Good day, everyone. And welcome to the Ciena Corporation Second Quarter 2010 Results Conference Call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Ciena’s IR Consultant, [Robin Weinberg]. Please go ahead.

Thanks, Michelle. Good morning, and welcome everyone. I’m pleased to have with me Gary Smith, Ciena’s CEO and President; and Jim Moylan, CFO. In addition, Tom Mock, SVP, Marketing and Communications will be with us for the Q&A portion of today’s call. This morning’s prepared remarks will be presented in two segments. Gary will review our financial performance in the second quarter, discuss our view of the market environment and give an update on our integration of Nortel’s MEN business. Jim will then detail our Q2 financial results and provide our guidance for Q3. We’ll then open the call to questions from the sell side analysts. This morning’s press release is available on National Business Wire and on Ciena’s website at ciena.com. Before I turn the call over to Gary, I’ll remind you that during this call we will be making some forward-looking statements. Such statements are based on current expectations, forecasts and assumptions of the company that include risks and uncertainties that could cause actual results to differ materially from the statements discussed today. These statements should be viewed in the context of the risk factors detailed in our 10-K filed with the SEC on March 5, 2010. We will file our second quarter 10-Q by June 10th. Ciena assumes no obligation to update the information discussed in this conference call whether as a result of new information, future events or otherwise. Today’s discussion includes certain adjusted or non-GAAP measures of Ciena’s results of operations. A detailed reconciliation of these non-GAAP measures to our GAAP results is included in today’s results release available on or website at ciena.com. Lastly, as a reminder, this call is being recorded and will be available for replay from the Investor portion of our website. Gary?

Thanks, Robin, and good morning, everyone. Before I begin, I’d like to emphasize that our Q2 results should be viewed obviously in the context of our having closed a transformative acquisition during the quarter. Please bear in mind as we provide you information today and understand that many elements of today’s report are not indicative of Ciena’s ongoing business. This quarter’s performance reflects only partial results from the MEN business, as well as a number of accounting considerations relating to the closing of the transaction during the quarter. As such, comparison to previous reporting periods and future extrapolations may not be representative and should be made with due caution. As we committed from the beginning, we’ll be transparent and provide as much information as practical to bridge the performance of Ciena standalone to the combined company. With that said, today we reported fiscal second quarter revenues of $253.5 million. This includes approximately six weeks of revenue or $53.5 million from the acquired MEN business. Revenue from Ciena’s pre-acquisition portfolio was $200 million, representing a 14% sequential improvement. At 49%, our Q2 adjusted gross margin was higher than our near-term forecast range and largely reflects a number of favorable items in the quarter, which we’ll discuss later. And our non-GAAP operating expense was $131 million, reflecting additional expenses associated with the MEN business. Now I’ll speak to our current view of macroeconomic and industry environments and provide an update on our progress in integrating the MEN assets. As I discussed last quarter, we think about the progress of our business in three fundamental ways. Firstly we examined demand in the global market and where we see it improving. We assess how the fundamental demand drivers of our business are performing and based on that we determined where to make investments in…

Thanks, Gary. Good morning, everyone. Before I provide detail on the quarter, I’ll reiterate Gary’s earlier comment that this quarter’s performance reflects only a partial quarter’s results from the MEN business, so comparison of financial metrics to previous reporting periods may not be representative. I’d also like to echo Gary’s comments about good progress with our integration efforts. Along with the good work toward realizing operating synergies and the increasing levels of customer activity, we had good results from the integration of back office systems, processes and controls, including our financial and accounting systems. The entire Ciena team deserves credit for their dedication and hard work, which has enabled a smooth transition of the business to Ciena. With that said, today we reported second quarter revenue of $253.5 million. Revenue from Ciena’s pre-acquisition portfolio is $200 million, representing a 14% sequential improvement, compared to fiscal first quarter revenue of $175.9 million. Compared to the same period a year ago, this represents a 39% improvement over revenue of $144.2 million. Q2 results also include $53.5 million of revenue from the acquired assets of the MEN business reflecting approximately six weeks of those operations. This amount is exclusive of certain deferred product revenue from the MEN business that would otherwise have been recognized by Nortel had the acquisition not occurred. Let me explain. At our Analyst Day in April, I spoke about how certain deferred revenue from the MEN business would not be recognized by Ciena or reflected in our financials post close. The MEN business, like all companies in our industry, recorded deferred revenue on its balance sheet made up of both product and services sales. Let me speak first to deferred services revenue. We did bring over roughly $19 million of deferred revenue for services from the MEN business. We…

(Operator Instructions) We’ll take our first question from Paul Silverstein with Credit Suisse.

