KLRS - NASDAQ

Ladies and gentlemen thank you very much for standing by and welcome to the Alvarion Q1 2010 earnings release conference call. At this time all participants are in a listen only mode. Later we will conduction a Question and Answer session. Instructions will be given to you at that time. (Operator Instructions) I would now like to turn the conference over to Karen Shemesh.

On the line with me today are Eran Gorev, President and CEO and Efrat Makov – CFO. The earnings release was issued this morning. It is now available on all major news feeds May I just stress that this conference call may contain forward-looking statements within the meaning of the Safe Harbor Provision and the Private Securities Litigation Reform Act. These statements are based on the current expectations or beliefs of Alvarion’s management and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements. Potential impact on our business of the global economic crisis; the failure of the market for WiMAX products to develop as anticipated; Alvarion's inability to capture market share in the expected growth of the WiMAX market as anticipated, due to, among other things, competitive reasons or failure to execute on our sales, services, provisioning, marketing or manufacturing objectives; inability to further identify, develop and achieve success for new products, services and technologies; increased competition and its effect on pricing, spending, third-party relationships and revenues; as well as the inability to establish and maintain relationships with advertising, marketing and technology providers; and other risks detailed from time to time in the company's 20-F Annual Report risk factors sections, as well as other filings with the Securities and Exchange Commission. For purpose of discussing comparisons to prior period, in this call we will refer to non-GAAP numbers that excludes the impacts of stock-based compensation expenses, one-time charges such as restructuring cost and the amortization of intangibles. For supplemental information to facilitate evaluation of the impact of non-cash charges and comparisons with historical results please refer to our earnings release and to detailed reconciliation tables of GAAP to non-GAAP results for Q1 2010 and the comparative period which also appear on the company's website and attached the press release on major news feeds. I would now like to turn the call over to our President and CEO, Eran Gorev.

