful of the base of the company, focusingon growth, albeit with the focused on the details to improve the efficiency ofthe business model of each individual business. As described on our last call,fiscal year 2008 would be a year with JDSU intend to advance its business modelof each business within the portfolio expects to continue to improve individualoperating results. There is a strong focus on gross margin and cash flowimprovement on all operating segment. At the same time, we continue toseek opportunities to strategically expand our product portfolio throughpartnership and acquisitions. For those, who have set forth remain on path, inthe near term our sustainable model as gross margins add approximately 40%,operating expenses in the range of 35% to 38%, and operating margins in therange of 2% to 5%. A long-term model cost for gross margins in the range of 43%to 47% and operating margins at or above 10%. In summary, the markets, we areparticipating are favorable and in Q1, we evidenced the continue trend offavorable financial metrics. And with that, I will hand thecall over to Dave.

Thank you, Kevin. Before I start,please note that all numbers are non-GAAP unless I state otherwise. Thisquarter revenue of $357.2 million was up 1.8% from the fourth quarter and up12.3% from the first quarter revenues of year ago. First quarter gross profitof $147.4 million or 41.3% of revenue is up from the pervious quarters 37.4%.We saw improved margins in three out of four of our business segments due toproduct mix and the impact of our gross margin initiative. Operating expenses for thequarter increased to $139.6 million and were 39.1% of revenue. The increase isprimarily in R&D spending resulting from the full quarter impact of the Innocorand Picolight acquisitions. Our operating income for thequarter was $7.8 million compared with an operating loss of $4.3 million in theprior quarter. Adjusted EBITDA in the fourth quarter was $23.7 million or 6.6%of revenue, which compares to an adjusted EBITDA of $11.7 million or 3.3% of revenuein the prior quarter. First quarter net income was $18 million or $0.08 pershare. This compares with fourth quarter net income of $15 million or $0.07 pershare. The detailed reconciliation ofour non-GAAP results to our GAAP results is available in today's press release.Our first quarter non-GAAP results exclude among other items amortization ofacquired technology and intangibles of $18.9 million and $11 million chargerelated to stock based compensation. Including these items, fully GAAP net losswas $6.9 million a loss of $0.03 per share. Moving to the segments, in theCommunications Test and Measurement or CommTest segment, first quarter revenueof $168 million was down 2% from the prior quarter’s revenue of $171.3 millionand up by 43.8% from Q1 fiscal '07. Operating profit increased for the quarterto $26.3 million or 15.7 of revenue versus $26.2 million or 15.3% revenue inthe prior quarter primarily due to improved gross margin. In the Optical Communicationssegment revenue was $121.3 million was up by 7.6%, when compared to the priorquarter and down 12.1% from a year ago. Operating loss in the segment was $2.9million or 2.4% of revenue and improvement from a loss of $9.2 million or 8.2%of revenue in the prior quarter due to improved gross margins which willpartially offset by higher operating expenses resulting from the Picolightacquisition or Advanced Optical Technologies or AOT segment quarterly revenuewere $48 million up 7.4% from the prior quarter and up 22.1% from the prioryear. AOT operating profit for thequarter were 18.3 million or 38.1% of revenue compared with $13.1 million or29.3% for the prior quarter. The increase in operating profit with the resultof higher gross margin due to product mix and improved factory utilization. In our Commercial Lasers business,first quarter revenue up $19.9 million decline 10% from the prior quarter anddecline 17.4% from the prior year. Due to lower first quarter revenue laser hadan operating loss of $2.5 million. Now looking at revenue by region,over the last year the geographical dispersion of our revenues remainedbalance. In the first quarter of fiscal 2008 the Americascontributed 54% of revenue, EMEA 28% and Asia-Pacific 18%, results slightdecline in Asia versus last quarter ofrevenues above historical level. Moving to the balance sheet, forthe third quarter in a row, the company was free cash flow positive, generatingapproximately $27 million. This was the result of lower capital expenditures,improved days sales outstanding and reduced inventory levels. We also reducedour debt balance during the quarter by $75 million. The cash, cash equivalent, shortterm investments and restricted cash at the end of the fourth quarter totaledmore than $1.1 billion. Headcount as of September 29th was 6459 down from 6688last quarter primarily due to reductions in Optical Communications. While, ourmarkets are generally favorable, we remain focused on improving our operatingmodel. Kevin stated our near term sustainable operating model targets are,gross margin were approximately 40%, operating expense in the range of 35% to38% and operating margin of 2% to 5%. We believe we can achieve thismodel by the end of this calendar year. Longer-term, we believe, we can achievegross margins of 43% to 47% and operating margin of 10% or more. Now lookingforward, the points to consider, as you think about our financial performanceover the coming quarters. Due to the different gross margintargets each of our segments, gross margin would be impacted by changes inproduct mix and by geographic dispersions. Specific to the ALT segment, Q1gross margin exceeded our sustainable range due to our favorable mix and maybechallenged to maintain name strength in gross margins in the subsequentquarters. Our CommTest business is a highturn business, and in the December quarter with less visibility due to thelower bookings in the September quarter, and a majority of the turn business isthe result of carrier budget [price] that typically booked at the end ofNovember and during December. Finally our OpticalCommunications segment continues to improve and as Kevin noted, two of thethree businesses have a same gross margins of 25% or greater. That’s said, thereduced revenue levels, as a result of our customers’ lean initiative andcustomer consolidation activities have resulted in a two to three quartersspace shift with regards to achieving gross margins in the 30% to 40% range. With regards to our coststructure, through the first quarter of fiscal ’08 we have implemented programthat provide over $6 million quarterly positive most of which impact our grossmargin. As stated previously by the end of fiscal Q2, we will have implementedprograms that will increase the savings to $8 million on a quarterly basis.These savings are relative to our fiscal Q3, 2007 spending levels. With respect to operatingexpenses, Q2 operating expenses are expect to be near the mid-point of ourrange 35% to 38%. Also due to the debt retirement activity, our interest incomewill decline by more than $1 million, when compared to fiscal Q1, 2008. Finally, we expect our quarterlytax provision to range between $2 million and $4 million. Now, to our financialguidance for the second quarter. Based on our current visibility, we expectsecond quarter revenue to be in range of $372 million to $394 million. Operator, we are now ready tobegin the Q&A.