Good morning, Paul.

And your line is open, Mr. Silverstein, you may have yourself muted.

Hi, I apologize. Paul isn’t on the call at the moment. I’ll keep him in the queue though. I’ll put him back in the queue. Sorry about that.

We’ll then move on to John Marchetti with Cowen and Company. John Marchetti – Cowen and Company: Thanks, guys. Just curious, if you could talk a little bit maybe about the guidance in terms of maybe how we should think about Ciena or the pre-acquisition Ciena, if you will, relative to the contribution you’re expecting from a full quarter of Nortel and then secondarily Gary you made a comment on the call about some of the non-U.S. customers just starting to take a look again. I was hoping maybe you could expand on that a little bit and maybe give us a sense of a time frame, not necessarily for next quarter but more longer term as to what you see the opportunities outside the U.S.?

Sure, John. Let me take your first question going forward. We’re clearly a single company now. I’ve got to strike, I guess, a balance between trying to provide bridges for everybody as to around the historical performance of the Ciena and the MEN elements to it, which I think we’ve tried to do on the call today. But going forward in terms of our guidance, I think we’d limit that to a single company, otherwise I think the complexity now of the converging product lines, the operating expenses and those kinds of elements, it’s just too complex and we are a single company right now. But I think we’ve given you enough background in terms of being able to bridge to the Ciena and the MEN businesses. In terms of the international customers, John, I think it’s fair to say that the concept of bankruptcy protection chapter, Chapter 11 outside of North America is not one that’s fully understood. So the customers there, I think, have a more, it’s more of an impact on them in terms of their ability to do business with a company that’s in Chapter 11. If we knew that going in, we saw that in our due diligence and I think particularly internationally. What’s been encouraging in the last six weeks or so is being the engagement of those customers again, many of which put purchases on hold. We’re now back I think in the engagement cycle with them and the purchasing cycle with them. And they are both Tier 1 carriers internationally and also some large Tier 2s as well. John Marchetti – Cowen and Company: And I guess just as a follow-up to that, Gary has that been, has it gone sort of according to what you had thought maybe going into this process a little better, a little worse? Just curious, as you’re getting a feel for reengaging with those customers.

I would say about what we’ve thought. We clearly had conversations with them and they signaled -- they signaled their sort of receptivity to the merger but you never know until you’ve actually you’re sitting in front of them as the combined company. So I guess, we take some satisfaction now that we’re really, so we’re starting to see some order flow. But it will take a while to get back to some of the levels that they were but I would say pretty much on plan, John. John Marchetti – Cowen and Company: Thanks very much.

Our next question comes from Mark Sue with RBC Capital. Joe Longobardi – RBC Capital Markets: Hi, this is Joe Longobardi for Mark. If you could comment on any negative product synergies that you may be seeing, if any and whether or not bookings are stronger on the Nortel or on the Ciena side?

Joe, there’s probably a level of detail going forward that we don’t think is probably appropriate of breaking the two up for the reasons that I just talked about. But I think going into this, we were fortunate in that we didn’t see a lot of product overlap and that’s certainly been the case. I think on the transport side, 6500 predominantly on to long haul and with the 4200 into a lot of the carrier managed services and metro space that’s been borne through. And in fact, I think we’re forecasting next quarter for 4200 to be up, so that said we take a lot of comfort from that. Joe Longobardi – RBC Capital Markets: Okay. And just to follow-up, are we at the point where most of the product rationalization is behind us so that we can grow the combined product revenues following the July quarter?

Yeah. I think that’s a fair comment. What we tried to do going into this was to make decisions quickly, get it done, things like the most platforms which were the MEN Ethernet platforms. We moved very quickly on those and the other rationalization. So I think it’s fair to say we’ve kind of -- we’ve now got a streamline portfolio going forward.

We do have some work yet to do on software tie-ins to the various platforms, so that will be accomplished in due course.

I think one of the other things that may have helped along this process is well is the fact that we’ve engaged with customers well before the acquisition on what the combined portfolio might look like. So there really weren’t any surprises as we came down to it. Joe Longobardi – RBC Capital Markets: Great. Thank you.

