Ladies and gentlemen, thank you for standing by and welcome to the Aviat Networks conference call. At this time, all participants are in a listen-only mode. Later, we will open up the call for your questions. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes. I would now like to hand the conference call over to Cynthia Johnson. Cynthia, you may begin.

Thank you, operator. Good afternoon, everybody and welcome to our fourth quarter fiscal 2010 earnings call. This is Cynthia Johnson and I am joined by Chuck Kissner, Chairman and Chief Executive Officer; and Tom Cronan, Senior Vice President and Chief Financial Officer. During this conference call, we may make forward-looking statements regarding our business, including statements relating to projections of earnings and revenues, business drivers such as the transition to IP infrastructure, the timing and capabilities of new products, network expansion by mobile and private network operators, and variations of economic recovery in different regions. These and other forward-looking statements involved assumptions, risks and uncertainties that could cause actual results to differ materially from those statements. For more information, please see the press release and the filings made by the company with the SEC. These can be found on the Investor Relations section of our company website, which is www.aviatnetworks.com. Now I would like to turn the call over to Chuck Kissner, Chairman and Chief Executive Officer of Aviat Networks. Chuck?

Thanks, Cindy, and thank you all for joining us today. During the conference call today, I'm going to will provide a general overview first and then Tom will provide a detailed financial review of our fourth quarter 2010 and some specifics on the restructuring that we recently announced, and then he will provide a discussion on our guidance for Q1, and then I will provide an update on our business status, market conditions, and our short and long-term strategy. So, first, the overview. Our revenue at $116.3 million came in within the range of the revised guidance of $115 million to $120 million. While there were some issues around parts shortages and the backend loading in shipments, our demand activity was still relatively flat during most of the quarter. While we have seen some uptick in business in the last few weeks, our short-term forward guidance reflects caution about demand in the first quarter. Non-GAAP profitability for the quarter was primarily affected by the company's legacy OpEx levels. Starting in the current period, we have begun to address our current – our cost structure with the implementation of key actions from our previously announced restructuring plan. Tom is going to discuss the short and long-term impacts of our restructuring plan in more detail during his prepared remarks. Cash collections were again good for the quarter. So as we enter the most significant phases of our restructuring, and the focus and acceleration of new product development, we are beginning with a strong balance sheet. Before I turn the call over to Tom, I would like to mention our views on the overall state of our industry. We are pleased actually to say the industry conditions seem to be stabilizing. In addition to that, end user demand for bandwidth continues to increase, even though capital expenditure is a constraint. And finally, we are seeing new vertical market opportunities present themselves. So while our fourth quarter results were disappointing, these reasons give us reason to be cautiously optimistic about fiscal year 2011. With that, I will turn the call over to Tom. Tom?

Thank you, Chuck. Today, in addition to the detailed financial review, I will discuss the option of new revenue recognition standards, the decision to write off $71.1 million in intangibles, and other intangible long-term assets, and the impact of the financial restructuring on our forward-looking model. Let me start with a review of the GAAP financial performance for the quarter ended July 2nd, 2010. Fourth quarter revenue was $116.3 million and we reported a net loss of $88.8 million or minus $1.49 per share. GAAP results included $83.5 million of pretax charges, primarily composed of the following; $71.1 million related to intangibles and other asset impairment charges, $3.2 million was for the amortization of purchased intangibles, $4.2 million was for software and other impairment charges, and $5.1 million of stock compensation and restructuring charges. These charges were offset in part by gains of $2.2 million from the sale of the San Antonio facility and from the final settlement of the Telsima acquisition purchase price. These charges were substantially non-cash charges. The decision to write off the intangibles and other long-term assets was necessitated by the low market capitalization of the company. The accounting rules require periodic assessment for the goodwill and intangibles. Given the low market capitalization over a sustained period of time and independent assessment of the company's intangibles and other long-term assets did not support the book value and resulted in the decision to make the write-off. On a going-forward basis, the reduction in intangibles and the other long-term assets will result in lowering our depreciation and amortization by $12 million annually. Now, I would like to present the details of the quarter based on non-GAAP results. We believe the supplemental non-GAAP financial results reflect the basic operating results of the company. We will facilitate comparisons of our…