(Operator Instructions). Yourfirst question comes from the line of Ehud Gelblum with J.P. Morgan. Pleaseproceed. Ehud Gelblum - J.P. Morgan: Hello, can you hear me?

Hi, Ehud.

Hey, Ehud. Ehud Gelblum - J.P. Morgan: Hey, how are you guys. A coupleof quick questions, first of all we understand the book-to-bill on the AOTbusiness, I’m sorry on the [TNM] business was significantly less than one andis that cost for the lower guidance?

As I said, it is typically lessthan one in that particular quarter that’s normal. It was actually strongrelative to year-over-year. The guidance that I’m trying to give you is thatratio of peak to the nadir as we use it in the past use to be 1.1 to 1.3. Ehud Gelblum - J.P. Morgan: Right.

I’m trying to narrow that to 1.1to 1.2 for the following reasons. One is we move to end of the fiscal year ofthe contesting to our JDSU fiscal year, we saw greater strength in the Junequarter and less strength in the fiscal Q1 ends up probably being stronger, itwent down less than people might have anticipated, but the costs were up ofhigher base. You would expect that ratio to be less effective. The thing, as we’ve expanded ourportfolio through acquisition. And that ratio or the physics of the budget costis primarily associated with the dollars that are available in the serviceproviders or carriers worldwide across field service equipment. But the samephysics wouldn’t be applicable to portfolio that would go. The cost ofportfolio has grown outside the field service area you wouldn’t apply that samefield ratio to the full revenue stream. So, a number of conspiringfactors, but the net of it is that the ratio is smaller and finally we do havesome lower visibility then probably six months ago and some of the wirelesscarriers and that’s not a unique story. We are not highly exposed, but thoseare ways that forced us that made us the, to provide the guidance that we have. Ehud Gelblum - J.P. Morgan: I will catch up with the wirelesscarries in a moment. But first of all, when we use that 1.1 to 1.2 calculationthat’s on the peak to the nadir should we have, which quarter now that you haverealigned the fiscal year end to be one actually with yours. Which quarter nowofficially the peak quarter?

