Good day, ladies and gentlemen, and welcome to the Ubiquiti Networks Quarter 1 2015 Question and Answers Conference Call. [Operator Instructions] And as a reminder, this conference call may be recorded. And I'd like to introduce your host for today's conference, Anne Fazioli, you may begin.

Thank you, operator, and thank you, everyone, for joining us today. I'm Anne Fazioli, Vice President of Investor Relations for Ubiquiti Networks. I'm here with Robert J. Pera, Founder, CEO and Chairman of the Board at Ubiquiti Networks; and Craig Foster, our Chief Financial Officer. Before we get started, I'd like to review the Safe Harbor statement. Some of the statements we will make during this call constitute forward-looking statements, including perspectives on our future financial results, products, market conditions and competition. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed during this call. Information on risk factors and uncertainties is contained in our most recent filing on Form 10-K with the SEC and our other SEC filings, which are available on the SEC's website at www.sec.gov. Forward-looking statements are made as of November 6, 2014, and we assume no obligation to update them. We hope you have reviewed management's prepared remarks, which are posted as a transcript on the Events & Presentations and Financial Information sections of our Investor Relations website at ir.ubnt.com. This call will be a Q&A-only call. [Operator Instructions] Operator, we are now ready for questions.

[Operator Instructions] Our first question comes from the line of Pierre Ferragu from Bernstein. Pierre Ferragu - Sanford C. Bernstein & Co., LLC., Research Division: So of course, I'd like to understand, as much as possible, your revenue dynamics. So you service providers revenue were down about 15% sequentially. And I was wondering if, like, Eastern Europe and Middle East is everything of that weakness. Or have you seen revenues down in other regions? And especially in the U.S., how did, like, service providers do in the U.S.? And then in enterprise, I was wondering if your Wi-Fi growth was in line with the enterprise number you reported. Or if actually there's a -- the ramp-up of other products did contribute meaningfully to growth in the segment? And then lastly on your guidance, you're guiding for flat revenue sequentially, and I was wondering if we should enterprise to continue to be up next quarter, and therefore, service provider to continue to decline? Or if it's more like both segments should be flat sequentially in the context of your guidance?

Thanks, Pierre. This is Robert. Normally, I'd let the CFO handle these questions, but I think given the results of the quarter, I want to take a step back and kind of set expectations on the company and how you look at this company. So first of all, I want to say, Ubiquiti's service provider market is focused on the emerging markets. It's a great opportunity. I think if you look at the Internet and the users, two-thirds come from these emerging markets. The penetration for fixed broadband is probably only 10% globally. So the service provider segment, we see huge runway for the -- in the future, and we think we're in the early innings of the game. Now it's no secret that it's difficult to track these emerging markets. From the inception of the company, we haven't had very predictable linear sales growth. Although, the growth has been spectacular, and there's going to be ebbs and flows due to things like changing imports and import tax environment, currency exchanges, there's vacation and holidays that cost some seasonality. So it's very difficult to look at this company and say, "Okay. Well, they did such and such revenue last quarter, and they're down 5% this quarter. And what will they be the next quarter?" If you look at from our IPO, I think, we've tripled up to this point within three years, and I -- my aim is to triple the service provider business again in the next few years. So I want to say that about the service provider business. Now we know there's some unpredictability in the service provider business, and one of the things we've done to mitigate that exposure is we've diversified our R&D. We've introduced UniFi, which is our enterprise solution, a few years back. And that's growing very fast, and we're expanding it, and we think it's probably about 30% of our business right now. And long term, we think it's going to be close to an equal split between enterprise and service provider. The benefit of the enterprise is that it's much more predictable. Even though a lot of it is going to emerging markets, it's less prone to things like seasonality, where installers have a vacation or time off, and it's -- I believe it will bring more stability to predicting our future revenue growth. Pierre Ferragu - Sanford C. Bernstein & Co., LLC., Research Division: Great. And more specifically on what you're -- like, these variabilities that you're seeing at the moment? So when you establish your guidance on next quarter, so you -- how do you get comfort on your service provider? Like on -- this situation in emerging market, if I understand correctly, it's like -- war in Syria, the situation in Russia, et cetera, so what visibility on the rebounds? When do you think you'll see things improving and getting back to the nice growth trajectory?