Thanks, Tom. Before I get started, I wanted to just make one note. Some investors have asked why I took on the job of CEO of Aviat Networks about eight weeks ago. Maybe they were trying to make their own decisions, I'm not sure. But I just wanted to tell you what my thinking was there. One is our core business is sound. Secondly, even though there are challenging market conditions, it's clear to me that with appropriate management of our costs, our business can operate profitably and deliver a consistent free cash flow. Third, we have highly skilled employees who can develop innovative new products and that's necessary for the future. We have an attractive customer base that continues to stand behind us and wants us to be successful. And finally, we operate in a market segment itself that provides opportunities for long-term growth. For all of those reasons and I think also reinforced by how people and how they have responded to the initiatives that we've kicked off in the last few weeks, I'm quite optimistic about the long-term prospects for the company. So obviously fiscal 2010 was a challenging year, not only because of the economic turmoil, but obviously because of our own internal issues. As a result of the market though, we did experience delayed purchases, longer sales cycles, and limited visibility that affected orders. And frankly, the company was slow to make the changes that were required for these conditions. And as you heard from Tom, we don't really expect fiscal 2011 to be easy. But by the end of this fiscal year, we do expect to have made substantial progress through a series of initiatives that I will be discussing in a little more detail and will have fully implemented the cost reductions necessary…

Thanks very much, Chuck. That concludes our prepared remarks. Operator, you can go ahead and open up the lines for questions.

Yes, ma'am. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Our first question comes from the line of Rich Valera with Needham & Company. Please go ahead.

Thank you. First up, I would like to welcome you back, Chuck and wish you best of luck in your new tenure here.

Thank you.

Thanks. And then, first, I just wanted to make sure I understood the gross margin commentary. Tom, could you clarify if there was any of the type of benefit in the gross margin line that you were seeing from the Saudi program in this quarter?

A little bit. As you can see, our commissions were way down comparatively to the previous quarter. So there was a small amount, but not very much.

Okay. I guess, what has me confused is you mentioned it sounds like there is $4 million of what sounds like one-time scrap charges. Was that in your pro forma gross margin or was that backed out?

No, it was. It was in the margin.

So if you don't have that next quarter, you would have gross margins pushing the mid-30% range. So what am I missing here? Why wouldn't margins move up pretty sharply here in the absence of these charges going forward?

Well, we are intending to take another $6 million charge next quarter. That's related to change in accounting. That's the primary reason for saying that we expect our margins to be going down. We also expect to have the same circumstances where we will have a large amount of revenue coming through from our Indian WiMAX, that contract.

Okay. But then move to, say, Q3 again, without that $4 million charge and now without an accounting charge and presumably now with the full benefit of the Austin shutdown behind you, it – I'm having a hard time understanding why mid-30s isn't where the gross margin is as opposed to you talked about a Q4 gross margin of 32%, 33%, which doesn't seem to really jive with what you are talking about in the near term here. Am I missing something, is there something else in the mix that maybe isn't obvious?

I think as look forward, we make predictions about where we think pricing is going versus costs and we – in our – when we model, we are relatively conservative in our model of what we think the price is going to do versus our ability to do costs at the same rate. So I think that's probably the difference in our two views.

Okay. And if I could, just one more on gross margin. If you back out the $6 million charge next quarter, could you give us a sense of what you would expect gross margin to do on a sequential basis? It would be up presumably?

Yes, it would be. It would be up, probably 100 basis points from where we were this quarter.

Without the 600 – without the $6 million charge?

Right.

Okay, that's quite helpful. And then I wanted to clarify on your discussion of OpEx and how that should trend over the next several quarters. Should we be using the baseline in Q4 of $43 million and subtracting essentially $6 million to $8 million from that for the reduction in SG&A? Is that the right way to think about it?

Yes, that's correct.

Okay. That's quite helpful. And then Chuck, on the bookings side, your commentary was fairly encouraging with respect to the improvements you are seeing in EMER, I guess, with – or the end for Russia and in North America. And I guess there was some weakness in Asia, but your bookings were near recent low here of a book-to-bill of 1 with $116 million of revenue. So trying to reconcile those two items, was Asia that weak that it offset some nice acceleration in EMER and North America?

