Good day, everyone and welcome to the Ciena Corporationfourth quarter 2007 results conference call. Today’s conference is beingrecorded. At this time for opening remarks and introductions, I would like toturn the call over to the Chief Communications Officer, Ms. Suzanne Dulong.Please go ahead.

Thanks, Steve. Good morning and welcome, everyone. I ampleased to have with me Gary Smith, Ciena's CEO and President; and Joe Chinnici,our CFO. In addition, Steve Alexander, our Chief Technology Officer, will bewith us for the Q&A portion of today’s call. Our call this morning will be presented in three segments.Gary will provide some brief introductory comments, Joe will review thefinancial results for the fourth quarter, Gary will then discuss the businessin the quarter and our outlook for Q1. We’ll then open the call to questionsfrom the sell side analysts. To ensure we answer questions from as manyparticipants as possible, we ask that the sell siders limit themselves to onequestion. This morning’s press release is available on NationalBusinesswire and First Call. Before I turn the call over to Gary, I’ll remind you thatduring this call, we will be making some forward-looking statements. Suchstatements are based on current expectations, forecasts and assumptions of thecompany that include risks and uncertainties that could cause actual results todiffer materially from the statements discussed today. These statements shouldbe viewed in the context of the risk factors detailed in our 10-Q filed withthe SEC on August 31, 2007. The results we are discussing today are unaudited results.We continue to work through the process of our year-end audit and completingthe 10-K. Given our desire to be as forthcoming and timely as possible with ourdisclosure, we made the decision to present today’s unaudited results to you. We have until January 2nd to file our 10-K for our fiscal2007 and we expect to do so by then or before. Ciena assumes no obligation toupdate the information discussed in this conference call, whether as a resultof new information, future events or otherwise. Gary.

Thanks, Suzanne and good morning to everyone. Consistentexecution of our network specialist strategy and the well-timed introduction ofour FlexSelect architecture have enabled us to benefit from both pure networkcapacity related growth, as well as the trend towards ethernet IP based networkinfrastructures. As a result, for fiscal 2007, we were able to deliver aboveindustry average revenue growth, gross margin improvement, and operating marginexpansion. And our commitment to drive actions across the company toimprove our financial performance has helped us gain significant operatingleverage, driving Q4’s as adjusted operating profit to better than 15%. We believe that sustained execution of our strategypositions us for continued, measurable progress in growing the company anddelivering shareholder value. I’ll talk to our business in the fourth quarterand our outlook after Joe reviews the quarter’s results. Joe.

Thanks, Gary and good morning, everyone and happy holidays,of course. In the interest of time this morning, I’m going to focus themajority of my comments on the quarter’s results as opposed to talking aboutall the annual results, so getting started, this morning we reported fourth quarterrevenue totaling $216.2 million. This represents an increase of 5.5%sequentially and 35.2% year over year. We had two 10%-plus customers in the quarter that combinedto represent 46.5% of total sales in the fourth quarter. One was a NorthAmerican based customer; the other is an international customer. For the year,we had two 10%-plus customers, AT&T and Sprint. Combined, AT&T andSprint contributed 38.1% of the total revenue for 2007. Sales from international customers remained steady for thequarter, with international sales representing 31.1% of total revenue. Moving now to talk about quarterly revenue contributionacross our portfolio, our converged ethernet infrastructure group, whichincorporates all products previously in our optical networking and datanetworking groups increased to $180.9 million, representing 83.7% of totalrevenue. Ethernet access, which incorporates all of our accessproducts, was $12.8 million, representing 5.9% of total revenue, and globalnetwork services, which encompasses all of our services related offerings, was$22.5 million, representing 10.4% of total revenue. Within the converged ethernet infrastructure group, coreswitching was the largest contributor at $72.5 million. Our CN 4200 advancedservices platform contributed $39.2 million in revenue, roughly on par withcore transport, which contributed $41.4 million. On the gross margin front, Q4’s overall gross margin was 50.5%,up sequentially from the third quarter’s 47.7%. This is better than ourtargeted mid-40s range, primarily as a result of a favorable product andcustomer mix and our ongoing product cost reduction efforts. Our product gross margin was strong at 55% and, reflectingour efforts during the last several quarters, our services gross marginimproved to 11.9% of revenue in Q4, up from roughly break-even…