We’ll now take our next question from Tal Liani with Bank of America/Merrill Lynch. Vivek Arya – Bank of America/Merrill Lynch: Thanks. Good morning. It’s Vivek on Tal’s behalf. A couple of things, Gary, first of all, I know you’re not breaking out on the Ciena portion in the guidance but is it fair to assume that Ciena is on track to grow at roughly the historical -- historical seasonal trends in Q3?

I would say we saw a very strong Q2. Some of that was a rollover from Q1, a couple of things that we didn’t recognize but even withstanding for that, it was still -- it was still strong. I think it’s too early to tell in terms of the portfolio. We’re seeing overall, I think the MEN business is stable which is what we’d anticipated going in. So we’re pleased with that and now we’re looking to see this customer engagement and the leverage across the businesses. Vivek Arya – Bank of America/Merrill Lynch: That’s really did not balance to my question.

So your question SR we going to, is the Ciena business in the second half of the year, the classic Ciena business if you want to call it that? Vivek Arya – Bank of America/Merrill Lynch: Right.

Yeah. I would say from where we are sitting right now, yeah. Vivek Arya – Bank of America/Merrill Lynch: Cool. Secondly, can you give us a sense for the exposure you have to Europe? I believe you mentioned 29% of total sales are outside the U.S., but how much is specifically the exposure to Europe?

The number moves around depending upon what happens in a given quarter, but typically it’s going to be between 20% and 30%, something like that. Vivek Arya – Bank of America/Merrill Lynch: Got it. And lastly, Gary, can you address the competitive environment in CESD? It sounds like Alcatel and Cisco are trying to become more aggressive in that space especially among the main U.S. carriers that you’re setting to like an AT&T or a clear wire for instance. So any comments on the competitive environment would be great. Thank you.

I mean, I think the CSD, we’re focused on a particular, I guess you’d describe it certain niche within it which is the fiber access piece and the aggregation of that and I think our approach in terms of the high software content in terms of the ability to deploy quickly, et cetera is significant competitive advantage. And I think we’re expanding even in North America our customer base. As Jim said, we got over 100 customers, a lot of potential internationally as well. Clearly, we’ve got some very tough competitors there but they were incumbent before we started on this. So I think we’ve been able to grow that business pretty substantially as you saw in Q2. And I think we can continue to be successful in that going forward. Vivek Arya – Bank of America/Merrill Lynch: Sorry. Just lastly. Even if AT&T were to select somebody other than Ciena for some of the IP MPLS portion. Do you think you can still maintain the growth of your CESD sales at AT&T?

I wouldn’t get into specifics about a customer like that. But I would say that we’ve got a broad customer base now and we’re very confident about continuing to grow that business. And specifically in AT&T, we’re providing both the wireless backhaul and the Ethernet businesses services to them as well. Vivek Arya – Bank of America/Merrill Lynch: Okay. Thanks and good luck.

Thank you.

We’ll take our next question from Kevin Dennean with Citi. Kevin Dennean – Citigroup: Great. Thanks very much. A couple questions, I think Jim Moylan mentioned MEN in the quarter benefited from some higher channel adds. Any thoughts on what the kind of open installed capacity is out there in the MEN installed base? I guess, what I’m trying to drive at is there potential for this type of business to follow on through the next couple of quarters?

It’s a difficult question to answer, Kevin, because a lot of the install base out there has been out there for a good while. But I think it’s safe to say that on the SONET/SDH as well as some of the optical transport products that there’s a big install base out there and that represents an opportunity. I think the uptick you saw in channel cards this particular quarter probably had more to do with the short duration of the measurement intervals than it had to do with any particular trend. Kevin Dennean – Citigroup: And then, can we get an update on where CoreDirector FS and the 5400 stands? I think the last time everybody spoke in public, it was that these products were in carrier labs or undergoing testing and verification or in the integration process?

Yeah. The CoreDirector FS has been deployed and our practice has been deployed into new customers. The 5400 as we said before is in labs and those lab trials take a good while but we expect to exit those trials in the second half of this year. Kevin Dennean – Citigroup: And will there be -- Tom, will there be a long integration process tying those boxes into carrier systems or do you think that winds up by the end of the year also?

A lot of that is happening in conjunction with the lab testing. That’s one of the reasons the lab testing takes as long as it does. And it’s not to say there won’t be some kind of details that need to be tied up after that but I think a good bit of that will be done. And I think most of what you see happen on 5400 would happen in 2011. Kevin Dennean – Citigroup: Great. Thanks very much.