Good morning everyone and thanks for joining us this morning. We have quite a bit to cover today so, I’ll try to get right to it. The numbers for Q1 I’m sure you’ve all seen in the earnings release from earlier today. We will obviously talk a little bit more about that. Efrat will cover some of it and [inaudible] my thoughts on those. But when we take a broader perspective on Q1 and to put it in context certainly our results or performance in Q1 was affected by a number of macro factors. We can look at the United States where continued delay and some other items which I’ll briefly touch on in terms of the broadband stimulus funds and the program has led or has had an impact on our business in that region. And some other regions where Alvarion benefits from our enterprise business, the non-carrier space where we sell some of our solutions to municipalities. So, one example I can mention in Poland there were some additional delay in fund allocation to such projects and that in turn had an impact on our business. India, which is always very relevant and very important for our business and the discussion and so we all know there was again a delay in the spectrum option in India. Certainly at the end of the quarter in March the good news is that they started moving forward the Indian government with the 3G option and I’ll touch on that a little bit later on in the call. But in terms of Q1 business and looking at Q2 the delay has had an impact on Alvarion’s business. And also and it’s important not to forget that in spite of some improvement in a number of countries there are certain regions or countries where the credit environment is still challenging. I mentioned the US broadband stimulus and the program itself. Let me share with you a little bit of additional information on that front. At the end of Q1 if we move just in terms of dates. On March 31 at that point in time when round one of the program was not yet 100% complete although it seemed as if it was, none of the customers and frankly very few wireless broadband operators had received any information in terms of them receiving grants. In fact both NTIA and RUS, the two departments, the two entities that are tasked with driving these programs, these stimulus programs, have announced that they will move quite a bit of funding from round one that will roll over to round two which means it’s not gone but round one certainly was not highlighted by allocation of grants to wireless broadband in general. Interestingly enough in April last month we were on the verge of, I’ll use the term loosely, writing off round one. We saw last week in the newspapers a public announcement by the United States government specifically NTIA that they have awarded a small amount to an existing customer of ours in the United States, a company, an operator by the name of Digital Bridge Communications based out of Northern Virginia and they received 3 separate grants for deployment or continued deployment of wireless broadband networks WiMAX using Alvarion equipment totaling just over $4 million. And that’s specifically in a number of counties in Idaho. So, we’re obviously very happy for them and this, as I mentioned, this chain at the very very last minute of round one the announcement in fact itself mentioned that to, and I’m not quoting word-for-word, but basically to close off round one, here are a number of grants that, and then we’re moving into round two. Specifically round two which hopefully will be again a relevant opportunity for us. We are looking at roughly $2.5 billion that RUS will have at their disposal. This includes amounts rolled over from round one. And it was decided by the United States government that contrary unlike round one where both NTIA and RUS were able to allocate grants for last project in round two in their announcement notice [account] availability that was released earlier in Q1 in the middle of the quarter roughly. They announced that RUS will assume responsibility for last [mod] project applications and that means that they’ll be potentially less confusion. There were some issues with applicants having to file multiple applications with RUS, with NTIA, different [processes] all together and that certainly has not helped. The last mile applicants regardless of Alvarion are just applicants of applicants to drive the process forward. A couple of weeks ago, mid April I don’t remember the exact date, RUS announced some 700 applications for round two. So a significant number. And specifically looking at the applications submitted for round two, last mile applications are roughly two times as many as they were in round one. So, there’s no doubt that round two should it move forward based on the information that’s available to the general public and to ourselves, round two with US specifically should have a more significant focus and emphasis on last mile, on wireless broadband, and that is very good news for us and we’re expecting to in fact see our US grant up-front so for last mile wireless broadband programs and to have existing and perspective customers applicants in this area choose Alvarion as their partner, and embarking on the deployment of such wireless broadband WiMAX networks. It remains to be seen. We’ll talk later about visibility and expectations to give you a sense of what we’re looking at but clearly the process in the United States was not as most people had expected it to be in round one, but we’re hopeful that in round two it’ll be overall better for rural areas in the United States for wireless applicants and specifically for Alvarion. When I look at the quarter in general, we’ve made progress in multiple areas and on multiple fronts. I’ll talk about India in a few minutes but I want to share with you a couple of examples of customers, existing customers, where Alvarion was successful in expanding our relationships with them. It’s an extension that materializes in the form of additional purchase orders, follow on Pos, and contracts, where additional purchase of networks and deployment of networks. Some of those were in a competitive environment so it’s obviously very good news to see existing customers coming back, even with competitors bidding toward their future business and allowing us to deploy additional networks for them. Such examples, and there are more, would include NGI in Italy, it’s part of the BT Italia group and it was a win over a large competitor. We’re delighted about this expansion of the relationship with them. There’s a company, again in Italy, [Leencam] that we’ve been working with for a while and we have concluded an agreement with them whereby the role Alvarion plays in [Leencam] will be broader than we have historically. Alvarion, as you all know, and I’ll use this as a little bit of a side track but I think it’s important, for many years Alvarion was a very product oriented company. Selling products, shipping product, either directly to customers or through integrators and channel partners, with very little services in our revenue mix over the past few years we’ve decided to start investing more on the services side and grow our services business. But recently we’ve made a further decision to grow our turnkey capabilities, and I’ll talk about that under the strategic initiatives heading. But none the less, [Leencam] is a good example of a customer where we did not have a direct relationship with them and it’s one of a few, by the way, it’s not one of several, it’s not the only one, where customers actually express an interest, a desire to partner with Alvarion on a direct basis . To have Alvarion assume broader responsibility, to play a broader role and deliver not just the specific product but potentially multiple product, deliver services and ensure that the WiMAX network ends up operating to the satisfaction of the carrier. We’re happy to report progress on that front as well. In Asia Pacific we’ve made very important progress with one of the customers. Unfortunately, I’m not at liberty to share the customer’s name and it’s not yet a signed contract but we’ve made good progress down the path of materializing an opportunity into an actual contract, into actual business. Should that continue to develop as expected, we expect this to become a multimillion dollar program for Alvarion over a couple of years, at least. Hopefully, if we do make progress we’ll be pleased to come back and report that. At this point in time there’s still question marks. There are other entities involved and this may or may not turn [translator become]real business for our company. Nonetheless, the facts are that good progress, important progress, has been made and we’re pleased to report on that. Again, I touched on a few other customers, but in general terms, with the number of other existing customers, we’ve expanded our business with them signing additional contracts for deployment in different geographies. Pretty much all over the world we’ve had repeat orders from such customers and that’s obviously very good news. We are seeing some signs that business is improving. Overall the business climate is improving. As we reported in the earnings release, the company financials may get worse in this quarter, in Q2, before they get better. This has to do with funding of revenue recognition as we embark on more and more turnkey programs, large initiatives, projects where there is a services component. Clearly, our revenue mix changes and our margin implications which Efrat will touch on but it also has an impact on the revenue recognition of product shift, etc., and services delivered. In certain cases there are acceptance milestones and other milestones that we need to meet prior to us being able to recognize revenue. So clearly we do see opportunities, but as we shared in the earnings release it may get worse before it gets better. We are still of the belief, as we said on the last call in February, that gradual pickup in the second half of 2010 is expected and that’s bulk from a shipment perspective as well as an actual revenue standpoint. I want to touch on India and I’ll go back to India later on, but I think given the importance of the Indian market it’s certainly relevant for today’s discussion. We all know that the 3G auction in India started. That took place in March. It’s a somewhat complex auction mechanism. There needs to be a [inaudible] across the circle [inaudible] by respective interested parties and