Well, I think the Africa was particularly weak and I think that tended to drag the whole thing down. I think we are still struggling to see that one come back. Actually, that would be biggest thing and Asia-Pac was weak as well. I guess what I was trying to portray there is there is the things that were key drivers of the revenue being down in FY '10. A couple of those things seem to be turning around right now. I don't think everything has turned around, but I don't think things have gotten worse. Some things have gotten better. I guess I am also somewhat influenced by – when we refocused our efforts, we also brought the entire sales team in and the input from the sales team and what I have seen since then in terms of forecast of results and so on are also very encouraging.

So I know you don't want to talk about revenue beyond this current quarter we are in. But I will ask you anyway. I mean, do you have any sense of where we could be looking at revenue as we exit this fiscal year? Presumably, you are looking for something materially higher than what you are forecasting for in the first quarter and just wondering if you are willing to take a stab at where revenue might trend over the course of the year.

Well, obviously, we have a plan internally, and we have a goal for the Board, but we don't make those projections.

Okay. Fair enough.

But you knew I was going to say that.

Yes – no, I figured I had to ask though. And then on WiMAX, I want to try to understand what the kind of realignment of this business means. I mean, you clearly have a – have had some significant backlog from the BSNL win and you are now delivering that. Reading between the lines, it sounds like you are going to, in some form, reduce investment in this product. And just wondering how we should think about future WiMAX revenue. At one point, I think it was seen as – mainly the BSNL deal could be, I think something approaching $50 million a year and then you are adding other stuff on to that. And just wondering how we should think about that business going forward given the new strategy for it.

Yes, I think it's – we will certainly meet all of our customer obligations in that regard, wherever we have those kinds of applications for WiMAX. We are aggressively finishing up the developments that are required to meet that. But I think the economics of that for us and the focusing on it causes on other parts of the business, it would be lucrative. We would say we are probably not going to be adding to that part of the business at all. Also, I want to reemphasize that we do think it's a technology. So it will be increasingly more difficult to report this or to talk about this as a separate item, because it's going to be used in a complete wireless transmission solution that goes beyond just backhaul. So I think it will be important to us, but it won't be – certainly, as a standalone business, identifiable business, probably a couple of years from now, I would be surprised if we could identify it that way.

Okay, that's helpful. And then Tom, if you could give us any more color on what's going on with the big Mideast contract? Can you see if you – it sounds like you recognized some revenue in the quarter, but less than you did in the third quarter; can you give us a sense of how much is left on that contract?

So we still have some backlog for product shipments in that contract which we would expect to ship during the first quarter and the second quarter. And by the end of the second quarter, we would have shipped the product portion of that contract. That's our expectation, assuming we make the shipments in the second quarter that we are currently expecting. And then the remainder of the revenue under that contract would be serviced. So we are definitely getting into the sort of latter portion of that agreement.

Can you say if you expect sort of similar levels to what you saw in the fourth quarter in Q1 and Q2 or just give us any sense of the changing magnitude of that as piece of your business over those couple of quarters?

So if we are able to ship what we have in backlog, it should be back to Q3 levels in Q1 and Q2.

Okay, that's helpful. And then final question for me. You mentioned you expected to burn some cash as you go through this restructuring. Would you be willing to put any kind of balance around how much cash you might expect to burn over the next couple of quarters as you do the restructuring?

Yes, I think our current view is that it's in the range of $10 million to $12 million for the first couple of quarters and then we start to rebound from there, and we will be generating cash by the fourth quarter.

Okay, that's helpful. That's it for me. Thanks again for taking my questions, and good luck, Chuck.

Thanks.

Thanks.

Thank you. And our next question comes from the line of Matt Thornton with Avian Securities. Please go ahead.

Hi, Matt.

Good afternoon, guys. How are you?

Good.

Good. We just kind of drilled down on gross margin. So maybe we can start off there. If you look at some of your closest peers, they are targeting and reporting gross margins in let's call a 35% and 40%. Can you just kind of walk us through what the differential is or what the delta is there? Is it the WiMAX assets that created the delta, is it the services business here or is it some of the legacy, low-cap business that drives us here? But can you kind of walk us through the puts and takes there?