Thanks, Joe. Before I begin to talk about the businessoutlook, as many of you know, this is Joe’s last conference call with us and Ihave to say thank you to Joe for 13 years of outstanding dedication to Ciena.He’s been instrumental in building Ciena's solid financial foundation and he’shelped navigate us through some tumultuous industry dynamics and I know I speakfor everyone at Ciena when I say we wish him all the best. As we announced in this morning’s press release, followingan extensive interview and diligence process, we’ve appointed Jim Moylan tosucceed Joe. I am confident that Jim has both the skill set and professionalacumen to meet the requirements of our growing business and I welcome him tothe team. Joe will officially turn things over to Jim after we fileour 10-K and as Suzanne noted in the introductory remarks, we have untilJanuary the second to file the K and we expect to do so by then, if not before. In the remainder of my comments today, I’ll highlight ourfiscal 2007 accomplishments and I’ll offer insight on our plans to build onthat success in fiscal 2008. At this time last year, we made a commitment to remainfocused on the execution of our strategic plan, to continue growing faster thanthe overall market and to improve our financial performance. With fourconsecutive profitable quarters in fiscal 2007, we delivered on that promise. In summary, we achieved revenue growth of 38%. We surpassedthe 10% operating profit on an as-adjusted basis for the year, and ended theyear with a better than 15% operating profit and we generated meaningful cashfrom operations. To get there, we implemented several actions to reengineerour business model and globalize our company. At the end of last year, we alsosaid we would leverage our market momentum to go on the offensive and furtheradvance…

(Operator Instructions) We’ll go to Cobb Sadler with DeutscheBank.

Thanks a lot, guys, and I want to thank Joe for the manyyears with Ciena. A question on services gross margin; it was 13%, 12% or 13%for the quarter. It’s been as high as 35%. Where do you see that going and whatwere the dynamics during the quarter to pull it up 1200 basis points? Thanks alot.

As I think you are aware, we had some particular challengeswith our service business during the middle of the year, if you will. Weidentified certain improvements and actions that were underway and they arebeginning to kick in so I think we signaled that you’d see a linear improvementin the services business and I think we’ve demonstrated that in Q4. I would expect it to be in the high teens range and maybeearly 20s over time as we move forward but in that kind of a range. You aregoing to get some fluctuations. I think it’s unlikely to be as high as 30, 35and we’re targeting in the high teens range for now.

Sounds great, and next question, you do have some financialservices exposure. I guess it’s probably small but could you just tell us whatyou are seeing there with your enterprise customers? Thanks a lot.

We’re actually from -- the enterprise business, whilstimportant to us is I think about 15% of our business but growing nicely. Ithink we have a fairly very small exposure to it. We are actually seeingincreased activity in that area, frankly. We’re a new entrant to it and I thinkwe continue to see expanding opportunity there. We are reading the newspapers and we understand what’s goingon in that sector but I still think there is a lot of data needing to be movedaround by these enterprises and I think with the advent of video and thingslike that, which they see as a cost saving measure, I think that’s going tocontinue to push their requirements for data up. So I think we’ll continue to look at it carefully but weactually feel pretty good about that sector from Ciena's perspective.

Okay. Thanks very much.

We’ll go next to Nikos Theodosopoulos with UBS.

I had two questions. The first one is on AT&T wasprobably your largest customer this year. Do you have -- do you know if youlook at AT&T on a pro forma basis including the BellSouth acquisition whatkind of growth you saw in fiscal ’07 over fiscal ’06? And then the second question is on gross margin, why do youthink past the first quarter it goes back down to the mid 40s? It would seem tome the RFP activity is in ethernet platforms, core director is doing well. Whatwould cause a product mix shift away from those areas back to the lower marginproducts past Q1? Thank you.

Let me take the AT&T one first. I wouldn’t get into thatdegree of specificity around a customer but I will offer you this; clearlybefore the merger, both SBC, AT&T, and BellSouth were all large customersof Ciena so I think it is natural that they continue to be a large customer asthey have converged. I would also say that we are seeing an expanding role forcore director as helping integrate all of those networks as well, so we arepleased with our expansion within AT&T. In terms of the gross margin, it is the most difficult thingfor us to predict with accuracy. There is a lot of moving parts that go tocontribute up these numbers. We continue to look at that very carefully. Ithink we’ve signaled that Q1 is likely, as best we can tell, to be in the high40s and it really is a mix not just of the main product platforms but also amix within those product platforms most classically represented in thetransport space as cards versus chassis, but as we get into the convergedethernet space there’s even a lot more complexity within that mix aroundsoftware and cards and the kind of expansion, whether it’s access, metro, etcetera. A lot of moving parts to it. We do expect if we execute wellover time, as we get into 2009, that we may be able to sustain an increasedrange. But right now, we still feel that as best we can tell, a range in themid-40s is about right for our business dynamics that we see. Thatwithstanding, Q1 we are forecasting a mix that would give us in the high 40s.