We’ll take our next question from Paul Silverstein with Credit Suisse. Paul Silverstein – Credit Suisse: Jim, Gary, can you hear me?

Yup. We can hear you, Paul. Paul Silverstein – Credit Suisse: I apologize if this was already asked. I suspect it was but in light of some recent commentary at AT&T regarding the wireless backhaul and I know you guys don’t want to go into detail on any one customer but can you give us any insight on your backhaul position? Has there been any change to the best of your knowledge?

You know, the question was asked before but I’ll go back through it. Without going into too much detail on customer specific stuff, I mean, we feel very good about our position. I’d just express it like that both in terms of our engagement to date and the opportunity that we see going forward as a multi-domain player of AT&T. We think we’re incredibly well positioned. Paul Silverstein – Credit Suisse: Okay. And again, I apologize if this already came up but with respect to packet optical and your integration of 100 gig into CoreDirector along with layered capability. Can you give us any insight in terms of customer activity? What type of RFP activity, if any, you’re seeing out there?

I mean, we’re continuing to see strong activity 40 and 100 gig around various packet optical architectural discussions that we’re in, IP bypass. And that’s really talks into the 5400 family and as quick as we can get the 40 and 100 gig into that as well. So we’re seeing a lot of activity out there, Paul, certainly among the Tier 1 and those kinds of architectures. That’s continuing. Paul Silverstein – Credit Suisse: Gary, can you give us any quantification, any metrics about that activity?

I would say that given the portfolio we’ve got particularly with the 40 and 100 gig, I’d say we are more engaged now across a broader range of Tier 1 carriers than we were prior to the acquisition. I think we’re much better placed now. Paul Silverstein – Credit Suisse: Gary, would that be a dozen trials, a dozen RFPs? Can you give us some…?

I mean -- it’s tough to put a real sort of metric on it. That’s a very broad based but if you look at 40 gig trials, 100 gig trials, we’ve got a number of those lined up and that’s increasing on a daily basis. We’re into the double digits in terms of trials. Paul Silverstein – Credit Suisse: Right. And one last question, if I may and again, I apologize if this came up but any evidence of any meaningful change in the pricing environment?

Not really. I mean, it continues to be challenging if you choose your geography and choose your application. And we’re very careful to try and choose markets that value, our value proposition and our technology. It continues to be challenging. Paul Silverstein – Credit Suisse: I appreciate it. Thanks.

Thanks, Paul.

We’ll take our next question from Simon Leopold with Morgan Keegan. Simon Leopold – Morgan Keegan: Thank you. First, I just want to get a quick housekeeping question out of the way. With the first full quarter of Nortel in your operating expenses, looks like kind of some moving parts, some allocation questions. So you guided to about $190 million of OpEx. Just wondering how that would be split among R&D, sales and marketing and G&A?

The proportions of the costs are -- the percentages are not going to be too dissimilar from what they were with Ciena as a standalone for the last couple of quarters. Simon Leopold – Morgan Keegan: Okay. And I know you don’t want to go into providing details of specific products as you’ve integrated the companies but I’d like to try to get a baseline of the Ciena long haul and metro businesses, the 4200 of where we were in this particular quarter. It’s pretty easy to kind of get a rough guesstimate but if you could give us that level of detail?

Because this is a transition quarter, we’ll give you that this quarter. We’re not going to give product details going forward unless there’s some exceptionally unusual thing that we feel we should point out. 4200 was around $42 million in revenue, that’s slightly down from Q1. However we’ve had a good order flow on 4200 and we do expect that to be up next quarter. Core stream is about $13 million. Simon Leopold – Morgan Keegan: Okay. And it sounds like your services business in light of the merger was particularly strong. Was there anything in particular that drove it this quarter?

Well, the MEN business has had a very strong service portion of their business because they have such a large installed base. So that’s the single biggest item. We also are beginning to get active in professional services and that was -- we had a nice quarter in professional services, not huge but nicely growing and we’ll continue to grow. Simon Leopold – Morgan Keegan: And just one last question. There’s been some news about India’s new policies, now understanding that’s a pretty modest portion of your business, just wondering what impact you either had in the quarter or what you expect for the remainder of the year given India’s security policies and the impact on sales?

