Good day everyone. Welcome to the Ceragon Networks Ltd. fourth quarter and year end 2007 results conference call. Today’s call is being recorded and will be hosted by Mr. Ira Palti, President and CEO of Ceragon Networks, and Mr. Tali Idan, CFO of Ceragon Networks. Today’s presentation will include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that would cause Ceragon’s actual results to be materially different from those expressed or implied by such statements. For additional information regarding the risks associated with Ceragon’s business, please refer to the Ceragon’s annual report on Form 20-F and Ceragon’s reports filed with the SEC. Web users can visit Ceragon at www.ceragon.com to read the complete forward-looking statement language. I will now turn the call over to Mr. Ira Palti, President and CEO of Ceragon.

Thank you. Thank you for joining us today. With me on the call is Tali Idan, our CFO. We are pleased to report record results and another excellent year. For 2007, our revenues grew 49% and non-GAAP net income grew 129%. This was our sixth straight year of strong revenue growth, averaging 55% a year. We believe the primary growth drivers for high-capacity wireless backhaul remain in place and we continue to expect revenue growth of 25% to 30% in 2008 with additional operating leverage, leading to operating and net income growth at a higher rate. We are continuing to enjoy strong demand for high capacity SDH solutions from wireless service providers with a majority being cellular operators. We expect the trend driving growth in this segment to continue. This includes rapid wireless subscriber growth will continue, especially in emerging markets; increased demand for data services will continue, ranging from text messaging to internet browsing to newer data services. Even in a tight capital spending environment, we expect wireless backhaul projects to be funded due to the attractive economics and the operators’ need to reduce operating expenses. In addition, we are in the very early stages of a major migration to IP backhaul. We believe we are extremely well positioned to capture a high share of this market due to our track record and experience in IP and also due to our differentiated product offerings like our native serve technology which enables cellular operators to migrate seamlessly to IP. Early adaptors are beginning to deploy this solution and we are seeing substantial interest from cellular operators. Also, new WiMAX networks are being deployed using our native IP solution. In 2007, 32% of our revenues came from IP solutions, still mainly for private networks. As we enter 2008, we also have…

Thank you, Ira. Q4 was again a record quarter, a strong finish to an excellent year. The results and breakout for the full year of 2007 are as follows. Revenues increased 49% to $161.9 million and GAAP net income increased to $13.1 million or $0.41 per diluted share. Excluding stock-based compensation and a one-time charge, non-GAAP net income for the year increased 129% to $15.3 million or $0.48 per diluted share. For the full year, service provider category accounted for 77% of total revenues and the private network segment for 23%. The geographical breakdown of the full year revenues is as follows: EMEA 32%, North America 21%, Asia-Pacific 42% and Latin America, 5%. Revenues from the Asia-Pacific region more than doubled during 2007, growing much faster than the other regions and therefore accounting for a larger proportion of the total. OEM revenues in 2007 grew on an absolute basis but declined to 19% of the total revenues from 25% in 2006 as direct business grew much faster. On non-GAAP basis, gross margin in 2007 increased to 36.2% from 35.3% in 2006. Operating margin increased to 8.7% from 5% a year ago and net margin increased to 9.5% from 6.2% in 2006, reflecting our success in improving the operating leverage. Turning to the details of Q4, revenues grew 40% to $46.1 million compared to $32.9 million in Q4 of 2006. We continue to grow profits faster than revenues and GAAP net income grew to a new record of $4.4 million or $0.12 per diluted share on a significantly higher share count due to the following offering. Following the 7 million share offering, we expect our weighted average share count to be close to 40 million shares in Q1 2008 and to increase gradually after that. Excluding stock-based compensation, non-GAAP net income…

(Operator Instructions) We do have a question from the line of Tim Long, Banc of America.

Thank you. Two questions if I could. First, could you talk a little bit about the private network business? Obviously, that was one of the weaker sequential moves off a pretty strong number last quarter. What do you think the outlook is there? Do you think this is the piece of your business where you are seeing more of an economic impact? Could you just give us some color around the decline there? And then back to the operator business. Could you talk a little bit about, obviously, Asia has been really strong. How sustainable do you think that is as we head into next year, what should we be looking for as far as some real growth drivers there? Thank you.

Thanks Tim. I will address the two questions. The first one you asked about the private segment. Let’s remember in the private segment, we have two types of customer. We have private enterprises and we have government business. The last quarter, as we mentioned, we had a 10% customer on the government segment, and those types of customers tend to be a little lumpy, in the sense that we have larger fluctuations in the private segment over time as some of those come in and go out on specific orders. In the private enterprise business from all the checks we have done up to now, it looks like the business will be continuing at the same levels as it has been in this year and a little bit growing next year as some of those enterprises shift from lower capacity to higher capacity type of business. To address the second question regarding the Asia-Pacific region, I think that the cellular growth within the Asia-Pacific region is in the middle of its happening. It’s not a beginning, but it’s nowhere close to the end. Just to give an example, just last week, the Indian government awarded new circles or new territories for the six existing cellular operators, new GSM licenses and additional licenses to I think six new operators within India. And they all expect to increase their both footprint throughout India and increase the number of subscribers. And this is just India; we see similar expansions all throughout the Asia-Pacific region.