Just a quick follow-up on the AT&T, I realize you don’twant to get into too many details on one customer. Could you comment at leastwhether on a pro forma basis that customer grew above or below the overallrevenue of the company in ’07?

I think they did grow. I wouldn’t say it was over and above.I wouldn’t want to comment on specifics.

Okay. Thank you.

We’ll go next to Marcus Kupferschmidt with Lehman Brothers.

I just want to clarify; what was the guidance for otherincome?

It’s about $8 million.

And that’s a dramatic change from what we saw in October, ifI’m doing my math right.

That is correct. Because don’t forget, we have to pay downthe 542 and then we also moved some of our investments around into pure cash.And we’ve seen also a decrease in some of the rates and the money that we aregetting.

Are you moving your investments to cash because you aretrying to be more conservative where you park it or because you need quickliquidity with what you are doing with the company and --

It’s both. It’s because we have to pay down the 542 on thefirst of February and just given what’s going on in the environment.

Right. Okay, and then going into the business, talking a bitmore about the visibility in the business, I think your point is you are seeingthings looking now versus six months, do you have more visibility in whatyou’ve won and kind of a better pipeline now than maybe six months ago? Whereare you in terms of how you look at the business you’ve won as opposed to allthe opportunities and RFPs that you are looking at?

I would say overall, Marcus, I would say visibility is aboutthe same as it was probably at analyst day, going back a few months. We areseeing good activity, seeing good RFP activity and interest. I think we areseeing in our conversations with our customers both two dynamics; one, thedemand for more capacity, particularly in the metro type areas and also adesire to carry it more efficiently and a desire to move towards carrier ethernet. So I would say it’s been pretty good now for a few months.

And my last clarification, the fact that 4200 goes up, longhaul goes down, should we start thinking that your customer base is starting tospend more money on metro and less on long haul? Or is the 4200 also being usedin long haul applications and we shouldn’t be thinking about market dynamicschanging around? Thank you.

What you see with all these builds is an effect whereas youbuild a lot of capacity in the core, then you tend to go back and build it inthe metro side. If you are building in the metro, you tend to load your core,so it flows back and forth. We are, as the portfolio evolves, converging 4200 and corestream together, and so you are going to see a natural transition over thecustomer base to the 4000 series.

We’ll go next to Simon Leopold with Morgan Keegan.

Thank you very much. I wanted to see if we could drill downa couple of things. One, I wanted to see what the trends are in some of theselegacy products that you don’t talk about too much, particularly the maturinglong haul products and the metro products that I believe are stillcontributing. If you could just give us a little bit more color there. And I also want to throw in the data networking products,those legacy -- a little color on those.

Back to my earlier comment, we are converging the -- call itthe raw transmission products. So core stream evolved as a product and now ishundreds of channels over mega-meters, right? And we are adding that featureset over time to the 4200, so that’s a consolidation play, if you will, on theportfolio side. With regard to the metro platforms, these go back to some ofthe online platforms and such, they continue to sell well to the customerswhere there is a substantial installed base. We are adding the requiredfeatures to again migrate those over to the 4000. We brought our feature set tomarket that we call FlexiShelf, that basically lets a 4000 series shelf be achannel shelf into the online products and such as one way to facilitate that.

And I just wanted to go back to I think a topic many of usare trying to figure out, is that the trending on overall gross margin ofwhat’s driving a step down after next quarter or in the back half of the year.And really I think it’s a choice of are you being conservative, is it aboutproduct mix or is it about the competitive environment or is it about how theproducts are evolving that a given platform like core director may have a lowergross margin later in the year because of something. So a little bit of helpunderstanding what’s driving this guidance.

Some if it is clearly as we look at Q1, we’ve got bettervisibility of that than we have of Q4 and so we’ve got orders on hand and othercontributors to visibility and we call it how we call it. But we do see overalla mid 40s range for the mix of products. Now, we may be incorrect on that andit can fluctuate quarter to quarter and I go back to Q2 of 2007 when we wentdown to 42%, 43% as a gross margin. So you are going to see some fluctuationthere.

