UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Ciena Corporation

(Exact name of registrant as specified in its charter)

Delaware		23-2725311
(State or other jurisdiction of		(I.R.S. Employer
Incorporation or organization)		Identification No.)
1201 Winterson Road, Linthicum, MD		21090-2205
(Address of principal executive offices)		(Zip Code)

(410) 865-8500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $0.01 par value		The NASDAQ Stock Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES þ NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o	Non-accelerated filer   o (Do not check if a smaller reporting company)			Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES o NO þ

The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant was $2,595,603,186 based on the closing price of the Common Stock on the NASDAQ Global Select Market on May 2, 2008.

The number of shares of Registrant’s Common Stock outstanding as of December 12, 2008 was 90,533,370.

Part III of the Form 10-K incorporates by reference certain portions of the Registrant’s definitive proxy statement for its 2009 Annual Meeting of Stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this report.

 

 

CIENA CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED OCTOBER 31, 2008

TABLE OF CONTENTS

		Page
PART I
Item 1. Business			3
Item 1A. Risk Factors			14
Item 1B. Unresolved Staff Comments			23
Item 2. Properties			23
Item 3. Legal Proceedings			23
Item 4. Submission of Matters to a Vote of Security Holders			24
PART II
Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities			24
Item 6. Selected Consolidated Financial Data			26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 7A. Quantitative and Qualitative Disclosures about Market Risk			51
Item 8. Financial Statements and Supplementary Data			51
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			84
Item 9A. Controls and Procedures			84
Item 9B. Other Information			85
PART III
Item 10. Directors, Executive Officers and Corporate Governance			85
Item 11. Executive Compensation			85
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			85
Item 13. Certain Relationships and Related Transactions, and Director Independence			85
Item 14. Principal Accountant Fees and Services			85
PART IV
Item 15. Exhibits and Financial Statement Schedules			86
Signatures			87
Index to Exhibits			88

PART I

     The information in this annual report contains certain forward-looking statements, including statements related to our business prospects, the markets for our products and services, and trends in our business that involve risks and uncertainties. Our actual results may differ materially from the results discussed in these forward-looking statements. Factors that might cause such a difference include those discussed in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this annual report.

Item 1. Business

Overview

     We are a provider of communications networking equipment, software and services that support the transport, switching, aggregation and management of voice, video and data traffic. Our optical service delivery and carrier Ethernet service delivery products are used individually, or as part of an integrated solution, in communications networks operated by service providers, cable operators, governments and enterprises around the globe. We are a network specialist targeting the transition of disparate, legacy communications networks to converged, next-generation architectures, better able to handle increased traffic and deliver more efficiently a broader mix of high-bandwidth communications services. Our products, along with our service-aware operating system and unified service and transport management, enable service providers to efficiently and cost-effectively deliver critical enterprise and consumer-oriented communication services. Together with our professional support and consulting services, our product offerings seek to address holistically the business and network needs of our customers. Our customers face an increasingly challenging and rapidly changing environment that requires them to quickly adapt their networks. By improving network productivity, reducing operating costs and enabling new and integrated service offerings, we create business and operational value for our customers.

Acquisition of World Wide Packets

     On March 3, 2008, we completed our acquisition of World Wide Packets, Inc. (“WWP”), a provider of communications networking equipment that enables the cost-effective delivery of a variety of carrier Ethernet-based services, including business Ethernet services, Internet access, video conferencing and VoIP. WWP’s service delivery and aggregation switches support the access and aggregation tiers of communications networks and are typically deployed in metro and access networks. Through our acquisition of WWP, we expanded our Ethernet offering beyond infrastructure to include service delivery capability and enhanced our embedded and management software suites. We believe that this transaction will improve our time to market with carrier Ethernet products and allow us to reach new customers and market segments, while strengthening and diversifying our position within existing customer networks. We also believe that WWP’s service delivery switching and aggregation technology will enable us to penetrate additional application segments, including Ethernet business services, mobile backhaul for 4G wireless networks, and Ethernet infrastructure for high-bandwidth services such as IPTV and triple play.

Financial Overview — Fiscal 2008 and Effect of Recent Global Macroeconomic Conditions

     Through the first three quarters of fiscal 2008, we had achieved eighteen quarters of sequential revenue growth and our financial performance continued to be strong. Revenue for the first nine months of fiscal 2008 was up 28.3% over the first nine months of fiscal 2007. Income from operations had increased from $21.5 million in the first nine months of fiscal 2007 to $52.3 million for the first nine months of fiscal 2008. Due to worsening macroeconomic conditions and customer-specific challenges in our industry, quarterly revenue declined from $253.2 million in the third quarter of fiscal 2008 to $179.7 million in the fourth quarter of fiscal 2008, and we suffered a $30.5 million loss from operations during the fourth quarter. We attribute this decline to a cautious approach and increased scrutiny by our customers in their capital expenditures in the face of significant weakness, volatility and uncertainty of the global macroeconomic environment. As a result of these conditions, we have experienced order delays, lengthening sales cycles and slowing deployments. We are uncertain as to how long current economic conditions will persist and the magnitude of their effects on our business. While we expect the near-term market conditions to be challenging, we continue to believe in our longer term market opportunities. We believe that growth in consumer and enterprise use of high-bandwidth communications services and resulting capacity demands will require our customers to continue to invest in their networks and transition to more efficient, robust and economical network architectures.

     In spite of recent macroeconomic conditions described above, we generated revenue of $902.4 million in fiscal 2008, representing a 15.7% increase from fiscal 2007 revenue of $779.8 million. Due to our lower fourth quarter results, income from operations decreased from $48.7 million in fiscal 2007 to $21.9 million in fiscal 2008. Net income decreased from

$82.8 million, or $0.87 per diluted share, in fiscal 2007, to $38.9 million, or $0.42 per diluted share, in fiscal 2008. We generated $117.6 million in cash from operations during fiscal 2008 compared to $108.7 million in cash from operations during fiscal 2007.

     We manage our business in one operating segment. The matters discussed in this “Business” section should be read in conjunction with the Consolidated Financial Statements found under Item 8 of Part II of this annual report, which includes additional financial information about our total assets, revenue, measures of profits and loss, and financial information about geographic areas.

Corporate Information and Access to SEC Reports

     We were incorporated in Delaware in November 1992, and completed our initial public offering on February 7, 1997. Our principal executive offices are located at 1201 Winterson Road, Linthicum, Maryland 21090. Our telephone number is (410) 865-8500, and our web site address is www.ciena.com. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, available free of charge on the Investor Relations page of our web site as soon as reasonably practicable after we file these reports with the Securities and Exchange Commission (SEC). We routinely post the reports above, recent news and announcements, financial results and other important information about our business on our website at www.ciena.com. Information contained on our web site is not a part of this annual report.

Industry Background

     The markets in which we sell our equipment and services have been subject to dynamic changes in recent years, including increased competition, growth in traffic, expanded service offerings, and evolving market opportunities.

Increased Network Capacity Requirements and Multiservice Traffic

     Today’s networks are experiencing strong traffic growth, especially in the access and metro portions of the network. Increasing usage and reliance upon communications services by consumer and enterprise end users, and the expansion of high-bandwidth applications and services, have driven increased network capacity requirements. Business customers have become increasingly dependant upon enterprise-oriented services and their workforces are becoming more mobile, driving demand for seamless access to business applications. At the same time, with consumer adoption of broadband technologies, including peer-to-peer Internet applications, video services, online gaming, and mobile web and data services, an increasing portion of network traffic is consumer driven. This shift presents a challenge to service providers because, historically, consumers pay a far lower price per bit for bandwidth consumption than enterprises, yet they are becoming a bigger piece of overall traffic demand. All of these factors are requiring networks to be more agile and more cost effective.

     A broader mix of high-bandwidth traffic is driving a transition from multiple, disparate networks based on SONET/SDH to more efficient, converged, multi-purpose Ethernet/IP-based network architectures. As a global standard that is widely deployed, Ethernet is an ideal technology for reducing cost and consolidating multiple services on a single network. The industry has seen transitions like this in the past. These large investment cycles tend to happen over multi-year periods. For instance, from the mid 1980s to the mid 1990s, service providers focused network upgrades on the transition required to digitize voice traffic. From the mid 1990s to the mid 2000s, service providers focused network upgrades on the transition to SONET/SDH networks designed to reliably handle substantially more network traffic. We believe that the industry is currently in the early stages of network transition to multi-purpose Ethernet/IP-based network architectures that more efficiently handle the growing mix of multiservice traffic.

Wireless Networks

     Several years ago, data overtook voice as the dominant traffic on wireline networks. This transition drove substantial investment as service providers upgraded their wireline infrastructure to accommodate higher bandwidth requirements and new usage patterns associated with new applications. A similar shift is now occurring in wireless networks. The emergence of smart mobile devices that deliver integrated voice, audio, photo, video, email and mobile web capabilities, like Apple’s iPhone™, are rapidly changing the kind of traffic carried by wireless networks. Like the wireline networks before them, wireless networks initially were constructed principally to handle voice traffic, not the higher bandwidth, multiservice traffic that has grown in recent years. As a result, existing wireless infrastructure, particularly wireline backhaul of mobile traffic, will require significant upgrades to accommodate growing mobility and expanding wireless applications.

Increased Competition Among Communications Service Providers and Effect on Network Investment

     Competition continues to be fierce among communications services providers, particularly as traditional telecommunications companies and cable operators look to offer a broader mix of revenue-generating services. Service providers face new competitors, new technologies and intense price competition while traditional sources of revenue from voice and enterprise data services are under pressure. These dynamics place significant pressure on the cost of enhancing existing infrastructures or building new communications networks and increase scrutiny and prioritization of network spending. As a result, service providers are increasingly seeking ways to reduce their network operating and capital costs and create new, profitable service offerings. By utilizing scalable networks that are less complex, less expensive to operate and more adaptable, service providers can derive increased value from their network investments through the profitable, rapid and efficient delivery of new services. The changing competitive landscape will present opportunities, as well as significant challenges, for service providers as well as equipment providers like us.

Carrier-Managed Services and Private Networks

     As competition among service providers has increased, the needs of some of their largest customers have changed. Enterprises require additional bandwidth capacity to support business interconnection, facilitate global expansion of operations, enable employee mobility and utilize video services. Enterprises and government agencies also have become more concerned about network reliability and security, business continuity and disaster recovery, while having to address industry-specific compliance and regulatory requirements. These changing requirements have driven service providers to offer a wider range of enterprise-oriented, carrier-managed services. In addition to this expansion of carrier-managed services, a number of large enterprises, government agencies and research and education institutions have decided to forego carrier-managed communications services in favor of building their own, secure private networks, some on a global scale.