Yes. So I think specifically when you are talking about some of the separately reporting companies, they have a much larger percentage exposure to their revenue in North America, especially than we did this quarter. And so I think you can look at some of the regional differences, especially North America and see that they are driving a lot of their margin – if you would ask them, margin by margin. They are driving a lot of their margin from North America. And so we have more of a balanced business where two-thirds of it generally is coming from non-North American sources and a heavy portion from Asia and Africa. So I think it's – geography would be the general driver. We have looked at our services business and our services business is actually contributing at a reasonable level, it wouldn't be a drag on trying to get to the mid-30s. So I think as far as – as we can tell from our analysis, which we have been looking in great detail in the last couple of months, it's – currently, the biggest differences between us and our competitors is really geography.

Okay. And then Tom, I think you mentioned in the breakout, the $30 million to $35 million that you guys are looking to reduce this year, some of that would come out of COGS. What was the split there again – I'm sorry, OpEx versus COGS?

What we said was on a quarterly comparison basis that you would see the OpEx comparison between Q4 of fiscal year '10 and Q4 fiscal year '11 that there would be a reduction of $6 million to $8 million in OpEx.

Okay. And just kind of turning now to the guidance for the September quarter here, it looks like we've got – we've got a couple of things. I would assume that there is probably some recoup from some of the orders that didn't ship in the June [ph] quarter that you would probably recoup in the September quarter. On the other hand, we have some component constraints that continue to be a bit of a headwind here. But maybe you can just talk to a couple of the other key programs that you didn't talk about. So Uninor, BSNL, just talk about how the revenue is trending there. And then just also talk about the level of – I don't want to say conservatism, but if we look back versus the last three or four quarters, obviously we have come up short. So I'm just trying to gauge how you look at this guidance relative to where we have been in the last couple of quarters here.

Well, this is Chuck. I – there is a level of detail employed there that I'm not sure we can really get into. There is always puts and takes. There is always things that went from one quarter to the next and you probably won't hear us talk as much about that going forward about things that slip, because something like that happens every quarter. I guess my only general answer to the question is we understand that we have disappointed quite a few times right now and we are building that into our guidance, we are building that into our thinking. There is no guarantees in life, but I guess you can just draw a conclusion from that. This is something we believe we can reasonably achieve.

And – and I guess just one final question from me. Looking at the EMER region, I mean – and maybe this is a question for Chuck. How much of this is macro, how much of this is share loss to Huawei and perhaps some of your local specialists in the area? And I guess, what do we have to do and what's the timeline to being able to compete and sustain share and ultimately grow share in this region, which is obviously very challenged?

Yes, I think that region – I don't know that I have – of course, we don't win all business we go after obviously. But from what I have been able to see so far, I haven’t seen anything in terms of abnormal losses to competitors including Huawei, at least not at this point. The big swinger here I think is Russia and that's going to make or break it. We did have Eastern Europe business kind of dropped off a couple of years. And so I think we are sort of past that right now. That was driven by a lot by network build-out and economic conditions. I'm not – I don't see that coming back in any big way anytime soon right now. But I think Russia will be the swing around this thing. So if you talk about that region, I don't think it's because of share loss.

Okay. And just one more if I could actually, it started to jump around. But over in North America, I think you alluded to the Verizon Wireless and you also alluded to the nice broadband (inaudible) win that you have in the U.S. How do we expect those to ramp in the coming quarters here? Should we expect material revenues in the September quarter or is this further out?

I think there will be revenues in every quarter and I – my general expectation is like all large contracts that tends to ramp up in a very slow manner and I think that's what you have been seeing on these deals that we have had over the last couple of years. I don't see anything different here. It's something that will build momentum over time, I would imagine, it will really start to show up more significantly in the second half of the year and early in FY '12. So I think the gamelan here is just – we have to just keep stacking these things up. I don't think we are going after the big swinger that's going to swing us one way or the other in the quarter.

All right. Great. Thanks for the clarity. I'll jump back in the queue. Thanks, guys.

Okay.

Thank you. And our next question comes from the line of Colin Denman with D.A. Davidson. Please go ahead.

