Good afternoon. My name is Christa and I will be your conference operator today. At this time I would like to welcome everyone to the first quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer session. (Operator Instructions). Thank you. Mr. John Oberle, you may begin the conference.

Thank you and good afternoon. Thanks everyone for joining us today. Bob Switz, ADC's Chairman, President and CEO, and Jim Mathews, ADC's CFO are with me today. Before we start I would like to remind you that today's conference call contains forward-looking statements. Our expectations for market conditions, future events and results could differ materially from the forward-looking statements made today. Actual results may be affected by many important factors including risks and uncertainties identified in our earnings release and in the risk factors included in Item 1A of ADC's annual report on Form 10-K for the fiscal year ended September 30, 2009 and as may be updated in Item 1A of ADC's subsequent reports on Form 10-Q or other reports filed with the SEC. This earnings release can be accessed at the Investor Relations section of ADC's website at www.ADC.com. ADC's comments will be on a continuing operations and GAAP basis. Bob will provide an update on ADC's business developments and highlights. Jim will cover our financial results and provide forward-looking financial guidance for our second quarter of fiscal year 2010. I will now turn the call over to ADC's Chairman and CEO, Bob Switz. Bob?

Thank you John and thanks to everybody on the call for joining us. Today I will provide a brief review of our first quarter highlights and improving financial performance. I also will spend some time outlining our reasons for increased optimism as we progress through 2010. So let's start with our strong Q1 results. Our revenue of $265.6 million was in the range and on the higher side of the mid point of our initial expectations. We also delivered another quarter of solid gross margins reflecting the very positive impact of our efforts to streamline our business and improve our operations. We remain very pleased with our ability to deliver good margins despite some what lower revenue levels. Despite facing certain challenges in the quarter we continue to control our operating expenses and we expect even lower operating expenses over the coming quarters due to continuing cost actions and a return to normalized stock base compensation levels. In addition we were able to generate positive cash from operations which is especially gratifying in a quarter that has been traditionally weak from a cash flow perspective. While we are certainly pleased with our performance in the first quarter, we continue to work on improving our financial results with a strong determination to return to meaningful revenue growth. At the same time we are realizing the benefits of ongoing efforts to create a more effective and efficient organization that will further leverage this expected growth. All of this gives us much confidence in our momentum as we progress through the second quarter and look ahead to the second half of this year. Much of this optimism is based on ADCs strong position and the largest areas of broadband network investment worldwide. Despite the general sense of economic uncertainty that remains we believe…

Thank you Bob and good afternoon to everyone again. First I will provide a brief overview of our first quarter results and follow that up with guidance for our fiscal second quarter. As many of you are aware, we completed a transition to a September 30th fiscal year end when we reported a two month period that ended in September. As a result, this quarter was the first on our new calendar quarter basis. So with this in mind the sequential and year-over-year comparisons that I will provide will be versus the pro forma three month periods ending September 30th 2009 which is now our fourth quarter of fiscal 2009 and December 26th of 2008 or our first quarter of fiscal 2008 on the new calendar quarters. So starting with our first quarter of 2010 results, revenue of just under $266 million was a little above the mid point of our expected range and a decline of 11.4% year-over-year and 8.8% sequentially. The year-over-year decline principally reflects the fact that the global economic downturn was just beginning to impact our business at the same time last year. The sequential decrease is due primarily to expect its seasonality and a decline in major carrier spending that the company referenced in our guidance at the end of the fourth quarter. Among the areas of revenue improvement in the quarter however, were network solutions whose business grew 9% year-over-year and 17% on a sequential basis from the previous quarter. Gross margins were a solid 34.7%. This compared to margins of 34.4% in the fourth quarter and 29.5% on an adjusted basis and last years December quarter. Margins have held up well as cost actions taken over the past year have more than offset the negative impact of the lower revenues. Total operating costs…

Thank you, Jim. In closing, I want to reiterate that we are financially strong and transforming our business in alignment with the areas of greatest, mark-to-market opportunity. We are working smarter and more efficiently and we continue to innovate and bring new technologies to market. As we progress through this year, we see the potential to put ADC back on a growth trajectory. Profitable growth is the focus of our company. Our efforts to transform our business have put ADC in a position were we can dramatically improve our profitability via revenue growth. We are optimistic that we can show significant improvements in profitability this year with any acceleration of customer spending as 2010 progresses. Operator, we would now like to open up the call for the Q&A session.