Shift in Value from Networks to Applications

     In the past, enterprises and consumers perceived value in their network connectivity. These end users of networks now place a higher value on the services or applications accessed and delivered over the network. As a result, service providers need to create, market and sell profitable services as opposed to simply selling connectivity. Some examples of applications causing this shift in value include:

	•		Virtualization. Virtualization moves a physical resource from a user’s desktop into the network, thereby making more efficient use of information technology resources. Virtualization has many appealing attributes such as lowering barriers of entry into new markets, and even adding flexibility to scale certain aspects of a business faster and with less expense.
	•		Software as a Service. Software as a service involves the sale of an application hosted as a service provided to end users, replacing standardized applications for virtualized services and, in some cases, replacing aspects of the traditional IT infrastructure. By way of example, traditional customer relationship management applications can be replaced with services such as Salesforce.com™.
	•		Mobility. The increase in availability and improved ease of use of web-based applications from mobile devices expands the reach of virtualized services beyond a wireline connection. For instance, consumer-driven video and gaming are being virtualized, allowing broad access to these applications, regardless of the device or the network used.

Strategy

     Our strategy has evolved to enable our customers to deal with the challenges and industry trends discussed above. We started in the 1990s as a provider of intelligent optical transport solutions. Our focus was on making the transport network scalable, flexible and resilient through software-enabled automation. We enabled a new generation of mesh networking that allowed for new, tiered services and reduced network operating expenditures. We then combined the economics of Ethernet with our heritage of resilient optics, creating connection-oriented Ethernet products and features with carrier-grade performance. We are entering a new stage of our strategic evolution with a focus on enabling service delivery. For service providers, new services drive revenue growth. For enterprises, new services support business needs and improve efficiency.

     Our vision is to enable a service-driven network that is automated and programmable remotely via software. Programmable networks allow our customers to adapt and scale as their business models, services mix and market demands change. Through our current product portfolio and ongoing research and development efforts, we seek to provide networking solutions that allow our customers to rapidly and efficiently operationalize and provision new revenue-generating services while enabling operational cost savings. We believe our innovation will allow tomorrow’s service-driven network to adapt and scale, manage unpredictability, and eliminate barriers to new services. In providing these solutions, we aim to change fundamentally the way our customers compete.

     Our vision of a service-driven network is based on three key building blocks of our FlexSelect™ Architecture:

	•		Programmable network elements, including software programmable hardware platforms and interfaces that use our FlexiPort technology, to support multiple services;
	•		Common service-aware, embedded operating system and unified management and transport software for an integrated solution with a common set of software features, a common look-and-feel, and a common set of interfaces; and
	•		True Carrier Ethernet™ (TCE) technology to provide reliable and feature-rich Ethernet to support a wider variety of services.

These features of our FlexSelect Architecture automate delivery and management of a broad mix of services and enable a software-defined, service-agnostic network that offers enhanced flexibility and is more cost-effective to deploy, scale and manage.

     Incorporating this approach to service-driven networks into our strategy, we are pursuing the following initiatives:

	•		Maintain and extend technology leadership in the transition from legacy network infrastructures to Ethernet-based infrastructures;
	•		Expand our professional services offerings to better cultivate partnerships with our customers and help them to design, deploy and operationalize new services; and
	•		Grow and diversify our customer base by expanding our geographic reach, increasing our addressable markets and penetrating new market segments.

Customers and Markets

     Our customer base and the markets into which we sell our equipment, software and services have expanded in recent years as new market opportunities have emerged and our product portfolio has grown to include additional products in the metro and access portions of communications networks. The networking equipment needs of our customers vary, depending upon their size, location, the nature of their end users and the applications or services that they deliver and support. Our geographic markets have also expanded in recent years with our international business representing a higher portion of our revenue. Revenue from customers within the United States was 65.5% of total revenue in fiscal 2008, down from 71.0% in fiscal 2007 and 75.1% in fiscal 2006. Information regarding 10% customers over our last three fiscal years can be found in Note 19 to the Consolidated Financial Statements in Item 8 of Part II of this annual report. We sell our products and services through our direct sales force and third party channel partners in the following markets:

Communications Service Providers

     Our communications service provider customers include regional, national and international, wireline and wireless carriers. These customers include AT&T, BT, Cable & Wireless, France Telecom, Korea Telecom, Qwest, Sprint, Tata Communications, Telmex and Verizon. Traditional telecommunications service providers are our historical customer base and continue to represent the largest contributor to our revenue. We provide products that enable service providers to support consumer demand for video delivery, broadband data and wireless broadband services, while continuing to support legacy voice services. Our products also enable service providers to support private networks and applications for enterprise users, including carrier-managed services, wide area network consolidation, inter-site connectivity, storage and Ethernet services.

Cable Operators

     Our customers include leading cable and multiservice operators in the U.S. and internationally. Our cable and multiservice operator customers rely upon us for carrier-grade, optical Ethernet transport and switching equipment. Our platforms allow cable operators to integrate voice, video and data applications over a converged infrastructure. Our products support key cable applications including broadcast and digital video, voice over IP, video on demand, broadband data services and services for enterprises.

Enterprise

     Our enterprise customers include large, multi-site commercial organizations, including participants in the financial, healthcare, transportation and retail industries. We offer equipment, software and services that facilitate wide area network consolidation, and storage extension for business continuity and disaster recovery. Our products enable inter-site connectivity between data centers, sales offices, manufacturing plants, retail stores and research and development centers, using an owned or leased private fiber network or a carrier-managed service. Our products facilitate key enterprise applications including data, voice, video, Ethernet services, online collaboration, conferencing and other business services. Our products also enable our enterprise customers to prevent unexpected network downtime and ensure the safety, security and availability of their data.

Government, Research and Education

     Our government customers include federal and state agencies in the U.S. as well as government entities outside of the U.S. Our customers also include domestic and international research and education institutions seeking to take advantage of technology innovation and facilitate increased collaboration. Our products, software and services enable these customers to improve network performance, security, reliability and flexibility. Our products also enable government agencies and research and education institutions to build their own secure, private networks.

Products and Services

     We offer a portfolio of communications networking hardware and software that form the building blocks of a service-driven network. Our product portfolio consists of our optical service delivery products and our carrier Ethernet service delivery products. Together with our professional services, these offerings address the business needs of our customers and give them the tools necessary to face the market and technological challenges described above.

     We have focused our product and service offerings on the following critical portions of the network: core networking, full-service metro, managed services and enterprise, and mobile backhaul. In the network’s core, we deliver transport and switching equipment that creates an automated, dynamic optical infrastructure supporting a wide variety of network services. In the metro portion of the network, we deliver a comprehensive, converged transport and switching solution that manages circuits, wavelengths and packets. In managed services applications and enterprise networks, we enable services including storage, data connectivity, video and Ethernet services. In wireless and backhaul networks, we provide wireline and wireless carriers with the tools to migrate their networks to support mobile data applications and enable Ethernet-based backhaul.

     Underpinning our product offerings are some common technology elements, including the key building blocks of our FlexSelect Architecture described above. These elements appear across our product portfolio and allow us to create differentiated solutions by combining various products from the core to the edge of customers’ networks.

Optical Service Delivery

     Our optical service delivery portfolio includes transport and switching platforms that act as automated optical infrastructures for the delivery of a wide variety of enterprise and consumer-oriented network services. These products address both the core and metro segments of communications networks, as well as key managed service and enterprise applications.

     Our principal core switching product is our CoreDirector® Multiservice Optical Switch. CoreDirector is a multiservice, multi-protocol switching system that consolidates the functionality of an add/drop multiplexer, digital cross-connect and packet aggregator, into a single, high-capacity intelligent switching system. CoreDirector’s mesh capability creates more efficient, more reliable networks. In addition to its application in core networks, CoreDirector may also be used in metro networks for aggregation and forwarding of multiple services, including Ethernet/TDM Private Line, Triple Play and IP services.

     In nationwide networks, our CoreDirector switching elements are connected by a reliable long-haul transport infrastructure. Our principal core transport product is our CoreStream® Agility Optical Transport System. CoreStream Agility is a flexible, scalable wavelength division multiplexing (WDM) solution that enables cost-effective and efficient transport of voice, video and data related to a variety of services for core networks as well as regional and metro networks.

     Our optical service delivery solution in metro networks is our CN 4200® FlexSelect Advanced Services Platform family. Our CN 4200 family of products provides optical transport, wavelength switching, TDM switching and packet switching, and includes a reconfigurable optical add-drop multiplexer (ROADM), several chassis sizes and a comprehensive set of line cards. Our CN 4200 platform is scalable and can be utilized from the customer premises, where space and power are critical, to the metropolitan/regional core, where the need for high capacity and carrier-class performance are essential.

     Our optical service delivery products also include enterprise-oriented transport and switching products designed for storage and LAN extension, interconnection of data centers over distance, which, when used together with CN 4200, enable virtual private networks. These products address key enterprise applications while reducing bandwidth usage through hardware compression and efficient bandwidth utilization.

Carrier Ethernet Service Delivery

     Our carrier Ethernet service delivery products include service delivery switching and aggregation platforms acquired from WWP, our broadband access products for residential services and our Ethernet access products for enterprise broadband services. These products allow customers to utilize the automation and capacity created by our optical service delivery products in core and metro networks and to deliver new, revenue-generating services to consumers and enterprises. Our carrier Ethernet service delivery products have applications from the edge of the metro/core network to the customer premises.

     Our service delivery and aggregation switches provide True Carrier Ethernet, a more reliable and feature rich type of Ethernet that can support a wider variety of services. These products support the access and aggregation tiers of communications networks, and are typically deployed in metro and access networks. Employing sophisticated carrier Ethernet switching technology, these products deliver quality of service capabilities, virtual local area networking and switching functions, and carrier-grade operations, administration, and maintenance features.

