Michelle Levine - Director, IR Kevin Kennedy - President and CEO David Vellequette - CFO

Ehud Gelblum - J.P. Morgan Todd Koffman - Raymond James & Associates John Harmon - Needham & Company Paras Bhargava - BMO Capital Markets Jeff Evenson - Sanford Bernstein Subu Subrahmanyan - Sanders Morris Harris Group Sam Dubinsky - Oppenheimer

Good day ladies and gentlemen, and welcome to the JDSU Fiscal 2008 Second Quarter Earnings Conference Call. My name is Nakita, and I'll be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. [Operator Instructions] I would now like to turn the presentation over to your host for today's call Ms. Michelle Levine, Director of Investor Relations. Please proceed ma'am. Michelle Levine - Director, Investor Relations: Thank you operator, and welcome to JDSU's fiscal 2008 second quarter 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 system statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectation. We encourage you to look at the Company's most recent filings with the SEC, particularly the Risk Factors... the Risk Factor sections of our report on Form 10-Q filed, November 11, 2007. The forward-looking statements, including guidance, provided during this call are valid only as of today's date February 5, 2008 and JDSU undertakes no obligation to update these statements as we move through the quarter. Please note that all numbers are non-GAAP, unless otherwise stated. A detailed reconciliation of these non-GAAP results to our GAAP results, as well as a discussion of their usefulness and limitation 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 www.jdsu.com/investors. I would now like turn the call over to Kevin. Kevin Kennedy - President and Chief Executive Officer: Thanks, Michelle, and good afternoon. JDSU has made continued progress on numerous fronts this quarter, including our fundamental financial metrics, innovation and strategic advances. Highlights for JDSU's fiscal second quarter 2008 non-GAAP results include a book-to-bill for the Company as a whole greater than one. The three out of four business segments having a book-to-bill greater than one. Revenue of $399.2 million, growth of almost 12% from fiscal Q1 of 2008, 9% from Q2 fiscal 2007, and 10.5% growth for the first half of fiscal 2008 compared to the first half of fiscal 2007. All four business segments saw revenue growth and improved gross margins quarter-over-quarter. Gross margins of 46.3%, an improvement of five percentage points compared with 41.2% last quarter, and almost six percentage points above the 40.6% posted one year ago. Gross margins benefited from favorable segment mix with Test and Measurement representing 49% of the business, Optical Communications 33%, advanced optical technologies 12%, and laser is 6%. Bid issues adjusted EBITDA as a percentage of revenue was 15.5%, up from 6.6% in Q1 '08, and 9.3% from one year ago. The Company was free cash flow positive for the fourth quarter in a row, free cash flow reached 10% of revenue and balance sheet metrics continued to improve as reflected in our inventory levels and debt balance. Operating margins were 11.4% compared with 2.2% last quarter, a level associated with our long-term operating margin goal of greater than 10%. Last but not least, the Company delivered GAAP net earnings per share of $0.09 for fiscal Q2 '08. To summarize in fiscal Q2 we saw across the board financial metric improvement with some over achievement due to seasonality. The Company successfully demonstrated the near-term operating model goals and evidence of progress toward the longer term targets. As I move to the results, before discussing the segment reports, I would like to reiterate that 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 embraced and such type of [ph] composite company we will be better able to navigate fluctuations in any one constituent business. These results provide continued evidence in support of the strategy. In the most recent quarter we continue to see a favorable end market indicators for broadband services and network build-outs, and we believe broadband capacity will continue to expand, its higher data rates are being delivered to be accessed as edge accompanied by video applications. With that I'll now provide more detail on the business segments. First, Communications Test and Measurement, during fiscal Q2 we made a small adjustment within the business and moved our WaveReady product from the Optical Communication segments to our Communications Test and Measurement segment in order to better align the product with our end-markets. The revenue from this product for Q1 and Q2 was approximately $4 million to $5 million per quarter. The financial metrics, I will discuss are inclusive of this change unless otherwise noted. Our second quarter fiscal '08 in comm-test revenue was, as adjusted for the WaveReady product, was $198 million, up 14% as compared to the prior quarter. We experienced December quarter seasonality and strong December book and ship demand. We expect that the 15% sequential growth would translate to market share gain in our addressable market. Our comm-test business is broken down into three principal product business units. Field services, lab and production and service assurance. For fiscal Q2, we saw strong growth across all three business units on a sequential basis. Year-over-year we saw particular strength in lab and production. The DSAM, the triple play installation and maintenance handheld instrument for cable field technicians, achieved a 50,000 unit shipped milestone during the quarter. Other field service instruments such as the HST, or triple play handheld for telecom technicians, and the T-BERD 6,000 and 8,000 platforms continue to also enjoy strong adoption worldwide. From a geographic perspective, we saw strength in all regional markets. Our revenue in this segment is approximately 50% North America, and 50% the combination of EMEA, Asia and Latin America. Finally, gross margin saw improvement in Q2 when compared with last quarter, mainly due to favorable product mix and higher volumes which resulted in an improved absorption of overhead. Highlights of the quarter are as follows. First, relative to innovation; during the quarter we introduced a series of fiber-optic network test innovations. Including a first of its kind OTDR and test solution for short and medium haul CWDM network applications; and the first handheld tunable laser source for ROADM DWDM network deployment. JDSU also introduced especially designed service assurance solution, in advance of the Olympics in Beijing. These two offering allows wireless operators to test service performance at multiple Olympic venues in China months before hundreds of wireless subscribers travel to the games in Beijing next summer. Relative to customer traction, a large European operator has selected JDSU to provide monitoring and troubleshooting test solutions for its IPTV service. JDSU's net complete service assurance system including IP test probes, will be deployed in more than 80 Points-of-Presence across this network. Lastly, relative to acquisitions, on January 7th, we acquired the fiber-test division of Westover Scientific, a leading provider of proactive fiber inspection test solutions for service providers, equipment manufacturers and premises wiring technicians. The products are designed to proactively inspect fiber-optic connectors, which when contaminate, are the number one source for faults in fiber network deployments. The acquisition strengthens JDSU's portfolio and leadership of test solutions in fiber-optic networks. We remain focused on improving our product portfolio and cost structure to deliver gross margins for this segment in the 57% to 61% range on a sustainable basis at current revenue levels. Fiscal Q2 gross margins were above the midpoint of this range. As previously discussed, the areas of focus to improve gross margins include the following. Product mix is primary and has two areas of focus. The first is increasing the mix of sales of our organic products while reducing the mix of products that we simply resale. We believe further gross margin improvements will be achieved by increasing our focus on value engineering and lowering the cost structure of our supply chain. We believe these activities will improve our overall gross margins and the segment's cash flow. Next, Optical Communications, Optical Communications total revenue was $129.7 million in the second fiscal quarter compared to reported revenue of $116 million in the first quarter of fiscal 2008 which represents almost 12% sequential growth. All three business units in our Optical Communication segment saw sequential with particular strength in our agile optical network unit, which includes our ROADM products. From a customer perspective, we increased our revenue at eight out of nine of our top customers in fiscal Q2. We saw booking strength in fiscal Q2 as total bookings increased from the first quarter level. This is the third consecutive quarter of increased bookings. We saw an improvement in gross margins relative to the last quarter. Also in fiscal Q2 two out of the three of these business units had gross margins that were greater than 28%, up from last quarter's level. The primary drivers for the gross margin improvements were inventory management, improved factory absorption due to higher utilization and improved material cost. Other factors contributing to improved gross margins include benefits from transfers to low cost centers as well as favorable product mix. For the first time in over a year, the segment achieves a positive operating margin of 7.6% for the quarter. November, we held an Optical Communications Virtual Analyst Presentation. During the presentation, David Gudmundson, President of our Optical Communication segment outlined three strategic principles of the group. I'll now provide additional commentary on the segment's performance and strategy under these three categories. First, technology leadership, as it relates to transport transmission of photonics. For transport JDSU holds the market leadership position in ROADM technology. In fiscal Q2 JDSU's ROADM unit growth was 39%, compared with fiscal Q1, as we continue to lead this market. According to industry analyst, the ROADM market is expected to grow from 2002... 