And our next question comes from the line of Blaine Carroll, Financial Midwest Securities.

You talked about the book to bill, but could you also talk about your backlog going into the current quarter and how booked you are for the revenue guidance that you gave?

Usually, for the revenue guidance that we gave, Tali I think gave the indication that our backlog is more than one quarter. Now let’s remember on that that not all of it is turnable into revenues this quarter. The backlog, which, usually in varying degrees, spreads out in the current quarter, the quarter after and a little bit even a quarter further down. So it’s usually on a typical quarter about 40-50% of that turnable into business within the existing quarter.

Okay. And Ira, if you could sort of refresh our memory on acquisition strategy for the company, what type of technology you would be looking for? What type of dilution would you expect in the near term or accretion thereafter and just sort of the overall strategy of the firm if you were out looking for acquisitions?

Okay. So I will start with your last sentence. If we were looking for acquisitions...

Exactly.

As I said very careful, we will look at acquisition very, very carefully over time. In general, the mindset, and nothing has been decided, probably to look for things which enhance our position within the backhaul market in general. That’s where we feel strong, that’s where we have the customer relationship and that’s where we are present in the field. So we would like to strengthen additional offerings into this. We do not need additional offerings to complement our solutions, but there are additional solutions out there for backhaul which might complement our offering to our customers. And the only other comment, you asked about our other financial parameters. I will repeat. I think the motto that we are saying as a management that over time, we want to increase profits faster than our top line. So we’ll probably translate that into the relative parameters into an acquisition as well.

Okay. And then one for Tali, if I could. On the DSOs, could you just go into a little bit more detail on why receivables jumped and is there any risk to any of the receivables? Are they backed by letters of credit, particularly the ones in some of these emerging markets?

Okay. As far as risk, we feel comfortable. I should tell you that the vast majority of our customers, the balances of our customers, are insured by a credit insurance company. And in those cases where the credit insurance does not insure them, we require a letter of credit or we require a large down payment. So I think that relatively, maybe to other companies, we have a low risk and we are very careful about it. What we are seeing, we are seeing pressure in Asia as you may have heard many times and you see a lot of pressure from many directions. And one of the directions is longer payment terms, slightly longer payment terms. And I think that we are trying as much as possible not to do it, but sometimes we do have to give something to the table. So that’s the main thing that I am seeing. I am seeing slightly longer terms for larger customers from Asia, but they are strong customers.

We do have a question from the line of Bill Choi with Jefferies.

Okay, thanks. I actually have somewhat of a follow up on that DSO question. Can you talk about the linearity in the quarter, and that kind of insinuates that a lot of shipments in the tail end of the quarter, which area kind of strengthened or weakened as we kind of went into the end of the quarter?

Well, I think that we are quite a linear company, both in orders that we are getting and in shipments. Don’t forget that we have to produce and ship, and maybe it’s not software. I mean software is much easier to ship a lot towards the end of the quarter. But when you really do hardware, you produce it throughout the quarter and we indeed ship throughout the quarter. So we are quite linear.

So you guys were a typical 50% in the final month?

No, less than 50%.

Okay. And then just on the OEMs, I know you guys obviously have a positive outlook about OEM business coming back. Can you just explain a little further what happened in the quarter that led to OEM slowing down besides the big private project that got completed in Q3? And then kind of on that segment, Chinese OEMs have largely been gaining share. What is your current relationship with these large Chinese vendors and how meaningful do we think a relationship can develop in 2008 with these guys?

Okay. I will take it as three sections there, and start with pieces. One of our customers, we work through our OEMs was backlogged for about a quarter on their installation project. So what we saw is a delay of about a quarter in their purchasing, which is typical to very large order, we received continuous orders from them for about six quarters and are already seeing the orders this quarter from them. So they were backed up and it goes through the OEM which reduced a little bit on the OEM channel overall. If you look specifically at the OEM, more than them, I think mentioned on my opening talk that with all our OEMs, we are going after new deals, new bids and new customers. So I see that as moving forward and continuing relationship. I think you mentioned in that regard the large private network deal from last quarter. We do not count that deal as part of the OEM, although it through a channel. It was not a direct sale. It went through a system integrator. It’s not counted in our OEM revenues in general. OEMs that we use is typically large or a little bit smaller telecom equipment vendor which help us go into the cellular market. You have asked about the Chinese. The only OEM we talk about openly right now is Nokia Siemens Networks and then we have two additional OEM which are large telecom equipment vendors from various regions in the world.

We do have a question from the line of Rich Church with Collins Stewart.

Okay, thank you. Ira, could you talk about the Nokia Siemens Networks in terms of the relationship there? Any new developments with their product development efforts? And also, last year around this time, you had talked about giving some color for the full year’s outlook. Are you getting a similar read on 2008 now?

We are getting a similar read in 2008, which we believe will stay at the same level of 2007 from them. The product outlook is something you will have to ask them, but they are moving on some of the product. I don’t think the landscape has changed there. I think we are maintaining nicely in 2008 our advantages built on the IP space and the costs and our delivery capabilities with them. And as I mentioned with all our OEMs, we are going after new business, new deals. That means including Nokia Siemens.

Okay.