You have to also remember there still are a lot of suppliersin the market in which we play and like Gary said, we’ve got really goodvisibility into Q1 and Q2. The second half of the year, you don’t know what ithas in store and everybody is going to be looking for growth. Based upon theway the economy is headed, it could be a tough time. So I think part of the guidance on the margin front is themid-40s looks and feels reasonably comfortable. We just don’t know yet.

Right, but I guess what I’m trying to get at is more aboutyour sense of your shifting mix or a stable mix assumption and changes in thegross margin within that mix.

Frankly, it’s all of the above would go into ourconsideration on it. The other thing that I would add is we are expanding intonew markets, new countries, new markets for Ciena, things like wireless backhaul with some new customers. And you know, typically when you do that, it isat a lower entry point from a margin point of view and we are also being thoughtfulabout that as well and putting that into the mix. We’ve got a lot of new products coming out as well that areworking their way into the marketplace and so we AE also mindful of that.

Thank you very much.

We’ll go next to Mark Sue, RBC Capital Markets.

Thank you. Gary, any further thoughts on the deceleration inyour top line growth for the new fiscal year, considering you just did 38%? Isa large component of that related to the wind-down of major projects atAT&T and BT? Is it the new deals that are being slower to ramp or are youjust being conservative so crazy analysts like myself don’t raise numbers?

Clearly keeping up growth rates of 30% to 40% gets morechallenging as the numbers get bigger. We still see our ability to outstrip themarket that we play in, depending on which numbers you look at. We are exposedto the higher growth markets and they are classically sort of 10% to 15% and weare confident we can grow higher than that. I don’t think it’s particularlyproject based. We feel pretty good about the outlook. We’re seeing a goodpipeline, particularly in the adoption of our architecture with core directorand MASH and a number of new platforms that we are releasing, particularlymid-year and towards the end of the year. But I think a 20% growth on balance is a pretty goodperformance in this marketplace.

Lastly, if you could just give us your thoughts on your winrate when it comes to architecture deals, what that might be and what thatmight increase to?

Well, I think because we are a specialist focus player, whenwe engage in terms of our FlexSelect architecture and folks really want to movetowards converged ethernet, I would say that win rate is very high. When youare just looking at moving bits around, pure transport, that can vary becausethere is a number of other players in the market space there. So you know, it does vary. When it gets into our sweet spot,which is around converged ethernet, our hit rate as you’d expect goes up prettydramatically.

Thank you, gentlemen and good luck, Joe.

We’ll go next to Tim Savageaux with Merriman.

Good morning. Nice quarter and Joe, congratulations and goodluck. I have a question -- I mean, we’re talking a lot about guidance and grossmargins and I think you guys are actually implicitly signaling somethingthrough your operating expense spending. So you’ve brought it up to a newplateau. The last time you did that, we all got kind of concerned about it andyou delivered a lot of top line growth and a lot of margin expansion. So at this point, you appear to feel confident enough tobreach by some measure the $70 million per quarter operating expense level andyet are continuing to talk conservatively on the top line in the gross marginside, which is why we find ourselves in this annual disconnect discussion. I’ma little disappointed I didn’t get to ask the 20% growth question because Inormally get to every year but as you look at how you are managing yourbusiness and the operating expense levels that you are comfortable with, whatshould we take out of that with regard to your views on potential gross marginsand top line growth? And the fact that we plateaued at 60, moved to $70 million aquarter a little while ago and that was accompanied by a great deal ofexpansion, you mentioned a balance between investing in the business anddelivering short-term operating profitability. For the moment, you seem alittle out of balance, at least between what you are doing and what you aresaying. I wonder if you could address that issue.

Why don’t I do that, Tim? I think to the balance, we’refocused on I think at this stage in the company’s evolution, we’ve got to whatwe sincerely hope is a stabilized business model and we’ve indicated that oneof the milestones for that is operating profit of around 15% and in fact, weexceeded that in Q4. So we are focused on two things, essentially; one,continuing to deliver to the bottom line and around that 15% kind of range aswe talked on analyst day is where we are targeted. We are investing in newplatforms and extensions to make sure that we continue to outperform the marketand we are focused on ’09 and 2010 in terms of many of those platforms. A lotof that investment takes two to three years to bring out in terms of newplatforms. If we are successful with those, then clearly that will helpdrive both the top line and potentially in the future improve our gross marginsas well. So it is a balance. I would encourage you to focus on our overalloperating profit as opposed to fluctuations in our OpEx from quarter to quarter.But I can understand you drawing some parallels to that and if that happens tobe true in 2007, then that will be great.