2006 to 2009 at a cumulative average growth rate of 33%, essentially growing faster than the Optical Communications overall growth rate. We hit a new milestone in Q2, as we shipped approximately 2,500 ROADMs in Q2, the highest amount since we began shipping the products. And we saw a healthy sequential bookings for ROADM for Q2. Next in terms of transmission, our next generation 8-Gig and 10-Gig SFP+ products continue to gain momentum. In Q2, we saw a strong customer acceptance and traction; most notable, we expanded our reach to a lean next generation service provider. We currently expect total shipments of these products to reach over 100,000 units by the end of fiscal Q3. Also in the 10-Gig market we experienced 32% sequential growth for transceivers and transponders. Our partnership with MONTERA proceeds to leverage MONTERA's core competency in 40-Gig transmission and JDSU's 40-Gig transport and lean manufacturing. Finally, relative to photonics, last quarter we announced the ILMZ a new photonic integrated circuit that combines a tunable laser and an optical modulator. Tunable lasers are a key element required for the successful deployment of Agile Optical Networks. This new solution may be introduced into a carriers' existing network without architectural changes. In Q2, we announced the new 10-Gig tunable TOSA or 10-Gig transmitter optical subassembly, which is the smallest tunable optical transmitter in the industry. This TOSA uses our ILMZ photonic integrated circuit that functionally integrates a tunable laser and modulator into a chip that can fit on the tip of your finger. We believe a more compact and integrated approach toward tunable lasers is critical, as service provider strive for greater efficiency in their network, as well as the ability to provide more wavelengths. Finally, last week, we announced an avalanche photo detector APD chip, designed for GPON networks that enable data transmission for the fiber-to-the-home. The new chip provides high functionality at a low cost, making it attractive for fiber-to-the-home deployments. The second strategic principle for Optical Communications is cost leadership. We have a number of initiatives in place to drive cost leadership, including lean manufacturing, vertical integration and Asia manufacturing. JDSU is implementing our own lean manufacturing initiatives to have a strategic interlock with our customers. The result is a more integrated partnership with our customers over time. For JDSU, our lean manufacturing initiatives have begun to and are expected to continue to result in improved production cycles, lower manufacturing overhead and labor, variance reductions, inventory reductions and bill material localization. Finally, relative to functional integration, as discussed earlier, we recently announced two new products that are functionally integrated, the ILMZ PIC and the new TOSA. We expect to be moving forward with this as a key strategic principle with our future roadmaps and pipelines. We expect that these three strategic initiatives, when fully implemented, will enable the Optical Communications business to achieve and sustain the following business model targets. Near term 20% to 30% gross margins, 5% to 15% operating income. We believe the above initiatives will move the segment to the higher end of the gross margin range. Moving on to our Advanced Optical Technology segment, fiscal Q2 revenue for AOT was approximately $50 million, representing growth of 3.8% compared to the first quarter of fiscal 2008 and up 23% compared to the second quarter of 2007. This quarter AOT generated operating income of approximately 40%, as we saw gross margin improvement on a sequential basis due to favorable mix and improved operational execution. Once again, the currency market has provided upside for this business, driven by new currency note introductions around the world. As we have noted before, we expect the trend of this business to have some level of surges and ebbs. During the quarter, we announced the acquisition of American Bank Note and Holograms, ABNH. The acquisition represents a significant milestone for the AOT business segment, it fortifies our Overt and Covert Security Product portfolio, by enhancing our diffractive optics and magnetic technologies, including holograms for security applications along with related manufacturing and marketing expertise and a leading position in the transaction card market. JDSU already produces high performance color-shifting pigments, inks and labels and optical additives for security. These pigments can be found on currency notes of over a hundred countries. As the market continues to shift towards security solutions, we believe we are well positioned for this smart shift. I stated at the time of the announcement, we expect the acquisition to close no later than the end of fiscal Q3, and that it would be accretive to non-GAAP earnings. In Commercial Lasers, second quarter fiscal 2008 revenue was $22.2 million, up by 12% from $19.9 million in the first fiscal quarter of 2008 and down 12% compared with the second quarter of fiscal year 2007. This business continues to be impacted by lower demand from the semiconductor manufacturing customers. We are encouraged by bookings in the quarter, which saw a double-digit sequential growth compared with last quarter. The increase in bookings is associated with new customers in Asia and Europe. We saw a significant improvement in gross margins in fiscal Q2 compared with fiscal Q1 due to inventory and scrap reductions, improvements in productivity and direct materials cost, as well as increases in gas laser pricing. Our Commercial Laser business serves a relatively small number of customers, so quarterly performance is impacted by spending cycles. Furthermore, semiconductor industry activity has declined which we believe to be temporary. On the other hand our engagements with biomedical and material processing customers continue to be strong and growing. Focusing on our laser platform gross margin expansion initiatives, we note the following, we believe the gross margin upside will come from increasing solid state laser volumes, in concert with lean manufacturing initiatives now focused on increasing productivity, reducing scrap, driving inventory turns up and our supply chain cost down. We believe these initiatives, ones fully implemented, will result in double-digit margin improvement. Now, let me turn to company advancements. I would also like to highlight company advancements that have taken place since our last earnings report. At the end of November, a jury ruled, unanimously, in favor of the Company on all counts in a six-year old Securities class action lawsuit filed by Connecticut Retirement Plans and Trust Funds against the Company. This was an important outcome for JDSU, and we view it as a significant step to our putting in the past, legacy risk, and allowing us to fully focus on our attention on the business. We are extremely gratified by the jury's verdict, as we've always believed that the plaintiff's claims were without merit. While the final judgment has not yet been entered, and there are related cases still pending, we hope that we will be able to successfully resolve all such matters. As we entered into the calendar year, we announced two acquisitions, ABNH and Westover Scientific. They both fortify the portfolios of the business segment, and are consistent with our financial model of a double-digit EBITDA over revenue ratio. We expect non-GAAP EPS to be accretive for both acquisitions. JDSU has achieved a six-year high relative to our overall business model advancements and free cash flow. We begin calendar '08 substantiating the efficacy of our long-term business model with the objective of long-term sustainability. As I move to the summary, 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. There