they can change their position and opinion in terms of which circle they bid on and what amounts, etc. With every round, and this has been going on for quite some time, the Indian government announced, and that’s public information, that a couple days after the conclusion of the 3G auction, they’ll proceed with the BWA auction, the auction of PVD spectrum for broadband for WiMAX broadband deployments and we’re very hopeful that this will happen in the very near future. We think that we’re pretty well positioned. When I touch on some of our strategic initiatives, you’ll see that we are investing additional people and money in positioning ourselves even better to capitalize on the opportunities in the Indian market. Not all, by the way, triggered by the 4G or the BWA auctions. There are other opportunities that have nothing to do with the spectrum allocation. Companies that have spectrum and are in various processes of decision making or finalizing some of their specific phases as part of the project. Should these materialize in Q2 or in Q3 or any time in the future, Alvarion may be in the position to capitalize on these opportunities beyond the BWA auction and drive significant business and revenue from the market in India. Being a new CEO going into Q1, I knew I wanted to kick start a strategic analysis, a business review exercise. We did that in Q1 going into Q2, earlier in Q2. We’ve looked at our business. We’ve looked at the competition. We’ve looked at the opportunities. We’ve looked at the dynamics at spectrum allocation, on the carrier side with WiMAX requiring specific spectrum where in most places it requires, obviously, a government allocation. We’ve looked at the different [inaudible] on the non-carrier side of Alvarion, the enterprise space, smart polygrid municipalities and others and we did an analysis of our organizational and professional capabilities and skill sets, vis-à-vis with the market opportunity represents. It’s a two phase process and we recently completed phase one of this multi phase or two phase process. From phase one, I want to share with you one of the conclusions that myself, as well as the management team and other individuals in the company that took part in this exercise, I want to share with you at a highlight level, some of these conclusions. First off, and this is a critical conclusions, they’re in the market, there is a WiMAX market. There is a healthy WiMAX market. There is a healthy wireless broadband market beyond WiMAX. It is growing. New additional countries are announcing plans to allocate spectrum later in 2010 and beyond. People are investing money in operators. Certainly we see improvement in the overall, the global credit environment. We are seeing an improvement over the past couple of months in the dynamics of this market. This is also true on the enterprise side. We are seeing opportunities on the enterprise side in different verticals. This is, for very obvious reasons, critical and very, very important conclusions. We would be talking about different measures and different directions if I concluded or had I concluded that there isn’t a relative market for our company. Not only the market, but also it’s large enough for a number of vendors, certainly for a company our size. There are plenty of opportunities for us to grow. We don’t control the timing of such opportunities. We may or may not win them. We may win only a portion of such opportunity. The facts are the facts and they are well known, but it’s also a fact that there are very large opportunities and that we are pretty well positioned to benefit from them. The growth in that market, while 2009 was a challenging year for every market pretty much, we still know that in 2009 people continued to invest and the eco-system grew; number of devices, number of operators. That’s not to say that every licensee, every license holder of spectrum went ahead in 2009 and actually deployed networks. That’s definitely not the case. In fact, one or two sold their licenses and put their plans on the back burner throughout 2009, but that is to say that people did move forward in some markets. Certainly since the beginning of 2010 we are seeing gradual increase in the level of interest from the part of license holders and operators looking to deploy networks. Alvarion has a certain challenge that I think can be addressed effectively, but I will say that we need to think big. Granted we are not the size of some of the bigger competitors such as Motorola, [inaudible] and Samsung, but there is nothing preventing us from going after very large programs. We absolutely need to not only think big, but also act big. We can win very large projects. That is all good news. Three are certain things that we need to do in order to position ourselves better in order to develop certain capabilities and skill sets. There is obviously a price and cost associated with that and we will touch on that. We clearly can do that and there is really no need for a big brother, for a partner in all opportunities. We can compete and we can deliver systems and networks to all customer sizes regardless of the size of the competition that goes into these accounts as well. We know, and I mentioned this earlier, that operators and customers spent more dollars than just on Alvarion product and just on Alvarion products and services. One of our challenges, and we need to address it, is how do we strengthen our services capabilities all the way to being a well recognized and highly respected turnkey provider of networks beyond the core radio-access network component, which has always been Alvarion’s key strength and our core product. Beyond that we have an opportunity. There is a need, which is also critical. There is a desire on the part of the customers to actually see Alvarion deliver more than just its own product. So there is an opportunity to capture a larger share of the pie in the projects that we do win. That’s through additional service capabilities. However, with all of these conclusions in mind, we have to make some changes in how we do business and how we go about opportunities. We need to certainly strengthen and develop some new skill sets and capabilities, organizational and professional, that are required in order to be better positioned for that. We are taking a number of actions. We touched on those briefly in the earnings release. We are transforming the organization; some people, some skill sets, some experiences. We are trying to make sure, and we will make sure, that we have the right people on board with the right skill sets that can deliver those projects and improvements. In order to support, in order to fund some of the initiatives that we have realized and identified as part of the strategic analysis exercise, we certainly were looking for budgetary means to cover and to allow us to make investments in those areas. Furthermore, we also wanted to strengthen our balance sheet. We wanted to strengthen our operational structure. In order to do that and in order to invest in those specific areas that we have identified, we decided that we will go through a certain cost cutting process whereby we will free up some resources allowing us to reallocate and to make investments at the right time and at the right initiative. The area that we need to invest in, there are quite a few of those, but again we identified more traffic opportunities in the market and wanted to focus on the higher potential return areas that represents more significant potential for us. We can afford the time. There is an option for a CEO on the management team to decide to take their time. Alvarion still has a healthy balance sheet. In spite of some burning of cash, we still have a very healthy cash position. We could have decided to take another several quarters to continue our analysis, to look at various initiatives, etc. I have made the decision that the market opportunities are so significant and so relevant to our future success that we must move swiftly in order to be better positioned to capitalize on such opportunities. So we have to preserve the strength of the balance sheet; I mentioned that. We must demonstrate that we can run a healthy business operationally to generate profitability, which is our long-term goal and one that we are striving to meet. We must be in a position to win a larger share of each and every project once vendor selection [processes] do move forward in some of these delayed areas of programs. So we firmly believe that we can generate more revenue from our current business. We believe that we can do so with less people and with the reallocation of resources to focus on the higher return areas. We believe that we need to ensure that our organization has the people with the right skill sets and experiences to go after the large programs that I’ve mentioned before. In phase two of this strategic initiative, as we implement phase one, we are looking at various potential areas where our company can further develop and strengthen capabilities in a number of potential future growth engines for us. This is ongoing work that we have in the company. We will continue to invest in that over the next several months. As soon as we have some very concrete news to share with you in terms of specific growth engines that we want to focus on, we will be pleased to do that. In terms of our ongoing business, we are looking at the carrier business and the enterprise business. We are receiving more focused and concerted efforts in the specific areas. We are measuring each and every line of business in terms of its level of health and potential in the market, different verticals and such. We will continue to allocate resources to the highest return projects. We expect to complete this process and begin implementing phase 2 sometime in the second half of this year, 2010. As I have shared before, as soon as we have some more specific news to share about that, we will absolutely do that. In the present time, we have a lot to accomplish and we don’t have a lot of time. We are creating opportunities where absolutely time is of the essence. We will be very focused on doing things, on strengthening skill set capabilities and hopefully better positioned to capitalize on these opportunities once they materialize. I will be happy to answer your questions and engage in a more detailed discussion, but at this point I will turn the call over to Efrat.