There’s been no result to date on sales. The regulations are still being finalized. They moved around a lot over the last couple of quarters. We’ve been closely monitoring the situation. We’ve put in measures that allow us to continue our business in India and we’ll continue to watch the situation. India is an important market for us. We have as you know a big R&D operation there. We have some very nice customers there and we hope that it will be a place for us to grow in the future. Simon Leopold – Morgan Keegan: Thank you.

Our next question comes from Jeff Kvaal with Barclays. Jeff Kvaal – Barclays Capital: Yeah. Thanks very much. Gary, Jim, I was wondering if you could help us a little bit with the Nortel’s trajectory over the next several quarters, if one backs into the numbers you’re talking about, you put in the deferred revenue scale up for a full quarter you’re at about 180 million run rate for Nortel. Can we be thinking about that crossing back over to 200 getting back to where they were a year ago is 250 feasible? Any commentary there would be helpful?

Yeah, Jeff. I would say that clearly I think you’ve got enough pieces there that you can put the thing together but I would say let me kind of help you bridge it if I can. I would describe the MEN business right now. We’ve rationalized the portfolio, I think the businesses, I would describe it as stable in terms of their business that we brought across. I think that given the rationalization of the portfolio and the engagement in taking away the uncertainty that its been operating in, I think it’s reasonable to expect that business to expand over time and certainly as we get to 2011, I think we said as an overall operating model, 10% to 12% growth for the combined business. And that clearly MEN is a large part of that. So I would expect the business to grow as we get through 2011. Got a lot of new platform additions coming out that they’ve invested in as well, so I think that and the benefit of a dedicated and broader sales force and cross-selling, those are the synergies that we acquired the business for. Jeff, I absolutely think the first thing is to get it stable which I think it is and to get the business integrated and we’re off to a good start with that and all the indications from the customer engagements that we’ve got are very positive. They’ve all got to translate into orders and revenue going forward but I think we can absolutely grow that business. Jeff Kvaal – Barclays Capital: Okay. That’s a good lead into my second question which is, we’re about a year into the recovery, economically, speaking and I’m just a little surprised that you and many others, frankly are talking about signs of recovery in carrier spending even in the U.S. rather than there’s a pretty healthy uptick under way here. What’s taking so long, Gary, I guess?

That’s a good question. I mean, I think you’re seeing – even putting aside the six weeks of MEN revenue, you’re seeing good growth on the Ciena business. We’re up 37%. So why aren’t we being more bullish is a fair question. I think that everybody, certainly, from the next-gen, vendors feel very optimistic around the dynamics that we see and play. I mean these carriers have to upgrade to scale their networks and there’s a lot of forcing functions there, so we feel very positive about that. I think what’s causing caution on everyone, particularly, if you look at sort of the European situation is I think we’re going through some turbulence as we come out of this global recovery. And I think particularly in Europe with the debt situation I think people have been cautious about that. I think that’s what’s tempering down any sort of outrageous exuberance and I think that’s right. I don’t think this, even though we see very strong shift in spending and we see good overall recovery particularly in North America, I don’t think this is going to be a rocket ship taking off. I think it’s going to be good steady growth and particularly for players like us that are well positioned for the next-gen, so I think that’s what’s – from my personal perspective, Jeff, that’s what I think is happening. Jeff Kvaal – Barclays Capital: Thank you both very much.

Thanks, Jeff.

Our next question comes from Michael Genovese with Soleil Securities. Michael Genovese – Soleil Securities: Great. Thanks a lot. Just first to just clarify something you said earlier, so CESD was $75 million and am I correct that that compares to $40 million last quarter?

That’s right. It’s in the range. Yeah, Mike. Michael Genovese – Soleil Securities: Okay. And in that division, just to be sure is that all products from worldwide packets or does that include other products as well?

It includes certain legacy Ciena applications, but by far the largest piece is the packets stuff. Michael Genovese – Soleil Securities: Okay. And then tying that in with your 10% customers when you talked about the second 10% customer, being a first timer is that a first time 10% customer or is that a first time customer?

First time, 10% customer. Michael Genovese – Soleil Securities: Right. And then, how much of the quarters gross margin out performance? It looks to me – First of all am I correct in assuming that the organic Ciena gross margin was over 50%?

Well, I think you have to be careful about trying to break it out that way. I’d say overall, we are pleased with that margin. We thought we had a terrific quarter in both companies with respect to margin but there are just a number of factors that we don’t think are going to repeat, so that’s why we guided to the low 40s. That’s where we think we’re going to be. Michael Genovese – Soleil Securities: Okay. In mentioning those factors, you didn’t talk about product mix at all so was it a factor at all, was the growth of CESD related?

