Good day, ladies and gentlemen, and welcome to the second quarter 2010, JDSU earnings conference call. My name is Louisa, and I will be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) I would now like to turn the call over to Ms. Michelle Levine, Director of Investor Relations; please proceed.

Thank you, operator and welcome to JDSU fiscal 2010 second quarter financial results conference call. Joining me on the call today are Tom Waechter, Chief Executive Officer; and Dave Vellequette, Chief Financial Officer. I would like to remind you that this call is likely to include forward-looking statements about the future financial performance of the company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management’s current expectations. We encourage you to look at the company’s most recent filings with the SEC, particularly the risk factors section of our report on Form 10-K filed August 24, 2009, and 10-Q filed November 12, 2009. The forward-looking statements, including guidance provided during this call, are valid only as of today’s date, and JDSU undertakes no obligation to update these statements as we move through the quarter. Please note that all numbers are non-GAAP unless otherwise stated. A detailed reconciliation of these non-GAAP results to our GAAP results, as well as discussion of their usefulness and limitations, is included in today’s news release announcing our results, which is available on our website at www.jdsu.com. In addition, our current and historical financial tables are posted in the Investor portion of our website at www.jdsu.com\investors under the Financial Information section. Finally, and as a reminder, this call is being recorded and will be available for replay on the Investor section of our website. I would now like to turn the call over to Tom.

Thank you, Michelle and good afternoon everyone. I would like to begin by providing a brief summary of our fiscal second quarter results. JDSU’s revenue of $343.8 million and operating profit of 8.2% came in at the high end of our guidance. These results reflect increasing customer demand and the leverage in our operating model. Our book-to-bill for the quarter was greater than one. Our balance sheet and working capital structure continue to strengthen. In Q2, when compared to Q1, we generated over $27 million of free cash flow, decreased our inventory by $11 million, resulting in inventory turns above six, which historically is the highest level for the company, and reduced our day’s sales outstanding to 60. These results evidence our continued focus to improve our operating model. Now let’s move on to our individual business segments. First, the Communications Test & Measurement segment, fiscal Q2 revenues grew 23% compared to last quarter and book-to-bill was greater than one. This is the third consecutive quarter of growth as we continue to see customer demand improve. All geographies grew quarter-over-quarter, with particular strength in North America and EMEA. We had one of our strongest quarters for fiber optics test in North America and Q2 was the largest quarter ever for shipments of the T-BERD 6000, one of our modular field optical test solutions. Other areas of strength in this region were wireless backhaul, 100 Gig, 40 Gig and cable. Europe grew over 45% compared to Q1, where recovery is underway in Western Europe. Asia grew more than 10%, as we saw increased demand in the region. We saw strength in Hong Kong, Japan, Malaysia, Korea, Australia, the Philippines and India. Build out of fiber plants for transport and FTTx continues to present good opportunities across the region. Our bookings growth…

Thank you, Tom. Before I start, please note that all numbers are non-GAAP unless I state otherwise. Second quarter revenues of $343.8 million were up 15.1% from the previous quarter, and down 2.9% compared to the second quarter of fiscal 2009. Revenues increased sequentially in each of our business segments. For fiscal Q2 our Test and Measurement segment contributed 51% of total revenue. Our CCOP segment contributed 33% of total revenue and our AOT segment contributed 16% of total revenue. Second quarter gross margin of 44.6% was up from the previous quarters gross margin of 44%, from the second quarter fiscal 2009 gross margin of 43.5%. This improvement was primarily due to favorable segment revenue mix and improved margins in the CCOP segment. Operating expenses for the fiscal second quarter of $125.3 million were up from the previous quarters $121.2 million, and were lower by $9.6 million from the prior year’s second quarter operating expenses of $134.9 million. The sequential increase resulted primarily from higher sales compensation due to higher revenues, selective strategic R&D investments, and a partial reinstatement of employee benefits Due to our higher revenues and improved gross margins our operating income for the quarter was $28.1 million, or 8.2% of revenue, which compares to an operating income of $10.2 million, or 3.4% of revenue, for the previous quarter. Net income for the second quarter of $26.6 million, or $0.12 per share, compared to the previous quarter’s net income of $9 million, or $0.04 per share, a detailed reconciliation of our non-GAAP results to our GAAP results is available in today’s press release. Our second quarter non-GAAP results exclude among other items, $23.2 million of amortization of acquired technology, intangibles and imputed non-cash interest on convertible debt, a $12 million charge related to stock based compensation, and an…

(Operator Instructions) Your first question comes from Mark Sue - RBC Capital Markets.