Peak is never a question forDecember quarter. Ehud Gelblum - J.P. Morgan: It’s still the December quarter.So this is, still will be, your best quarter of the year?

For the CommTest being that'scorrect. Ehud Gelblum - J.P. Morgan: Right just not necessarily as I’mjust trying to correlate vis-à-vis kind of what you have been looking forobviously you don’t know necessarily what the model was, but in terms of theyour components of your guidance. Can you walk us through what had beenexpecting growth rate was for the other businesses as well?

Ehud we sort of comprehend allpossibilities in the guidance that we gave you 372 to 394. Ehud Gelblum - J.P. Morgan: Okay. So we assume relatively similar types of growth in each onethat we saw this quarter I guess more specifically in Optical Communicationscomponent side, it seems we are getting a great from the inventory problems wehad in the past. Is that the most part over, so we can expect to see thatsomewhat rebounding?

At the end of the day, thebooked-to-bill is greater than one. Booked-to-bill is greater than one inlasers. We know that we have a budget plus phenomena in a strong quarter inCommTest and we did 357 and we are giving you a range 372 to 394 you shouldpresume that there is general buoyancy to large rest of the business. So thereis a lot of issued a date there for you frankly it will. Ehud Gelblum - J.P. Morgan: Right, definitely I can. Andlastly you mentioned wireless in the customer (inaudible) business what is yourexposure to wireless, can you tell us percentage vise?

I don’t know roughly its top ofmy head. It is relatively small in two areas. One is wireless service foreignwhich is single digit millions of dollars total and then wireless back-offs. Sothat's probably a bigger number, but its not mere shadowing number. Ehud Gelblum - J.P. Morgan: Okay. And you still expect the budget plus in your traditionalfiscal year end now, despite the potential cost you may even hearing some ofthese carriers?

That's correct. Ehud Gelblum - J.P. Morgan: Okay, terrific. Thanks so much.

Thank you

Your next question comes fromline of Jeff Evenson with Sanford Bernstein. Please proceed. Jeff Evenson - SanfordBernstein: Hi, I was wondering if you giveus a bit more color on fiber opportunities in Europe, in particular, maybe,some, just a general guidance on how we could think about your revenue per newsubscriber and other things that might be driven just by the change in the numberof new additions per year for example?

Jeff, we don’t have a way ofproviding that kind of calculus today. We are probably more driven by CapExspending and obviously correlate better to (inaudible) with test, but I think,my opening comments were that as you know most of the low to marketarchitectures were movement towards (inaudible) to investment a bit come aprocreativity of the North American optics market and well, I wouldn’t say thatwe’ve vest any tipping point in Europe. I would say that theconversations are more somber in sense that we have a lot of copper theapplications space is moving pretty fast and we maybe rethinking what we needto do with fiber. So, I saw a greater level of providing and people sort ofanticipating a future on a shorter horizon than otherwise. Jeff Evenson - SanfordBernstein: Okay. In previous calls you have talked about suppression of opticalspending and some of your customers, due to their lean manufacturing programs.Just wondering: If you could give us an update on where they are in the processand what you are seeing right now?

We’ve been pretty consistentprobably, I don’t know the end of our last fiscal Q3 that the phenomena wasoccurring, the fact that this quarter, and the quarter prior, were bothevidenced a book-to-bill greater than one obviously there is a sense ofcautious optimism. I think, the majority of the network equipmentmanufacturers, eight of them were going through this kind of process. Themajority of them are well through the midpoint. There are a couple of othersstarting up one or two. But I‘d say that trend line was up and I’d say from thesense of order size we are in a better place than we were several months ago.So, data points are positive Jeff Evenson - SanfordBernstein: Thanks.

Your next question is come fromthe line of John Harmon with Needham & Company. Please proceed. John Harmon - Needham& Company: Hi, good afternoon.

Hi, Harmon. John Harmon - Needham& Company: I was wondering if you could justoutline the components of what is making your Optical components businessunprofitable, whether its prices or yields or fab utilization or staffing orresidual products just to get a picture of universe the areas to work on. And secondly as long as you comeup with kind of vitality in that kind of business. In other words whatpercentage of your revenues comes from products that were developed within thelast couple of years?