is a strong focus on gross margin 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 partnership and acquisition. Company successful execute against its goals in the first half of fiscal 2008. We've achieved our near-term goals of gross margins of approximately 40% or greater, operating expenses in the range of 35% to 38% and operating margins in the range of 2% to 5%. We are now moving towards achieving our long-term model of sustainable gross margins in the range of 43% to 47% and operating margins at/or above 10%. While these metrics were actually achieved this quarter, we expect to generally operate to these targets by the end of calendar '08. Nevertheless, the efficacy of the model will substantiate this quarter. Over time we will evaluate the potential for operating at a more aggressive model. I want to note that while the current health of the US economic environment is uncertain, our customers have communicated a continued focus, support capacity and deployment requirements. That said we will judiciously keep a pulse of customer activity and sentiment as we proceed through the calendar 2008. Finally, I would like to thank JDSU employees, whose continued commitment and incredible efforts made these results possible. And with that I'll hand the call to Dave. David Vellequette - Chief Financial Officer: Thank you, Kevin. Before I start, please note that all number are non-GAAP, unless I state otherwise. Second quarter revenue of $399.2 million was up 11.8% from the first quarter. We experienced typical December seasonality during the quarter in the comm-test segment and saw sequential revenue growth in all four segments. Second quarter gross profit of $185 million, or 46.3% revenue, was up from the previous quarter's 41.3%. We saw improved gross margins in all four of our business segments, primarily due to favorable product mix and the impact of our gross margin initiatives which resulted in improved factory utilization and lower manufacturing variances. Operating expense for the quarter was $139.4 million or 34.9% of revenue which is slightly lower than the previous quarter's $139.6 million or 39.1% of revenue. Our operating expenses for the second quarter benefited from a number of factors which included seasonally lower fringe rate, lower vacation accrual and the impact of the holiday shutdown. All of the segments benefited from these factors. In addition, the Optical Communication segment benefited from an increase in customer funding for non-recurring engineering. These items, taken as a whole, reduced the total operating expenses for the quarter by slightly more than 1% of revenue. The higher revenue, improved gross margins and lower operating expenses resulted in increased operating income and net income. Operating income increased to $45.6 million or 11.4% of revenue versus an operating income of $7.8 million or 2.2% of revenue in the prior quarter. Net income increased to $50.2 million, or $0.22 per share, versus $18 million, or $0.08 per share, for the previous quarter. Adjusted EBITDA in the second quarter was $62.3 million or 15.6% of revenue, which compares to adjusted EBITDA of $23.7 million or 6.6% of revenue in the prior quarter. A detailed reconciliation of our non-GAAP results to our GAAP results is available in today's press release. Our second quarter non-GAAP results exclude, among other items, amortization of acquired technology and intangibles of $19.4 million and a $14.5 million charge related to stock-based compensation. Including these items, quarterly GAAP net income was $21.2 million, or $0.09 per share, compared with a loss of $6.9 million or a loss of $0.03 per share last quarter. Moving to the segments, in the comm-test segment, second quarter revenue of $197.5 million was up 14% from the prior quarter as we experienced December quarter seasonality as well as favorable impact from sales denominated in foreign currencies. The segment's operating profit increased to $49 million, or 24.8% revenue, versus $26.8 million, or 15.5% of revenue, in the prior quarter, primarily due to higher revenue and improved gross margins. The improved gross margins was a result of favorable mix within this segment, improved factory utilizations due to the higher volumes and a favorable net impact from foreign exchange rates. In the Optical Communication segment, revenue of a $129.7 million was up 11.8% when compared to the prior quarter, as we saw sequential growth in each of our three business units. The segment achieved an operating profit of $9.9 million or 7.6% of revenue, an improvement from a loss of $3.3 million or negative 2.8% of revenue in the prior quarter. The operating profit resulted from: higher revenues, gross margins and lower operating expenses. The higher gross margins were due to favorable product mix and the impact from our cost reduction initiatives which resulted in improved factory utilizations and lower manufacturing variances. The lower operating expenses were also due to our cost reduction initiatives, and due to higher than usual customer funded non-recurring engineering. Our Advanced Optical Technologies, or AOT, segments quarterly revenue was $49.8 million, up 3.8% from the prior quarter. AOT operating profit for the quarter was $20.1 million, or 40.4% of revenue, compared with $18.3 million, or 38.1%, for the prior quarter. The increase in operating profit was a result of higher gross margins due to product mix and improved factory utilization. In our Commercial Lasers business, second quarter revenue of $22.2 million increased 11.6% from the prior quarter. Lasers had an operating loss of $300,000, an improvement from last quarters operating losses of $2.5 million, primarily due to improved gross margins. Now looking at revenue by region; during the year, the geographic... geographical dispersion of our revenues remained balanced. In the second quarter of fiscal 2008, the Americas contributed 53% of revenues; EMEA, 28%; and Asia-Pacific, 19%. Geographic dispersion remains relatively unchanged compared to the prior quarter. Moving to the balance sheet, for the fourth quarter in a row the Company was free cash flow positive, generating just over $40 million due to improved operating results. We have now increased our net cash balance to approximately $445 million representing a $117 million increase from a year ago. Total cash, cash equivalent and short-term investments and restricted cash totaled $1.1 billion. Finally the zero coupon bonds have put call provisions effective November 2008, therefore the balance outstanding is now classified as a current liability on our balance sheet. Headcount as of December 29, 2007 was 6,509, up from 6,459 last quarter. On an annualized basis, our revenue for headcount improved to $245,000, up from $221,000 last quarter. While our markets are generally favorable, we remained focused on improving our operating model on a sustainable basis. Our long-term model targets at the current revenue levels are: gross margin of approximately 43% to 47%, operating expense of 35% or less, and operating margin of 10% or greater. The results for this quarter show that we can execute in these ranges. At the same time, we will continue to focus on the segment gross margins as we still see opportunity to improve. We expect that these improvements will reduce the impact of segment mix on our operating margins. With these gross margin improvements and at the current revenue levels, we believe we can sustainably execute at our long-term operating models by the end of the 2008 calendar year. Now looking forward, some points to consider as you think about our financial performance over the coming quarter. We continue to have low visibility into the current quarter's demand with the comm-test segment due to the budget release cycle that is typical with the carriers as they begin their new fiscal year. Due to different gross margin targets for each of our segments, we expect that the product mix in Q3 2008 will result in lower overall gross margins when compared to our Q2 level. Q3 operating expenses are expected to increase due to the nearly full quarter impact from the Westover Scientific acquisition, lower non-recurring engineering funding, and higher fringe and benefit cost. Additionally, we have just commenced on a multi-quarter project to upgrade to a more current release of our Oracle ERP. This project is expected to be completed by the end of the calendar year at a cost of $25 million to $35 million with approximately 50% of the cost being expensed as incurred. We expect our quarterly tax provisions to range between $3 million and $5 million. Now, to our financial guidance for the third quarter. Please note the guidance does not include revenue from ABNH acquisition which has not yet closed. Taking into consideration the factors above, and based on our current visibility, we expect third quarter revenue to be in the range of $380 million to $402 million and non-GAAP operating margin to be in the 4% to 7% range. Operator, we are now ready to begin the Q&A. Question And Answer