And we are winning new accounts with them.

Great. And with regards to the IT migration by the carrier, could you comment on RFPs, quantify maybe RFPs that you are competing for and what geographies and do you expect any revenue in 2008 from them?

Okay. The region which we see leading the change is mainly Europe right now. Asia-Pacific is too, I would say in most region, too busy still in 2G deployments and getting subscribers. And I am not counting WiMAX RFPs in that space as a migration like Sprint, which is making the, I would say, talk in the U.S. But cellular migration is starting within Europe, mainly with the deployment of HSDPA. HSDPA base stations with IP interfaces are coming out in the first half of 2008 and we will see networks migrating to that. I am seeing a few in the lower kinds of RFPs out there at this point.

Great.

And we do expect revenues from those in 2008.

Is it the second half?

No, some already in the first half.

Okay, great.

Small, but some of it in the first half as well.

And Tali, on the Q1 outlook, do you see any major changes to either OpEx or the gross margin?

No. No major changes. I think it’s the same model, except that of course, mentioned we do plan to continuing profitability and reach 10% for the year. But the gross margin the same range as we have been speaking before and a slight improvement in expenses.

You had a comment in the release about coming out with cost reduced products. Do you have a goal for gross margins exiting ‘08?

We are continuing our cost reduction activities both products and others. And I think as Tali mentioned, we are planning on continuing with the same range of gross margin that we are in.

You have a question from the line of Amir Rozwadowski - Lehman Brothers.

Thank you very much. Tali and Ira, I just have quick clarification. You had mentioned that you have service providers in the pipeline looking at IP-based systems. And I know you had given some color in terms of geography. Can you characterize the types of carriers that have been looking at that? Do we expect these to be Tier I established carriers?

Like in any of the migration stories, usually, you would find established carriers, but a little bit of the smaller ones. They might be a Tier I within the country, but usually, it’s a within country type of a carrier doing the migration first. We have seen the interest also from the very big international carriers. But I don’t expect them to start the migration in ‘08, but probably in ‘09. By the time they finish their RFIs, RFP selection, let process, it will be 2009. But we will start seeing established carriers with very large installed bases starting immigration in ‘08.

Great, thanks. And then I was wondering if you could give us an update in terms of what you are seeing at the Sprint opportunity. We have obviously seen some shifts in management there. I wanted to characterize sort of where you folks saw your business and if there was any update as to how much you think you can achieve in 2008, 2009 and so forth.

I will start with Sprint right now. We are in the lab, okay, like other vendors as well, systems being tested, integrated and have not finished their selection process or awarded things they had on the backhaul. From a working level perspective, it’s full steam ahead to complete all the process and do the rollouts, and that’s what we hear from all of their team. Probably you have a better assessment than I do on what’s happening at the political management level and how will this have effect. We have been very, very cautious in our outlook for ‘08 in factoring Sprint in, if at all.

You have a question from the line of Jeff Kvaal with Lehman Brothers.

Yes, thanks very much.

Good morning Jeff.

Good morning Ira, good morning Tali. I was wondering if you could give us a little bit of a sense of what your revenue and gross margin requirements are for you to be at the double-digit operating margin level.

I suppose that it depends what you call operating margin double-digit. Right now we are waiting. We are targeting the 10%, our goal from several years ago. And we think that we can achieve it with the targets that we are putting to ourselves, which is 25-30% growth in revenue. As far as gross margin, I think we feel comfortable around 36% gross margin. We used to say 35-36%. I think that after a full year where we were at 36% or slightly above, I can say that I do feel comfortable around 36%. And that should be sufficient to achieve the 10% goal.

Okay. And that is including the migration to a carrier and within carrier to IP base stations?

Yes, it includes so many factors, and including that.

Could you tell us a little bit about the migration to IP and how that’s progressing?

What we see right now is that, I would say, early adopters of the technology, but also people look at it carefully. Looking at what we will do with the backhaul network once both Ericsson and Nokia Siemens come out with base stations which have both TDM and IP interfaces. It will be TDM interfaces for the voice circuits and then IP interfaces for the HSUPA, DPA type of an application, and they need to carry both at the same time back to the back-end servers. People are looking for differing solutions there. What we are hearing, which matches very nicely our technologies and our offering, is our native square technology, which enables them to carry both natively and then merge them back into the network, allows them to save a lot of the OpEx. And in addition, that same type of technologies allows us to do other things in the radio that allows us to pass a much higher capacity within the same link budget that they use today because they’ll have to carry a lot more traffic to the base station.

Okay. So when should Ericsson and others have IP in their product offering?

I think what we know and what we are seeing from people we are involved in, they are testing those and have started deploying in some places test deployments. People expect them in the first half of this year to start seeing the base station.

Okay, fantastic. And I mean do you carry a premium for you folks?

It does carry a premium, but not a significant one as people expect IP in general to be at lower costs than as the eight circuits.

Okay, makes sense. And then my last question is on the relative wider range of guidance this quarter versus visibility. How does your visibility differ from how it’s been in prior quarter, i.e., how much book and ship business do you need in March versus what you might have needed in prior quarters?