Considering the different seasonality of each segment, the Test and Measurement book to bill greater than one, should gross margins actually hold sequentially near term? Are there enough actions left, such as increased utilizations and other things that you’re doing to help gross margins to improve further from here? Then just on Optical, it is there added confidence of sell through of optical components, and that we won’t have another ROADM inventory situation that we did several quarters ago?

On the question of gross margin, we don’t give guidance on the gross margin; we just give it on the operating profit level. So we consider the fact of how the Test and Measurement revenue typically has lower seasonality. So that was taken into consideration with the range that we gave.

The manufacturing outsourcing, as Dave mentioned in his part of the discussion, was that we’re still completing the Germantown, Maryland transition for CommTest business. Also, I’d say on the gross margin side, that we have some additional supply chain opportunities to reduce costs. I think as far as the sell-through of the optical components, we don’t believe that there is any buildup of inventory in the supply chain at this point.

Your next question comes from Jeff Evenson - Sanford Bernstein.

I was wondering if you could give us a little bit more color on the ASP declines that you anticipate. What segments are they in? Why do you guys feel some pressured to lower the prices a bit more than you have been doing?

The ASP decline, I was noting was about our Optical Communications Group when I made those points, and that is because, at the December quarter we are negotiating quarterly, semi-annual and annual contracts all at once. Historically, we’ve noted that we expect the March quarter to have usually a greater ASP decline. Two years ago, we did see that. Last year we didn’t happen to see that, but historically we do, because of the fact that you’re negotiating all of your supply agreements at the same time for the optical customers.

Your next question comes from Kevin Dennean - Citi.

I just want to talk about CommTest; it looks to me like you exceeded your target, or the range of the target model of $175 million. I understand there was a bit of an impact from gross margins. If we add back the $4 million roughly impact to the gross margins, it looks like it would have been about 20% operating margin, which I think puts you at the lower end of the target. What are the puts and takes as far as sustainability to achieving your operating model and sustaining it in that segment?

In the CommTest segment, it has a lot to do with what we’re doing at the gross margin line around the outsourcing and the manufacturing, fine-tuning that, as we did a lot of heavy lifting over the last few quarters to get the majority of our manufacturing outsourced. Now it’s a matter of fine-tuning that and getting more cost out of the supply chain, and then obviously continuing below the gross margin line to continue to control our operating expenses.

So, Tom, how much upward pressures can you put on that gross margin line from here, with revenue levels being where they are? It sounds like; you have talked about most of the heavy lifting being done on the restructuring. I’m just trying to get a sense for where we can range here going forward.

I think part of it is the new product mix. So as I talked quite a bit in the discussion earlier that innovation, the product mix will definitely help us, because we generally get higher gross margins out of those newer products. The amount of sales from products less than two years old is continuing to increase. I noted that our goal is to get to 50% or greater for the company. I think CommTest rolled out a lot of new products this past year, having good success with those. So that will help us also as far as the mix in the newer products.

Your next question comes from Paul Bonenfant - Morgan Keegan.

I’m wondering if you have a sense for what, if any, of the CommTest expectations in the March quarter reflect catch up spending following the Q4 budget flush, and your thoughts for sustainability beyond the March quarter. Just a housekeeping question, you talked about leadtimes being increased, and $8 million to $10 million shortfall in what you could ship versus demand. Is that specific to the Optical Communications segment?