[Operator Instructions] And your first question comes from the line of Ehud Gelblum of J.P. Morgan. Please proceed sir. Ehud Gelblum - J.P. Morgan: Hi, thank you. Hard to just take one question, in that case why don't I say that you... I think, Kevin, you had mentioned that you had taken share on the ROADM side and the Optical Components business, obviously, was very strong, relatively fairly strong, as bounced back again for the last two quarters. Can you go into some detail on the shares where... where you think you have picked up share in Optical Components, give a little more color on that and where you are seeing competition? And then, if I can get clarification Dave on some of the numbers. Can you kind of parse out some revenues from some of the acquisitions and how much revenue this quarter and how much revenue in your guidance next quarter came from inorganic growth? Kevin Kennedy - President and Chief Executive Officer: Ehud I will give a shot. I didn't make any comments on shares, what I did try to highlight is where we felt we had significant strength for quarter-over-quarter growth. And you are correct ROADM was one of the areas that we had very strong quarter-on-quarter growth. Some of our transmission modules, another place where we had strong quarter-on-quarter growth. So there were only two or three that I cited in the script as particularly strong, probably the only other important fact was that we grew revenues in eight out of nine tier one, tier two customers. So it was... fairly broadly based. Ehud Gelblum - J.P. Morgan: I thought you said that when... I am sorry I thought you said that when the quarter is over and you will be looking back at it, you thought you grew faster than the market? David Vellequette - Chief Financial Officer: That was the comment that we made relative to the comm-test results. Ehud Gelblum - J.P. Morgan: Okay, I understand [Technical Difficulty] David Vellequette - Chief Financial Officer: In the guidance, Ehud, for Westover, we've talked previously when we did the acquisition that the revenue from Westover is about $16 million per year. So, that's what we contemplated in our guidance that's on roughly that annual run-rate. Ehud Gelblum - J.P. Morgan: Great, thank you.