(Operator Instructions). Your first question comes from the line of Amir Rozwadowski from Barclays Capital. Your line is open.

Thank you very much and good afternoon Bob, Jim and John. Bob I was wondering one of the initiatives that you folks have talked about where there is potential a growth opportunity is certainly fiber to the base station initiatives we have been hearing a bit more about domestic investments in backhaul and I was wondering if you could give us a little bit a color in terms where you stand in terms of the opportunity and sort of how you see that progressing through the year?

Yeah I would agree with that assessment and certainly that is an area where we have been involved and are expecting to see some additional growth this year. We see that opportunity as being significant for us as we continue to provide fiber and in some cases copper solutions to assist and capacity additions and also the focus on wireless backhaul. So we are seeing similar things, we have active engagements and discussions with several customers and certainly some large one. So that is an area that we are looking forward to see grow over the course of the year.

And then if I may if we look at sort of the mid point of your guidance it seems though you folks are optimistic about returning to sort of year-over-year growth on the top line just in your fiscal second quarter you had mention a number initiatives that you are optimistic about kicking in the back half of the year such as broad band stimulus and some of these international fiber deployment where do you think sort of or how should we think about sort of the growth range that you are targeting for material growth?

Yeah, that's a tough question and a tricky question. Rather than put it in a range which I'd rather not do at this point just because of issues obviously around visibility in our industry. Maybe I can just talk to it in terms of some of the opportunities in the sense. So for instance, even though we don't have great visibility as you know, one of the things that gives us some encouragement about the second half is there are some things that we have been working on I would say now maybe for a year or maybe even longer that look like they are going to materialize this year. There is two opportunities, two separate opportunities in our service business for a new revenue and that part of our business in the wireless part of our business, we also see some opportunity there over the course of the year in what I would call some relatively significant major venue applications. So, things similar to stadiums and so forth where we see the potential for some significant growth and some of that being associated with discussions with specific customers. Also as we mentioned earlier our ability to provide a broad range of connectivity solutions to support wireless back haul. Again, this is an area where we are engaged in some discussions at the moment that lead us to believe that the second half of the year is the timeframe for realistic materialization. There are some specific FFTX pieces of business in emerging markets that we are focused on if there is one particular in the Asia PAC region that we are some what optimistic we could be lending. So there is a lot of business in the pipeline that's not necessarily new [in verge] that's been in the pipeline for a while and now coming to maturity as well as new business beginning to crew. And then top of that there is the normal course of business that we would expect as budgets get released and we continue to provide our customers, with the products and services with more or less are part of our legacy with those customers. China, for instance, we're optimistic about China and our china business grew 21% this quarter so we are very excited to see that remain on track and they have no reason to believe that we are going to have a bad year in china this year so we are seeing extension of that. And we are somewhat optimistic about our ability to take our Century Man platform into some of the adjacent markets to China. So that gives you a flavor I think of some of the things that give us optimism to put a growth rate on it would be premature at this point. But I think I got enough there that gives me cause for optimism in our second half.

The next question comes from the line of Tal Liani from Banc of America/Merrill Lynch. Your line is now open

Thank you its Vivek on Tal's behalf. Bob if I look at your copper business I think in the past you have said that in fiscal '10 you expect the climbs of about 10%or so. But I think you are starting the year down almost 30% in that business. How should we look at that business throughout fiscal '10 and do you think that likely so in Q1 that can you offset the declines in that business via growth on the fiber side?

I think two things; one fiber is offsetting some of that as we speak in their parts of certain geographies in this quarter where our fiber business was up. And so the answer to that is yes, fiber is offsetting and we will offset some of that. I think the other possibility is that's a fairly steep decline beyond what we had anticipated. And I think for some of the wireless backhaul opportunities I think some of those will resell in some cases in some copper solutions. So there is a potential that we will see in the copper business itself, declines that certainly are not as severe as we saw in this first quarter. So I think there is two reasons but first I'm optimism in it, maybe not all of that but a chunk of that will be offset.