     Our CN 3000 Ethernet Access Series platforms extend Ethernet services to customer sites, regardless of whether they are connected to the service provider’s network by copper or fiber access lines. Our Ethernet access products also facilitate mobile backhaul for 2G to 3G network migration. Our principal products for consumer broadband are our CNX-5 Broadband DSL System and CNX-5Plus Modular Broadband Loop Carrier. These broadband access platforms allow service providers to transition legacy voice networks to support next-generation services such as Internet-based (IP) telephony, video services and DSL, and enable cost-effective migration to higher bandwidth Ethernet network infrastructures.

Unified Software and Service Management Tools

     Our optical service delivery and carrier Ethernet service delivery products include a shared suite of embedded operating system software and network management software tools that serve to unify our product portfolio and provide the underlying automation and management features. Our embedded operating system is a robust, service aware operating system that improves network utilization and availability, while delivering enhanced performance monitoring and reliability. ON-Center^® Network & Service Management Suite, our integrated network and service management software, is designed to simplify network management and operation across our portfolio. ON-Center can track individual services across multiple product suites, facilitating planned network maintenance, outage detection and identification of customers or services affected by network troubles. By increasing network automation, minimizing network downtime and monitoring network performance and service metrics, our embedded operating system software and network management software tools enable customers to improve cost effectiveness, while increasing the performance and functionality of their network operations.

Consulting and Support Services

     To complement our product portfolio, we offer a broad range of consulting and support services that help our customers design, deploy and operationalize their services. We provide these professional services through our internal services resources as well as through service partners. Our services portfolio includes:

	•		Network analysis, planning and design;
	•		Network optimization and tuning;
	•		Project management, including staging, site preparation and installation activities;
	•		Deployment services, including turnkey installation and turn-up and test services; and
	•		Maintenance and support services, including helpdesk and technical assistance and training, spares and logistics management, software updates, engineering dispatch, advanced technical support and hardware and software warranty extensions.

Product Development

     Our industry is subject to rapid technological developments, evolving standards and protocols, and shifts in customer demand. To remain competitive, we must continually enhance existing product platforms by adding new features and

functionality, increasing performance and flexibility, and creating business and operational value for our customers’ network investments. Our product development investments are driven by market demand and technological innovation, involving close collaboration among our product development, sales and marketing organizations and input from customers. In some cases, we work with third parties pursuant to technology licenses, OEM arrangements and other strategic technology relationships or investments, to develop new components or products, modify existing platforms or offer complementary technology to our customers. In addition, we participate in industry and standards organizations, where appropriate, and incorporate information from these affiliations throughout the product development process.

     As the markets into which we sell our products and the technologies that support these products evolve, we regularly review our product offerings and development projects to determine their fit within our portfolio and broader strategy. We assess the market demand, prospective return on investment and growth opportunities, as well as the costs and resources necessary to support these products or development projects. In recent years, our strategy has been to pursue technology and product convergence that allows us to consolidate multiple technologies and functionalities on a single platform, or to control and manage multiple elements throughout the network from a uniform management system, ultimately creating more robust and cost-effective network tools. We have also shifted our strategic approach to new portfolio investments from delivering point products to solutions consisting of hardware, software and services that holistically address the business needs of our customers. Our development efforts are focused on addressing customer needs in four target areas: core networking, full-service metro, managed services and enterprise, and mobile backhaul. With our acquisition of WWP during fiscal 2008, we have invested in and anticipate extending our portfolio of technologies that bolster our service delivery capability.

     Our research and development expense was $111.1 million, $127.3 million and $175.0 million for fiscal 2006, 2007 and 2008, respectively. For more information regarding our research and development expense, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this report.

Sales and Marketing

     We sell our communications networking equipment, software and services through our direct sales resources as well as through channel relationships. In addition to securing new customers, our sales strategy has focused on building long-term relationships with existing customers that allow us to leverage our incumbency by extending existing platforms and selling additional products to support new applications or facilitate new service offerings throughout our customers’ network.

     We maintain a direct sales presence through which we sell our product and service offerings into customer markets in the following geographic locations: North America, Central and Latin America, Europe, Middle East and Africa, and Asia-Pacific. Within each geographic area, we maintain regional and customer-specific teams, including sales professionals, systems engineers and marketing, service and commercial management personnel, who ensure we operate closely with and provide a high level of support to our customers.

     We also maintain a channel program that works with resellers, systems integrators and service providers to market and sell our products and services. Our third party channel sales and other distribution arrangements enable us to leverage our direct sales resources and reach additional geographic regions and customer segments. Our use of channel partners has been a key component in our sales to government, research and education and enterprise customers. Some of our service provider customers also serve as channel partners through which we sell products and services as part of their managed service offerings. We believe our channel strategy affords us expanded market opportunities and reduces the financial risk of entering new markets and pursuing new customer segments.

     In support of our sales efforts, we engage in marketing activities intended to position and promote both our brand and our product, software and service offerings. Our marketing team supports sales efforts through direct customer interaction, industry events, public relations, general business publications, tradeshows, our website and other marketing channels for our customers and channel partners.

Manufacturing and Operations

     Our manufacturing and operations personnel manage our relationships with our contract manufacturers, our supply chain, our product testing and quality, and logistics relating to our sales and distribution efforts. In recent years we have utilized a global sourcing strategy that focuses on sourcing of materials in lower cost regions such as Asia. We also rely on contract manufacturers, with facilities principally in China and Thailand, to perform the majority of the manufacturing for our products. We believe that this allows us to conserve capital, lower costs of product sales, efficiently adjust to changes in market demand, and operate without dedicating significant resources to manufacturing-related plant and equipment. We utilize a direct order fulfillment model for certain products. This allows us to rely on our contract manufacturers to perform final system integration and test, prior to direct shipment of products from their facilities to our customers. For certain product lines, we continue to perform a portion of the module assembly, final system integration and testing.

     Our contract manufacturers procure components necessary for assembly and manufacture our products based on our specifications, bill of materials and testing and quality standards. Our contract manufacturers’ activity is based on rolling forecasts that we provide to them to estimate demand for our products. This build-to-forecast purchase model exposes us to the risk that our customers will not order those products for which we have forecast sales, or will purchase less than we have forecast. As a result, we may incur carrying charges or obsolete material charges for components purchased by our contract manufacturers. We work closely with our contract manufacturers to manage material, quality, cost and delivery times, and we continually evaluate their services to ensure performance on a reliable and cost-effective basis.

     Shortages in components that we rely upon have occurred and are possible. Our products include some components that are proprietary in nature and only available from one or a small number of suppliers. Significant time would be required to establish relationships with alternate suppliers or providers of proprietary components. We do not have long-term contracts with any supplier or contract manufacturer that guarantees supply of components or manufacturing services. If component supplies become limited, production at a contract manufacturer is disrupted, or if we experience difficulty in our relationship with a key supplier or contract manufacturer, we may encounter manufacturing delays that could adversely affect our business.

Backlog and Seasonality

     Generally, we make sales pursuant to purchase orders issued under master purchase agreements that govern the terms and conditions of the sale of our products and services. These agreements typically do not provide for minimum or guaranteed order quantities. At any given time, we have orders for products that have not been shipped and for services that have not yet been performed. We also have products and services awaiting customer acceptance. Generally, our customers may cancel or change their orders with limited advance notice, or they may decide not to accept these products and services. As a result, we do not consider these orders to be firm, and they are not necessarily an accurate indicator of future results of operations.

     Some companies in our industry experience adverse quarterly fluctuations in customer spending patterns due to seasonal considerations, particularly during the summer months and early in the calendar year as annual capital budgets are finalized. At times, we have experienced similar seasonal effects affecting the level of order flow early in our fourth quarter and during our first quarter. These seasonal effects do not apply consistently and should not be considered a reliable indicator of our future revenue or results of operations.

Competition

     Competition among providers of communications networking equipment, software and services is intense. The markets for our products and services are characterized by rapidly advancing and converging technologies. Competition in these markets is based on any one or a combination of the following factors:

	•		product functionality and performance;
	•		price;
	•		incumbency and existing business relationships;
	•		development plans and the ability of products and services to meet customers’ immediate and future network requirements;
	•		flexibility and scalability of products;
	•		manufacturing and lead-time capability; and
	•		installation and support capability.

     Competition for sales of communications networking equipment is dominated by a small number of very large, multi-national companies. Our competitors include Alcatel-Lucent, Cisco, Ericsson, Fujitsu, Huawei, Nokia Siemens Networks, Nortel and Tellabs. These competitors have substantially greater financial, operational and marketing resources than us. Many of our competitors also have well-established relationships with large service providers. In recent years, mergers among some of our larger competitors have intensified these advantages. Our industry has also experienced increased competition from low-cost producers in Asia, which can contribute to pricing pressure.

     We also compete with several smaller, but established, companies that offer one or more products that compete directly or indirectly with our offerings or whose products address specific niches within the markets we address. These competitors include ADVA and Infinera. In addition, there are a variety of earlier-stage companies with products targeted at specific segments of the communications networking market. These competitors, particularly those that are privately-held, often employ aggressive competitive and business tactics as they seek to gain entry with certain customers or markets. Due to these

practices and the narrower focus of their development efforts, these competitors may be able to develop and introduce products more quickly, or offer commercial terms that are more attractive to customers.

Patents, Trademarks and Other Intellectual Property Rights

     We rely upon patents, copyrights, trademarks, and trade secret laws to establish and maintain proprietary rights in our technology. We regularly file applications for patents and trademarks and have a significant number of patents and trademarks in the United States and other countries where we do business. We also rely on non-disclosure agreements and other contracts and policies regarding confidentiality, with employees, contractors and customers to establish proprietary rights and protect trade secrets and confidential information. Our practice is to require employees and consultants to execute non-disclosure and proprietary rights agreements upon commencement of employment or consulting arrangements with us. These agreements acknowledge our exclusive ownership of intellectual property developed by the individual during the course of his or her work with us. The agreements also require that these persons maintain the confidentiality of all proprietary information disclosed to them.

     Enforcing proprietary rights, especially patents, can be costly and uncertain. Moreover, monitoring unauthorized use of our technology is difficult, and we cannot be certain that the steps that we are taking will detect or prevent unauthorized use, particularly as we expand our operations, product development and the manufacturing of our products internationally, into countries that may not provide the same level of intellectual property protection as the United States. In recent years, we have filed suit to enforce our intellectual property rights and have been subject to several claims related to patent infringement. In some cases, resolution of these claims has resulted in our payment of substantial sums. We believe that the frequency of patent infringement claims is increasing as patent holders, including entities that are not in our industry and who purchase patents as an investment or to monetize such rights by obtaining royalties, use such claims as a competitive tactic and source of additional revenue. Third party infringement assertions, even those without merit, could cause us to incur substantial costs. If we are not successful in defending these claims, we could be required to enter into a license requiring ongoing royalty payments, we may be required to redesign our products, or we may be prohibited from selling any infringing technology.