Your next question comes from the line of Todd Koffman of Raymond James. Please proceed sir. Todd Koffman - Raymond James & Associates: Yes, just a clarification. I thought I heard you say that your book-to-bill was greater than one in three out of your four segments. I just want to get the clarification that the segment that it was below one was the Test and Measurement or is that not accurate? Kevin Kennedy - President and Chief Executive Officer: That's accurate, and that's normal for that particular quarter because we have such a high amount of turns in the end of the quarter. Todd Koffman - Raymond James & Associates: Can I just get a quick follow-up to that? Some of your competitors in the Optical Communication segment have talked about visibility being very limited; with that segment seeing a good book to build do you have seen fairly decent visibility, and what you're thinking on the Optical Communications segment? Kevin Kennedy - President and Chief Executive Officer: Yes, I think we've sent the message that in general we have not particularly great visibility across the Company and Optical Comp and Test and Measurement that we are sure of. I'd say our interlock process on one hand is giving us better conversations, on the other hand as you lean your system out, you tend to have less visibility because you can turn at a higher rate. So, I'd say our visibility continues to be measured in weeks, not quarters. And that's really where we are. Todd Koffman - Raymond James & Associates: Thank you. Kevin Kennedy - President and Chief Executive Officer: Yes.

And your next question comes from the line of John Harmon of Needham & Company. Please proceed. John Harmon - Needham & Company: Hi, good afternoon. You talked about mix being favorable in your Optical Component segment. I was wondering if you could, may be sketch out which... couple product lines that might have contributed, and just also talk about was the high level profitability in the segment... congratulations to those involved with it... was it a fluke or is it pretty sustainable from now on? Kevin Kennedy - President and Chief Executive Officer: John, try me again, we didn't hear the opening part, so if you could just repeat it. John Harmon - Needham & Company: Oh, I am sorry. Which products have higher margins that help to contribute to the profitability for Optical Component segment and how sustainable is it looking ahead? Kevin Kennedy - President and Chief Executive Officer: So, I'd say the... we mentioned that there are two business units in particular that are at this 28% and above. As you know from prior calls the IP photonics piece has always been one of the best performing in terms of gross margin. And clearly that are our growth in ROADMs didn't hurt us. So, you should assume that our switching products are good. But that's the only detail we gave in terms of gross margin. And you had a second part of the question that might have been for Dave. John Harmon - Needham & Company: How sustainable is this profitability, was it -- the stars line up right or are you in a much better place and more likely to be profitable now? David Vellequette - Chief Financial Officer: Let me try that. I think the gross margin structures of the business units are trending in a favorable light; and we've been working hard to raise them. So, this kind of thing is sustainable, and in fact will continue to improve. I think the... we had a significant growth and we ran very hot on all of our factories, so that level of it gave us a little bit of overachievement, and I think Dave has tried to identify for you where we think we will be in the next quarter or two by giving you an operating margin range, but that, we will actually be sustainable at these kinds of levels by the end of calendar '08. John Harmon - Needham & Company: Okay, thank you.