Hi, guys. Thanks a lot for taking my question. So I just wanted to drill down here on the top line a little bit. I'm having a little bit of hard time understanding the dynamics in this quarter or the reported quarter. Specifically on North America, I think that was one of the big reasons for the shortfall last quarter, the $10 million there. And I think you guys mentioned that about 50% of that was due to some push-outs and about 50% of that was just seasonality. And so I was kind of expecting if some of that deferred revenue came in this quarter that we might see a sequential uptick there. It looks like it was down a little bit. So I was just wondering kind of how did that differ from your expectations and either did you see some of that deferred either go away or were there some losses in parts of your North American business that maybe contributed to that.

I think it was just timing issues. As we – we did get the revenue on the ones that were pushed into this quarter, but there were other things that push out to the next quarter as well. So I think it – a lot of it has to do with just the expectation, the ramp on a few of these deals and then what actually happened. And we are not perfect projecting when orders will come in and when we would actually see shipments on them. So part of it just the normal sort of timing and the expectations versus what actually happened. I would say the other thing in North America is, because of the disruption associated with moving out of our factory and getting our supply chain going with our contract manufacturers is that we are behind in the backlog much more than we would like to be. And we have been working really hard to catch up and we expect by the end of this quarter, we will have caught up to several of these orders that have been in process that we haven’t been – actually been able to fulfill. And that's really related to this transition that we have been going through in the last two quarters that we hope to really have completed and caught up to the demand by the end of this quarter.

Do you – given that, do you think that the deferred revenue from the North American region actually increased this quarter instead of drawing some of that down into your revenue this quarter?

They would have been backlog, not deferred revenue. But I don't have those numbers in front of me. So I would be guessing.

Okay. And just a little bit more generally on the top line, just – I'm having a little bit of a hard time connecting the commentary with the results you have reported, only because in previous quarters some of the issues had been the accounting – shift in the accounting mechanism and some other push-outs, and it sounds like you shipped on the Mideast contract and some to BT and you got about $8 million from the shift in the accounting standard. And so I was – it all seemed like overhangs to me before that I thought would have helped you meet the range this quarter. And so are you – is there any particular geography where you are seeing share loss or is there any – it sounds like the commentary that the – that I wondering, given these things that went correctly, what – kind of what was the put and take there that you think was the real difference between your initial expectation and the results?

Well, I would say first in EMER, there was a substantial lower shipment to the Middle East contract this quarter than we might have anticipated and it's moved out into Q1, so from Q4 to Q1. We talked about that on the earlier question. And so that was part of the reason why Europe was down about the most – in the EMER region, was down the most of each of the segments. And then if we look at North America, I think, as you said, our expectations would have been higher. And when we look across the board and everything was a little bit lower than we wanted it to be. So I think you are talking a million here, a million there for each of the regions and when you add it up, the difference between what our sort of going-in expectation and our ending expectation here.

Okay, thanks. And then just transitioning to Africa a little bit, I know that one of the concerns with Bharti and Zain combination there that Zain has traditionally used you guys and there was concern whether Bharti would follow suit. And it sounds like you have got sort of your first order there. Is that something that – are you feeling pretty confident that you are not likely to lose that revenue stream there? Or have you got any indication around that?

We are feeling pretty good right now, but there is no guarantees in life. But we have had no indication now that we are going to lose that. I think our issues there mostly revolve around MTN, the speed at which they are ordering right now. But the Bharti thing seems to be okay right now or the Zain.

Okay. And then just a last question from me. And I don't know if you guys would provide this, but what kind of – given your guidance and your backlog, what kind of turns business do you think you are going to need to kind of hit the midpoint of your guidance this quarter?

Yes. So we don't generally talk about turns, especially it has been complicated because of our transition. So I think we will defer on that question.

Yes. Well, thanks a lot, guys and good luck.

Thank you.

Thanks.

Thank you. And our next question comes from the line of Joanna Makris with Mizuho Securities. Please go ahead.

Hi, good afternoon. I understand that you don't want to give too much specificity on fiscal 2011, but broadly speaking, do you think the company can grow revenue on a year-over-year basis?

Okay. We are getting a lot of interference on your line, Joanna.