First, on the catch-up spending, the budget flush that happened in December was at the low end of the range that we talked about. As we look at, for example, two large carriers out there, AT&T and Verizon, Verizon’s forecast for CapEx is about flat, if you take the midpoint of the range they gave year-over-year. AT&T is actually saying they’re going to spend more. So if we look at those two data points as positive points for the Test and Measurement business. Also the issues that you’re seeing on some of the wireless areas as far as the backhaul and people having trouble, so we’re seeing that our Ethernet backhaul is a good bit there. So the guidance took all that into consideration when we came up with the range that we provided the second half of…

Paul, can you repeat the second half of the question for us?

Sure. You talked about lead times increasing, I guess, in your supply chain, leading to an $8 million to $10 million shortfall in what you could ship in the quarter. I’m asking if that was specific to the Optical Communications segment.

No, it was across multiple segments. It’s really the availability of some of the ICs that is really an industry-wide shortage. So it’s really mostly a result of that, and it’s across multiple business segments for us.

Your next question comes from Todd Koffman - Raymond James.

Just a clarification, when you called out the book to bill, I think you called it out for the bigger segments, CommTest and Measurement and the Advanced Optical, but then when you got into your Communications and Commercial Optical products, I think you only called out a sub-segment, the Optical Communications book to bill. Did I mishear you?

Book to bill is greater than one in both. So if I only mentioned one, nope, I said Lasers’ book to bill is also greater than one. So it was greater than one in both Lasers and in the Optical Communications.

Just a follow-up to that, so then basically the bulk of your business has the vast majority of your business is book to bill greater than one. Advanced Optical you said is approximately one. What is the timeline that the bookings you are receiving are going to be shipped against, since your guidance doesn’t reflect a sequential up tick that the book-to-bill would suggest? How far out are your bookings going?

So the best way to look at it is when we enter a quarter the coverage typically represents historically less than half of the revenue that we end up shipping in the quarter. So that is how we look at that, and how we judge the guidance. Typically in the optical area we will look at specific bookings that don’t extend beyond 12 months, same for lasers. In the test and measurement, which is a high turns’ business, we look at orders that are shipping within the next 120 days.

Then just a last follow-up question that is unrelated. In your Optical Communications segment the industry has kind of done some consolidation around you. You’re no longer the guerrilla that you were a number of years ago. How has that impacted you? Has it been beneficial or you are talking about some pricing pressure and you somewhat lost some share overtime? Thank you.

I think in general the consolidation of suppliers has helped the industry, because the customer base has also consolidated. So they need to say keep pace to some degree. So I think it has helped to rationalize more than go the other way through those consolidations. So it has mostly been a benefit, I believe.

Also, when you talk about the size of our revenue and positioning, our focus, as we have noted, is on the innovation and keeping focused on products that have higher levels of integration. So that gives us, we believe, a better position in the portfolio that we are selling. If you recall, a little over a year ago we removed a number of products from our portfolio that provided revenue, but did not provide profitability. So we’re being more selective in the product portfolio selection.

Your next question comes from Michael Genovese - Soleil Securities.

Just first a few numbers that I missed. Actually, as I was scribbling my notes, I missed some key numbers. Could you give me the Optical Communications gross margins, the CCOP gross margins, and the AOT gross margins in the quarter?

The Optical Communications gross margin was 22.5%. The Lasers was 32.4%. We did not provide a CCOP gross margin, but we gave you the revenue and the gross margins for each. So I’m sure you’ll be able to calculate that. What were the other items?

The Advanced Optical gross margin?

That was 50%.

So the $8 million to $10 million, where you were constrained on the componentry, is that all expected to ship in FY 3Q?

Yes, that will primarily ship in this quarter.

I understand why it looks like the test and measurement margins were a little bit below target, because of the inventory write-down and excluding that, they would have been sort of at the lower end of your target range there, but why were the Advanced Optical margins down sequentially?

As I think Dave mentioned, we brought down our inventory level based on some lean programs we had running, so there was lower absorption in certain product lines for that division, and that had an impact negatively on the gross margins.

Your next question comes from Ajit Pai - Thomas Weisel Partners.