Your next question comes from the line of Paras Bhargava of BMO Capital Markets. Please proceed. Paras Bhargava - BMO Capital Markets: First time I have said this in years, Kevin, congratulations that was a... well done this quarter. Kevin Kennedy - President and Chief Executive Officer: Thanks Paras. Paras Bhargava - BMO Capital Markets: So, I have been covering this company for a long time, those are the best results I have seen. Now just more on the last question in terms of sustainability, you have guided relatively cautiously for the last couple of years. How do you see the market, the end demand... we had an inventory cycle last year. What are you seeing in terms of end demand, because I know one of the things that drove this quarter had to be operating leverage? Kevin Kennedy - President and Chief Executive Officer: Yes. So, couple of thoughts, one is that the results are positioned to continue to improve as top line improves. We were asked once before, it was our magic number to get to in order to achieve a fairly healthy operating margin leverage and we had put the number out at 400 and we came amazingly close to that number. So, you should hold that thought that we had comprehended that that was an important place to get and in affect the results followed suit. Relative to the market demand, I'd say, we read the papers and things just as everyone else does. So, I would say we are proactively probing any potential softness. I have not seen any trend as such, and in fact my greatest fear is what I don't know. The bad news is, is we don't have a lot of visibility, so we could be the last to know, but the bottom-line is, I felt that that the growth in eight out of nine top customers on Optical Comps was a very positive outcome. And I thought the contest numbers were positive. So, bottom-line is I am not a good bellwether for the future, and we are sensing it, but we haven't sensed a negative trend at this point. Paras Bhargava - BMO Capital Markets: Can, I have a follow-up with David. Kevin Kennedy - President and Chief Executive Officer: Sure. Paras Bhargava - BMO Capital Markets: David, in terms of the tax. At some point when you get sustainably profitable, I think you would need a year of sustainable GAAP profitability, you will have to take the, I think, it's $2.8 billion of deferred tax asset, and put them on your balance sheet, and then start fully taxing. Do you have any expectation on when that will happen? David Vellequette - Chief Financial Officer: Yes, actually, Paras, we did a detailed review with our auditors on that, and they said it's typically a 12-quarter... sequentially 12 quarters of GAAP profitability, especially given our history that you have to show that you are, have turned the corner and you are predictably profitable, as much as that goes. So, it is more than a year, I think you've asked us before. We do see companies come out faster when it is usually they are going negative, because of more business cycles than what we have had here, so right now, it's about... I have to show about 12 quarters in a row sequential. Paras Bhargava - BMO Capital Markets: That's very helpful, Dave, thanks. David Vellequette - Chief Financial Officer: Sure.