Well, our CESD revenue was high, as you saw which is a good margin contributor. CoreDirector was up over last quarter which, as you know good margin contributor and so yeah, there was a product mix component of it for sure. Michael Genovese – Soleil Securities: Great. Thanks a lot.

Our next question comes from George Notter with Jeffries & Company. George Notter – Jeffries & Company: Hi. Thanks very much guys. I guess I wanted to ask about the $190 million OpEx target, I guess now we’re looking at hitting that for Q3. Is that improvement or a pull forward in timing for that run rate, is that driven by the headcount reduction? Is there a faster than expected headcount reduction going on here or are there other types of synergies involved in driving that and then also, I guess I’m curious about how much cash restructuring costs we expect to have on a going forward basis as well.

The $190 million sort of range that we expect for this quarter is a combination of a lot of thing and clearly, we’ve acted quickly in terms of the headcount that we wanted to move. We’ve also done some shuffling with respect to third party services and we’ve been quite aggressive on that, so yeah, it’s a combination of a lot of different things. We have – I think we’ve done a good job there. We’ll continue to manage those costs closely. With respect to integration costs, we’ve incurred roughly $68 million or so. We have about 110 million to go. We think that over the next couple quarters we’ll spend in the range of $45-$50 million a quarter in that range. George Notter – Jeffries & Company: Thank you.

Thanks, George.

Our next question comes from Subu Subrahmanyan with Sanders Morris. Subu Subrahmanyan – Sanders Morris: Thank you. I wanted to touch on two things. First on 40 and 100 gig the transport side, can you talk a little bit about how timing of those inspiring, especially, with some of the large carriers into making 100 gig commitments at timing of 100 gig revenues or start getting meaningful and then Jim, I was wondering for the three-month period if you back off any deferred revenue, partial quarter kind of things, can you just give us a Nortel MEN number just on a comparable basis for that three-month period, not foregoing forward but for the past three-month period? And then deferred revenue impact must be remaining about $50 million. How do you expect that to play out over the next couple quarters?

Let me handle the numbers first. We said that there’s roughly $50 million to go and that will be heavily concentrated in Q3, but there will remain a small portion of that which would have come through in Q4. With respect to the MEN business, we’ll have some pro forma numbers in our 10-Q which you can refer to. It’s probably not going to answer your question precisely but it’s about what we can do.

In terms of your question about the transition from 10 to 40 and ultimately about 100 gig, I think we’re well in the midst of the transition from 10G to 40G that’s being deployed in a lot of networks worldwide. In terms of – at what point we think that transition will go over to 100G, there are a number of different economic models that one can use to do that, but I think our belief right now is the technology will reach a maturity level and it will have been operationalized in carriers, so you begin to see what I would call significant deployments of 100G in the late 2011, early 2012 kind of time frame. That’s pretty consistent with what we’ve been saying for a year or so now. There’s a time that’s associated with service provider beginning to operationalize technology like that. As in the early days of 40G, a lot of the deployments were driven by devices connected to networks that had made 40G interfaces. There really aren’t devises out there today that have made the 100G interfaces but those are likely to come here soon. Nevertheless, we’ve done a couple of live deployments with 100G, prior to the acquisition of Ciena, the one with New York Stock Exchange. Nortel also did one with Horizon in Europe and we have a number of trials in that space ongoing today. Subu Subrahmanyan – Sanders Morris: Understood. And is 100G being fairly close around the corner late next year, creating some holdup on the 40G side from carriers who have not deployed it yet?

I wouldn’t say necessarily that you have a number of people out there who are holding off on 40G to get to 100G, because we’re at a point where 40G economics are beginning to prove in and there are also applications that demand 40G. And there are also near-term cases in networks where you really need to go to 40 G to hit the capacity, because of efficiency constraints, so and I think most of the service providers are at each stage now where they’re looking to evaluate the technology.

The other thing I would answer, though, is that the architecture that we’ve got allows that upgrade from 40 to 100 gig. And, so we’re uniquely placed around that I think in terms of both the technology and the fact that we can take the same platform and just upgrade it to 100 gig, that we can do the same thing with our existing Core Stream plan. We can over lay that with 40 or 100 gig from the coherent technologies from 6500. Subu Subrahmanyan – Sanders Morris: Got it. Thank you.