Oh, I'm sorry. I understood that you don't want to give too much specificity on fiscal 2011. But just broadly speaking, do you think the company can achieve year-over-year revenue growth in fiscal 2011?

Yes, we think we can achieve. But we are not – (inaudible) that number.

Okay. Fair enough. And then just on North America, maybe if you could comment generally on opportunities such as the smart grid or stimulus and potential contribution to North America revenues for this fiscal year?

Yes. So I think we talked about in the forward-looking guidance about both Verizon and our stimulus win. So those were the two that we are probably focused on in the next couple of quarters as being ones that would make a difference on the quarter. The rest of it sort of our business as usual. And then the biggest – you know, the biggest impact last quarter, as we talked about, is really the factory transition and our ability to stay ahead of our order demand in North America.

And then just lastly, on the competitive standpoint, have you seen any change from suppliers such as Nokia Siemens? Obviously, they talked about their FlexiPacket and seen some initial volume shipment for the June quarter and actually (inaudible) from some of the larger incumbent OEMs from a competitive standpoint.

Sorry, Joanna. We are – really the static is so high that I am having trouble understanding what you are saying.

I'm sorry. Any change out of – in particular, Nokia Siemens? They did talk quite a bit about their FlexiPacket and about their position in there.

Well, there is a – everybody is introducing new products all the time, including us. And I guess that one, we've known about for a long time and I haven’t seen much of an impact on the marketplace right now. Certainly, where they are selling an integrated solution, we really haven’t been a participant in that any way. So I think that's mostly what that is saying.

All right, thank you.

Okay.

Thanks, Joanna.

Thank you. And our next question comes from the line of James Faucette with Pacific Crest Securities. Please go ahead.

Yes, hi. This is Nathan Johnson, calling for James. Just a few questions. Firstly, more high level questions. I wanted to get a sense for what you guys think has to happen for you guys to start seeing revenue growth again.

Well, first of all, we have to have a stable economic situation. That's absolutely critical and especially in the areas of the world where we have had some shortfall in FY '10. So if Russia continues to come back as it seems to be coming back and if Africa business starts to improve, I think that will go a long way toward stabilizing and giving us a platform to grow. I think just longer term, we have a responsibility to generate products that have a great deal of value and are competitive and frankly, we do have some work to do. We are – I think we are in reasonable shape right now, but we have to really be ahead of people to really do well. And so we have accelerated some product developments in the company and we think that's going to be critical toward growing the top line. So those would be the two things.

Great. That's very helpful. And then I wanted to clarify on the SG&A reductions. You guys did a very good job of kind of explaining the run rate of Q4 to Q4. But how fast do you expect the SG&A reduction to take place throughout fiscal 2011?

So I think we said we would complete the actions by the end of Q3. So you would see the full results in Q4. I think it will take – it has taken us a little bit to get going. So you will see some modest improvement in Q1. You will greater improvement in Q2 and then some incremental improvement in Q3. So it will come through each of the quarters over the next three quarters. The biggest sort of step function will probably occur in the end of Q2, so you will see it in Q3.

Okay, great. That's very helpful. And then last thing, coming back a little bit on the discussion related to product capability, just wanted to know what kind of lead you guys think you have over competitors right now and what you think that your product lineup is going to look like versus competitors as you go through the cost-cutting efforts. Obviously, we are concerned that you guys are able to stay competitive as you go through the cost-cutting and the associated disruption of that.

Yes. Again, to emphasize something that Tom said, we are being – I think strategic in terms of where we are cutting cost and our relative spending to – in R&D and new product introduction as a percentage of our spending is actually going to go up as a result of this. In addition, there is an area where we probably haven’t paid enough attention over the past couple of years or maybe longer. So I think we are feeling pretty good actually about our ability to generate innovation in new products. In terms of where we stand right now, I would say we are probably – it depends geographically and by application. I think in some areas we are ahead – and I'm not trying to avoid the question, but the truth is in some areas we are ahead, in some areas we are on par, in some areas we are not as – we are more behind than I would like to be right now, given maybe not today's business, but maybe six months from now. So we have taken certain developments and accelerated the priority of those for this year and when those are complete, I think we will feel pretty good about our competitiveness towards the tail part of this year that we will be able to maintain a lead. Probably more importantly, we have got other technology that we have identified that we plan to implement that would create another wave of product introductions sometime in FY '12. And I think if we are successful in that – dealing with this level of technology, there is no guarantees. But if we are successful with that, I think we will again we go pretty far ahead as we have in the past.