Shipments declined $3 million sequentially to $47.9 million. The proportion of WiMAX and non-WiMAX was about the same as in Q4. Q4 revenue was in the range of our guidance at $51.9 million. The main reason we ended the quarter at the low end of the guidance range was that a few medium-sized groups did not progress at the pace we thought they might. Now that the project was cancelled they have been delayed for various reasons. Turning to the geographic breakdown of revenues, in Q1 EMEA continued to be the strongest region, accounting for 62% reflecting unknown business for core customers in their region. Latin America was 11% of revenues, and North America it comes to 11% as well. APAC accounted for the remaining 16% of total revenue. Although new projects were delayed in Q1, we had revenues of over $1 million for more than 10 of our long-term customers such as [inaudible], VMAX, [inaudible] Lincoln and others. We had no 10% customers in Q1 but we have 5% customers. Direct sales amounted to 66% of total revenue. This category also includes sales to local partners that are not OEM, indirectly coming from the remaining 34% of revenue. The direct focus on OEM business while combining the distribution in OEM into a single indirect category. GAAP gross margin in Q1 was 42.9%. Non-GAAP's gross margin was 43.1%. The main reason for the decline was more revenue from turnkey projects which includes third party [inaudible] as compared to Q4 2009. GAAP operating expenses in Q1 were $27.4 million. Our non-GAAP operating expenses amounted to $26.3 million, which excluded amortization of intangibles and the impact of stock based compensation. The further sequential decline in non-GAAP operating expenses [inaudible] expense initiative from 2009. As a result of our cost cutting measures, we expect non-GAAP operating expenses to decline by approximately $6 million per quarter [inaudible]. On a GAAP basis, we reported a loss of $0.08 per share in Q1. On a non-GAAP basis, we reported a loss of $0.06 per share in Q1. It was also within the range of our guidance. Our net financial income in Q1 was $360,000. Cash and cash equivalent as of March 31 was approximately $103 million, a decrease of $15 million in Q4 with $9.1 million of cash used in operation. We continued to operate in an extremely competitive macro environment which makes a strong balance sheet with competitive assets that we must use from time to time to secure strategic deals. This was the case in this quarter. DSO were 107 days. We see the potential for continuing to [inaudible] in several projects and therefore it is possible that revenues in Q2 will be lower than Q1. With the timing of the revenues in relation to these projects so difficult to predict, we have decided not to give specific revenue, guidance or EPS guidance. In addition, we will have a restructuring charge in Q2 of approximately $2 million which will impact our GAAP results. As Eran noted, our assumption continues to be that we will see gradual improvement in shipments and revenues during the second half of the year. I would like to turn the call back to Eran.