And if I look over the last few years, generally your June quarter, it tends to be up double digit or so sequentially and then September tends to be flat to down is that the same kind of trajectory we could have this year or do you think trends are different this year.

Well I'll think I'll start with that and then I'll ask Jim to correct me if I am wrong. I think we could see something a little different. I think we could see sequential improvements in the third quarter and fourth quarter based on the comments that made around our optimism and so there could be variation in that pattern where we see sequential growth from (inaudible) but more particularly growth in Q3 and Q4. I think Q3 could be up as much as 10% sequentially possibly Q4 with ways out there but depending on how some of these opportunities materialize I think the opportunity to move up sequentially is there.

And just one final question I think there has to be a lot of strength in your international projects. How's the visibility typically in these international projects around and the deployment time frames, their revenue recognition et cetera versus your traditional US customer base? Thank you.

Yeah visibility in some of these obviously has been the greatest but I would say as I mentioned I think on previous call we would have expected some of these programs to have deployed already, we are not through the recession that we all experienced around the globe. So I think we seen a set back there of some 12 to x months because of that. I will say because some of these have been in the pipeline for a while there are some as I mentioned earlier may be not quite not all of the larger ones but there are some that'll become a little more finite. And look to be a little more definite in terms their willingness to deploy. And then of course everybody has their eye on the national broadband build in Australia which is for all intensive purposes. We believe that's a real opportunity and so we will see how that goes as well but I think we are moving forward and I think we'll finally start to see some of these attraction as we go through the balance of the year.

Your next question comes from the line of Steve O' Brien from JPMorgan. Your line is now open.

Hi, thanks for taking my question. First of all, I just wanted to ask on the cash flow this quarter, what was the cash inflow from the divestiture, it looks like it was $13 million on the cash flow statement is that the right number and then with sort of $9 million in free cash flow of $13 million divestiture cash went up just $10 million, I mean what were the other factors there that are missing this quarter?

Steve, this is Jim. So the cash in from the sale of the RF business was about $17 million and I think we reported $14 million or $15 million gain on the sale, we had a fairly low basis in that. As far as the free cash flow of $9 million was net of 16 million of additional cash generated from continuing operations. Cash in fact between the cash were generated from the business and the sale of the RF Worx business boosted cash about $23 million for the quarter. So it's actually again excluding auction rate securities I believe at the end of those prior quarter we were at $586 and were about $609.5 now.

I guess that leads right into the loss from the discontinued operations quarter clearly looked like it was $14 million, $15 million and then in previous quarters sort of running more like $2 million to $3 million (inaudible) accounting that.

We invested during the quarter the mobile network solutions business the GSM base station business and recorded a loss on the sale of that, the loss on the sale was that about $13 million. So even though it looks like an operating statement around discontinued operations it actually includes the loss on that sale so that's what boosted the number during the quarter.

Got it appreciate that, on the gross margin this quarter it came a bit stronger then you were expecting and then the guidance looks like you expect the gross margin levels to be pretty stable can you help us understand what the factors were versus your expectation in the quarter and then your confidence as the year progresses in terms of maintaining or improving the gross margin?

Steve I think as you know gross margin is always tough to predict cause its affected by so many factors I mean I certainly think sort of a stability going forward will actually be a good performance if you ask me whether I thought there were some upside and say yeah probably there is. We certainly outperformed in this quarter, our gross margin expectations the one other things you will notice that we have the restructuring that we've been doing has been even more aggressive than we anticipated when it was announced last year. So to some extent costs have come out more and faster than originally expected, we got major restructurings that are continuing to go on throughout this next quarter or two. And so sort of the way in place of those is difficult to verdict with a lot of certainty but certainly as those things happen of the $34.5 million sort of roughly that we estimated for the quarter. There could be some upside but you have always got mix in there its very, very volume sensitive as you can imagine. So I will say we were pretty confident, we can maintain them and the one things that does affect decision move later in the year is the outside plant builds begin to pick up with the weather and those tend to have all in balance slightly lower margins in some of the inside plant work that are tend to be done in the early part of the year so we have to balance all that. But we are feeling good about gross margins and we will keep trying to press on them hard.