In March, I don’t know, if I wait for book and ship in March, it will be a little bit on the late side, it will be very negligible within March. It’s usually a January-February story that I need to book and bill. Let’s remember most of the things that we do. We are on 30-day shipping schedule and we bill to order. We don’t ship from stock.

Yes, I know. Pardon me, you are right. I guess to broaden that a little bit, like when you are setting your guidance entering the March quarter versus setting your guidance entering the December quarter.

Okay.

How much?

It’s growing, but not so great. It’s been growing over last year quarter over quarter, but as we shorten the delivery time, not significantly different than last quarter.

Thank you. We have a question from the Line of James Faucette with PacificCrest.

Thank you very much. I had a few market questions, then a couple of operational follow-up questions. First of all, you indicated on the private network side for 2008, I think you said that you expect a little bit of growth in that area in 2008. Does that mean that we should it to grow quite a bit slower than the overall corporate rate, and hence the carrier business you expect to grow faster than the 25-30% you have outlined?

In the mix, yes.

Okay, great. And then can you talk a little bit about, just a little bit or quite a bit lower, North America in the fourth quarter at 15% of revenue is considerably below what the average had been for the year. Can you just talk a little bit about what the factors were there and how you expect those to develop going into 2008?

I think that, U.S. was for quite a long time in the range of 23%, 25% of our revenues. And we have seen it quite stable in this range. Now it is true that Asia is growing faster, and therefore other regions are growing relatively slower. But I think all regions are growing as well as the U.S. As a matter of fact, if I compare past with future, past in the U.S. was based mainly on private networks and future is based currently, and more so in the future, about operators and cellular networks. So I think that North America will continue to grow in a nice rate.

So, with the December quarter coming in at 15% of revenue, I am just wondering why the mix was so far skewed out of the North America and if you think that should come back. It seems though you are saying that that should come back in 2008 back to that 20- 25% range. Is that right?

Yes. They were pretty strong in Q3. So there was kind of a, you can call it a shift. I mean I wouldn’t look at. It’s true that Q4 is relatively weaker, but Q3 was stronger. So, on the average they were within our expectations, in the normal range.

Great. And then…

And altogether and looking forward, I am saying we see strengthening in the U.S. as operators, as more backhaul is being put into mobile networks.

Great, that’s very useful. And then finally just on the operating expenses. Can you once again, I guess just repeat how you would expect OpEx to be in the first quarter versus the fourth quarter and then how we should think about its development through the rest of 2008?

I would say, again, that expenses will continue to grow. I think it is the same trend that you have been saying in this year and the prior years. Expenses do grow in dollar terms, but in percentage of revenue terms, they do slow down. And therefore operating expenses continue to improve as we have been improving them throughout the years, and then our goal is to reach 10% operating margin in 2008.

So in the first quarter, would you expect OpEx to be down as a percentage of revenue or not necessarily?

It’s very difficult to pinpoint a certain quarter. But overall, the trend is a trend of reduction as a percentage.

Great, thanks very much.

We do have a question from the line of Matt Robison with Ferris Baker Watts.

Hi. On the OpEx for the fourth quarter, was there anything that you would consider exceptional? A pretty substantial increase there, so can you comment on that first?

No, I don’t believe that we have any substantial increases in expenses.

And on the private network side, I think you had a tough comparison versus 3Q, which I guess also meant the North American business was a tough comparison. Do you see the pork spending that we have seen come into Homeland Security related private network deployments? Is that starting to dissipate? Because there was quite a bit of that both in ‘06 and ‘07 where you saw New York and Houston and these various other big cities putting up microwave with your products. Is that diminished in your pipeline, those deals?

No, that’s not diminished in the pipeline. But as I said, those are usually lumpy deals. We didn’t have any of the significant deals within the fourth quarter and we do see some of those deals in ‘08.

Are we going to have to wait till the back half of the year or do you see them coming back? I mean I know the March quarter sometimes is a little weak for North American spending because of the weather conditions, but when do you think you will see it start to come back?

Hard to tell. Because on some of those the cycles of approval are a little bit unpredictable from that front because they’re governmental deals and its hard sometimes to know what are the approval cycles. We do see a few of those deals in the pipeline, but they are spread all across the year.

What was Nokia as a portion of the OEM sales?

It was about 5%.

So it’s about half or less than half of OEM?

Yes.

Then OEM?

Yeah, about half the OEM.

You have a question from the line of Kevin Dede with Morgan Joseph.

Good morning guys. It’s Kevin Dede. Congrats on a nice job.

Thank you.

So, Ira, you mentioned flat expectations for Nokia. Now is that in absolute terms or percentage terms?

In absolute terms for the year.

Okay. And have you indicated who your 10% customer in India is?

No, we have indicated one of our direct customers within India.

And that’s as much as you are talking to.

That’s as much we are talking to based on their request.

Okay. Are your expectations there that there is life to that business going forward, or, I mean obviously you saw, or you said that there…

With all…

Six new operators and more licensing?

As I said, I think, on prior calls, we have five significant customers in India, five operators, two of them via Nokia Siemens, three direct. We do expect all of them to continue with a significant business into this year and next year. Because all of them got additional licenses now in the new auctions and bidding and they will be expending into new circles within India, in addition to probably seeing a few more customers from the people who got new licenses in India.