Okay. Thank you.

We’ll go next to Tim Long, Bank of America Securities.

Thank you and congrats, Joe, as well and good luck. Anotherone, just a different way of looking at the top line growth for the year, Iunderstand the 20%, tougher to grow off a big number. Just looking at thesequentials though, obviously looking at a pull-back from what’s been severalquarters in a row of 5% sequential, so just curious about that, particularly inthe context of concentration of your customer base. I think at the analyst dayyou talked about two or three customers in a given quarter generally beingabout 50% of revenues. Is the concentration something that might be causing ahiccup in that sequential growth rate going forward? How do you think we’lllook as far as 10% or meaningful customers next year? Will we see a swap outwith some new ones in there or do you expect more concentration?

If we look at it quarter to quarter, there’s a number ofcustomers that come in and out on a quarterly basis of being 10% contributorsand I think all of you are familiar with our larger accounts, which includepeople like British Telecom, Telmax, et cetera. So in any one given quarter,we’ve got a number of those accounts that can rotate through. At any one time,you can say that we’ve got concentration within particular accounts. The trickis to get enough of them so that when one is digesting a build, you’ve gotothers that are rolling stuff out. The other thing I would say around risk and diversificationis even within those larger accounts, those big tier-one accounts, people likeVerizon, we’re actually selling more platforms to them, so you are not justdependent upon a single build-out as we were traditionally for example in thelong-haul space. So we are very mindful of it. It’s still concentrated aroundsome large carriers. The good news is there’s more of them. The other good newsis we’re selling more things to those same accounts. The other thing I would also bring into play is we are alsolooking to getting to new international markets. You saw a pretty significantexpansion this year. Also outside of our traditional space, 15% of our businesscame from the enterprise and government space as well and I would expect thatto continue to grow this year as well. So that gives you more balancedbusiness.

Okay, so we shouldn’t read into the sequential slowing ofgrowth in your Q2 or Q3 to mean that one of the larger carriers is slowingsignificantly?

No, no, I think it’s more a general comment from us aroundthings that we can’t quite see yet. We’ve got more -- it’s simple as that,really. We’ve got more visibility into Q1 and Q2 and we’ve got good sequentialgrowth -- I think we were over 5% growth from Q3 to Q4. We’ve signaled it couldbe as high as 5% from Q4 to Q1 and then we’ll clearly look at that as we gothrough the year.

Thank you.

We’ll go next to Paul Silverstein with Credit Suisse.

Gary, I hate to bring this up again and I certainly don’twant to make a speech -- I’ll let others do that -- but I guess I’m stilltrying to understand the 20%. Can you just refresh my memory -- how long haveyou been talking about 20% growth for? This isn’t the first time you’vereferenced that number. Is that correct?

We talked about it in our Q3 analyst call, I believe, andthen we amplified on it in the analyst day.

So is it just a function that you have strong near-termvisibility and things get more uncertain as you go out in time? Or is it reallygrounded in hard information and things have to happen for it to be much betterthan 20%?

I would say yes to both of those things. We’ve got better visibilityin Q1 and Q2 and I think it’s just a function of the further out you go, youhave less visibility to it. And I would say that we are seeing good activity.We are not seeing anything that would give us undue cause for concern in that.It’s just it is a general perspective that we are offering up, which is we’veonly just completed our FY07.

One other related question, if I might; in terms of the RFPactivity you referenced, among the RFPs that are out there, are there any thatare extraordinary in size and scope that I recognize you haven’t necessarilywon but that could potentially drive significant growth?

We see a number of RFP activities and there are some decentsize ones out there, Paul. I don’t think there are any that are sort of worldchanging, from that perspective. We were pleased to secure the BT one, which weannounced today. That’s our first real big win in the ethernet access space.There are some others out there like that and those are ones that we are goinghard after but I don’t think there’s anything in there that would be gamechanging. The other thing I would say is RFPs are not the only measurethat we are seeing and in fact, from an industry wide perspective, folks, theirpurchasing models are not as based around RFPs as perhaps they were sort of 10years ago and we’ve kind of seen that trend but it is certainly something thatwe look at in our pipeline.