Thanks Efrat. Before we open it for questions, I want to share with you one more thing. And that is, as part of this strategic analysis effort and exercise we've realized outcome to the conclusion. I talked about services are generally a larger share of each and every project and so on. But I've also decided that organizationally we needed to make some changes. And as a result, we are making some organizational alignments internally that result basically from organizational restructuring. We're establishing the services team, we're consolidating some marketing functions centrally, our strategic alignment function, so a number of different things. So without boring you with the specific details, a number of different things that have an organizational impact. So with that, I'd like to open the call to questions.

(Operator Instructions) Your first question comes from Jonathan Goldberg - Deutsche Bank.

So this new strategy for the company, moving into new areas, how long do you think it will take to really get started? Then how long do you think it will be before you know whether it's successful or not?

We've started this week. Following the phase one of our strategic analysis process we've kicked it off. And it'll probably take a couple of months, at least several months, for us to start seeing results but we're very hopeful.

Then on the reduction of operating expenses, in the press release you've got it as a $20 million annual decrease in operating expenses. Am I reading that correctly? And how long do those take to flow into the system?

The amount was $20 million overall. And I believe the full effect as I said will not be, well maybe I didn't say. But yes, the full effect will not be in Q2. We're still in the process. We have to complete this. There are some things that still have to be paid throughout this quarter. But hopefully in Q3 we can see the full effects.

Your next question comes from Ittai Kidron - Oppenheimer.

If I might say, the quality of the line is very poor. It's really hard to make out what you're saying. Efrat, with regards to the cost cutting again, $30 million. If I just quarterlized that, that's $7.5 million. When do we see that fully reflected in a quarter?

I will repeat my answer. The $30 million is an overall cut in our expenses, both from the OpEx level and the COGS, the cost of goods sold. And the full quarterly affect we expect to happen only in Q3. Q2 is still going to be lagging from the current initiative expenses still to be incurred.

So what is the$ 6 million number that you mentioned?

The quarterly effect on the OpEx, the operating expenses we estimated to be $6 million.

And the drop in the gross margin. You've mentioned that you had a greater mix of turnkey projects. Correct me if I'm wrong. That's where the company is going in general, more turnkey projects. Is this the going forward gross margin for the company, if not even lower than that?

You're correct, that's exactly right.

If we move forward on the pace that you expect to move forward, as the change and mix happens in the business, are we going to go below 40%? I mean is there like an average blend of gross margin you think you somewhere stabilize at?

I think it's very difficult to guide for a specific quarter. I think the overall trend is going down as I said. As we do more and more projects to be included in our business and offering end revenues, eventually it may be affected to go even lower than 40% again. It depends on the projects that will be included in that revenue.

And last question for you, Eran. You're instituting a big reduction in head count here. Maybe you can first kind of qualify us into what segments specifically we're seeing the cuts, R&D, sales and marketing, G&A. How does that spread across the company? And second is, you go after turnkey, you're going to have to do more hand holding with clients, more involvement in projects which intuitively actually says more headcount, not less. So how are you going to handle this change in mix while at the same time significantly reducing your head count?

Some of the ongoing activities in the company, and some of our product mix, have certainly changed over the past year. Certain products that we used to sell more of, we're selling a little bit less. And some products that are newer we're selling more. In some areas, without getting too technical or too operational to explain how is it manufactured and so on and so forth. There were a number of areas across the company; it's not in one particular group, where we felt that we could get the same job done with less people. And it's thanks to either changes again in the mix of products we sell or product that has been part of our portfolio for a number of years that were in maintenance mode and we don't necessarily need as many people in any given area of the business to support such product. Also, in some countries where we don't see any relevant return on the investment in covering the country or the specific area of the country we may have decided to pull out or minimize the investment there and finally reallocate such investment to other higher return areas. So it's not that the cuts have been in one specific area of the company. That's in general. In terms of ramping up resources on the services side you're absolutely correct. When we are awarded such large turnkey programs then hopefully that will happen sooner rather than later. We will need resources. We are reallocating some of the resources in the very near future to make sure we develop those skills that are in the company, or bring them from the outside. And then we will try to be very prudent in how we manage such investments to ensure that we don't have [bench] time that impacts our bottom line in any negative way, while recognizing that there is a ramp up and a learning curve associated with becoming an expert. And so we'll try to balance these two and hopefully structure ourselves and position ourselves in the proper manner for our business.