Well, if you look at things like our forum, and the level of engagement, and traffic and the new customers and evangelism, it's going very fast. I think the total time spent in activity in our community has doubled year-over-year. So the trends I will get to evaluate the business are all positive. Now in terms of our reported revenue, which is based on sell-in because our channel is not as complex and don't have the tools necessary to actually capture sell-through. There we're always going to -- we're always going to err on the conservative side. And by that, I mean, we want to make sure these operators always have a supply of products to deploy. If you look two quarters back, I think there was a, in my opinion, overreaction to an inventory buildup, but we specifically did that because if you looked at our forum and our community, there's always been complaints about operators worried about Ubiquiti not having stock, and their network buildups are limited by stock availability. And so I think we addressed those pretty well, the past few quarters. And I think, like I've said, it's hard in the service provider to draw conclusions on quarter-to-quarter granularity. But if you look at from three years back to today, it's been impressive growth, and I think when you look at three years and the future, then you look at -- today, you're going to see at least the same type of impressive growth.

Our next question comes from the line of Erik Suppiger from JMP.

Yes. So first off, I'd just be curious. What regions specifically were challenging? You had noted Iraq at the -- on the last earnings call was likely to shut down. You had mentioned during the quarter that Russia, Ukraine was problematic, but this seems to be a lot more pervasive. So where are you seeing the stability issues?

Again, it's hard to draw conclusions based on quarter-to-quarter granularity and specific country issues. You have a mix of issues happening. You have a situation where maybe in Europe in July and August, they take heavy vacation dates, which affect the rate of installations. In South America, you have a changing logistics environment and import tax environment, and so that could affect the timing of the orders. You have currency exchange rates in different countries, where people -- that could affect the timing of the orders. Finally, we're constantly introducing new products through-out R&D, and these aren't like consumer products where people just go and buy and -- from Day one just there's a take off in revenue. In our case, a lot of the operators, they need a period where they adopt the products, they qualify them on the networks, they get comfortable with them, and then you'll see a surge of orders. So there's multiple dynamics going on. And to look at one thing or one specific country to try to explain a small granularity in quarter-to-quarter numbers, I think is a recipe for just like drawing false conclusions on the business. So I just -- I'm going to consistently say you have to look at -- especially with the service provider business, you have to look at long-term trends in drawing conclusions, and I think the long-term trends have been very good in the past, and there's no reason, I believe, they won't continue to be very good in the future.

So what is the relatively flat outlook based on -- is your visibility low right now, and you're just assuming fairly flat progression from here?

Yes, I would say we're -- we've been conservative. So when you look at this 1.5 years or six, seven quarters, we always beat -- I think for a run, we beat expectations. So yes, we want to be as conservative as possible. But I expect in the long-term, which is several quarters or in the next several years, I'm always thinking about how to get this company from hundreds of millions of -- in revenue to billions and ultimately, tens of billions, and you can't do that by putting your resources around financially engineering quarter-to-quarter numbers, and so -- and reported revenue. You do that by -- you've got to really concentrate on R&D and make bets and big bets in R&D and have vision, and look at long-term results. That's what this company is focused on.

Do you feel like there's been any change from a competitive landscape perspective? And if not, what gives you confidence if that's not one of the factors at hand here?

Competitive landscape, I think, in both our markets: in the service provider, we're dominant; and in the enterprise, UniFi is growing very fast, faster than any of the players I know of in that space. And I think what gives me confidence is, we're very much a R&D-driven company. I'm a product CEO. I'm not a sales CEO or a business CEO, and I believe in this age of information transparency in where the most compelling products win with the best value. I think we're positioned to win.

Okay. Then, Craig, your inventory was down significantly. Can you explain what the -- we were assuming that it was -- it going to be staying kind of in the same range on a weeks of sales...