And would you mind characterizing pricing, I mean competitively-driven pricing pressure in ‘07 versus ‘06 and what you might expect this year?

Competitively-driven pricing this year continued the trend we have seen in prior years of declines about 10-15%. And we expect that to continue going forward. Different pricing in different markets, different pressures in different markets. And I think that from our perspective as the geography mix changes, you might see a little bit stronger because Asia pricing is a little bit lower than in other sections. But in general, we feel comfortable with our gross margin, because I think someone prior on the call asked about cost reduction activities and others. And I think we know how to offset those pressures within our mix and move forward and continue competing effectively in the market.

Okay. Last question for me. Can you give us an indication of what you think will happen at FiberTower given changes there?

From what we are hearing from them, they will continue on going the same direction and continue their business. But that’s what I am hearing from them. And if you ask a CEO, when the new CEO comes on the job, they usually make changes. But that, we’ll have to wait and see who is the new CEO on the job.

You have a question from the line of Daniel Meron with RBC Capital Markets.

Thank you, hi guys.

Hi Daniel.

A couple of questions; first of all, if you can give us a sense on the ForEx impact. OpEx did rise this quarter. Obviously, the revenues continue to rise, but this quarter was ahead of the top line growth. How do you expect that and how do you factor that into 2008 guidance?

I think the general trend is reduction of operating expense as a percentage of revenues. So it could be that one quarter, it will be a little bit higher, but overall the trend is reduction; continuing increase in absolute term, but reduction as percentage. And this is our goal for next year as well, to continue and make operating expenses lower in terms of revenues.

Right. But the ForEx, how was that in the play during this quarter and how should we think about going into 2008?

Well, let’s hope that the dollar will not stay as weak as it is right now. I mean right now, I do have expenses of course in Israeli shekel and of course they worth more dollars these expenses. It’s not a huge amount because a lot of our expenses first of all are the cost of the product and then there are many other expenses. And I am usually hedged for a quarter plus ahead. But if it stays the same rate as it is right now, we may see some impact beyond Q1.

So then the 10%, how would you get to the 10% operating margin that you just mentioned if you do have continued ForEx impact?

We will make efforts.

Okay.

I think, Daniel, that’s right from what you are saying. But if you calculate it correctly, you will see that the foreign exchange effects on our OpEx are not that large because the salary content in shekels is relatively small from our operating expenses. So the overall effect on our budget is low.

Okay. So maybe you can give us some sense on how, what was the impact in the fourth quarter, because I am just trying to see to what extent the changes in the quarter were impacted by the changes in the ForEx.

When you speak about impact, it’s always compared to a certain expectation, and this is why it makes it difficult to say. And it was according to our expectations because we were able to hedge. So I did not have to change my internal model in order to allow higher expenses. So it’s the same approach. At least from my point of view, it’s the same approach for next year. I have certain expectations. I am hedged on part of them. And so far, I feel comfortable with the Q1 and part of Q2, which, it will be according to my expectations and so it’s difficult for me to say. I did have a negative impact of $300,000. I cannot say that, because it was not the case.

Okay, that’s fair. And then on the transformation to IP, what extent of the business, I might have missed before, but what extent of the business was IP related this quarter? How should we think about going into 2008, what is going to be the mix? And if you can also comment on whom do you expect to compete with in the back half of 2008 as far as your competition?

The IP portion of our product revenues, was 32% this year. And most of it is private, excuse me?

For the quarter?

For the quarter, it was slightly higher, 34%.

And most of that business is to date private network; it’s not the carriers. Its private networks and its WiMAX deployments. Cellular carrier business is just emerging, very, very small amount at this point. And we expect the small amount to grow in ‘08, but not significantly, because I don’t think the major shift will happen in ‘08. It will be mainly design wins; it will be working with operators in their lab and initial deployment. As I think I said on beginning in my talk, we do have a few cases of early adopters of the technology which are starting to deploy the technology as they start and prepare for the migration. You asked about competition. Competition in this space right now, the main competition that we have is from Harris Stratex with their partner client. We do see people like NEC and Ericsson offering solutions, mainly a two or three-box type of a solution to stop the gap. They’ll probably have products in the second half of ‘09. And we’ll probably see activity from Alcatel-Lucent. They have announced a new product line based around their router line, which will probably be available also in the second half of the year.

Okay. So you are looking at NEC, Ericsson, Alcatel-Lucent in the back half of 2008?

Ericsson and NEC will probably provide two-box solutions during 2008 and probably only in ‘09 will have their own products.

We have a question from the line of George Iwanyc with Oppenheimer.

Thank you for taking my question Ira and Tali. When you look at the trends in Latin America, can you give us an idea of how big of an opportunity you see there in 2008?

Latin America has been in the 5-7% in our revenues in ‘07. We expect the same size and percentage to be in ‘08 as well.

Okay. And following up on your comments on WiMAX, can you give us a sense of the current bid activity you are seeing there and how you anticipate that to ramp as the year goes on?

We see bid activities around WiMAX. Most of the things that we see right now is people still doing WiMAX for broadband type of applications, re: both large and small deals, but it’s mostly WiMAX for broadband. And there are initial bid for the mobile part, but those are too early. And what people are doing there is the WiMAX providers are winning or growing in there and it’s usually very small deployments, which are done on wireline backhaul for the testing purposes.