Just a close out on the restructuring, what were the additional areas you have targeted for head count reduction was it any particular groups or areas and then could you remind us of the cash component and sort of run-rate savings and either the back half of the year or into 2011?

Sure I will sort of reiterate what we have said in the past and then probably update just a little bit. We had indicated that we are going to be taking out between 350 and 400 positions globally. That is global so all areas were affected although I would say they were certainly a heavier concentration in EMEA and Europe in particular. So to the extent that the numbers have gone up since those original estimates I would say is still in those areas and still principally focused in EMEA. The run-rate that we had expected to get in terms of savings when we first announced, this is probably on the order of $7 to $8 million a quarter. I would probably today boost that number about to $1 to $2 million a quarter.

And if I could lastly sort of on the bigger picture, talking about the fiber opportunity, the cell sites, I think in the past the numbers may be discussed were upwards of $6,000, $7000 of cell site for an upgrade fiber and I just want to see if that changed and what portion of that is an addressable opportunity for ADC and also, what sort of market in this exciting opportunity ADC helps to secure.

Alright. I do recall an early estimate that may have gone as high as that Steve. I think as we looked at the opportunity and communicated subsequently, it was probably more in sort of the $1,000 to $3000 area per cell site. It's really tough to say, there are 200,000 cell sites out there. We think about a 10% of them are build out with fiber. Five years from now I suspect there may not be 10%, they are not built fiber. To try to project the market share is obviously pretty tough, but I think you can see what the opportunity is in terms of total addressable market.

Your next question comes from the line of from Todd Koffman from Raymond James. Your line is now open.

Can I just get a clarification? In your opening remark you talked about this is sort of second half momentum build. You decided a number of things, China the broadband stimulus fiber smaller (inaudible). Were you talking about your fiscal second half or calendar 2010 second half.

Fiscal second half.

And then if you look sort of in the calendar second half which you were a little bit not quite as clear about in response to an earlier question. Would it seem logical based on trend you are seeing that the initiatives going on should be stronger in September and maybe even carry through the back half of calendar for the fourth quarter as well? Or you've got some of these sort of specific projects were you hitting a sweet spot in your fiscal second half?

That's a very good question. I wasn't sure that we left that unclear, but if we did, thank you for bringing it to our attention. No, the expectation is, the way we view 2010 is more transition into higher growth in 2011 calendar. So, your point about the trends continuing beyond our fiscal year is also consistent with our expectation and also, if I could point out on the last question that was asked on the wireless backhaul opportunity, to be clear that when Jim addressed the 2000, he was thinking more of the connectivity piece only if we add in our actives products then the number does get to about 6,000.

One quick follow-up. The operating income within the network solutions small segment which has been somewhat of a struggle, it's seen some improvement. Is there a path that you actually see now based on all these different things you've done that you could actually see that being a positive contributor to the results or its still…

Yes, the answer to that is yes. A large element of it, although not exclusively, a large element of it is volume related and based on the pipeline, based on some of the opportunities and discussions, it gives us encouragement that the volume trajectory will help us get there. There are some additional efficiencies and cost reductions that can be made overtime, but essentially for that business it really is a for the most part going forward it will be a volume, a volume driven business. Most of that again based on what I said earlier, where we expect to see some of that in the second half of our year.

The next question comes from the line of NikosTheodosopoulos from UBS. Your line is open.

Do you have an operating margin for the quarter if you strip out the stock option expense?

Niko, we haven't been reporting that. What we did was we gave you what the stock option expense would be for the year of about $13 million. That's heavily weighted towards the first quarter because of that one time charge. The normal run rate is about 2 million for quarter for options so in the first quarter there was $6 million of [comp off stock option comp special], comp expense related to stock options.

I didn't hear or maybe I missed it, did you talk about 10% customers in magnitude?

No that question hadn't come up on this call, but we have two of them. It's the same two AT&T and Verizon.

Do they stay about the same as a percentage of sales as they usually are?

Nikos, as we reported back in the last quarter's call, we were seeing a significant drop off in one of those customers and so AT&T actually were still on the low 20 percentage range, 22%-23%, Verizon came in around 11% this quarter.

As you talked about the seasonality this year and potentially a 10% sequential improvement in the third quarter, in sales and maybe improvement from there in the fourth quarter, won't those types of volumes lead to material increases in gross margin? Where do you think the gross margin can go if you were to see those types of revenue ramps in the second half of the year?