Yeah. We'll take the (inaudible)come out with a specific percentage we for the analysts call on a week or so.But I would say the fact that our growth and bigger, we gave you some numbersof 9 product lines, 12 show growth, 8 of those were double-digit. In general the growth was in theagile optical networks that the things that we have invested in most recentlyas in the last two years versus things that are legacy products. The realmessage is the new items are the ones that are growing in the legacy onecertainly have a slower growth rate. In terms of what we need to workon it I think we gave you pretty good outline of the gross margin in thisbusiness maybe I let Dave try to cover that.

Yeah, John I think I talked myportion here about the incremental savings we expect to have in the Q4, thatthose come from the primarily from the office of comps area. It is gross marginfocus right now, if you look at the numbers it would imply that we needed morethan 121 we have breakeven in the space. We were working towards where weget breakeven number down below the 120 get it and then go to 110 and we workit from there. So, I hope that helps to give you sense of where we think we canmove the breakeven for that business down and that the initiatives in thisquarter are focused on the optical comps gross margin.

John, if you simply go back andlook at the line items that we’ve talked about the majority of them fall in twocamps. One is: we just need more volume to hit the absorption level as Davementioned. The second, and we came a good piece of the way this quarter fromthat. The second is: the majority of them what I’d call operational execution,whether it’s lean, yield, improvement, field materials localization these areall things that happened. But the significant step forwardwas the gross margin and the amount of upside that we had or the growth we hadthis quarter. We actually go through a fair amount of margin dollars,disproportion amount of margin dollars, so that was positive. And secondly, itmigrates to two out of three of our businesses are now in this above 25% range.So, we’ve actually seen progress in terms of doing what we told we do and weare going to keep on those same items that we enumerated. John Harmon - Needham& Company: Okay that does help. Thank you.

Your next question comes from theline of Paras Bhargava with BMO Capital Markets. Please proceed. Paras Bhargava - BMO Capital Markets: Good afternoon, gentlemen.Question on the CommTest business, how much of the growth Kevin was organic andhow much of it was due to the two acquisitions you had in the year?

If you are to take that theyearly run rate of the acquisition certainly it’s probably less than 15 millionand more than 5. And Dave, please correct me if I’m wrong, but, I think that'sroughly the early number so majority of the growth throughout the contest hascome from organic activity. Paras Bhargava - BMOCapital Markets: Okay. It’s relatively total growth giventhe, I think, the 5% to 8% number you are talking about is a pretty goodnumber. Where are you gaining share in that business?

Let me answer different questionor give you another dimension to it and then I will answer your specificquestion. You have to recall that fiscal Q1 of last year we actually have whatwe felt it was adversely low fiscal Q1 a number probably on the order of 10millionish plus or minus a little bit. And the part of it was the bookings justcame in late and we had trouble converting them and at the same time we aredoing it an oracle implementation that has impact on the conversion frombooking to revenue as well. So, part of that, it’s just afact that we will very open that we had execution challenges one year ago. So,if you take that into account and the fact that we’ve a few acquisitions, westill have excellent organic growth but it less toward, I guess. In terms ofwhere we are taking share, I think we’ve been doing a fairly good job on thefield service side. We’ve had a number of great product ramps the MPS 8000 andit’s actually been in all geographical domains, as we talked about on the lasttwo calls. Paras Bhargava - BMO Capital Markets: On the protocol there or thefiscal side?

Both. I would say, we had aresurgence in the, at an optical layer and we both we’ve done had a lot ofsuccess in the cable arena. I think, we’ve mention that several times and thenlastly VoIP as well as video has done well. Paras Bhargava - BMO Capital Markets: And I guess you’re saying, you’reonly going to grow 2% to 3% faster that just caution or I think the share gainis sort of, there's a limit to how much share you can gain?

Make no mistake, we have beenblessed in the success that we've had in cable. So, I think, there is apracticality that all carrier franchises go through these hyper growth periodsfor a protracted period of time. So, all we are simply stating is absent someparticular sector that grows in a hyper way, we are going to be executing alittle bit better than the industry average in both power cautious or justpragmatic way of benchmarking yourself. Paras Bhargava - BMO Capital Markets: Thanks Kevin.