Okay. So you are not building in a very aggressive number in the 25-30% growth for…

No.

Okay. And finally, can you give us an update on any fee claims?

No update.

Okay. Thank you.

You have a question from the line of [Larry Harrod] with CL King. . [Larry Harrod] - CL King : Yes. Thank you and good morning. Just a couple of questions here; one, you are encountering DragonWave in the IP radio market, and are there particular countries in the Asia-Pacific region in addition to India where you are seeing strength?

Okay. First question, DragonWave, yes, we do encounter them mainly on WiMAX deals. They have a few IP solutions and products fit very nicely in that space, and that’s when we compete with them, it’s mainly on those types of deal. [Larry Harrod] - CL King : Yes.

Asia-Pacific, we see strength both in India, all over Southeast Asia and in the China, Vietnam, Thailand type of places. [Larry Harrod] - CL King : What about…

And I forgot Philippines as well. [Larry Harrod] - CL King : I was going to ask that. Okay, all right. Well, thank you very much.

Thank you.

We have a question from the line of Irit Elrad-Jakoby with Susquehanna.

Yes, hi, thank you.

Good morning, Irit.

Hi, good morning. Just wanted to go into again in discussion of your OEM goals. I mean you had mentioned in the past that you have a target of reaching 50% OEM mix. And I was wondering has this been revised and, if not, does include the addition of other large OEMs to the mix? And finally, does the IP product cycle give the opportunity to add other large OEMs?

The answer to your question is yes, in the long range, I want to reach 50% OEM business. It will probably take us longer than we expected. But we want to grow the OEM business. And I think that you indicated some of the directions we are working on as once the shift is done to the IP, it might change the mix of people which are potential, I would say, partner OEMs for that shift which we are trying to work with.

Okay, thank you. That’s it for me.

Thank you, Irit.

We do have a question from the line of Steve Ferranti with Stephens Inc.

Hi guys, good morning. Can you talk a little bit outside of the emerging markets? What are the dominant trends that you see in terms of carrier deployments? Is it lease line substitution? Is it capacity adds? I would imagine not a lot of new network builds outside of emerging markets. But give a little bit more color in terms of some of the trends you are seeing there.

The main trend, if I am looking from the top, is capacity expansion, okay. They need a lot more backhauls to each and every base station and then at the aggregation levels as well, because things like the iPhone or other smart phone devices generate a lot more traffic to the base station. And the operators are looking at differing technologies and ways to do that. What we see is that lease lines in many of the places are maxing out. So they have been built, laid out for a certain capacity around the voice circuit. And when you start adding a lot of data, they max out very easily. So there are two alternatives usually in that case coming in and we see a few of those. One is I have seen people do conversion of some of the E1/T1 lines into DSL lines to carry some of the IP traffic. And the obvious one is replacing that with a wireless microwave link which does both IP and even T1s with a much higher capacity.

Okay. Any progress you are seeing or any uptick in activity in North America in terms of lease line substitution? I know some of the carriers have been starting to be a little more vocal in terms of looking at white space and those kinds of things for lease line substitution. You are seeing any pick up in activity there?

The answer is yes. I think Tali mentioned before, if you look at our North American operation, we expect to see through ‘08 more carrier business than we saw before.

Very good, that’s all I have. Thanks guys.

Thank you very much.

Thank you.

We have a question from the line of Kevin Wenck with Polynous Capital Management.

From Q3 to Q4, inventories dropped a little bit more than $2 million bucks. Were you maybe a little surprised with the top line growth in Q4 where you shipped a bit more than you might have expected? Or given the $44 to $48 million guidance for Q1, are you somewhat conservatively positioned for Q1?

Okay, let’s take it one by one. I think I will take the second one, which will bean easier explanation; that’s the guidance that we give. We are not conservative and we are not optimistic. That’s our best estimate for Q1 and that’s the way we build the guidance.

A comment on the inventory.

And the comment on the inventory. Inventory did go down at the end of Q4. We are not shipping out of inventory most of the things that you see on our inventory. It’s divided into two parts. Part of it is inventory within customer sites already or within customer premises, which is waiting to be recognized because it’s project related and installations and other things. And the other thing is inventory that we have for building products. And we do manage and over time shifted both up and down based on where our expectations are.

Okay. The overall revenue guidance for ‘08 of 25-30% is really attractive growth in an economic environment that the investment community anyway assumes is plunging into recession. But what is your overall economic outlook and maybe give us some comments on how that differs geographically?

First of all, I don’t have an overall economic outlook because I am not in that business. It’s very hard for me to predict. I think I read the papers. Probably most of you have better, more detailed understanding. From what we have seen right now in the market and from talks to customers worldwide and to our sales teams and sales people, we have not seen any significant changes or any changes at all in what the customers are telling us from what they said before the financial crisis.

Okay.

All of them are planning on continuing in deploying because for most of them it’s a critical part of their business, both on reducing OpEx and expansion. But as I said in my talk, this is something that, as management, we are we are monitoring very, very closely to see if there are changes in that type of an outlook, or if any of the financial or recession talk that is all around, I would say, filtrates into our marketplace.