     Our operating system, network and service management software and other products incorporate software and components under licenses from third parties. We may be required to license additional technology from third parties in order to develop new products or product enhancements. There can be no assurance that these licenses will be available or continue to be available on acceptable commercial terms. Failure to obtain or maintain such licenses or other rights could affect our development efforts, require us to re-engineer our products or obtain alternate technologies, which could harm our business, financial condition and operating results.

Environmental Matters

     Our business and operations are subject to environmental laws in various jurisdictions around the world. We seek to operate our business in compliance with such laws. We are currently subject to laws relating to the materials and content of our products and certain requirements relating to product takeback and recycling. Environmental regulation is increasing, particularly outside of the United States, and we expect that our domestic and international operations may be subject to additional environmental compliance requirements, which could expose us to additional costs. To date, our compliance costs relating to environmental regulations have not resulted in a material adverse effect on our business, results of operations or financial condition.

Employees

     As of October 31, 2008, we had 2,203 employees. None of our employees is represented by labor unions or covered by a collective bargaining agreement. We have not experienced any work stoppages and we consider the relationships with our employees to be good.

Directors and Executive Officers

     The table below sets forth certain information concerning our directors and executive officers:

Name		Age		Position
Patrick H. Nettles, Ph.D.		65		Executive Chairman of the Board of Directors
Gary B. Smith		48		President, Chief Executive Officer and Director
Stephen B. Alexander		49		Senior Vice President, Chief Technology Officer
Michael G. Aquino		52		Senior Vice President, Global Field Operations
James E. Moylan, Jr.		57		Senior Vice President, Finance and Chief Financial Officer
Andrew C. Petrik		45		Vice President and Controller
David M. Rothenstein		40		Senior Vice President, General Counsel and Secretary
Arthur D. Smith, Ph.D.		42		Senior Vice President, Chief Operating Officer
Stephen P. Bradley, Ph.D. (2)(3)		67		Director
Harvey B. Cash (1)(3)		70		Director
Bruce L. Claflin (2)		57		Director
Lawton W. Fitt (2)		55		Director
Judith M. O’Brien (1)(3)		58		Director
Michael J. Rowny (2)		58		Director
Gerald H. Taylor (1)		67		Director

     Our Directors hold staggered terms of office, expiring as follows: Messrs. Bradley, Claflin and Taylor in 2009; Ms. Fitt, Dr. Nettles and Mr. Rowny in 2010; and Ms. O’Brien and Messrs. Cash and Smith in 2011.

     Patrick H. Nettles, Ph.D. has served as a Director of Ciena since April 1994 and as Executive Chairman of the Board of Directors since May 2001. From October 2000 to May 2001, Dr. Nettles was Chairman of the Board and Chief Executive Officer of Ciena, and he was President and Chief Executive Officer from April 1994 to October 2000. Dr. Nettles serves as a Trustee for the California Institute of Technology and serves on the board of directors of Axcelis Technologies, Inc. and The Progressive Corporation. Dr. Nettles also serves on the board of directors of Apptrigger, Inc., a privately held company.

     Gary B. Smith joined Ciena in 1997 and has served as President and Chief Executive Officer since May 2001. Mr. Smith has served on Ciena’s Board of Directors since October 2000. Mr. Smith also serves on the board of directors for CommVault Systems, Inc. and the American Electronics Association. Mr. Smith also serves as a member of the Global Information Infrastructure Commission.

     Stephen B. Alexander joined Ciena in 1994 and has served as Chief Technology Officer since September 1998 and as a Senior Vice President since January 2000. Mr. Alexander has previously served as General Manager of Products & Technology and General Manager of Transport and Switching and Data Networking. Mr. Alexander serves on the Federal Communications Commission Technology Advisory Council.

     Michael G. Aquino joined Ciena in June 2002 and has served as Ciena’s Senior Vice President, Global Field Operations since October 2008. Mr. Aquino served as Senior Vice President of Worldwide Sales from April 2006 to October 2008. Mr. Aquino previously held positions as Ciena’s Vice President of Americas, with responsibility for sales activities in the region, and Vice President of Government Solutions, where he focused on supporting Ciena’s relationships with the U.S. and Canadian government.

     James E. Moylan, Jr. has served as Senior Vice President, Finance and Chief Financial Officer since December 2007. From June 2006 to December 2007, Mr. Moylan served as Executive Vice President and Chief Financial Officer of Swett & Crawford, a wholesale insurance broker. From March 2004 to February 2006, Mr. Moylan served as Executive Vice President and Chief Financial Officer of PRG-Shultz International, Inc., a publicly held recovery audit and business services firm. From June 2002 to April 2003, Mr. Moylan served as Executive Vice President in charge of Composite Panels Distribution and Administration for Georgia-Pacific Corporation’s building products business. From November 1999 to May

2002, Mr. Moylan served as Senior Vice President and Chief Financial Officer of SCI Systems, Inc., an electronics contract manufacturing company.

     Andrew C. Petrik joined Ciena in 1996 and has served as Vice President, Controller since August 1997.

     David M. Rothenstein joined Ciena in January 2001 and has served as Senior Vice President, General Counsel and Secretary since November 2008. Mr. Rothenstein served as Vice President and Associate General Counsel from July 2004 to October 2008 and previously as Assistant General Counsel.

     Arthur D. Smith, Ph.D. joined Ciena in May 1997 and has served as Chief Operating Officer since October 2005. Dr. Smith served as Senior Vice President, Global Operations from September 2003 to October 2005. Previously, Dr. Smith served as Senior Vice President, Worldwide Customer Services and Support from June 2002 to September 2003.

     Stephen P. Bradley, Ph.D. has served as a Director of Ciena since April 1998. Professor Bradley is the William Ziegler Professor of Business Administration at the Harvard Business School. A member of the Harvard faculty since 1968, Professor Bradley is also Chairman of Harvard’s Executive Program in Competition and Strategy: Building and Sustaining Competitive Advantage. Professor Bradley serves on the board of directors of i2 Technologies, Inc. and the Risk Management Foundation of the Harvard Medical Institutions.

     Harvey B. Cash has served as a Director of Ciena since April 1994. Mr. Cash is a general partner of InterWest Partners, a venture capital firm in Menlo Park, California, that he joined in 1985. Mr. Cash serves on the board of directors of First Acceptance Corp., Silicon Laboratories, Inc. and Argonaut Group, Inc.

     Bruce L. Claflin has served as a Director of Ciena since August 2006. Mr. Claflin served as President and Chief Executive Officer of 3Com Corporation from January 2001 until his retirement in February 2006. Mr. Claflin joined 3Com as President and Chief Operating Officer in August 1998. Prior to 3Com, Mr. Claflin served as Senior Vice President and General Manager, Sales and Marketing, for Digital Equipment Corporation. Mr. Claflin also worked for 22 years at IBM, where he held various sales, marketing and management positions, including general manager of IBM PC Company’s worldwide research and development, product and brand management, as well as president of IBM PC Company Americas. Mr. Claflin also serves on the board of directors of Advanced Micro Devices (AMD).

     Lawton W. Fitt has served as a Director of Ciena since November 2000. From October 2002 to March 2005, Ms. Fitt served as Director of the Royal Academy of Arts in London. From 1979 to October 2002, Ms. Fitt was an investment banker with Goldman Sachs & Co., where she was a partner from 1994 to October 2002, and a managing director from 1996 to October 2002. Ms. Fitt serves on the board of directors of Thomson Reuters, Frontier Communications Corporation and Overture Acquisition Corporation.

     Judith M. O’Brien has served as a Director of Ciena since July 2000. Since November 2006, Ms. O’Brien has served as Executive Vice President and General Counsel of Obopay, Inc., a provider of mobile payment services. From February 2001 until October 2006, Ms. O’Brien served as a Managing Director at Incubic Venture Fund, a venture capital firm. From February 1984 until February 2001, Ms. O’Brien was a partner with Wilson Sonsini Goodrich & Rosati, where she specialized in corporate finance, mergers and acquisitions and general corporate matters.

     Michael J. Rowny has served as a Director of Ciena since August 2004. Mr. Rowny has been Chairman of Rowny Capital, a private equity firm, since 1999. From 1994 to 1999, and previously from 1983 to 1986, Mr. Rowny was with MCI Communications in positions including President and Chief Executive Officer of MCI’s International Ventures, Alliances and Correspondent group, acting Chief Financial Officer, Senior Vice President of Finance, and Treasurer. Mr. Rowny serves on the board of directors of Neustar, Inc.

     Gerald H. Taylor has served as a Director of Ciena since January 2000. Mr. Taylor has informed Ciena’s Board of Directors that he intends to retire from the board upon the completion of his current term and he will not stand for re-election at the 2009 Annual Meeting of Stockholders. Mr. Taylor has served as a Managing Member of mortonsgroup, LLC, a venture partnership specializing in telecommunications and information technology, since January 2000. From 1996 to 1998, Mr. Taylor was Chief Executive Officer of MCI Communications Corporation.

Item 1A. Risk Factors

     Investing in our securities involves a high degree of risk. In addition to the other information contained in this report, you should consider the following risk factors before investing in our securities.

Our business and operating results could be adversely affected by unfavorable macroeconomic and industry conditions.

     We have achieved considerable annual revenue growth over the last few fiscal years, in part due to favorable conditions in our markets. During the second half of 2008, however, our business began to experience the effects of worsening macroeconomic conditions, further exacerbated by certain customer-specific challenges and significant disruptions in the financial and credit markets globally. We initially experienced order delays, lengthening sales cycles and slowing deployments, principally among our largest service provider customers in North America and Europe. As economic conditions worsened globally, these effects on our business spread across our industry into other customer segments and geographies. Significant uncertainty around macroeconomic and industry conditions persists, particularly the effect these conditions and any sustained lack of liquidity in the capital markets may have upon the capital spending of our largest customers. Moreover, we are uncertain of the impact that any change in enterprise and consumer spending and behavior, in response to these market conditions, may have on the spending or financial position of our customers. Continued weakness in our industry or the broader economy may cause our customers to delay or cancel network infrastructure projects. Economic weakness, customer financial difficulties and constrained spending on communications networks have previously resulted in sustained periods of decreased demand for our products and services that have adversely affected our operating results. Challenging economic and market conditions may also result in:

	•		difficulty forecasting, budgeting and planning due to limited visibility into the spending plans of current or prospective customers;
	•		increased competition for fewer network projects and sales opportunities;
	•		pricing pressure that may adversely affect revenue and gross margin;
	•		higher overhead costs as a percentage of revenue;
	•		increased risk of charges relating to excess and obsolete inventories and the write off of goodwill and other intangible assets; and
	•		customer financial difficulty and increased risk of doubtful accounts receivable.