Thanks

Your next question comes from theline of Cobb Sadler with Deutsche Bank. Please proceed. Cobb Sadler - Deutsche Bank: Thanks for that. Some quickclarification, the near term model, the 2% to 5% operating margin, youindicated you hit that by the end of the year, that’s calendar or fiscal year?

Calendar. Cobb Sadler - Deutsche Bank: Calendar year. Okay, so right nowyou roughly at what 2.2% operating margin. And now it sounds like you had someone-off, better than unsustainable upside in a couple of your businesses forthe quarter, but literally we should be looking at kind of flat to modestly upoperating margins between now and in December or have you given someconservative guidance there? Thanks a lot.

Our point there was just to saythat the company is taking the next step of being in, what I call, in asustainable model. If you look at the number we had here, the operatingexpenses were not within that model. So, we had two of the three items insidethe model. We now need to get the operating expenses inside the model. So, theimportant part here is that you understand the envelop in which we will workand mix in a segment and mix between the segment and an impact, how those grossmargins fluctuate and therefore the operating (inaudible). Cobb Sadler - Deutsche Bank: Okay.

You are reading it corrected.

We got inside the envelop, wewould feel it appropriate and wait until we repeated that performance beforebegan to think that we had something sustainable. Cobb Sadler - Deutsche Bank: Okay, so we just look at it asbasically unchanged guidance for now, that sounds good. Asiawas down a little bit quarter-over-quarter, and it’s kind of evolved thebusiness, but that is no major market share losses there or is itquarter-to-quarter fluctuations or market share losses there, I guess that isthe question.

No market share loses that weaware of, year-over-year its up roughly at 10%, so no real issues there, itjust becomes buying pattern more than anything. Cobb Sadler - Deutsche Bank: Okay. And last question, on the Picolight acquisition, did you planon using most of the [vickful] there internally or you continue to sell them toPicolight's existing customers and what are you planning on doing with yourcapacity there? Thanks a lot.

We will continue to have amerchant business and tell light sources, whether they be pixels from Picolightor frankly our laser diodes in the telecom side, outside as well as evenvertically integrated. So it will be both. Cobb Sadler - Deutsche Bank: Got it.

Your next question comes fromline of Dayle Hogg with GMP Securities. Please proceed. Dayle Hogg - GMP Securities: Hi, thanks, can you just give usthe impact on Picolight in the quarter and last quarter we didn’t get itnormalized growth for the [Ops] business?

We don’t really breakup those, wedid have them only in for one month last quarter and now we have them for thefourth quarter. This quarter when we did the acquisition we talked aboutPicolight on an annual basis that's been running at about $40 million a yearrevenue run rate, but we don’t typically go in and breakout the specificperformance of our acquisition.

It would be fair to say that themajority of the growth this quarter from last quarter and I will say a slightmajority came from the organic products. I just think it is $10 million thisquarter and $3 million last quarters. You get about 1% sequential up, but Iguess my questions more around or year-over-year it's about down 19%. I am justwondering what your thoughts on the growth of this business for the full year?

About communications or Picolightspecifically? Dayle Hogg - GMP Securities: On their Optical CommunicationsGroup.

I think it's up. If we executivewell it's going to be in double-digits. Dayle Hogg - GMP Securities: And that’s including Picolight?

Sure. Dayle Hogg - GMP Securities: Okay. Just taking another test ofmeasurement, you said there are sort of [peak-to-need ROE] above 1.1 to 1.2,but because you have to sort of realign the quarters can you think $1 for youwhat (inaudible) we should us?

No, I can't. At the end of theday the physics of what makes the uptick is a carrier budget [plus] in Decemberthat is more associated with the field service product. This year if you wereto go back, you will probably find that fiscal Q3 of ’07 and fiscal Q1 ’08 wererunning neck and neck to be the softest quarters. So I think what we are basicallycoming out with is that we have something this fairly modulated for threequarters and then we have an uptick in that sets of new threshold. So that’sgoing to continue. The use of the lowest to backward looking quarters is the[indicator] and we have our candidates. I think the easiest area to see thepotential for more acquisition tends to be in the Comcast area that is theeconomics are more favorable for consolidation. There is a few large playersand a large number of smaller ones. Optical Coms the profitability has yetoutside the largest in the industry to encourage a prolific M&A other thanit was a surgical fortification. And I think on the more boutiqueoptics businesses that we have, while there could be think that our desirableand small, are you getting them to a do-ability is the harder thing. So Comcastis probably the most likely place for something to occur. I would suggest onthe more modest side, in general and Optical Coms will be a fortifying activitynot for different kind of people like that. Dayle Hogg - GMP Securities: All right. So just picking up theOptical Communications business and industry structure is been unstable quite awhile and you have sort of abstained from being very active in consolidationrather than technology acquisitions. Do you see that landscape changing anytime soon, do you think that level of consolidation is going to accelerate, andwhat could be the catalyst for the pricing in that environment do actuallyimprove?