And your next question comes from the line of Jeff Evenson of Sanford Bernstein. Please proceed. Jeff Evenson - Sanford Bernstein: Could you quantify the aggregate benefits of currency impact on, both, revenue and pro forma earnings for us? David Vellequette - Chief Financial Officer: Yes, on the revenue side it was mid single-digit millions, and from the bottom-line it was low single-digit millions. Jeff Evenson - Sanford Bernstein: Great, thanks.

And your next question comes from the line of Subu Subrahmanyan of Sanders Morris. Please proceed. Subu Subrahmanyan - Sanders Morris Harris Group: Thank you. My question was on gross margin and operating expense trends. It sounds like we should see some sequential decline in gross margin, and the operating expense you said was positively impacted by about one percentage point. So, Dave, given the addition of Westover and what's going on with the other things, should we expect kind of like a $5 million operating expense increase. And then on the gross margin side, other than just mix what else could make it come down from that 46% level? David Vellequette - Chief Financial Officer: See, let me first on the OpEx side, as I noted the one-time benefits that we got were... represented about 1% of revenue. So, you can do that calculus. The Westover, we talked about it's basically slow single-digit millions of OpEx for quarter. So, those are the two main items, plus I did note that we will be starting this project on our Oracle ERP, going to the next release and so that will cost a little money also. So that's a little single-digit millions. From a gross margin standpoint, it was mix within the segments and mix between the segments that helped favorably on the gross margin. And obviously in the comm-test side which has target gross margins of 57 to 61, and we are at the higher end of that range. You can see how that helps in the overall gross margin and that's... because of that the budget flush activity we see the high turn. So, those factors, we believe, will result in the margins coming down, plus the, the factories ran very well during the period at that revenue level, and the range right now has the... the midpoint of that range would have a revenue level that somebody might have at slightly lower. Subu Subrahmanyan - Sanders Morris Harris Group: Got it. And just a follow-up, on the operating margin ramp from the 4% to 7% you are expecting in March to a sustainable 10% or higher by the end of the year. Would you expect that to be a fairly linear one? And Kevin, 10% or higher, what could higher be especially since the turns, the rate doesn't seem that long-term, since we'll achieve it in the next three or four quarters? David Vellequette - Chief Financial Officer: I think as far as linear, we are just going to call it one quarter at a time, as we see it, and we'll communicate with you that type of a range. And I will let Kevin answer the Kevin Kennedy - President and Chief Executive Officer: Yes, I don't think we're, we are going to get ourselves to this greater than 14% that we represented on an EBITDA scale. First, before we try to up the range. So I'd say the... there was the existence proofs that we can... at 400 we have the portfolio and the leverage and the opportunities for improvement to get there sustainably, but I want to wait until we get to the end of the calendar year, before I try to advance the model beyond that. Subu Subrahmanyan - Sanders Morris Harris Group: Got it. Thank you.

And your next question comes from Ajay Pai of Thomas Weisel Partners. Please proceed.

Hi, this is Spenay Mahn [ph], dialing in for Ajit. I have a couple of quick questions. First one has to do with mix within the communications test side. Could you tell us which of the businesses, field test versus lab solution versus service assurance grew fastest on Q-over-Q and year-over-year basis? Kevin Kennedy - President and Chief Executive Officer: Yes, I don't have the breakdown. Let me first, level set you that the significant, biggest piece of the business by far is the field service piece of the business. And secondly, we had given some notes that year-over-year the lab and production grew the most, in terms of quarter-over-quarter, I don't know that we broke it out. So, hope that helps.

Okay, great. The second question I had was there was... in the quarter, you mentioned there was a customer... I guess customer funded non-recurring engineering that impacted Optical segment margins. How big was that impact? David Vellequette - Chief Financial Officer: That was... so what happens is our customers will... and usually it also has related to with their budget... will fund us to expedite some engineering spending and so that's what that funding is all about. And it was part of a number of items like I listed that total about 1% of our revenue.