Okay. And then one clarification, and apology about an additional question on op, or on operating expenses or operating margins. But the impression of the 10% goal, that’s for the full year; that’s not for Q4 ‘08, is that correct?

Yes, for the full year.

Okay. I mean just one other take on that. That means that since it sounds like you are assuming that gross margins are going to be flat in, let’s say, 36%, then the other operating expenses have to drop from, let’s say, 28.5-26% for the full year. I mean that’s about a 10% reduction as a percentage of revenue. And it also implies that by Q4, the operating margin is probably more like 11% to get to that. I mean are you really just completely comfortable with that at this point and of those three items, R&D, selling and marketing, and G&A, where do you think your going to get the most leverage?

Well, first of all, it’s our goal, and we started setting up this goal several years ago. And we improved it each and every year by about 2 percentage points. This year, as a matter of fact, 2007, it was even more than 2 percentage points improvement in the operating, and we do want to achieve this goal. Now, are we comfortable? Not so far. We haven’t achieved our plans, so we are absolutely hopeful that we will achieve our plan for 2008 as well.

All right, thanks. Great year, congratulations on ‘07.

Thank you very much.

Thank you.

Your next question comes from the line of Rich Church with Collins Stewart.

Thanks for the follow up. On the one carrier customer through OEM that you said had pushed out their orders a quarter, could you just give us some more color on why that would have happened?

I didn’t say they pushed out the order, in that sense, and I will give you the color. What happened is it’s a customer which deploys a significant number of links every quarter, have been buying from us for the last six quarters on through the OEM on a regular basis significant amounts. I think what they found out when they looked at their plans internally, they were backed up by about a quarter on their installation projects. So they had to shift a little bit the plans on the way they install. Had nothing to do with slowing down. It was merely adjusting inflow of equipment to the speed that they are installing. And I think they were a little bit angry at themselves in there for not installing as fast as they planned.

And you said you already received new orders from them for Q1.

Yes.

And what geography was that?

Asia-Pacific.

Okay. And just one more question; on the Q1 guidance, I guess you guys have posted sequential revenue growth for multiple years here and your guidance implies you could be down sequentially for the first time in a very long time. I am just curious, is that just conservatism or is this a real possibility?

People ask me, that’s our guidance. And I think we give the best estimate as we move. I think Tali said in his comments that we expect Q1 to be similar to Q4. It’s not the first time we are giving that type of a guidance. I think we gave that type of a guidance also coming in 2007 for Q1 of 2007 versus Q4 of ‘06. And that’s our best estimate right now as we look into the quarter.

Okay, thanks.

Thank you.

And our next question comes from the line of Rich Valera with Needham & Co. Rich Valera - Needham & Co.: Thank you. Good morning.

Hey Rich. Rich Valera - Needham & Co.: Could you describe your competitive differentiators today? How you win in the marketplace and if you think that’s going to change when some of the big OEMs you talked about like NEC and Nokia come out with products that are ostensibly similar to the ones you have today with more IP capability. And how you will maintain your sort of competitive differentiation a year from now when you have more sort of like products on the market?

First of all, let’s remember, we play in two markets from that sense. In the market of the SDH or TDM type of links, there is very little differentiation on the functionality. By the way, we have a better product with more features, but it wins us about 10% of the deals in that space. It’s not a knockout. There are specific segments within that. Most of the other is we have invested very extensively into cost cutting and design to cost measures around the product. And I think we have either the best or equal to the best cost position for winning. Just to give an example, within the India market, which is considered very hard, only three microwave vendors operate it: NEC, ourselves and Ericsson within their captive market. So we win this way, being competitive, competitively on the cost allows us to be competitive in the bidding process and a little bit on the functionality. On the IP space, I think we have significant functionality capabilities. And for at least the market before it matures and the market will be for the next two or three years, a market which is mainly competitive on the functionality as people define their need for the migration and how they do the migration. I think we will maintain our competitive positioning in that space and our competitive lead of coming up with additional, significant new functionality and solutions around the IP space. Rich Valera - Needham & Co.: That’s very helpful, thank you.

Thank you.

Our next question comes from the line of Matt Robison with Ferris Baker Watts.

Yeah, thanks for letting me have a second question. I wanted to get the head count and how it changed and where you think it’s going for the current quarter. And you did have your OpEx adjusted before the stock comp did increase sequentially faster than revenue. You didn’t mention there is anything exceptional, but R&D was up quite a bit. Was there prototyping expenses in the quarter, and sales and marketing was up a lot. Was that commissions because it was more direct? A little more flavor on that, and you mentioned it’s going down as a percentage of sales in the future, but you really didn’t show that in the December quarter. So maybe give us a little more flavor on the dynamics of how you are going to execute that and of course answer the head count question.

Okay, the head count is about 330 employees at the end of Q4.

So is that 17 or so?

Yes, you are right. As far as OpEx, again, yes, it’s true that in sales and marketing, we had commissions higher than usual. I also have an expense which is related to equipment that they send to customers for trial, for testing. So many times we sell equipment for testing free of charge, and that was the case also in Q4, mainly related to IP because our IP new equipment is being tested by many customers.

Could that go through R&D?