Your next question comes from Mike Walkley – Piper Jaffray.

I just want to build on Ittai's question there. Maybe you can help us with some longer term targets for the company. Obviously changing the business model, but if you're lowering OpEx in the short-term it sounds like you need ramp people as you win these service agreements. What would be a longer term, kind of gross margin, operating margin target, for the company given your changing business mix?

I don't know, Mike, that we have any concrete gross margin target to share with you. We certainly would like it to be as high as possible. When we look at our business and we try to determine or forecast what sort of big programs, large programs, will come in and how quickly will they turn into revenue and what exactly will be the revenue mix. The number of factors that impact that is so significant that really realistically it's very, very difficult to predict with any degree of certainty. We know, and that's just life, that as we deliver, excel and deliver more services, the gross margin will go down. To what level? It depends on what proportion we have of services in our overall revenue mix.

When you're competing against your larger OEM type services, what's your pitch and how quickly can you ramp people to support a potential deal given you’re cutting head count today?

For good or bad reasons, it's not overly complicated to find good people in the market. And thankfully there are quite a few Alvarion experts that used to work for an operator or an integrator. And so we can do that. We also have relationships with integrators in different countries. When Efrat and I talk about going after large programs, it doesn't automatically mean that Alvarion will do the A-

One last question, just on the overall competitive environment. Have you seen any change in overall pricing environment among your competitors?

Everybody's still very active. Everybody's still very aggressive. I don't know that Q1 was different.

Your next question comes from Scott Searle – Merriman Curhan Ford & Company.

Just a couple of quick clarifications. First off, I know you're talking about taking OpEx down and at the same time ramping up some other resources in the other area. Efrat, Eran, does $6 million in OpEx reduction, does that reflect the full investment then in building up the turnkey solutions team as well? Or will it be incremental on top of that? Just to get a benchmarking gauge where we are for third and fourth quarter.

The $6 million is the result of the current initiative and the current cost reduction that we've gone through. As Eran said, we are planning phase two and gradually looking into where do we want to reinvest some of this cut. And we'll have to learn as we go. And some of it may be to reinvest this. We don't have a specific plan exactly where and for how much.

So that's the baseline, and then we would expect it to theoretically scale up from there, depending on the success of the turnkey strategy.

Correct.

And Eran, as you're talking about more turnkey solutions, can you give us some idea of the dollar differential in the contracts as you're looking at going from products to a soup to nut kind of end solution provider? Does it increase the addressable market for you in these bids by 30%, 50%, does it double the opportunity? Can you give us some magnitude of what that business looks like right now?

It could be anywhere from two to four times.

And just a clarification. On the June guidance it sounds like, or directionally where you think things are going if it was 100% product driven as opposed to partially turnkey driven. It sounds like you're having some impact in the second quarter. Would those revenue recognition issues, would you actually be up sequentially in June then?

Again, we decided not to guide for Q2. And so we're taking it a step at a time and hoping that the projects will move forward and we'll meet certain milestones and we'll close some deals as well.

And just one other housekeeping issue. On the WiMAX, how much were WiMAX revenues this quarter Efrat?

I will get back to you, because I don't have it just in front of me.

And lastly if I could, on the India front, there are a lot of moving parts going on over there Eran, right now. Between Qualcomm and pushing TDLTE, that can cause a lot of confusion initially in the marketplace. It seems like things have settled down a little bit and maybe the operators are more settling around WiMAX. Could you give us your opinion on how you see that shaping up? How the Chinese telecom import ban, how you see that impacting you. I would imagine obviously it's positive. And then as well if you can give us some sense in terms of how you're positioned with the various operators who are bidding in the BWA auctions.