I'll handle this. In terms of inventory, our goal is to make sure our service providers and operators are never supply-constrained. So we're always going to air on the side of being conservative to make sure there's never a supply shortage for our operators.

But I would assume being conservative means that you keep a generous balance, and your balance came down rather significantly this quarter.

Yes, well, we look at our total sell-through. We look at channel inventory numbers, and we look at upcoming months and deployments. And we make a decision on what inventory -- how much is healthy.

Our next question comes from the line of Jess Lubert from Wells Fargo.

This is Mike Kerlan on for Jess. We recently attended WISPAPALOOZA, which we walked away with a sense that, we saw operators face rising network requirements as their businesses continue to grow, and given this backdrop, can you talk a little bit about your expectations for airMAX ac, particularly as the point and multi-point solution begins to ship? And how are you thinking about the refresh cycle? And should we expect sales ramp fairly quickly or more of a gradual ramp?

Right, so we introduced, as a backdrop -- I'll tell you we introduced airMAX in 2010, and it was probably 6 or 7x of performance increase over the previous technology, and so it brought a lot of point-to-point links from -- in 20 to 30 megabit per second all the way up to 150 megabit-per-second plus. And so there was an immediate mass kind of adoption to airMAX. Now we're entering airMAX ac, and we don't see a 7x performance improvement, but it's better. It's actually significant. We're seeing probably a 50% performance improvement. So in multi-point networks on a narrow channel, we use -- most of our operators use the 20 megahertz narrow channel, we're seeing well over 100 megabit per second. And so the scalability and the performance and the latencies are all improving. So I feel like, I think, the sophisticated operators, which is probably the top 30%, top 40%, are going to move very quickly to airMAX ac, and so there will be a combination of replacement revenue and new opportunities. The lower market, the bottom 50%, 60% I think will be a slower move over to airMAX ac just because the current airMAX technology provides their bandwidth needs.

And maybe just on the enterprise portfolio. It was pretty strong there. Can you talk about just the mix within that business? Was it mostly upgraded to AC and just more AC deployments? And how is the early traction then for new switch product and some of the phones?

Okay. So yes, UniFi's growth is impressive. I was looking at about a year ago, we announced our one millionth UniFi being sold, and now I'm looking at data that suggests we're close to two million per year rate of AC sales, so that's growing very fast. And all kinds of applications, you can look in our community from small, medium businesses to schools to hotels to city Wi-Fi projects. As for the new product lines, the switches and phones we're cautious in rolling those out to the market because we want them to be top-notch and robust in performance. Early indications are the switches and the phones, the customers really like them. So I expect them to be significantly material to the UniFi line next year.

And maybe just a last one. Just touching on the international markets one last time. If you were to back out some of the troubled regions like Russia, Iraq, Syria, et cetera, how did the business international performed outside of those more troubled markets? And how big a percent of the business are those regions where it's particularly hot right now?

Yes, I see the emerging markets in South America and Eastern Europe, Middle East, and then we have Africa has been ticking up, South Africa, and places like Indonesia. They are all going -- it's -- the variables are all dynamic. They're always going to be changing. So if one country is kind of the regulatory issues or maybe the import or currency issues, or political environment has challenges. Then maybe another country, it's a better environment. And there's so many of them. I don't think you could just point at one of them and draw conclusions on the overall business. You just kind to accept the emerging market, it's a great place to play. Like I said before, two-thirds of Internet users are from these emerging markets, and there's huge growth ahead. But it's not going to be as stable or visible as the developing markets are, and you just got to accept that.

[Operator Instructions] And our next question comes from the line of James Faucette from Morgan Stanley.

I wanted to ask just a couple of one follow-up question. Recognizing that there's a lot of dynamics market-to-market, I'm just wondering, though, the U.S. dollar has appreciated versus most other currencies, and I know that it's kind of hard to tell. But just wondering if you've seen any indications or what your expectations would be for impact to demand from the stronger U.S. dollar. If you've got any idea on price elasticity and that kind of thing, at least in different markets. That's my first question. And my second question is more specific, and that is, you recently announced a deal with ECS as a distributor relationship. And I'm just wondering if that's going to be additive, do you think, to Asia revenue? Or is this simply a reorganization of Asian operations to hopefully reduce the risks in that geography, particularly in light of some of the counterfeiting things that have gone on in the past?