     We are uncertain as to how long current, unfavorable macroeconomic and industry conditions will persist and the magnitude of their effects on our business and results of operations. If these conditions persist or further weaken, our business and results of operations could be materially adversely affected.

A small number of communications service providers account for a significant portion of our revenue, and the loss of any of these customers, or a significant reduction in their spending, would have a material adverse effect on our business and results of operations.

     A significant portion of our revenue is concentrated among a relatively small number of communications service providers. Five customers accounted for greater than 60% of our revenue in each of fiscal 2007 and 2008. Consequently, our financial results are closely correlated with the spending of a relatively small number of communications service providers. Because their spending may be unpredictable and sporadic, our revenue and operating results can fluctuate on a quarterly basis. Reliance upon a relatively small number of customers increases our exposure to changes in their markets, capital expenditure budgets and network strategy. Our business and financial results are closely tied to the prospects, performance, and financial condition of our largest customers, and market-wide changes, including reductions in enterprise and consumer spending, affecting communications service providers. We have recently seen our customers, including our large service provider customers, take a more cautious approach to their capital spending. The loss of one or more large service providers as customers, or significant reductions or delays in their spending, would have a material adverse effect on our business, financial condition and results of operations. Our concentration in revenue has increased in recent years, in part, as a result of consolidations among a number of our largest customers. Consolidations may increase the likelihood of temporary or indefinite reductions in customer spending or changes in network strategy that could harm our business and operating results.

Our revenue and operating results can fluctuate unpredictably from quarter to quarter.

     Our revenue and results of operations can fluctuate unpredictably from quarter to quarter. Our budgeted expense levels depend in part on our expectations of long-term future revenue and gross margin and substantial reductions in expense are difficult and can take time to implement. Uncertainty or lack of visibility into customer spending, and changes in economic or market conditions, can make it difficult to prepare reliable estimates of future revenue and corresponding expense levels. Consequently, our level of operating expense or inventory may be high relative to our revenue, which could harm our ability to achieve or maintain profitability. Additional factors that contribute to fluctuations in our revenue and operating results include:

	•		economic and market conditions affecting us and our customers;
	•		changes in capital spending by large communications service providers;
	•		the timing and size of orders, including our ability to recognize revenue under customer contracts; and
	•		variations in the mix between higher and lower margin products and services and the level of pricing pressure we encounter.

     Many factors affecting our results of operations are beyond our control, particularly in the case of large service provider orders and multi-vendor or multi-technology network infrastructure builds where the achievement of certain thresholds for acceptance is subject to the readiness and performance of the customer or other providers, and changes in customer requirements or installation plans. As a consequence, our results for a particular quarter may be difficult to predict, and our prior results are not necessarily indicative of results likely in future periods. The factors above may cause our operating results to fall below the expectations of securities analysts or investors, which may cause our stock price to decline.

We face intense competition that could hurt our sales and results of operations.

     The markets in which we compete for sales of networking equipment, software and services are extremely competitive, particularly the market for sales to large communications service providers. This level of competition and pricing pressure that we face can be exacerbated during periods of macroeconomic weakness and constrained spending. Competition in our markets, generally, is based on any one or a combination of the following factors: price, product features and functionality, manufacturing capability and lead-times, incumbency and existing business relationships, scalability and the ability of products to meet the immediate and future network requirements of customers. A small number of very large companies have historically dominated our industry. These competitors have substantially greater financial, technical and marketing resources, greater manufacturing capacity, broader product offerings and more established relationships with service providers and other potential customers than we do. Consolidation activity among large networking equipment providers has caused some of our competitors to grow even larger, which may increase their strategic advantages and adversely affect our competitive position.

     We also compete with a number of smaller companies that provide significant competition for a specific product, application, customer segment or geographic market. Due to the narrower focus of their efforts, these competitors may achieve commercial availability of their products more quickly or may be more attractive to customers.

     Increased competition in our markets has resulted in aggressive business tactics, including:

	•		significant price competition, particularly from competitors in Asia;
	•		customer financing assistance;
	•		early announcements of competing products and extensive marketing efforts;
	•		competitors offering equity ownership positions to customers;
	•		competitors offering to repurchase our equipment from existing customers;
	•		marketing and advertising assistance; and
	•		intellectual property assertions and disputes.

     The tactics described above can be particularly effective in an increasingly concentrated base of potential customers such as communications service providers. If competitive pressures increase or we fail to compete successfully in our markets, our sales and profitability would suffer.

Investment of research and development resources in technologies for which there is not a matching market opportunity, or failure to sufficiently or timely invest in technologies for which there is market demand, would adversely affect our revenue and profitability.

     The market for communications networking equipment is characterized by rapidly evolving technologies and changes in market demand. We continually invest in research and development to enhance our existing products, create new products and develop or acquire new technologies. There is often a lengthy period between commencing these development initiatives and bringing the new or revised product to market, and, during this time, technology or the market may move in directions we had not anticipated. Even if we are able to anticipate market conditions and develop and introduce new products or enhancements, there is no guarantee that these products will achieve market acceptance. There is a significant possibility, therefore, that some of our development decisions will not turn out as anticipated, and that our investment in some projects will be unprofitable. Moreover, we may encounter difficulties developing, integrating and selling technology acquired from World Wide Packets and may be unable to achieve the strategic benefits and return on investment anticipated from this transaction. There is also a possibility that we may miss a market opportunity because we fail to invest, or invest too late, in a technology, product or enhancement that could have been highly profitable. Changes in market demand or investment priorities may also cause us to discontinue existing or planned development for new products or features, which can have a disruptive effect on our relationships with customers. If we fail to make the right investments or fail to make them at the right time, our competitive position may suffer and our revenue and profitability could be harmed.

We may be required to write off significant amounts of inventory as a result of our inventory purchase practices, the convergence of our product lines or unfavorable macroeconomic or industry conditions.

     To avoid delays and meet customer demand for shorter delivery terms, we place orders with our contract manufacturers and suppliers to manufacture components and complete assemblies based on forecasts of customer demand. As a result, our inventory purchases expose us to the risk that our customers either will not order the products we have forecasted or will purchase fewer products than forecasted. Unfavorable market or industry conditions can limit visibility into customer spending plans and compound the difficulty of forecasting inventory at appropriate levels. Moreover, our customer purchase agreements generally do not guarantee any minimum purchase level, and customers often have the right to modify, reduce or cancel purchase quantities. As a result, we may purchase inventory in anticipation of sales that do not occur. Historically, our inventory write-offs have resulted from the circumstances above. As features and functionalities converge across our product lines, and we introduce new products, however, we face an additional risk that customers may forego purchases of one product we have inventoried in favor of another product with similar functionality. At October 31, 2008, we had $93.5 million in inventory. If we are required to write off or write down a significant amount of inventory, our results of operations for the period would be materially adversely affected.

We may be required to write down goodwill and long-lived assets and these impairment charges would adversely affect our operating results.

     As of October 31, 2008, we had $455.7 million of goodwill on our balance sheet. This amount primarily represents the remaining excess of the total purchase price of our acquisitions over the fair value of the net assets acquired. At October 31, 2008, we also had $182.3 million in long-lived assets, which includes $92.2 million of other intangible assets on our balance sheet. Given the current economic environment, uncertainties regarding the duration of these conditions and their potential impact on our business, an interim impairment review may be triggered for goodwill and long-lived assets during fiscal 2009. Our stock price, which declined considerably during fiscal 2008, is a significant factor in assessing our fair value for purposes of the goodwill impairment assessment. At the time of our assessment for fiscal 2008, our market capitalization had fallen to $886 million and our carrying value, including goodwill, had increased to $995 million. But for the inclusion of a control premium greater than 12%, our carrying value as of the end of fiscal 2008 would have exceeded fair value, requiring a further analysis which may have resulted in an impairment of goodwill. If our recent stock price decline persists and our market capitalization remains below our carrying value for a sustained period, it is reasonably likely that a goodwill impairment assessment prior to the next annual review in the fourth quarter of fiscal 2009 would be necessary and an impairment of goodwill may be determined. Valuation of our long-lived assets requires us to make assumptions about future sales prices and sales volumes for our products. These and other assumptions are used to forecast future, undiscounted cash flows. If actual market conditions differ or our forecasts change, we may be required to assess long-lived assets and could record an impairment charge. If we are required to record an impairment charge relating to goodwill or long-lived assets, such charges would have the effect of decreasing our earnings or increasing our losses in such period. If we are required to take a substantial impairment charge, our operating results could be materially adversely affected in such period.

Network equipment sales to large communications service providers often involve lengthy sales cycles and protracted contract negotiations and may require us to assume terms or conditions that negatively affect our pricing, payment terms and the timing of revenue recognition.

     Our future success will depend in large part on our ability to maintain and expand our sales to large communications service providers. These sales typically involve lengthy sales cycles, protracted and sometimes difficult contract negotiations, and extensive product testing and network certification. We are sometimes required to agree to contract terms or conditions that negatively affect pricing, payment terms and the timing of revenue recognition in order to consummate a sale. These terms may, in turn, negatively affect our revenue and results of operations and increase our susceptibility to quarterly fluctuations in our results. Service providers may ultimately insist upon terms and conditions that we deem too onerous or not in our best interest. Moreover, our purchase agreements generally do not require that a customer guarantee any minimum purchase level and customers often have the right to modify, delay, reduce or cancel previous orders. As a result, we may incur substantial expense and devote time and resources to potential relationships that never materialize or result in lower than anticipated sales.

Product performance problems could damage our business reputation and negatively affect our results of operations.