Again if we sort of use some benchmarks typically a 10% rise in revenue would translate on a pure mathematical basis into about a 1 percentage point lift in gross margins, but you got to remember two things. One is the outside plant phenomena that I mentioned as you move for later in the year and then secondly, we are sort of over a long period of time are fighting the decline of copper which I would acknowledge is becoming a smaller piece of the overall business. So the follow-up is having less of an impact. Nonetheless that's a high margin product that continues to decline. So that has some offsetting impact as well.

And the other thing Niko is, if we're successful in some of the revenue in the later half coming out of emerging markets, that's somewhat margin sensitive as well. So when we look at it unbalanced, we feel pretty good where all this things in a mix with the margin opportunities that Jim talked to. Clearly depending on the mix, if those revenue level, there is the potential for a little bit of uplift.

And if you look at, as you get into this past this year, do you think the operating margin on this business can sustainably be above 10%.

I think that's very definitely possible and that's something that we obviously have been working towards and we'll continue to work towards. I think for us Nikos it's more going to be a function at this stage of the game of growth. We have a lot of initiatives, as we mentioned earlier that we're very sensitive to volume and we have a lot more opportunity to take overall cost out of the business and create efficiencies. One other things that we have been doing for, I am guessing slightly more than 14, 15 months was the introduction of lean sigma application to our connectivity business and other parts of the company and this has proven in a very short period of time to be very, very beneficial. I think we've calculated we saved something in the neighborhood of close to $20 to $27 million. We've also only touched the tip of the iceberg because so far we have focused mainly lean on mainly on our Minnesota operations and have recently started this in Mexico. We have yet to implement in Asia and Czech Republic. So across the board, we think there is a lot more opportunity just with lean tools alone. Not to mention the restructuring work that we're doing and the transfer and optimization of production in various plants around the world. So, I think we have a lot of tools to work with, to continue to work on total cost structure. At the same time, volume to the extent that we can drive our top line volume, it will produce I think outsized results on the bottom line.

Your next comes from the line of Simon Leopold from Morgan Keegan. Your line is open.

Wanted to start with the housekeeping question. You let us know the contributions from the Century Man business in this quarter?

You said the contribution I mean we…

I mean the revenue.

Well, we did almost $23 million in business in China for the quarter. We're not really breaking our Century Man as a separate piece there because increasingly those businesses are becoming integrated, but the vast majority of that $23 million comes from the Century Man operation.

Okay and I guess really what I am looking for is the China exposure. So that number is fine. And I am just wondering in terms of the forecast for the March quarter, you are coming into the Chinese New Year typically slowdown, do you anticipate that business softening up in the March quarter?

Yes, I mean we normally would see that beginning about now and certainly we expect to see some impact to that but as Bob stated earlier, I mean the trajectory in China which I mean many have sort of predicted would fall off, we're really not seeing that in the business overall. So we would expect that business to come back in form of thereafter.

And that reduction, that impact due to that, that's incorporated in our outlook.

In this quarter, the quarter you just reported, the fiber connectivity business is actually a little bit better than I would have anticipated, particularly in light of the slowing activity that you've talked about in the past from the large customer. Could you give us a little bit more color on what went on within your fiber business that struck maybe between central office and the access?

Look that differently, Century Man contributed to some of that fiber growth and also, there was growth quarter-over-quarter in EMEA as well.

And just one last one, during the prepared remarks you referred to or you made a comment pursue strategic opportunities which I interpret as considering acquisition. You've talked about your thoughts on that before and I just like to get a status update on how you're thinking about it, what your philosophy is in terms of targets and size. Thanks.

Sure. Well as you can see, we talked about it for a long time now and haven't done anything since Centaury Man for good reason. The opportunities have not been conducive to what we'd like to see in terms of the transaction. So we clearly recognize that in a consolidating market there are opportunities to grow the business, gain scale and add strategic value to a company through MNA, but only if done right and so we have been very selective and very careful in evaluating those opportunity. We also believe we have right now arguably a reasonably good pipeline of organic opportunities as some of the things that we mentioned earlier in the call come to fruition. The stimulus program, some of the international FTT, [e-bills], data center growth etcetera. So the statement that I made covers the ability to support and invest in organic growth and the ability to make an acquisition if that's in the best interest of the company. So we have been very careful, you can see that. We haven't done anything in a while. We constantly look and evaluate opportunities, but right now we're still looking.