Thanks a lot.

We’ll go next to Phil Cusick with Bear Stearns.

This is Jonathan [Cues] for Phil Cusick. Thanks for takingmy question. Great quarter, guys. I just want to start with housekeeping first.You had said that the 4200 was $39.2 million for the quarter. Last quarter itwas $23 million and I guess I’m wondering, is this apples-to-apples? Becausethere was a DNS and metro was separate at 24 and now you have 4200 at 39 and nomention of DNS separately. I’m just wondering if on an historical basis, thisis an apples-to-apples comparison?

The answer to your question is yes, it’s absolutelyapples-to-apples which is why we’ve split that out.

It’s a function of the great progress the sales team hasmade in getting that thing rolled out. The customer base keeps expanding everysingle quarter, pretty much every single month, and what you had happen is inthe fourth quarter, a lot of it was triggered by the rev-rec aspects of theindividual contracts that we’ve signed up for the product.

I would also add that I think when we launched the product,I think we talked publicly around what kind of run-rate can we get up to in ’07and we talked about $40 million. I actually think it took us longer than wethought to actually get there because of revenue recognition, et cetera.

So if I’m adding up the numbers correctly here, then withthe long haul stuff, then the -- okay. So then DNS and the other metro stuffwould be about 20-ish then for -- in order to get up to --

That’s about right, yes.

All right. Thank you for clarifying that. And then thebigger question I had was I wanted to I guess talk some more about operatingmargin. There has been a lot of discussion on the call about gross margin andabout top line. I wanted to spend some more time on the operating margin.Obviously you are still reaffirming the ranges that you gave during the analystday and you had also said during the analyst day that 15% would be a target infiscal year ’08. You reached it in fiscal year ’07. Is there potentially a newtarget? Is there a potential range? I mean, if you are sticking with the ranges for the OpEx,obviously then dollars that you are spending in OpEx are going up throughoutthe year, so are you going to be sticking pretty closely to that? Are you goingto -- is there more play for operating margin just as much as you have forgross margins? If you could elaborate on that, that would be great.

I would say that yes, we are sticking with the ranges, whichwill be around about that sort of -- we gave 15 as a milestone and we hit thata little sooner than we’d thought in Q4. But generally how we think about thebusiness, I think the challenge as we go through into 2008 is making sure thatwe can sustain a 15% operating profit and clearly we are going to try and dobetter than that, if we can. But the ranges that we talked about or the way we are goingto frame our thinking about the business and how we are going to manage itduring FY08, and that’s the balance between long-term investment and makingsure that we deliver good growth and deliver to the bottom line as well.

So would you say that there’s as much upside or downsidepotential for the operating margin as you would have for the gross margin?

I would say clearly it can fluctuate as the gross margin,but I think overall if we look, we feel pretty good about 2008 from a revenueperspective and the 20% growth and is there opportunity to do more than that,absolutely. Is there risk to it? Yes, so that’s sort of that balancedperspective right now. Similarly with gross margin, we are talking about anormalized range, if you will, in the mid-40s. That’s our best perspective butwe are starting off with a Q1 of late 40s is our best view to it and we thinkthat the operating margin will -- you know, on an as adjusted basis, should beabout flat with Q4, which we achieved 15.7.

Thanks for elaborating on that and good luck, Joe.

We’ll go next to Brantley Thompson with Goldman Sachs.

Thank you. A couple of questions; first, you talked aboutyour non-telco business being 15% of revenues. I was wondering if you couldremind us of what it was a year ago so we can get an idea of the growth ratesthat we are seeing in that business and any commentary on the type of marginsthat you see in that business and how they differ from the corporate average. The second question is just around any other major cashoutlay items in 2008 that we should have on our radar. And then the third isjust an update on the competitive environment in the switching and 4200 businessin particular in terms of who you compete most against now, given that so muchhas changed in the landscape. Thanks.

Okay, why don’t I -- I’ll take the first one, Joe can takethe cash one, and then Steve will finish up on the 4200 for your singlequestion. First of all, on the enterprise side, I’m not sure of theexact comparison but I think I’m pretty confident in saying it was below 10% ofour business in 2006, so it’s had significant growth last year, albeit off arelatively low number. In terms of margins, tends to be high margin, i.e. generallyover 50% into enterprise and government, et cetera, and I think we are seeingparticularly the 4200 family begin to do very well in some of theseenterprises. As I said on the call, we’ve won about 80 odd new customers duringthe year on the enterprise side and I think that gives us a good base to growfrom. So we are optimistic about the future of that space. Joe, onthe cash.