Great. Thanks so much for taking my questions.

Sure.

Thank you. And our next question comes from the line of Neal Waggoner with Stephens Inc. Please go ahead.

Hi, guys. This is Neal. Thanks for taking my questions. Tom, just going back to the cost restructuring efforts, of the $30 million to $35 million projected cost savings, how should we be thinking about the allocation of cost savings between facility closure consolidation, employee headcount reduction, transition to the outsource manufacturing model, and then reduced focus on WiMAX spending?

That's a big range of things to talk about. So – now, we will have – a very large percentage of the $30 million is going to come out of headcount reductions, because as we look across our overall cost basis, about 65% to 70% of our costs is people and we want to be able to reduce the cost so that we have to impact people, so there is going to be a large reduction in order to get this cost reduction. As between OpEx and operating expense, there was already a large reduction as we went from manufacturing our own products to contract manufacturing model. That will continue, we will have some more savings on the operating – manufacturing, operating expense side too on the COGS, above the line of reductions. I don't have the numbers in front of me to give you a percentage split between each of these groups, but the – I think we really tried to outline where the margins would be and then where the OpEx would end up. And I think from a modeling standpoint, that's probably the most important measure.

Okay, that's fair enough. And then I guess, just following up on that, can you talk a little bit about how much you had been spending in the past on the WiMAX business, just in general?

I think we had – we have been saying that we were spending $4.5 million a quarter on the WiMAX business as a business. And you should expect to see a substantial reduction in that as we focus on that business as Chuck has been telling everyone on the call on the technology side of it and fulfilling the customer requirements in the current contracts that we have.

Okay, that's helpful. Thanks, Tom. And then Chuck, just longer term, could you talk about your outlook for the services business? What percentage of revenue could the services business grow to, and what's the potential corresponding margin impact as that business continues to grow going forward?

I can't give you the percentage of the business right now, where it's going to be, because that's part of the strategic plan that we are finishing right now. But I expect the financial performance to meet our corporate standard is. I don't expect it to be a drag on margins. And the way it's running right now, as Tom indicated, I think we have a pretty good shot at that.

Okay. Thanks, guys.

I think we have time for probably one more quick question and then we will have to cut the call off.

And our next question comes from the line of Larry Harris with CL King. Please go ahead.

Hi, Larry.

Hi. Welcome back.

Hi, Larry.

Just a question, in the past you have emphasized linearity and I guess it's a little challenging in the current environment. But do you think that maybe going a few quarters out, there could be some reductions in inventory or receivables as a result of the efforts that you are taking?

Well, first, thank you for bringing up linearity, because that was a mantra that was delivered the second day and people are working really hard now to make that happen, so we have obviously have better running and we are actually pretty encouraged how that's being embraced right now. Its effect on the financials – but what we are trying to push for right now is having the cost to deliver a unit of value to be much lower and that's the main emphasis of this linearity. So we don't have excess capacity that's required to do things in the last month. That's primary focus number one. I think we will see some improvement in turns, partly because of that – partly because we are narrowing the product line down as we go forward. I think this has been discussed on prior calls, but we are accelerating that as we go forward. I think that's going to have the biggest impact on the turns. Receivables, I think we are actually in pretty good shape on our – receivables collection has been running really well, which is one of the reasons why the cash is as good as it is right now. That being said, even as good on the mantra of continuous improvement, you probably can assume that we asked for receivables a turn – DSO improvement in the company. That's an internal objective.

Understood. Okay, thank you.

Welcome. Thanks.

Thank you. And ladies and gentlemen, that concludes our question-and-answer session. I will hand the conference back over to management for any further remarks.

No further remarks. Thanks very much, operator and that concludes the call.

Thank you.

Thank you.

And again, ladies and gentlemen, that does conclude the Aviat Networks conference call. Thank you for your participation. You may now disconnect.