Your next question comes from the line of Greg Mesniaeff with (inaudible). Please go ahead, your line is open.

Its Needham & Company, question regarding the expected sort of improvement that you are kind of alluding to for the remainder of the year. If you look at it geographically, what regions of the world obviously, China being one of them do you see the greatest contribution coming from, as the recovery progresses.

I'll comment, I'll ask Jim to comment as well. As I look out, I see opportunities in all regions. I see opportunities in the Asia Pac region. We see opportunities in EMEA and VC the US market also offering significant opportunity. So it's hard to put them into percentage terms as I alluded to earlier and we consider the US market is the larger market, you got the lot large numbers obviously, but we see significant opportunity in the domestic market as well. So, we're very pleased that all geographies offer us opportunity over the balance of the year.

Do you see the current improvement in DSOs continuing and is that all impacted by the geographic mix?

It is impacted to some extent by geographic mix simply because in certain areas, collection and payment practices are somewhat different to the extent for example that our business in China were to grow to be a great percentage of the business, that would probably drive DSOs out a little bit. Having said that, we have a fairly intense global focus on all of our collection activities and so my expectation is that the sum of that would be some on going improvement.

Your next question comes from the line George Notter from Jefferies. Your line is open.

Hey I wanted to ask you about the network solutions division. It looks like you took the operating loss there down about $6 million sequentially, revenues increased about a $1 million or $1.5 million sequentially. So I guess I am trying obviously the divestiture I think helps there, but I looking, if you guys can kind of parse out the improvement that you got sequentially and possibly network solutions and then looking forward, where do you think the right levers are there to continue to get that business back to breakeven and what you think the timing would be there. Thanks.

Sure. Well as Bob said earlier George, I mean that's a very volume sensitive business, and as you know our acquisition of LGC, the rationale for that was largely around a growing in building active wireless business. So the really good news they we're starting to see that growth comeback and so as we can drive that and hopefully double digit and above growth, that's going to really help leverage that business up and take care of some of those losses. Meanwhile, we continue to really be careful on cost. You mentioned the sell off of the mobile network solutions piece of that business. Certainly that portion of the business was losing money and that helps our results, but we see its continued trajectory both leverage of the top line and continued efforts around our cost there that we think we've got a line of sight toward potentially breakeven by the end of the year.

End of your fiscal year?

Correct.

Okay, got it. And then just one separate question on the option rate securities, any update there? Obviously you've had a lot of write downs over the years. I believe there is an arbitration claim coming up at some point here, I think this summer. Can you give us an update there? Do you have any expectations for recovery at all on that issue? Thanks.

It would be certainly imprudent to try to speculate on the outcome of an arbitration hearing or litigation or anything else that's going on. You are correct. We've got this arbitration claim that's been filed well over a year ago. It's continuing to be in the discovery phase and it's scheduled to come up for hearing in June of this year. So, all I could really add to your comment is that its ongoing, its very active and it probably would not be wise to set any expectation out of that but certainly we feel that our position in this is one that justifies recovery. We'll have to see what the outcome is.

Your next question comes from the line of Blair King from Avondale Partners. Your line is now open.

Congratulations on a pretty good quarter. Wanted to just circle back on the OpEx if you don't mind and it would appear that after divesting the GSM piece of the business, you might have added about $2.5 million or so to OpEx at least the way I'm looking at it, I am sorry taken out $2.5 million. I guess the question is that the right way to think about it and if it is, is that incremental off of the $1 to $2 million increase to the OpEx savings that are attributed to the accelerated restructuring activities?