You know, to give you a detailed answer will take an hour. And this is obviously a critical question for our business there. The ban on Chinese imports, first off I want to say Alvarion is not behind it but no, we're certainly not against it. The competition, and the competition is not just Chinese, but if there is something they can do they will. And it clearly doesn't leave the market just to us. So it could be fierce competition and pretty much everybody, every player is very interested in India. There's no two ways about that. WiMAX versus non, you know I was in Taiwan a couple of weeks ago, in April, at the WiMAX Forum, the WiMAX APAC Forum. And I won't mention specific operators by name, but I'll tell you I met with a number of operators from India, and operators obviously from other countries in Asia as well, but since you asked about India. And frankly, I asked them. I looked them in the eye and I said, "What's your perspective on what Qualcomm is trying to do, and how do you view that?" And the answer I got was not surprising, but I was happy to get it nonetheless. A President of a well known Indian operator said to me the following, “Look, we’re going to pay a lot of money for the spectrum. We need to deliver a return on investment to our shareholders. As soon as the Indian government takes our money, which will be very quickly after the auction concludes, we don’t have the time to fool around with technologies that may materialize two or three years from now. He said, “If I want to deploy an [LTE] solution tomorrow, I may line up or queue up with someone for a trial or a pilot and that in and of itself will take time. If I want to deploy” – and I’m quoting him almost word for word – “If I want to deploy a commercial WiMAX, commercial broadband network, the only choice I have, and I don’t have any issue with it” is what he said, “is WiMAX.” So they are there and not looking at alternative technologies. Now that’s not to say they’ll get any spectrum, that’s not to say others will not look at alternative technology. That’s not to say there will be a BWA auction. That’s not to say that whoever ends up winning at such auction will choose our variant. But what I’m sharing with you are actual experiences I’ve had from two weeks back, not two years, where the most senior executives in the Indian operators told me very directly it’s going to be WiMAX.

Your next question comes from Daniel Meron - RBC Capital Markets.

So I wanted to get a little bit more perspective on if you can share, are the [accelerated layouts] related to the delays in the projects because it’s a matter of changing strategies, a little bit of both? Then if you can just provide some more details on how you’re planning to shift some of the responsibilities to the regions. What’s going to be different either regional allocation of managing the company?

Let me take it a step at a time. Efrat can obviously chime in as needed. You asked about the cost reduction. We wanted to make sure that number one, we have the required resources, people and money, to invest in maximizing our chances to win significant business in the next several quarters, as well as to continue to develop future growth engines for the company that go beyond two years, potentially new products, new offerings, and so on. Realizing or recognizing where we are operationally and with our P&L at this point in time, we know that in order to fund such initiatives, something’s got to give. I had a choice to make. I met, by the way, with the employees of Alvarion today and I shared with them the same exact message. It was my choice to make. Do we continue analysis? Do we continue investigating and exploring and thinking and looking and you know, all of the really good things or do we move? Do we do? I’m more of a mover and let’s go get it done type of CEO, and I felt that moving swiftly and positioning ourselves with the right skill sets, with the right competencies, with the right experiences, on board is critical for our short and mid term success. So in order to make room so to speak for such initiatives, there was unfortunately no other way but to resort to or revert to a cost cutting measure which includes the reduction in head count. We will be, as we shared in the earnings release and as Efrat mentioned earlier, we will be re-allocating some resources. It’s not necessarily all going to happen tomorrow. It may be a month from now, a quarter from now, or a year from now. It may be more or less than the actual cuts. It all depends on how well we do in the foreseeable future. We have a duty as CFO and CEO and a management team to our shareholders, frankly to our employees, to our customers and our business partners, and the duty is to make sure that we ‘re running a successful business. We know that there is real opportunity in the market and it’s absolutely incumbent on us to make sure that we do whatever we need to do to grab as big a share of this pie as we can. When you look at cost reduction exercises and head count reduction, when it impacts people, it’s always something that you have a high level of emotion and it’s never an easy process. I don’t ever wish anyone, not my enemies, and certainly not my friends, to have to go through that. But we do what we need to do to succeed and so the strategic initiatives, the short, midterm ones, as well as the longer term ones, are what the company needs in order to increase its market share in order to resume growth and in order to become profitable. We have to go through this process in order to be able to embark on this road.

As we look in the regional aspects of it, what’s going to change? I think you mentioned towards the latter part of your prepared commentary how should we think about the ongoing operations from that perspective? Also, what’s the timeframe you think until these changes will be implemented and do you think that we will see the fruits of these changes by the third quarter, is that a reasonable time frame?

That’s certainly my hope. I wanted to move quickly in order to generate results quickly, but I do acknowledge and recognize, I don’t want to mislead yourselves and not ourselves, these processes do take some time. From a regional perspective, we see business potential literally in every region of the world. In some regions, it’s more immediate, it’s potentially bigger in the short term and we’re concentrating on those, in clearly India, the US, are two examples. In Asia Pacific, there are opportunities in the short to midterm over the next 18 months. We’re now taking steps to strengthen our position in these regions including local manufacturing potentially, local partnerships, etc., and local personnel of Alvarion. There are some countries where we think that we’ve had good success and it’s now less in sales mode necessarily and more in customer service or customer support mode, and that requires or that calls for a different mix of personnel. If you have two operators in a certain frequency in a country and there is no additional spectrum, whether it’s 2.5, 2.3, 3.5, whatever the case may be, and you have them as customers, it doesn’t necessarily mean you need to keep sending the sales troops at these operators every day and every week. So if you can take a sales person from such a country or the position and hire, re-allocate someone to a different country, a neighboring one, where spectrum is about to be allocated and later in 2010 or early 2011, frankly, doesn’t take a rocket scientist to determine that it makes sense to go about such reallocation. So that’s what we did. That’s what we’re doing. Not everything has yet been re-allocated or implemented. We have the plans for some longer term strategic growth initiatives. We’re still working on some initiatives, and we hope to see results in the near to midterm.