Well, currency exchange. I think, if you look at Ubiquiti sales, I strongly believe it's a pool type of business, where we have strong demand from our community of operators and system integrators and they always want product. Where the currency exchange comes into play is when the distribution channel needs to place orders to feed these -- this end customer demand, and they're more hesitant to place larger orders when the U.S. dollar is unfavorable to them, the exchange, and they're more aggressive when the U.S. dollar is more favorable to them. So we do see that. And I think we've done a really good job in the past year of improving our interaction with the channel in terms of collecting sell-through data, monitoring DSOs, and the inventory in the channel and really assisting them and doing everything we can to make sure the end-user demand is always -- is met. Your second question? I'm sorry.

I was just asking, I'm sorry, on the new ECS distributor relationship, and I was just wondering if you expect that to be additive to your Asia revenue, or is this an opportunity to reorganize your operations in Asia to reduce the risk there, particularly in light of some counterfeiting issues, et cetera.

I think one of the great things about diversifying our product line is into the enterprise side. It is now we have new opportunities to expand our channel, and I think we've done this with guys like Ingram and ScanSource and Redington and ECS. And early indications so far, it looks like we're getting very promising additive revenue. And I think those distributors will show material additive revenue in the next year.

Our next question comes from the line of Matt Robinson from Wunderlich Securities.

Related to gross margin, we didn't see much of an absorption hit from the new manufacturing facilities. So my first question is, should we expect a decline in gross margin later this year from that? And then my second...

No. Okay, maybe I'll answer that first. So like we said on the call, last quarter, we do have a China factory purely to accelerate our new product introduction. Now, we use manufacturers overseas, but it's very hard for them to interrupt their production lines to support prototype development. And because one of Ubiquiti's advantages is rapid innovation and getting new innovations to market quickly, it's more than worth the cost to have our own manufacturing facilities speed up product time to market. I don't think the cost of running that new product introduction factory would be material to our margins in the long term.

Okay, I understand the long term, for sure. And now my second question is when should we expect you to have your distributors trained on UniFi video and UniFi VoIP? And I'm going to cheat and ask a third question, just ask to see if Craig is on the call, too.

I'm here.

Training for UniFi video, UniFi Voice over IP, so we do have a training for airMAX and UniFi today, and we have a training network of many certified teachers, and it's doing really well. And we are in the process of integrating support for new UniFi functionality in that next generation of training.

Well, that doesn't answer the question, though.

Can you clarify the question, Matt?

Well, I was referring when the channel is going to be trained on UniFi video and UniFi VoIP.

Yes, we are in the process of integrating UniFi Voice over IP and video training into the next generation of our current UniFi certified training program. When that happens, it will pass on to the channel and instructors, and they will go through that training.

So you don't know when you're going to train your channel on those products, then?

In the -- I'd say in the short-term future, it's going to happen.

And our next question comes from Rajesh Ghai from Macquarie.

I wanted to understand the strength that you've seen in the enterprise segment. How much was that in North America versus other geographies? And was that -- how much was that was -- can be attributed to the sell-in of the channel fill of UniFi video versus through demand?

Okay. So I think our UniFi sales follows our service provider sales pretty closely in terms of geography. Roughly, I think, 30% is sold through the U.S. But U.S distributors also export to other countries in Canada, Mexico, and Australia and, in some cases, other countries. So I would estimate deployments are 20% in the U.S., 80% internationally. UniFi video still has a long ways to grow. We have high expectations in the next year. I think UniFi video follows the same distribution, roughly 20% deployments in the U.S., 80% internationally.

Right. And recognizing that most of the cash is overseas, but given that the stock is going to be down and given that -- given your confidence in the long-term prospects of the business, would you consider a buyback of these levels?