Okay, good. Thanks very much.

And your next question comes from the line of Sam Dubinsky of Oppenheimer. Please proceed. Sam Dubinsky - Oppenheimer: Hey guys, good quarter. Just a couple of quick questions. Number one, what was the operating margins of the Optics of business, if you exclude the NREs and also I believe you reclassify some revenue from the Optic segment to a different segment, if I heard correctly earlier in the call? David Vellequette - Chief Financial Officer: Yes, we moved about $4 million to $5 million that was the run rate of revenue out of the Optical Comp segment into the Test and Measurement segment. So, that was the WaveReady because that product is sold more directly to carriers versus the Optical Comps products are sold directly... more directly to the network and equipment manufacturers. And then we didn't actually breakout the amount of the NRE, we just noted that it was a factor in their margins in that they also benefited from the lower vacation in fringe also. So we didn't actually break it out that specifically. Sam Dubinsky - Oppenheimer: So... but if you include... if you exclude these factors... if you put them back... if you exclude them, was the business still profitable? David Vellequette - Chief Financial Officer: Yes. Sam Dubinsky - Oppenheimer: Okay. And then my question number two is; it seems like there has been some consolidation in this space recently with OCP getting bought up by Oplink, and Intel selling its transmission business, its telecomm-related optics to Emcore. Are you guys seeing any share gains due to this consolidation in the near term. Do you seeing increased activity in any of these markets? And then I have a follow up question. Kevin Kennedy - President and Chief Executive Officer: Yes, I'd say it's too early to say that we have seen any share gains in either direction. So, why don't you just pit us with your follow-up one. Sam Dubinsky - Oppenheimer: Okay, then on the market for SFP+, can you just talk about how that's developing, particularly from a pricing perspective and margin perspective? Kevin Kennedy - President and Chief Executive Officer: I'm trying to think... right now it's early in the race, those people that are wining are people who have something that works and can ship on a very quick basis. And so within that I think we anticipate there could be aggressive pricing in the future, but right now it's about who has the product to deliver to the people who can deploy it today. And so I think that's the basis of competition. Sam Dubinsky - Oppenheimer: Okay, great. Thank you.

We have a follow-up question from the line of Paras Bhargava of BMO Capital Markets. Please proceed. Paras Bhargava - BMO Capital Markets: Kevin, this is a question on the cable segment within comm-test, that's the segment that really drove the very, very high margin growth lat year, as I recall. How is that segment doing, and have we sort of hit a point where the year-over-year growth of comm-test has to sort of come back progressively? Kevin Kennedy - President and Chief Executive Officer: Well, Paras, you've asked several questions there. Let me Paras Bhargava - BMO Capital Markets: Answer whatever you can. Kevin Kennedy - President and Chief Executive Officer: Yeah, let me see what I can break up. I'd say, if we were to look at sales of our products in North America, it would be true that we probably have one significant cable customer that we're evidencing softer sales to then we would have a year ago. So, now that being said, do we have sufficient growth... and this is sort of been a theme for about three quarters that we've had a fairly strong business in Europe and Asia, and so if we didn't have those other factors that one customer would have disproportionately challenged us. I'd say we had strength this quarter because we did have a very balanced growth, and so I think the answer to your question is the specter of the future more positive or negative, I think will be dependant upon how a small number of customers actually buy. And so the one that you're, that I'm thinking of hasn't slowed us down yet, but if that became a trend it could. Paras Bhargava - BMO Capital Markets: But are we going to see more normal. I mean the test market is probably growing around 10% at best. I think you have said even lower numbers, but sales growing at 10%. And you've been growing at significantly higher than that. What I am just asking simply is are the dynamics going to bring you closer to the industry growth rate now? Kevin Kennedy - President and Chief Executive Officer: I think we had a phenomenal four or six quarters, and so growing at 25%, 30% year-over-year is not something that I think is sustainable. There is a second challenge which is the growth rate of the test market are highly fragmented. So, you see wireless test went very negative for a period of time while broadband happened to be very positive, we happen to be the benefactor of being wholly in broadband and not during wireless. So, do I think the norm of our serviceable markets are in the single-digit range, I do going forward. And do I think that we can outpace by a couple of points, I probably believe that we can outpace. So, do I think we will be at 30% again over a long haul? No. But do I think this can be a healthy growth business? The answer is, yes. Hopefully that helps you. Paras Bhargava - BMO Capital Markets: Thanks.

There are no further questions at this time sir. Michelle Levine - Director, Investor Relations: Thank you, operator. This concludes our call.

Thank you for your participation in today's conference. You may now disconnect, have a great day.