Thank you.

Our next question comes from Todd Koffman with Raymond James. Todd Koffman – Raymond James: Thank you. Can I just get a clarification about the Europe exposure, sort of on a more normalized going forward basis? I think someone asked the question before, he threw out a 20-30% number. Is that of total revenue?

That’s total revenue, yeah. Todd Koffman – Raymond James: Thank you.

Our next question comes from Blair King with Avondale Partners. Blair King – Avondale Partners: Hi. Thank you. One question, Jim, you had mentioned I think some talk about the back office component of the integration I think being complete. Is that a fair assumption or I miss something there?

No. I didn’t mean to refer to it as complete. What I was saying was that I believe that our people have done a great job on the initial stages of that and all the planning and work that went into that enabled a smooth transition of all of the back office things. We were shipping kit in three or four days after the close. We took all employees on to a payroll and all the things that are necessary to operate the business, that all happened seamlessly. What has yet to happen is that we still, because we are operating on MBS ERP systems, we still need to transition of that, set of transactions on to our Oracle implementation. That’s going to happen over the next, call it six to eight to 10 months and that will complete the integration of the back office. We’re going to put the same amount of planning and effort into that set of processes as we did in the initial integration, so I’m confident that we’ll be able to do it seamlessly as well. Todd Koffman – Raymond James: Okay. Just one last follow-up to that then, Jim. As you kind of transition on to your own Oracle platform, is there a declining rate of support that you need from Nortel as that transition happens or is it a step function that once you convert all of a sudden you’re away from Nortel?

Well, it’s going to be a series of – dropping off the Nortel platforms and coming on to ours. There will be a pretty big step when we actually move the products off, but it won’t be one big bang that happens on one day. Todd Koffman – Raymond James: Okay. Right. Thank you, Jim.

Our next question comes from Alex Henderson with Miller Tabak. Alex Henderson – Miller Tabak: Hey guys.

Hi, Alex. Alex Henderson – Miller Tabak: I was wondering if you could give us a little bit of sense of what’s going on in the components markets, in terms of availability, lead times and if you could break that between your typical optical components and other types of components that you might be using that would be very helpful. Thanks.

Alex, why don’t I take that. In terms of – there’s been a lot of talk about supply constraints. I’ll try and serve it up for you. We’re certainly finding that vendors are somewhat reluctant to invest in capital to increase output, so we’re experiencing some lengthening of lead times. This is not to date, really, significantly affected our business and we’ve taken a lot of steps to deal with that by investing in sort of strategic inventory reserves if you will and future allocation commitments with our contract manufacturers, so we’re not being hit really by some of those common parts, shortages etc. And because we’re somewhat vertically integrated in certain key components, that’s helping us as well in terms of our planning. So we haven’t seen anything really significantly affect our business. There’s always kind of puts and takes all the time, but nothing particularly unusual to be honest. Alex Henderson – Miller Tabak: Is that more on the optical component side or is that more on the – more electrical component and sort of semi piece parts?

On the optical side, we’re seeing some shortages but no more than the normal sort of rough and tumble of things. On the sort of other electrical components, we’re able to secure supply of all of the key stuff that we need right now. Alex Henderson – Miller Tabak: But the lead times have stretched a little bit, you said?

Yeah. They have. We saw that start as soon as the uptick started I guess somewhat probably about 12 months ago, nine months ago and so having lived through a number of these, we got on to that quickly and we’re able to secure through commitments and strategic inventory reserves some of that stuff, so we feel it’s certainly in the foreseeable future. We’re in reasonable shape for that. Alex Henderson – Miller Tabak: The part two of that question is how does that fold into your exercise of reducing the number of suppliers that you’re talking about? I assume that you’re – The large optical component suppliers will probably be gaining position relative to your…

Yeah. I think it’s necessary, Alex that some vendors will get more business, particularly those that the combined company selects going forward. We’ve got a number of contract manufacturers between the two companies and that probably. It will be rationalized going forward. But in terms of the component vendors, its greater purchasing power and we need fewer vendors. Alex Henderson – Miller Tabak: So the supply constraints isn’t going to slow that process down though?

I really don’t think so at this stage. Alex Henderson – Miller Tabak: Great. I’ll see the floor. Thank you.

Thanks, Alex.