There are two quick questions. The first is just looking at the impact of 40G and 100G. You provided encouraging commentary in your prepared remarks, but could you give us some color both on your Optical Communications components business, as well as the test and measurement business? How material it is as a percentage of the overall revenues for 40G and higher, is it past the 5% of the overall threshold and over the next two years what do you expect the ramp to look like, and what percentage of revenues it could be? Then the second question would be just look at the M&A environment, whether the pipeline has gotten richer, or is it just flat, and can we expect more activity over there over the next couple of quarters?

I think on the 40-gig and 100-gig, as far as CommTest product lines, as we mentioned we shipped into six different customers’ 100-gig solutions and that really will not be in large volumes for some period of time, but it gets us early on into those customers, helping them to develop their products and then our plans are that that would then be deployed out into the field, and more a field solution as we look out over the next couple of years. So it is an important win for us from a technology standpoint, getting us in with key customers early on, but it is not a very large portion of our revenue today. 40-gig continues to be a reasonable part of our overall revenue for CommTest, as we’re seeing volumes of sales around 40-gig test solutions. I think as far as Optical components, we are just starting to see some delivery of 100-gig componentry, again pretty small volumes and 40-gig is that at reasonable level. So we believe 40-gig continues to pickup momentum as we look out over the next quarters and next year, year and a half, and 100-gig follows that. With the capacity constraints in the network, if those continue at the level they are at today, there could be a quickening of the deployment of the 100-gig product lines.

Then acquisitions?

We continue to look actively at the market, across all of our business segments. We do believe there’s opportunities out on the market and continue to drive our key priorities there of immediately accretive, good gross margins, good profitability for the company.

Your next question comes from Dave Kang - B. Riley.

First of all, regarding these supply chain issues. So do you think the shortages will improve in the March quarter, because I’m hearing they may not be or alleviated in the current quarter, the March quarter?

We believe the shortages will continue through the March quarter. It is a pretty widespread issue. It is difficult to say whether they get better or worse during the March quarter. We believe beyond the March quarter they do start improving, as the IC manufacturers are able to bring up their capacity and return it to more of a normal level.

Just a follow-up on the ASP decline for this quarter, I’m hearing that more and more customers are demanding one year pricing negotiation, rather than six months. Are you seeing that from your side as well?

No, some of our customers, depending on what the product is, prefer to renegotiate every quarter and then some of them are six-month and some of them are annual. That has been our experience, and we haven’t seen a change from that for us.

Your final question comes from Joel Achramowicz - Blaylock Robert Van.

I was wondering if you could just give us an update on the competitive complexion out there and across the product line and just maybe give us an indication, which competitors you are most concerned about in each sector?

I think as far as the CommTest product line, I’ll start out first. As we mentioned, we believe we continue to do very well in the fiber optics test, and we continue to grow market share there. We continue to see a fairly fragmented market, reasonable amount of competitors out there. There’s probably two or three that we see more in the various opportunities. As far as Optical Communications there has been some consolidation in this space at the supplier level. It continues to be strong competition for the component level. We believe we’re starting to separate ourselves with the integrated products, the Super Transport Blade, the tunable XFPs. We are moving up the food chain, and we’ve separated ourselves a bit from the competition with where we are at on the technology front and then from an Advanced Optical Technologies side, we have a large share of the market in a number of areas, and it’s pretty fragmented as far as the players in that market.

At this time we have no further questions in the queue. I would like to turn the call back over to Mr. Tom Waechter for any closing remarks.

Thank you, operator. As our call concludes, I’d like to reiterate some key points. First, our Q2 results demonstrate improving customer demand, reporting quarterly revenue growth of 15%. The improvements in leverage in our financial model are becoming increasingly apparent. We continue to focus on innovation to achieve long term, sustainable growth. We are seeing momentum with our recent product introductions, and see new opportunities in markets, such as gesture recognition and 3-D. Finally, our employees executed on our strategy during the downturn, and as a result, we are starting to see the benefit of their hard work and dedication. Thank you again for joining us today. We appreciate you taking the time and for your interest in JDSU. Have a great evening.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a great day.