     The development and production of equipment that addresses multi-service communications network traffic is complicated. Some of our products can be fully tested only when deployed in communications networks or with other equipment and therefore may contain undetected hardware or software errors at the time of release. As a result, product performance problems are often more acute for initial deployments of new products and product enhancements. Unanticipated problems can relate to the design, manufacturing, installation or integration of our products. If we experience significant performance, reliability or quality problems with our products, or our customers suffer significant repairs, network restoration, or delays relating to these problems, a number of negative effects on our business could result, including:

	•		increased costs to address or remediate software or hardware defects;
	•		payment of liquidated damages or claims for damages for performance failures or delays;
	•		increased inventory obsolescence and warranty expense;
	•		delays in collecting accounts receivable; and
	•		cancellation or reduction in orders from customers.

     Product performance problems could damage our business reputation and negatively affect our business and results of operations.

We may not be successful in selling our products into new markets and developing and managing new sales channels.

     We continue to take steps to sell our products into new geographic markets and to a broader customer base, including other large communications service providers, enterprises, cable operators, wireless operators and federal, state and local governments. We have less experience in these markets and, in order to succeed in these markets, we believe we must develop and manage new sales channels and distribution arrangements. We expect these relationships to be an increasingly important part of our business. We may not be successful in reaching additional customer segments or expanding into new geographic regions and may be exposed to increased expense and business and financial risks associated with entering new markets and pursuing new customer segments. We may expend time, money and other resources on channel relationships that are ultimately unsuccessful. In addition, sales to federal, state and local governments require compliance with complex procurement regulations with which we have little experience. We may be unable to increase our sales to government contractors if we determine that we cannot comply with applicable regulations. Our failure to comply with regulations for existing contracts could result in civil, criminal or administrative proceedings involving fines and suspension, or exclusion from participation in federal government contracts. Failure to manage additional sales channels effectively would limit our ability to succeed in these new markets and could adversely affect our ability to expand our customer base and grow our business.

We may experience delays in the development of our products that may negatively affect our competitive position and business.

     Our products are based on complex technology, and we can experience unanticipated delays in developing, manufacturing or deploying them. Each step in the development life cycle of our products presents serious risks of failure, rework or delay, any one of which could affect the cost-effective and timely development of our products. Intellectual property disputes, failure of critical design elements, and other execution risks may delay or even prevent the release of these products. Modification of research and development strategies and changes in allocation of resources could also be disruptive to our development efforts. If we do not develop and successfully introduce products in a timely manner, our competitive position may suffer and our business, financial condition and results of operations would be harmed.

Our reliance upon third party manufacturers exposes us to risks that could negatively affect our business and operations.

     We rely upon third party contract manufacturers to perform the majority of the manufacturing of our products and components. In recent years we have transitioned a significant portion of our product manufacturing to overseas suppliers in Asia, with much of the manufacturing taking place in China and Thailand. Some of our contract manufacturers ship our products directly to our customers. Our reliance upon these manufacturers could expose us to increased risks related to lead times, continued supply, on-time delivery, quality assurance and compliance with environmental standards and other regulations. Our business could be adversely affected by disruptions in the business and operations of these manufacturers. Significant disruptions could arise as a result of, among other things, geopolitical events in the countries where our products or components thereof are manufactured. During the first quarter of fiscal 2009, protests resulted in a blockade of Thailand’s main international airport, which delayed product shipments from one of our key contract manufacturers. Disruptions could also arise as a result of difficulties in the financial position of our contract manufacturers and ineffective business continuity and disaster recovery plans. We do not have contracts in place with some of our manufacturers and do not have guaranteed supply of components or manufacturing capacity. From time to time, we may decide to transfer manufacturing to a new contract manufacturer or further consolidate our supplier base. These transitions may result in disruptions to our business and temporary increases in inventory volumes purchased in order to ensure continued supply. Difficulty managing our contract manufacturers, or transitions to new manufacturers, can negatively affect our business and operations and harm our customer relationships.

Difficulties with third party component suppliers, including sole and limited source suppliers, could increase our costs and harm our business and customer relationships.

     We depend on third party suppliers for our product components and subsystems, as well as for equipment used to manufacture and test our products. Our products include key optical and electronic components for which reliable, high-volume supply is often available from sole or limited sources. We have previously encountered shortages in availability for important components that have affected our ability to deliver products in a timely manner. Our business would be negatively affected if our suppliers were to experience any significant disruption in their operations affecting the price, quality, availability or timely delivery of components. Current unfavorable economic conditions, including a lack of liquidity, may adversely affect our suppliers or the terms on which we purchase components. We may be unable to secure the components or subsystems that we require in sufficient quantities or on reasonable terms. The loss of a source of supply, or lack of sufficient availability of key components, could require us to redesign products that use those components, which would increase our costs and negatively affect our product gross margin and results of operations. Difficulties with suppliers could also result in lost revenue, additional product costs and deployment delays that could harm our business and customer relationships.

Our failure to manage effectively our relationships with third party service partners could adversely impact our financial results and relationship with customers.

     We rely on a number of third party service partners, both domestic and international, to complement our global service and support resources. We rely upon these partners for certain maintenance and support functions, as well as the installation of our equipment in some large network builds. These projects often include complex customization, installation and testing. In order to ensure the proper installation and maintenance of our products, we must identify, train and certify qualified service partners. Certification can be costly and time-consuming, and our partners often provide similar services for other companies, including our competitors. We may not be able to manage effectively our relationships with our service partners and cannot be certain that they will be able to deliver services in the manner or time required. If our service partners are unsuccessful in delivering services:

	•		we may suffer delays in recognizing revenue;
	•		our services revenue and gross margin may be adversely affected; and
	•		our relationship with customers could suffer.

Difficulties with service partners could cause us to transition a larger share of deployment and other services from third parties to internal resources, thereby increasing our service overhead costs and negatively affecting our services gross margin and results of operations.

We may incur significant costs as a result of our efforts to protect and enforce our intellectual property rights or respond to claims of infringement from others.

     Our business is dependent upon the successful protection of our proprietary technology and intellectual property. We are subject to the risk that unauthorized parties may attempt to access, copy or otherwise obtain and use our proprietary technology, particularly as we expand our product development into India and increase our reliance upon contract manufacturers in Asia. These and other international operations could expose us to a lower level of intellectual property protection than in the United States. Monitoring unauthorized use of our technology is difficult, and we cannot be certain that the steps that we are taking will prevent or minimize the risks of unauthorized use. If competitors are able to use our technology, our ability to compete effectively could be harmed.

     From time to time we have been subject to litigation and other third party intellectual property claims, primarily alleging patent infringement. We have also been subject to third party claims arising as a result of our indemnification obligations to customers or resellers that purchase our products or as a result of alleged infringement relating to third party components that we include in our products. The frequency of these assertions is increasing as patent holders, including entities that are not in our industry and that purchase patents as an investment, use infringement assertions as a competitive tactic or as a source of additional revenue. Intellectual property infringement claims can significantly divert the time and attention of our personnel and result in costly litigation. These claims can also require us to pay substantial damages or royalties, enter into costly license agreements or develop non-infringing technology. Accordingly, the costs associated with intellectual property infringement claims could adversely affect our business, results of operations and financial condition.

Our international operations could expose us to additional risks and result in increased operating expense.

     We market, sell and service our products globally. We have established offices around the world, including in North America, Europe, Latin America and the Asia Pacific region. We have also established a major development center in India and are increasingly reliant upon overseas suppliers, particularly in Asia, for sourcing of important components and manufacturing of our products. Our increasingly global operations may result in increased risk to our business and could give rise to unanticipated expense, difficulties or other effects that could adversely affect our financial results.

     International operations are subject to inherent risks, including:

	•		effects of changes in currency exchange rates;
	•		greater difficulty in collecting accounts receivable and longer collection periods;
	•		difficulties and costs of staffing and managing foreign operations;
	•		the impact of economic conditions in countries outside the United States;
	•		less protection for intellectual property rights in some countries;
	•		adverse tax and customs consequences, particularly as related to transfer-pricing issues;
	•		social, political and economic instability;
	•		trade protection measures, export compliance, qualification to transact business and other regulatory requirements; and
	•		natural disasters, epidemics and acts of war or terrorism.

     We expect that our international activities will be dynamic in the near term, and we may enter new markets and withdraw from or reduce operations in others. These changes to our international operations may require significant management attention and result in additional expense. In some countries, our success will depend in part on our ability to form relationships with local partners. Our inability to identify appropriate partners or reach mutually satisfactory arrangements for international sales of our products could impact our ability to maintain or increase international market demand for our products.

Our use and reliance upon development resources in India may expose us to unanticipated costs or liabilities.

     We have a significant development center in India and, in recent years, have increased headcount and development activity at this facility. There is no assurance that our reliance upon development resources in India will enable us to achieve meaningful cost reductions or greater resource efficiency. Further, our development efforts and other operations in India involve significant risks, including:

•

difficulty hiring and retaining appropriate engineering resources due to intense competition for such resources and resulting wage inflation;

	•		the knowledge transfer related to our technology and resulting exposure to misappropriation of intellectual property or information that is proprietary to us, our customers and other third parties;
	•		heightened exposure to changes in the economic, security and political conditions of India; and
	•		fluctuations in currency exchange rates and tax compliance in India.

     Difficulties resulting from the factors above and other risks related to our operations in India could expose us to increased expense, impair our development efforts, harm our competitive position and damage our reputation.

We may be exposed to unanticipated risks and additional obligations in connection with our resale of complementary products or technology of other companies.

     We have entered into agreements with strategic partners that permit us to distribute their products or technology. We rely upon these relationships to add complementary products or technologies or to fulfill an element of our product portfolio. As part of our strategy to diversify our product portfolio and customer base, we may enter into additional original equipment manufacturer (OEM) or resale agreements in the future. We may incur unanticipated costs or difficulties relating to our resale of third party products. Our third party relationships could expose us to risks associated with delays in their development, manufacturing or delivery of products or technology. We may also be required by customers to assume warranty, indemnity, service and other commercial obligations greater than the commitments, if any, made to us by our technology partners. Some of our strategic partners are relatively small companies with limited financial resources. If they are unable to satisfy their obligations to us or our customers, we may have to expend our own resources to satisfy these obligations. Exposure to the risks above could harm our reputation with key customers and negatively affect our business and our results of operations.

Our exposure to the credit risks of our customers and resellers may make it difficult to collect receivables and could adversely affect our revenue and operating results.