In terms of cash, at this point in time as far as I’m aware,there really isn’t anything major, any plans to use -- bake on some money. Ifyou take a look at the fourth quarter or the first quarter, we had to use $50million for that to buy out of that lease and in terms of anything similar tothat, we’ve -- all that stuff has been predominantly dealt with so there are noother big needs there or demands on cash for that. In terms of the capital, you might spend a little bit moremoney in terms of investing in the R&D functions in India and somewhereelse. I think the only big thing out there outside of the norm that you aregoing to have is don’t forget we have to repay that debt on February the first,which is 542.

And on the competitive side with the 4200, one thing to keepin mind is that the 4200 now is a family of products. It started out as afour-slot config. We added a two-slot config. We’ve also added a 17-slot configto it and it’s all the 4200 family. And so that changes your competitivelandscape in the pure transmission space just moving bits from A to B. That’sprobably one of the most fragmented, fluid markets there is in the telco spaceand so as we went to the smaller platforms, we brought in a whole other set ofcompetitors that typically had specialized in small transmission boxes as we’veadded the larger shelf, the 4200 RS, the regional shelf or the [rotem] shelf.For that feature set, we again brought in a whole bunch of other competitors inthat space. It remains the large suppliers that we’ve always competedwith and you see them distributed throughout the globe. You have some veryclear, highly competitive environments in EMEA and in Asia and again in NorthAmerica and the competitive landscape changes a bit. But as we add features and functionality and the familygrows, we fully expect the competitive landscape to change, evolve, and growalso.

Great. Thanks and Joe, congrats and good luck.

We’ll go next to Ehud Geldblum with JP Morgan.

This is Ian Khan for Ehud. Congrats, Joe. Sorry to see yougo. Just a follow-up to the cash, you gave some annual cash flow numbers at theanalyst day and unless I missed it, you didn’t necessarily reiterate thoseexact figures today. Any change there?

Definitely not.

Okay, and then on the contract announced at BT, the CN3000,can you discuss a little bit of the incremental impact to -- as an order ofmagnitude in terms of revenue, what this means for you guys at BT, what mightthe timing of the revenue be? What’s the margin profile for that product? Andthen, does that fall into ethernet access or into [converged ethernet]?

I can answer your last question a little easier. Yes, the answerto your question is yes, if falls into the ethernet access. We just announcedthe deal. I would say we would expect to see that roll out probably the secondhalf of the year. We’ve known about it for a little while so we’ve built itinto our guidance and revenue, et cetera, and then I’d expect to see it rampingup probably even further as we get into 2009.

It’s a plus 50% gross margin type of product, or --

That’s not something we’d comment on. Typically as you gettowards the edge, even in ethernet access, it’s not too dissimilar from thesort of transmission type analogies. You get closer out to the edge, themargins tend to go down and as you aggregate, you know, when you’ve got moresoftware, the margins tend to go up.

Okay. Thanks, guys.

We’ll go next to Hasan Imam with Thomas Weisel Partners.

Thank you. Joe, good luck at your next job and hopefully youhave more fun. My question, I just wanted to drill down a little bit on theOpEx front. So your OpEx ramp this quarter quite faster than revenues. I’m justwondering where you are spending that money. Is that primarily India, theheadcount ramp? And when does that end?

It was not primarily a headcount. We didn’t add very manypeople in the quarter. It was predominantly on prototypes, some one-off typethings, and although we haven’t talked about it and it took this long to getthere, the order intake in the fourth quarter was strong and I’m not allowed touse the word strong anymore than that, so I can’t -- I have to find some otherword after analyst day. But it was very -- it was strong and consequently, thattranslated into commissions coming in a lot higher than what we had anticipatedfor the fourth quarter. So they were the biggest single pieces that are I thinkthings to be concerned about and worried about. The prototype things are notongoing. You are not going to have those every quarter and the commission ones,as long as that order rate keeps going up, I’m sure Gary would love to keeppaying those the way they are going.

And what about the India headcount ramp? When do you thinkthat tapers off?

We met within a couple of headcount of what our goals werefor 2008 -- 2007. We have plans to continue to grow our R&D capacity into2008 but we are going to do it with a careful eye on what the business modelrequires and what we think is a prudent level of investment.