To be honest, I haven't checked the stock. I'm in this for the long term, but I'll -- by this week, I'll or next week, I'll check it. And definitely, if it's attractive, yes, we've got to buy it back.

Okay. And one last question, if I could. Given -- when did you come to know that this quarter was going to be weak? And once the quarter was over, why didn't you preannounce given the magnitude of the miss?

I think, we want to always get as much information as possible, and so we are constantly checking the activity of the channel and the sell-through of the channel before we want -- we made a final conclusion, especially on guidance.

Our next question comes from the line of Tim Long from BMO Capital Markets.

Two questions for me, if I could. Back to the new distributor relationships. It sounds like some of the ones that have been signed over the last few quarters are starting to impact. Just curious about India and China, ones that we're hearing about today. Maybe just give us a sense how big you think those can be as far as market expansion. And is that something we should expect to see maybe through the first half of calendar of '15? And then second, understanding the service provider issues in the emerging markets. But maybe could you talk a little bit about what happened with airMAX in the U.S.? What are the dynamics there? And are you expecting a little bit more rapid upgrade to AC in the North American market?

So I think India and China are huge opportunities for us, and we haven't captured much of it yet. One of the challenges we have in India and China is there's more of a -- in areas like U.S. and South America, there's a lot of information transparency. The best product wins out. In China and India, there's more, I'd say, political barriers to entry in terms of finding partners and there's more of a traditional business model, but it's changing. And I think you've seen even in China, like Alibaba and Xiaomi are great examples of companies that have just break in (sic)[broken] the traditional business model apart in China, where Xiaomi has evangelized their brand and sold direct. And I think we have to apply ourselves a lot better in creating localized communities in a lot of these areas of the world, especially China and India, and in evangelizing our brand. And that's definitely one of our priorities right now, and we're putting in investment into a strategy for those markets. The U.S. and airMAX and the quarter-to-quarter trends, I think it's -- you could kind of look at the -- what I said about the emerging markets, where you have some seasonality due to vacations. We have new product introductions that some time takes time to qualify, and it's just very difficult in the service provider market to draw conclusions from quarter-to-quarter granularity. If we were a traditional company with a massive sales force and constantly looking at how to engineer revenue recognition timing on a quarter-to-quarter basis, maybe our results would look smoother, but quite frankly, I think our resources are better served, looking at how to get this company to the next level of billions of dollars in revenue, and you got a look at long-term investments on the R&D side rather than short term.

Our next question comes from the line of Tim Quillin from Stephens Inc.

Just two quick questions. One, if you can talk about the changes you made on the chip supplier and what the benefits are there of the new chip set. And then second, I think your success in the Wi-Fi market is attracting new competition. I think Cisco has talked about putting together a business group to target that small business market. Ruckus recently announced a new brand to target that market. Are you seeing any evidence of competition in there yet? Or what's your overall view of new competition coming into that market?

I think in the case of UniFi, the reason why it's been so successful is because it was truly kind of a disruptive product. So it was disruptive in terms of the presentation, the hardware design, the industrial design, the user experience, the ease of use and the performance has gotten really good as we have evolved it through the years. And then the other aspect of the disruption was the price. It was 1/10 the price of competing products. You could buy a UniFi AC as low in -- I think in the channel as $60, $70. And you basically have a centralized, scalable Wi-Fi system at a onetime price of $60. If you -- most vendors in the space, they'll charge you $500, $600 for an AP, and they'll charge you hundreds of dollars a year in licensing and servicing fees. So it could end up being a thousands of dollars proposition. And so because we were disruptive, we've built up this powerful brand evangelism and kind of fanatical user base for that UniFi product. So I think it's difficult for somebody to take that UniFi market share, unless they were really disruptive. But I don't consider a company making a scaled-down light version of their technology, taking out features at a similar or higher price point as disruptive. I don't see -- and I've seen this movie play out again. I just -- I don't consider that strategy a threat to something like UniFi.

Okay. On your chip supplier?