     In the course of our sales to customers, we may have difficulty collecting receivables and could be exposed to risks associated with uncollectible accounts. We may be exposed to similar risks relating to third party resellers and other sales channel partners. A continued lack of liquidity in the capital markets or a sustained period of unfavorable economic conditions may increase our exposure to credit risks. While we monitor these situations carefully and attempt to take appropriate measures to protect ourselves, it is possible that we may have to write down or write off doubtful accounts. Such write-downs or write-offs could negatively affect our operating results for the period in which they occur, and, if large, could have a material adverse effect on our revenue and operating results.

Restructuring activities could disrupt our business and affect our results of operations.

     We have previously taken steps, including reductions in force, office closures, and internal reorganizations to reduce the size and cost of our operations and to better match our resources with market opportunities. We may take similar steps in the future. These changes could be disruptive to our business and may result in the recording of accounting charges, including inventory and technology-related write-offs, workforce reduction costs and charges relating to consolidation of excess facilities. Substantial charges resulting from any future restructuring activities could adversely affect our results of operations in the period in which we take such a charge.

If we are unable to attract and retain qualified personnel, we may be unable to manage our business effectively.

     Competition to attract and retain highly skilled technical and other personnel with experience in our industry is increasing in intensity, and our employees have been the subject of targeted hiring by our competitors. With respect to our engineering resources, we may find it particularly difficult to attract and retain sufficiently skilled personnel in areas including data networking, Ethernet service delivery and network management software engineering in certain geographic markets. We may experience difficulty retaining and motivating existing employees and attracting qualified personnel to fill key positions. Because we rely upon equity awards as a significant component of compensation, particularly for our executive team, a lack of positive performance in our stock price, reduced grant levels, or changes to our compensation program may adversely affect our ability to attract and retain key employees. In addition, none of our executive officers is bound by an employment agreement for any specific term. It may be difficult to replace members of our management team or other key personnel, and the loss of such individuals could be disruptive to our business. Because we generally do not have employment contracts with our employees, we must rely upon providing competitive compensation packages and a high-quality work environment in order to retain and motivate employees. If we are unable to attract and retain qualified personnel, we may be unable to manage our business effectively.

We may be adversely affected by fluctuations in currency exchange rates.

     To date, we have not hedged against foreign currency fluctuations. Historically, our primary exposure to currency exchange rates has been related to non-U.S. dollar denominated operating expense in Europe, Asia and Canada. In recent years, our international operations have grown considerably. As we increase our international sales and utilization of international suppliers, we may transact additional business in currencies other than the U.S. dollar. A further increase in the value of the dollar could increase the real cost to our customers of our products in those markets outside the United States where we sell in dollars, and a weakened dollar could increase the cost of local operating expenses and procurement of raw materials to the extent that we must purchase components in foreign currencies. As a result, we may be subject to increased susceptibility to the effects of foreign exchange translation on our financial results and our business and result of operations could be adversely affected.

Our products incorporate software and other technology under license from third parties and our business would be adversely affected if this technology was no longer available to us on commercially reasonable terms.

     We integrate third-party software and other technology into our embedded operating system, network management system tools and other products. Licenses for this technology may not be available or continue to be available to us on commercially reasonable terms. Third party licensors may insist on unreasonable financial or other terms in connection with our use of such technology. Difficulties with third party technology licensors could result in termination of such licenses, which may result in significant costs and require us to obtain or develop a substitute technology. Difficulty obtaining and maintaining third-party technology licenses may disrupt development of our products and increase our costs, which could harm our business.

Our business is dependent upon the proper functioning of our internal business processes and information systems and modifications may disrupt our business, operating processes and internal controls.

     The successful operation of various internal business processes and information systems is critical to the efficient operation of our business. In recent years, we have experienced considerable growth in transaction volume, headcount and reliance upon international resources in our operations. Our business processes and information systems need to be sufficiently scalable to support growth of our business. To improve the efficiency of our operations and achieve greater automation, we routinely upgrade business processes and information systems. Significant changes to our processes and systems expose us to a number of operational risks. These changes may be costly and disruptive, and could impose substantial demands on management time. These changes may also require the modification of a number of internal control procedures. Any material disruption, malfunction or similar problems with our business processes or information systems, or the transition to new processes and systems, could have a negative effect on the operation of our business and our results of operations.

Strategic acquisitions and investments may expose us to increased costs and unexpected liabilities.

     We may acquire or make strategic investments in other companies to expand the markets we address, diversify our customer base or acquire or accelerate the development of technology or products. To do so, we may use cash, issue equity that would dilute our current stockholders’ ownership, incur debt or assume indebtedness. These transactions involve numerous risks, including:

	•		difficulty integrating the operations, technologies and products of the acquired companies;
	•		diversion of management’s attention;
	•		difficulty completing projects of the acquired company and costs related to in-process projects;
	•		the loss of key employees of the acquired company;
	•		amortization expense related to intangible assets and charges associated with impairment of goodwill;
	•		ineffective internal controls over financial reporting;
	•		dependence on unfamiliar supply partners; and
	•		exposure to unanticipated liabilities, including intellectual property infringement claims.

     As a result of these and other risks, our acquisitions or strategic investments may not reap the intended benefits and may ultimately have a negative impact on our business, results of operation and financial condition.

Changes in government regulation affecting the communications industry and the businesses of our customers could harm our prospects and operating results.

     The Federal Communications Commission, or FCC, has jurisdiction over the U.S. communications industry and similar agencies have jurisdiction over the communication industries in other countries. Many of our largest customers are subject to the rules and regulations of these agencies. Changes in regulatory requirements in the United States or other countries could inhibit service providers from investing in their communications network infrastructures or introducing new services. These changes could adversely affect the sale of our products and services. Changes in regulatory tariff requirements or other regulations relating to pricing or terms of carriage on communications networks could slow the development or expansion of network infrastructures and adversely affect our business, operating results, and financial condition.

Governmental regulations affecting the import or export of products, and environmental regulations relating to our products, could negatively affect our revenues.

     The United States and various foreign governments have imposed controls, export license requirements and restrictions on the import or export of some technologies. Governmental regulation of imports or exports, or our failure to obtain required import or export approval for our products, could harm our international and domestic sales and adversely affect our revenues. Failure to comply with such regulations could result in penalties, costs and restrictions on export privileges. In addition, our operations may be negatively affected by environmental regulations, such as the Waste Electrical and Electronic Equipment (WEEE) and Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (RoHS) that have been adopted by the European Union. Compliance with these and similar environmental regulations may increase our cost of building and selling our products, make it difficult to obtain supply of compliant components or require us to write off non-compliant inventory, which could have a material adverse effect on our business and operating results.

The investment of our substantial cash balance and our investments in marketable debt securities are subject to risks which may cause losses and affect the liquidity of these investments.

     At October 31, 2008, we had $550.7 million in cash and cash equivalents and $522.5 million short-term and long-term investments in marketable debt securities. We have historically invested these amounts in corporate bonds, asset-backed obligations, commercial paper, securities issued by the United States, certificates of deposit and money market funds meeting certain criteria. These investments are subject to general credit, liquidity, market and interest rate risks, which may be exacerbated by recent significant disruptions in the financial and credit markets. These market risks associated with our investment portfolio may have a negative adverse effect on our results of operations, liquidity and financial condition.

Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business, operating results and stock price.

     Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include in our annual report a report containing management’s assessment of the effectiveness of our internal controls over financial reporting as of the end of our fiscal year and a statement as to whether or not such internal controls are effective. Compliance with these requirements has resulted in, and is likely to continue to result in, significant costs and the commitment of time and operational resources. Changes in our business will necessitate ongoing modifications to our internal control systems, processes and information systems. Increases in our global operations or expansion into new regions could pose additional challenges to our internal control systems as these operations become more significant. We cannot be certain that our current design for internal control over financial reporting will be sufficient to enable management or our independent registered public accounting firm to determine that our internal controls are effective for any period, or on an ongoing basis. If we or our independent registered public accounting firms are unable to assert that our internal controls over financial reporting are effective, our business may be harmed. Market perception of our financial condition and the trading price of our stock may be adversely affected, and customer perception of our business may suffer.

Obligations associated with our outstanding indebtedness on our convertible notes may adversely affect our business.

     At October 31, 2008, indebtedness on our outstanding convertible notes totaled $798.0 million in aggregate principal. Our indebtedness and repayment obligations could have important negative consequences, including:

	•		increasing our vulnerability to general adverse economic and industry conditions;
	•		limiting our ability to obtain additional financing, particularly in light of unfavorable conditions in the credit markets;

	•		reducing the availability of cash resources for other purposes, including capital expenditures;
	•		limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete; and
	•		placing us at a possible competitive disadvantage to competitors that have better access to capital resources.

     We may also add additional indebtedness such as equipment loans, working capital lines of credit and other long-term debt.

Our stock price is volatile.

     Our common stock price has experienced substantial volatility in the past and may remain volatile in the future. Volatility in our stock price can arise as a result of a number of the factors discussed in this “Risk Factors” section. During fiscal 2008, our stock price ranged from a high of $48.82 per share to a low of $6.60 per share. The stock market has experienced extreme price and volume fluctuations that have affected the market price of many technology companies, with such volatility often unrelated to the operating performance of these companies. Divergence between our actual or anticipated financial results and published expectations of analysts can cause significant swings in our stock price. Our stock price can also be affected by announcements that we, our competitors, or our customers may make, particularly announcements related to acquisitions or other significant transactions. Our common stock is included in a number of widely-followed market indices, including the S&P 500 Index, and any change in the composition of these indices to exclude our company would adversely affect our stock price. These factors, as well as conditions affecting the general economy or financial markets, may materially adversely affect the market price of our common stock in the future.

Item 1B. Unresolved Staff Comments

     Not applicable.

Item 2. Properties

     As of October 31, 2008, all of our properties are leased. Our principal executive offices are located in Linthicum, Maryland. We lease thirty-one facilities related to our ongoing operations. These include five buildings located at various sites near Linthicum, Maryland, including an engineering facility, two manufacturing facilities, and two administrative and sales facilities. We have engineering and/or service facilities located in San Jose, California; Alpharetta, Georgia; Acton, Massachusetts; Spokane, Washington; Kanata, Canada; and Gurgaon, India. We also maintain a sales and service facility in London, England. In addition, we lease various small offices in the United States, Mexico, South America, Europe and Asia to support our sales and services operations. We believe the facilities we are now using are adequate and suitable for our business requirements.