Okay, and then one last question; in terms of the 40Gcontracts that are coming up in AT&T, Verizon, et cetera, I just wanted tohear what your position is there, given that you’ve more heavily bet on 100G.Should we expect you not to be meaningful players in these contracts and thenwait for the 100G upgrade? Thank you.

We have a 40-gig solution in the market today. It’s aproduct that we have through the StrataLight relationship that we’ve had forquite a while. That’s actually used by several of the other suppliers in thespace and fulfilling 40-gig needs, so I think we’re competitive in that space. I do think we are focused internally on a lot of activityaround 100-gig, you know, the next gen switch platforms and transmissionplatforms and such are all focused around that. But we expect to be able to provide competitive solutions,both at 40-gig and 100-gig.

On the 40-gig side, would you say you are at par with someof the leaders? I know that I the past, Steve has talked a number of timesabout really putting more of your eggs in the 100G basket.

I think what we’ve done is looked at the way we want toapproach the market and again, the 40-gig comes to us through StrataLight.Technically, it’s as good a product offering is available out there today. Weare looking at the 100-gig approach in terms of where 100-gig ethernet is goingto go and what the impacts are going to be on the market there. But we arecomfortable with our position at 40-gig today.

Thank you.

Due to time constraints, we’ll take our final question fromSubu Subrahmanyan with Sanders Morris.

Thank you and Joe, congratulations and thanks for all thehelp. My question actually is on the -- I just wanted to revisit thenon-operating income point and see if you wanted to just talk about an EPSguidance and also just a trajectory of operating expenses going forward.Because the way I calculate it, you had about $17.5 million in non-operatingincome for October, going down to about $8 million. And I just want tounderstand the impact on EPS and how much of that could be offset by lowerOpEx.

In terms of the -- I’ll do the non-op and I’ll let Gary talkabout the OpEx on a go-forward basis, as well as the operating profit number. The non-op income, as you’re calling it, is a question ofpositioning the 542 to be paid down and the way the rates moved around and whatkind of investments we had and where we moved it from, so it’s really aquestion of just the mechanics and the actual investment vehicles that we wereinvolved in. In terms of the big number, we had to take the write-down inthe quarter, which was an unfortunate situation but we had to do what we had todo there. So in terms of -- I like the eight. Could it be a little bithigher than that? Yes, but it depends on where we end up for the quarter andwhat we do. Aside from that, I don’t feel real comfortable in going a lotfarther into that one right now.

Why don’t I take the second part of it on OpEx -- as wesaid, we gave the ranges out, which we believe are applicable going through toFY08 and what we are focused on is the overall operating profit and deliveringthat. We’ve hit that milestone a little earlier than we’d anticipated butaround that 15% is where we are focused from an operating profit perspectivegoing forward. And we would expect in Q1 for our operating profit to beflattish with Q4, and it was 15.7 in Q4.

Understood. If I could just follow-up; is that $8 million agood run-rate for the rest of the year on a quarterly basis, Joe? And do youwant to venture an EPS guidance, because obviously you cleared some variance onthe EPS number?

Okay, the eight -- theoretically, if you go back to what wetalked to you about at the analyst day, we could generate as much as or up to$200 million, so the eight in theory should grow depending upon what -- wherethe rates go and what kind of investment vehicles we can get our hands on. Sothe eight could grow. In terms of the EPS guidance, we don’t typically do that andI’m not going to set a precedent for the new guy coming in here because I don’tthink it’s a proper set-up for him. He and Gary can talk about that and figureout what they want to do during the next quarter.

Thank you.

Mr. Smith, I would like to turn the conference over to youfor any additional or closing comments.

Thank you and I would like to thank everyone for their timethis morning and for your continued support. I would like to add a couple ofsummary pieces, if you like. Thank you for your support during 2007. Ashopefully you can tell, we feel good about 2008 and certainly our visibility isgood into the first half of the year and we are very focused on leveraging ouroperating model. We think we are in the sweet spot in the market. We arewell-placed from a product cycle point of view and we are very focused on acontinuing improving financial performance. With that, I’d like to reiterate my thanks and best wishesto Joe, as many of you have passed on today. I am sure you will have a chanceduring the next few days to do that and we’d like to wish everyone a happy andsafe holiday season. Thank you.

This does conclude today’s conference. Thank you for yourparticipation. You may now disconnect.