So we're pretty diversified now. We make wireless access points, switching, routing, video, cameras, a bunch of IoT equipment, Voice over IP phones. We use chipsets from all the big guys in the game. So what are you referring to specifically?

The write down.

Okay. There was a write down for excess -- or canceled material, so that relates to our service provider business. And one of the materials was end-of-life, and we placed a big order, and it -- to move to the new material was significant software development. We didn't think we would be done with the software development as early as we did, and the cost delta between the new chip and the end-of-life chip was more than the cancellation charge of the old material. So even though it looks like it's a onetime loss on a per unit basis, it's a net margin benefit.

And the next question comes from Tavis McCourt from Raymond James. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: A couple for you, Robert. First on airMAX ac. You were talking previously about getting up to 100 megabits throughput on narrow channel. If I just look at kind of the white papers or PowerPoint slide that a Cambium or Mimosa puts out, they're suggesting much higher throughput, and so we don't have to go through all the technicalities, but in general, do you expect airMAX ac to be a better price performance than from your competitive vendors in the space?

Yes, absolutely. And I think you could go into an anechoic chamber with zero interference and set up a link and if you're just testing for speed, I'm sure you could optimize your product to beat others in that test. But when you're dealing in the outdoor space where you have a lot of interference and you want to scale to support hundreds of clients, and you have all kinds of different link ranges and changing environmental factors, this is what we do: we put several -- many years into constantly refining our software, our mechanical design, our product offering to make it work better and better in outdoor environments. And if you go through our community, we have hundreds of posts a day and we have constant interaction between our developers, and this has been going on for many, many years, and we have hundreds of thousands of hours into driver development and refinement to handle all kinds of situations outdoors. So I think we have tens of millions of airMAX devices, radios deployed in all kinds of different environmental conditions, and so it's -- I think it's a little early if you point to a company that maybe hasn't shipped product yet that's also based on a Wi-Fi chipset. And a company like Cambium, as far as I know, I don't know what they've sold, but we haven't really seen significant competition from them. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: Got you. And my follow-up question, Robert, was on the UniFi 4.0 software. Is that generally available yet? If not, when? And then as you launch that, it would seem one of -- although you kind of entered the wireless LAN space as a price disrupter, this allows you to be reasonably disruptive on a breadth of product standpoint by unifying the switches and the phone systems on a single management layer. And so as you think about doing that, are there changes to your business model that you think you may do to accelerate that? Whether it's more sales and marketing to advertise the fact or more training or things like that? Or do you expect to -- your community to basically evangelize this?

Yes, that's a good question, our community is evangelizing it -- or has pretty well. We have a big presence on an IT website called Spiceworks, and I think we're picking up popularity fast there. The new channels and distribution definitely helped. And I think you're right, as that UniFi platform becomes more compelling, we're going to have to become much more aggressive in expanding the channels. In the case of our service provider, we've never really called up someone to carry the product before. We've been spoiled. We have -- we're inundated with constant requests to carry that product. On the UniFi side, I think we have to be more proactive in that. We were off to a good start if you look at the channel or the new distributors we signed on. I think those -- that's a great start for expanding the UniFi channel. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: And in terms of timing of the 4.0 general availability?

It should be within the coming -- hopefully, the coming weeks? Maybe, the coming month. And it should coincide with -- once we have a bigger volume of switches and our phones, we should have an official release on 4.0. Right now, it's in public beta.

Our next question comes from Ryan Hutchinson from Pacific Crest Securities.

Okay. Great. Most of my questions have been answered, but I have two small ones. First, I know you guys are making a big push on the enterprise. And part of that, I just wanted to understand the dynamics as you go after the education vertical. Where you guys are to date? And as you look to calendar year '15, the views, if any, on the potential for e-Ray having an impact on the business? And then the second question is just as you think about AC Wave 1 to Wave 2, there's been a lot of talk in the marketplace around whether or not we're going to see a meaningful premium or not. So any thoughts there would be helpful.

Okay. So I think the UniFi is doing great in the educational vertical, and we have next-generation UniFi wireless hardware in development. We're putting specific features in those products for the educational market, and I think they'll be a big hit. What's your second question?