As you moved to a services initiative, a larger portion of that, I think some of the prior quarter questions alluded to this. How would that impact your channel relationships, the ones that you have in place, or future ones you plan to develop, could there be any potential for channel conflicts one way or the other?

There is potential for channel conflict always and there is potential for improvement in channel cooperation always. What we’re trying to do is identify partners that can help us in delivering services. Some of the components of the turnkey solution may be less attractive to us from a gross margin standpoint. We certainly want to concentrate on the more critical components of a turnkey program and we want to concentrate on those areas where there is a higher margin to be enjoyed. So we will partner with people. We’ve always partnered with people, and we’ll continue to do so. It may be different partners or it may be the same ones wearing a different hat.

Your next question comes from Larry Harris - C.L. King.

Just a couple of questions. I noticed here was a provision I believe for income taxes this quarter. Is that something we should expect to see going forward?

This is the taxes paid in certain localities because we work on a cost basis in certain offices. I don’t think it’s a material [inaudible]. It may happen, it may not. It depends on our profits in certain areas.

The other question that I had, I heard several references made to enterprises. Is there any thought of taking the technologies that Alvarion has developed and trying to find a way to sell it to enterprises businesses as opposed to carriers?

We’re doing that.

This would be in the broadband wireless access? Yes.

Okay, I’d like to hear more about it as it develops.

Your next question comes from Steve Ferranti - Stephens Incorporated.

Just one for me. When you look at the softness on the revenue side that you’re experiencing currently, if we were to sort of categorize four major categories, I wonder if you could maybe steer us towards which you think are most impacting you today, and those being I guess A, I guess projects being delayed, B, projects that are awarded, but orders are getting delayed, C, you’re getting the orders but revenue recognition is an issue, and then D I guess would just be the market is going to competitors. As you kind of look at what you’re experiencing currently, just trying to get a sense for which of those is really impacting you on the top line today.

I think it’s all of them I guess. Many, many projects either didn’t… the select ion process was not completed, some of those were projects that we did get it and we’re working on to complete and deploy. We haven’t reached certain milestones to be able to recognize revenue through it, so it’s different types. As I said, we’re not aware currently on any canceled projects that we’ve been looking at. But it’s really a bit of each.

So there’s not one that you could kind of point to and say, “This is really what’s impacting revenues today.”

No. As I said I think when I gave the guidance for Q1, we’re actually leveraging to $10 million and the question was why, and I tried to explain back then, that could be the result of whatever the pipeline I do see coming up for Q1 revenues so that’s exactly what happened.

Your next question comes from Gunther Carter - Discovery Group.

Several years ago you as a company made an acquisition of a North American operation in Mountain View, California if I remember. Is anything left of that operation or is that being used for the North American operation at this time?

We did acquire Interwave back then as you well said. We did sell assets of that operation I believe back in the end of 2006. We do have our sales office and subsidiary in North America providing both services and sales support to the region is still situated in Mountain View, North America. It has a decent team that supports the North American operation of ours. It’s still there, it’s just not Interwave assets anymore.

Your next question comes from Ari Bensinger - Standard & Poor's.

I’m just curious because there was restructuring according to what I’m hearing seems to be really more towards your shift in business towards services more than the current weakness in sales and I’m just wondering, was all the catalysts on hand in the broadband stimulus and some project stuff finally getting realized. Do you run the risk that this sort of head count reduction puts you in an area where you’re not able to support some of these growth opportunities that eventually will come?

One of the reasons for the headcount reduction is to be able to reinvest and reallocate resources where we believe it’s necessary both for the short term and the longer term as Eran mentioned before so for those projects that we believe we can benefit from in the future or we already are and we will continue reallocating resources in order to make sure we win them and are able to deploy them.

Do you have new quarterly break even revenue target? I guess once the initiative is completed.

I’m sorry I don’t understand the question. Can you repeat please?

What would be your new quarterly breakeven target? At what revenue would you need to break even now?

I believe it’s going to be around $53 million.

What’s your estimated cash outlay for severance payments and the like related to this initiative?

I cannot generalize and put a dollar amount on the initiatives overall. As we’ve said, we have saved in order to reallocate necessary all at once and it will take some time. We may, it depends on the success of the business, we will either reallocate everything or doing more for that. It just depends on the success and the pace of progress.

There are no further questions in queue.

Thank you very much, all of you. Thank you Operator. We’ll talk to you next quarter.