Let me give you a little bit broader answer that I hope will kind of get you what your looking for but also probably put things in balance of last year including the mobile network solutions business that has been divested. We had sort of set a goal throughout the year to try to get under $80 million a quarter in adjusted OpEx and we were successful in doing that, and we knew going into this year because we would again hope to meet our plan and pay a reasonable level of incentive that were not available last year and I think for everybody it was a tough year, very modest mired increases, some continuing rise in health cost and a few other just general inflationary factors. We knew that that number this year was going to jump back into the low $82 million to $83 million range as our early guidance for the year laid out. We did have this one time adjustment that I mentioned that turned out to be a $4 million adjustment to stock compensation that was just in this first quarter. As that goes away, admittedly the mobile network solution helps bring down our operating expense, the divestiture of that but in fact we see now a path to be back around that $80 million or below range by the third quarter and if you sort of parse all that out, you would say we've been able to overcome FX impacts, the merit increase, the incentive compensation increases and the increase in employee benefit cost principally associated with the healthcare cost. So in general I would say we have probably again this year taken out $2 million to $3 million, probably $2 million to $3 million a quarter in operating expense and probably $2 million associated with M&S businesses, a little bit of a tail wind for that.

Last question, there hasn't been a lot of talk about the enterprise segment. There was a little bit last quarter but certainly I think you guys had mentioned in your opening remarks that that was an area that you're starting to see some improved activity around. If you could just give some indication as to what the verticals are there, the drivers for the enterprise business that would be really helpful.

Yeah I mean traditionally we have been strong in financial hospitality gaming and recently we've achieved success in entering the education, government, healthcare and energy verticals. So our ability to get business beyond those three verticals has developed in a very positive way. So we see the ability to leverage that over the course of the year. We also recognize one of the opportunities for companies to become more efficient is to improve the data center operations, consolidate data centers and so we believe there is going to be lot of activity going on in that space and then of course capacity upgrades. So with strength in our three historical vertical and the adding of three to four more we think is going to serve us well over the course of the year. And then as we enter the end of the year we're targeting to introduce some new products into that space as well.

Next question come from the line of Larry Harris with CL King. Your line is open

I apologize if this question was already asked but what do you see as being the tax rate for this year?

We have generally modeled in the sort of high single digits, probably 10% or less. It varies quarter-to-quarter. Right now we're still not a tax payer in the U.S. and so it depends an awful lot on the areas outside of the U.S. where we have taxable income. So in general I would expect it probably to vary from 5% to 10% and may be on average in the upper single digits.

And will that probably continue to hold through for 2011?

Its hard to say. Right now these tax assets are essentially fully reserved and its hard to predict at what point we might begin to reverse that valuation allowance on them. So for right now that's our expectation but I wouldn't want to predict that far out because we could at some point decide that future profitability warrants are reversing some of those reserves in which case obviously the rate reverse more to a normal rate.

I see okay. And there was earlier a discussion of a large U.S. customer that had changed their inventory purchasing patterns. Could we perhaps see a bounce back in terms of that customer as a percentage of revenues once they complete that transition or with this past quarter, be seen as pretty typical for them going forward?

I would say we have been stable the past three months with that customer. I would say with seasonality and some other opportunities we would expect the number to go up but may be not exactly returning to historical levels obviously.

Understand.

Your next question comes from the line of Brian Coyne from Wedge Partners. Your line is open.

I just have one question. I wanted to come back for a moment to OpEx and I believe you clearly said you put your cost separates on this quite relatively evenly between cost of goods sold and the OpEx line and again it sort of sounds like your position to run again a little bit leaner now in the prior couple of quarters and with your gross margin guidance relatively flat, should we sort of, thinking about a chance that OpEx goes well below $80 million again in the fiscal year?

Well again the timing of some of these actions is difficult to predict. When I gave guidance last quarter we said that we thought we would achieve an $80 million run rate by the third quarter. We now think that we may hit that number in the second quarter. So could it come down from there? Yes it could come into the high 70s by the end of the year. That would be a good result from my perspective but certainly is a possibility.

And again if your going to say $14 million - $15 million - $16 million a quarter relative to the prior plan, is it still going to end up being split half and half between two with your line?

Hang on just a second. You are correct. The early cost savings that we had taken out mostly by the end of FY09 was pretty evenly split. Hang on just a second. So between OpEx and COGS I would say probably the balance is still pretty well even between the two, may be with a little bit of lean toward OpEx.

Okay thanks. Operator I think that we'll end the call here. Appreciate everybody for being on the line.

This concludes today's conference call you may now disconnect.