Just on Wave 1 to Wave 2, any sort of sense on whether or not we're going to get a price premium or not because when you went...

Hard to say. I remember with -- when 802.11n silicon came out in 2009, 2010, which was five years ago, everybody was touting beamforming, and how it was this big feature, and the big chipset vendors never really got it working, and so we're kind of waiting on the sidelines. And we'll have Wave 2 multi-user MIMO products, but it's hard to say how well they'll work in the field, and we'll -- if it works well, we'll be ready and we'll try to have it first before anybody else.

Okay. And you touched on exclaim [ph] a little bit. But I just wanted to dive into that, and I'll leave it there. Could you just flesh that out for us in terms of how you're thinking about Ruckus' opportunity there and whether or not they could potentially have an impact on your business? And I understand some of the pricing dynamics, et cetera, but really trying to get a grasp on that. And that's it for me.

Okay. So I would say our advantages in UniFi is we've had an early start in terms of disruption as it's been around for a few years at these great price points. We're shipping at a rate of about two million access points per year. We have a very phenomenal, energetic, active community that's evangelizing the brand. And we significantly upgraded our R&D team, and we're quickly adding advanced features and expanding the product line. And I think for an incumbent to come in and compete against us, they're going to have to be all in and they're going to have to find some way to disrupt us. And I look at disruption as you need incredible price and you need incredible performance. And so price-wise, I don't think we leave too much on the table. It's very hard for a traditional company to compete with our margins and our operating structure. And then if they want to compete on performance, we're going after these companies, and we want to be the best performer in the space, not just looked at as a little cost solution. We want to be -- yes, we're a low cost solution, but we want to be the absolute best product in the space. And for a company to have a side project and feature-limit and not put their best stuff out under except for a brand name, I don't know if they can be effective at this point in time against something like UniFi.

And our next question comes from the line of Georgios Kyriakopoulos.

Going back to the U.S. dollar discussion. I'm not sure if you have a way to quantify this, but based on your discussions with distributors, do you have a sense on how much of a decline is attributed to true weakness in demand versus a stronger dollar?

Well, I'll repeat what I said at the beginning of the call. We're dealing with the emerging markets. It's a great place to play. Two-thirds of the Internet users come from the emerging markets. There's only 10% overall global fixed broadband coverage. So we're playing in the right place. You're just going to have to -- we're going to have to deal with the quarter-to-quarter ebbs and flows due to difficulties with things like fluctuating currency exchange rates, logistic issues, political maybe uncertainty, and the fact that we have a new product adoption and qualification cycle in the service provider market. So like I said, quarter-to-quarter granularity, it's very hard to get to the bottom of what exactly is causing it, especially when you're talking about very small percentage points on a sequential basis. But if you look at the overall long-term trends in the history of the company, they've been positive, and I believe the next few years ahead will be the most impressive yet.

Okay. And then the new distribution agreements with Redington and ECS. As you said can be quite political in India and China, so given that your solutions are much cheaper than your competitors, how do you align incentives so these distributors do not promote competitor solutions that potentially come with higher commissions?

Yes, that's a traditional business way of thinking. The way I think is you have to evangelize the brand through things like fostering a community, which we've done really well in the U.S. and parts of the world. I think we got to go deeper and we got to create localized communities in areas like India and China, and do a much better job of evangelizing the brand, and then expanding your channel makes your product more available. But everything we're going to do is going to be focused on pool and brand evangelism.

Okay. And then last question for Craig. You guided the tax rate at 10.5%, but with all the noise around international tax aversion, how do you think about your tax rate over the longer term?

Yes. I think our tax rate is more subject to the fluctuation of the U.S. versus international sales. So at the beginning of the year, we kind of walked into things thinking that we were going to have about a 11% tax rate. We're marching that up a little bit, so somewhere between 11.5% and 12% for the full year.

Thank you, and ladies and gentlemen, that is all the time we have today for our question and answer. This concludes our program, and you may all disconnect. Everyone, have a great day.