No, that would go through selling. Selling departments will compensate the operation department for producing product and giving it to them. So these are probably two expenses that I can think of, and of course overall increase in the activity.

I know the…

R&D...

Okay, go ahead.

Yeah, R&D I don’t see any major increase. It increased from $4 million in Q3 to $4.2 million in Q4.

Yes, but 3Q was up, way up from the second quarter. So there was some reason to expect that there wouldn’t be a continued ramp there.

No, there is nice RPM, R&D activity.

So, it seemed one of the questions earlier talked about the exchange rate and the shekel, or at least implied that. Is that not really a consideration? Do you feel like you’ve hedged yourself adequately for that?

Again, I feel I have hedged myself enough for Q1 and part of Q2 regarding based on my plans. If dollar stays the same rate it currently is, then there will be an impact, mainly in the second half of the year. But we don’t know what the dollar is going to do. Then again, I don’t think it’s going to be a great impact, probably somewhere in the range of $250,000 per quarter or $300,000 per quarter, if it really stays the same as weak as it is right now.

Okay. Now the IP products right now, because they are going into private networks, tend to carry better margins. How do you think the margin works out for IP products by the time they get into public networks?

Same as current TDM product.

Okay. All right, thanks a lot.

Thank you.

Our next question comes from the line of Tony Rao with East Shore Partners.

Good morning. Can you speak a little bit about your EMEA market and APAC and give a little bit of color about how much of those markets is emerging market business and then how much is with existing mature carriers?

APAC, depending on how we define it, most of the business is with mature carriers. Our deals that we have with new carriers, but most of the deals is mature carriers. But then, as I said slowly, is if you look at the customer in India, which is a mature carrier and they now cover 11 circles and will expand in the next year to 10 additional circles, which means 10 additional geographies, significant geographies within India. So they are mature where they are. They are not mature where they are going into. But as a carrier themselves, they are a mature carrier from a business perspective, but during a geographical expansion. So in APAC, we see most of the things that we sell is into expansions. If you look at our EMEA business that also most of the carriers that we work with are mature carriers. But then you see different expansions. You see expansions in the Africa region happening where they increase mainly capacity and going as a expense slowly in the geographies from very urban areas into more, I would say, suburban areas types of things. We see similar activities also in Eastern Europe and former USSR type of countries as they expand. We see some, but it’s not a major part of the business, new carriers coming up.

So when you speak about, one of the major growth drivers is the fact that in existing markets that capacity expansions are driving the need for alternate forms of backhaul, which are obviously more economical. So would you consider these markets in APAC and EMEA where they are expanding their geography? Would they come under that guideline or…

That’s what we call subscriber expansion. When I am talking capacity expansion is someone who is upgrading the towers from, let’s say, 10-megabit capacity up to now to 50-megabit capacity to accommodate data.

Okay. Then maybe I should rephrase the question then. So if that’s the case, and that’s how I understood the capacity expansion. Isn’t that really a small base of your business now when you look in virtually all the markets that the carriers that are expanding capacity? You are saying that’s a strong driver, but at this point, that’s a smaller part of your business. Most of your business is coming from expanding geographical coverage and so forth.

That’s correct.

So then to look at the growth that you are looking at in 2008 of 25%, 30% growth, then would it be fair to say that the capacity expansion is a much smaller driver and the bigger driver is actually just the geographic expansion of your customers?

Yes.

Okay. One last question, in the North American market, you had a sequential decline here in Q4, and, driven by the lower percentage of private network business. Have you seen any trends there? We’ve heard from many different companies reporting that the U.S. enterprise customers are slowing down their spending patterns. Have you seen that as a contributor to what happened in Q4 and do you expect, if you are seeing that, that that trend continues into at least in the first half of 2008?

I will say it this way. If we see the sequential decline, it’s mainly because we had one large deal in second half of Q2 and in Q3 with a large government integrator from Homeland Security. So that pushed up the number. I think our numbers right now in the purely enterprise direct distribution business are too small for me to, from a statistical perspective, to judge if I see a slowdown or not. It’s not there yet. It’s not that I have thousands and thousands of customers and millions of systems for sales into the market to put in statistical significance into that at this point.

Sounds reasonable. Thank you.

Thank you.

Our last question comes from the line of Blaine Carroll, FTN Midwest Securities.

Yeah, Tali, with the new cash balance, what do you see the financial income line being on a run rate?

Well, you know that the interest rate went down a few days ago. So I am of course more disappointed than I was a few weeks before. But it looks like the interest income line is going to be in the range of around a million a quarter, around a million a quarter, maybe even less now with the decline in the interest rates.

Okay, thank you.

There are no further questions at this time.

I would like to summarize and thank all of you. We had a long conference call this time. Thanks all of you who stayed with us till the end and with all the details. You probably will see both me and Tali face to face over the quarter as we travel. So I’m looking forward to seeing all of you face to face soon, and thanks again. Thank you.

Ladies and gentlemen, this conference will be available for replay after 11:30 AM today through February 28th. You may access the AT&T Teleconference Replay System at any time by dialing 1-800-475-6701 and entering the access code of 903386. International participants dial 320-365-3844. Those numbers again are 1-800-475-6701. International is 320-365-3844 and the access code is 903386. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.