I don’t think there is enoughconsolidation that could occur over an investors' horizon, let’s call that:three years to change the pricing dynamic. To be specific about answering yourquestion: what conditions would change the potential for mergers oracquisitions? I believe that as each company becomes more profitable and astheir portfolios disperse and there is less overlap. Right now we have a lot ofplayers that try to look like everyone else. As there is less overlap and thegross margins go up, that could encourage more consolidation in that space. Butwe are not exactly there yet. Hope that helps you. Dayle Hogg - GMP Securities: Yeah, got it. And then onequestion about the tax rate. You've been profitable right now on a GAAP basis,actually not sustainably so. But at what point, how many quarters ahead wouldyou have to get to before you start switching over to set of regular pro formatax rate, stop taking a reserve against your taxed asset.

Yeah I think, it depends on anumber of factors right where is the profit coming from, whether the revenue Ishould say that US based, you have got in lot of losses then we start to haverelease evaluation reserves. So it's going be a big for we see that tax rate goup because as we get profitable within each country then we have to releaseevaluation allowances we can offset the provision. So its going to be a bit to tellyou what every time we have on the call to give you a view of what the taxrange will be, so that you can start to see it when its starts to be realizedbut really is where calling where the profits are going to be realized, in themore business I do in the US about tax for pay for a while. Dayle Hogg - GMP Securities: Right, when we are assuming ourtax rate on over the next two to three years, is it fair to take it from the12% range right now, take it through, somewhere in the instead of high teensall the way up to 30% over three years.

That would see little bitsteepening. Dayle Hogg - GMP Securities: Okay, I got it. Thank you so much.

The next question comes from theline of Subu Subrahmanyan with Sanders & Morris. Please proceed Subu Subrahmanyan - Sanders & Morris: Thank you. I have a question ongross margin first, if you can talk about kind of the offsetting factors whichwould make gross margin potentially go down from the levels this quarter youhave, I know you mentioned how your AOT margins, but with higher revenuesoverall especially in Optical Com would that offset it. And then I wanted toask about headcount came down about 200, do you see the benefit of lowerheadcount and OpEx in the September quarter or some of that roll into December?

First of all, in the headcountarea, again I stated is mostly not positive mostly a gross margin benefit grewup as we lowered our cost structure in our manufacturing area. So that’s theheadcount. As far as gross margins go thekey about the product mix is if you have more Optical Com's business growingyou’re going to likely put a waiting although its positive is an absolutedollar amount you will have waiting down on the overall gross profit of thecompany. So that’s why we make that point and it is very important about themix of the segment as far as we’re waiting on the revenue. Subu Subrahmanyan - Sanders & Morris: Got it and, just a follow-up ifyou, longer term ranges in terms of operating margins can you talk about kindof timeframes between your near-term range and the longer term range and whatare some of the things specifically on the gross margin side that need tohappen to get there?

Well, the things we have talkedabout before you expect it, each of the groups have gross margin opportunity inthe CommTest area, in the AOT it's in the single-digit type range and actuallyin the last quarter AOT picked up a couple of those points. So it’s very in thefew digits in the lasers and the Optical Coms area its double-digit improvementopportunity so far. We saw way to go in both of those segments as far as grossmargins go and we have talked about at the end of calendar '08 being a periodwhere not necessarily in a sustainable business on a sustainable basis but weshould be able to be in the ranges that we talked about for gross margin andfor operating income. Subu Subrahmanyan - Sanders & Morris: Got it, thank you.

Ladies and gentlemen thisconcludes our Q&A session. Thank you for your participation in today'sconference. This concludes our presentation and you may now disconnect and havea good day.