And our final question comes from Hasan Imam with Thomas Weisel Partners. Shubhu Ghosh – Thomas Weisel Partners: Yeah. Hi. This is Shubho Ghosh for Hasan. Just going back to the 40 gig cycle, wanted to get more color on where you think we are in the 40 gig cycle and you did mentioned the 100 gig by late 2011. How much bigger do you anticipate the 100 gig cycle, if at all from what’s going on right now in 40 gig?

I’d go back to one of Gary’s closing comments and that’s that we think most networks are going to have a mix of those technologies as time goes on. There’s still a good bit of 10G technology being deployed. 10G is still a cost effective technology in a lot of applications. We’re probably past the point where 40G was deployed as a particular technology to address specific applications. It’s now beginning to move into the broad infrastructure type of deployments. And we expect that the bridge to 100G will follow a similar path that it will happen over time as the transition from 10G to 40G happens, but the one thing I would stress is that the biggest issue on here is making it easy to make that bridge from 10G to 40G to 100G and be able to evolve your network carefully. And be able to support the applications that you need at the time you need them. Shubhu Ghosh – Thomas Weisel Partners: Got it. And kind of going to some of the model questions, acquisition and integration related costs. Do you expect that to spill over into 2011 at this point?

I think it is likely that we’ll spend some money in 2011. We’re working as fast as we can to finish this integration, but it’s just it takes a while to do some of these things so some of these costs will likely fall over into 2011. Shubhu Ghosh – Thomas Weisel Partners: Got it. And the fair value adjustment of acquired inventory as well as the product rationalization charges, do you expect a spill over of that into next quarter as well?

As far as the product rationalization, we don’t expect anymore significant product rationalization charges today. Now what happens is that as products reach the end of their life cycle then we do sometimes have some charges related to that. We don’t expect any of those either but they could happen. Shubhu Ghosh – Thomas Weisel Partners: Got it. Because if I take both of them out I’m coming to 42% non-GAAP this quarter, so if you were to include any of that going forward that would mean an organic decline in non-GAAP gross margins?

Well, the non-GAAP margin does not include either of those. If you’re trying to bridge from the 49% GAAP margin to 42%, yeah, you have to exclude those items. Shubhu Ghosh – Thomas Weisel Partners: That’s right. But if I exclude any further going forward in Q3 for example, if there’s any other exclusion of acquired inventory and rationalization charges to an already loaded kind of Q3 quarter if you know what I mean, if I take that out, it helps your non-GAAP gross margins going into Q3, so are you at all considering that going forward?

We’re getting a little detailed here, but let me just make it clear. In constructing our non-GAAP or as adjusted margin, we did not include in this quarter any charges related to product rationalization and we excluded this write-up on the inventory related to purchase accounting. So the net effect in going from our Q2 gross margin on an as adjusted basis to the Q3 gross margin on an as adjusted basis is not affected by anything related to product rationalization charges or purchase price accounting. Shubhu Ghosh – Thomas Weisel Partners: Fair enough. And is it possible for you to give us a quick recap of the target operating model?

Sure. What we said at Analyst Day was that, we, based on what various industry analysts say as well as our own analysis of the market, we expect those segments of the market in which we compete to grow at sort of a 10-12% annual rate and we expect to be at roughly that same rate. We said that given all of the things that we know about gross margin, we expect that to be in the low to mid 40s range. We said that early on, we would expect to be in the low 40s range and that we would believe – we believe that we can move to the high end of that range over the next sort of 18 months. We said that OpEx as a percentage of revenue would be in the low to mid 30s range in our target. We talked about -- We expected to be at sort of a 195 to 200 range or operating rate of OpEx today or near term and that we would move to $190 million or so as we exited 2010. I’ll point out that we now expect this to be in the approximately $190 million range in Q3 which is ahead of schedule. And finally, our target range is, our target operating margin is sort of the 7 to 10% range. We think of that in terms of some milestones. We hope to be close to breakeven exiting fiscal year 2010 and we hope to be able to achieve operating margin in the 7 to 10% range, exiting fiscal year 2011. Shubhu Ghosh – Thomas Weisel Partners: Great. Thank you very much.

And at this time there are no further questions. I’d like to turn the call back over to our speakers for any closing remarks.

Thanks, Michelle. I’d like to thank everybody for your time this morning for joining us on the bridge and for your continued support. Thank you.

That does conclude today’s conference. We would like to thank everyone for their participation.