     We lease a number of properties that we no longer occupy. As part of our restructuring costs, we provide for the estimated cost of the future net lease expense for these facilities. The cost is based on the fair value of future minimum lease payments under contractual obligations offset by the fair value of the estimated future sublease payments that we may receive. As of October 31, 2008, our accrued restructuring liability related to these properties was $3.2 million. If actual market conditions relating to the use of these facilities are less favorable than those projected by management, additional restructuring costs associated with these facilities may be required. For additional information regarding our lease obligations, see Note 18 to the Consolidated Financial Statements in Item 8 of Part II of this report.

Item 3. Legal Proceedings

     On November 7, 2008, JDS Uniphase Corp. filed a complaint with the United States International Trade Commission (ITC) against Ciena and several other respondents, alleging infringement of two patents (U.S. Patent Nos. 6,658,035 and 6,687,278) relating to tunable laser chip technology. The complaint, which names Ciena as a company whose products incorporate the accused technology manufactured by certain other respondents and which technology is imported into the United States, seeks a determination and relief under Section 337 of the Tariff Act of 1930. Specifically, the complaint seeks an order from the ITC blocking the importation of the accused technology, and products incorporating the accused technology, into the United States. We believe that we have valid defenses to the complaint and intend to defend it vigorously.

     On May 29, 2008, Graywire, LLC filed a complaint in the United States District Court for the Northern District of Georgia against Ciena and four other defendants, alleging, among other things, that certain of the parties’ products infringe U.S. Patent 6,542,673, relating to an identifier system and components for optical assemblies. The complaint, which has not yet been served upon Ciena, seeks injunctive relief and damages. We believe that we have valid defenses to the lawsuit and intend to defend it vigorously.

     As a result of our June 2002 merger with ONI Systems Corp., we became a defendant in a securities class action lawsuit filed in the United States District Court for the Southern District of New York in August 2001. The complaint named ONI, certain former ONI officers, and certain underwriters of ONI’s initial public offering (IPO) as defendants, and alleges, among other things, that the underwriter defendants violated the securities laws by failing to disclose alleged compensation arrangements (such as undisclosed commissions or stock stabilization practices) in ONI’s registration statement and by engaging in manipulative practices to artificially inflate ONI’s stock price after the IPO. The complaint also alleges that ONI and the named former officers violated the securities laws by failing to disclose the underwriters’ alleged compensation arrangements and manipulative practices. No specific amount of damages has been claimed. Similar complaints have been filed against more than 300 other issuers that have had initial public offerings since 1998, and all of these actions have been included in a single coordinated proceeding. The former ONI officers have been dismissed from the action without prejudice. In July 2004, following mediated settlement negotiations, the plaintiffs, the issuer defendants (including Ciena), and their insurers entered into a settlement agreement, whereby the plaintiffs’ cases against the issuers would be dismissed, the insurers would agree to guarantee a recovery by the plaintiffs from the underwriter defendants of at least $1 billion, and the issuer defendants would agree to assign or surrender to the plaintiffs certain claims the issuers may have against the underwriters. The settlement agreement did not require Ciena to pay any amount toward the settlement or to make any other payments. In October 2004, the district court certified a class with respect to the Section 10(b) claims in six “focus cases” selected out of all of the consolidated cases, which cases did not include Ciena, and which decision was appealed by the underwriter defendants to the U.S. Court of Appeals for the Second Circuit. On February 15, 2005, the district court granted the motion filed by the plaintiffs and issuer defendants for preliminary approval of the settlement agreement, subject to certain modifications to the proposed bar order, and on August 31, 2005, the district court issued a preliminary order approving the revised stipulated settlement agreement. On December 5, 2006, the U.S. Court of Appeals for the Second Circuit vacated the district court’s grant of class certification in the six focus cases. On April 6, 2007, the Second Circuit denied plaintiffs’ petition for rehearing. In light of the Second Circuit’s decision, the parties agreed that the settlement could not be approved. On June 25, 2007, the district court approved a stipulation filed by the plaintiffs and the issuer defendants terminating the proposed settlement. On August 14, 2007, the plaintiffs filed second amended complaints against the defendants in the six focus cases, as well as a set of amended master allegations against the other issuer defendants, including changes to the definition of the purported class of investors. On September 27, 2007, the plaintiffs filed a motion for class certification based on their amended complaints and allegations. On March 26, 2008, the district court denied motions to dismiss the second amended complaints filed by the defendants in the six focus cases, except as to Section 11 claims raised by those plaintiffs who sold their securities for a price in excess of the initial offering price and those who purchased outside the previously certified class period. Briefing on the plaintiffs’ motion for class certification in the focus cases was completed in May 2008. That motion was withdrawn without prejudice on October 10, 2008. Due to the inherent uncertainties of litigation, the ultimate outcome of the matter is uncertain.

     In addition to the matters described above, we are subject to various legal proceedings, claims and litigation arising in the ordinary course of business. We do not expect that the ultimate costs to resolve these matters will have a material effect on our results of operations, financial position or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of security holders in the fourth quarter of fiscal 2008.

PART II

Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

     (a) Our common stock is traded on the NASDAQ Global Select Market under the symbol “CIEN.” The following table sets forth the high and low sales prices of our common stock, as reported on the NASDAQ Global Select Market, for the fiscal periods indicated.

		Price Range of Common Stock
		High				Low
Fiscal Year 2007
First Quarter ended January 31		$	30.56			$	24.39
Second Quarter ended April 30		$	32.80			$	24.75
Third Quarter ended July 31		$	41.13			$	28.22
Fourth Quarter ended October 31		$	49.55			$	32.75
Fiscal Year 2008
First Quarter ended January 31		$	48.82			$	21.40
Second Quarter ended April 30		$	35.82			$	24.00
Third Quarter ended July 31		$	35.14			$	19.30
Fourth Quarter ended October 31		$	20.10			$	6.60

     As of December 12, 2008, there were approximately 960 holders of record of our common stock and 90,533,370 shares of common stock outstanding. We have never paid cash dividends on our capital stock. We intend to retain earnings for use in our business and we do not anticipate paying any cash dividends in the foreseeable future.

     The following graph shows a comparison of cumulative total returns for an investment in our common stock, the NASDAQ Telecommunications Index and the S&P 500 Index from October 31, 2003 to October 31, 2008. The NASDAQ Telecommunications Index contains securities of NASDAQ-listed companies classified according to the Industry Classification Benchmark as Telecommunications and Telecommunications Equipment. They include providers of fixed-line and mobile telephone services, and makers and distributors of high-technology communication products. This graph is not deemed to be “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, and the graph shall not be deemed to be incorporated by reference into any prior or subsequent filing by us under the Securities Act of 1933 or the Exchange Act.

     Assumes $100 invested in Ciena Corporation, the NASDAQ Telecommunications Index and the S&P 500 Index on October 31, 2003 with all dividends reinvested at month-end.

     (b) Not applicable.

     (c) Not applicable.

Item 6. Selected Consolidated Financial Data

     The following selected consolidated financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and the notes thereto included in Item 8, “Financial Statements and Supplementary Data.” Fiscal 2008 results reflect the acquisition of World Wide Packets on March 3, 2008. See “Overview — Acquisition of World Wide Packets” in Item 7. We have a 52 or 53 week fiscal year, which ends on the Saturday nearest to the last day of October in each year. For purposes of financial statement presentation, each fiscal year is described as having ended on October 31. Fiscal 2004, 2005, 2006 and 2008 consisted of 52 weeks and fiscal 2007 consisted of 53 weeks.

Balance Sheet Data:

		Year Ended October 31,
		(in thousands, except per share data)
		2004				2005				2006				2007				2008
Cash and cash equivalents		$	185,868			$	358,012			$	220,164			$	892,061			$	550,669
Short-term investments		$	753,251			$	579,531			$	628,393			$	822,185			$	366,336
Long-term investments		$	329,704			$	155,944			$	351,407			$	33,946			$	156,171
Total assets		$	2,137,054			$	1,675,229			$	1,839,713			$	2,416,273			$	2,024,594
Short-term convertible notes payable		$	—			$	—			$	—			$	542,262			$	—
Long-term convertible notes payable		$	690,000			$	648,752			$	842,262			$	800,000			$	798,000
Total liabilities		$	982,632			$	939,862			$	1,086,087			$	1,566,119			$	1,025,645
Stockholders’ equity		$	1,154,422			$	735,367			$	753,626			$	850,154			$	998,949

Statement of Operations Data:

		Year Ended October 31,
		(in thousands, except per share data)
		2004				2005				2006				2007				2008
Revenue		$	298,707			$	427,257			$	564,056			$	779,769			$	902,448
Cost of goods sold			226,954				291,067				306,275				417,500				451,521
Gross profit			71,753				136,190				257,781				362,269				450,927
Operating expenses:
Research and development			205,364				137,245				111,069				127,296				175,023
Selling and marketing			112,310				115,022				104,434				118,015				152,018
General and administrative			25,798				36,317				44,445				50,248				68,639
Amortization of intangible assets			30,839				38,782				25,181				25,350				32,264
In-process research and development			30,200				—				—				—				—
Restructuring (recoveries) costs			57,107				18,018				15,671				(2,435	)			1,110
Goodwill impairment			371,712				176,600				—				—				—
Long-lived asset impairment			15,926				45,862				—				—				—
Gain on lease settlement			—				—				(11,648	)			(4,871	)			—
Recovery of sale, export, use tax liabilities and payments			(5,388	)			—				—				—				—
Total operating expenses			843,868				567,846				289,152				313,603				429,054
Income (loss) from operations			(772,115	)			(431,656	)			(31,371	)			48,666				21,873
Interest and other income, net			25,936				31,294				50,245				76,483				36,762
Interest expense			(29,841	)			(28,413	)			(24,165	)			(26,996	)			(12,927	)
Gain (loss) on equity investments, net			(4,107	)			(9,486	)			215				592				—
Realized loss on marketable debt investments, net			—				—				—				(13,013	)			(5,101	)
Gain (loss) on extinguishment of debt			(8,216	)			3,882				7,052				—				932
Income (loss) before income taxes			(788,343	)			(434,379	)			1,976				85,732				41,539
Provision for income taxes			1,121				1,320				1,381				2,944				2,645
Net income (loss)		$	(789,464	)		$	(435,699	)		$	595			$	82,788			$	38,894
Basic net income (loss) per common share		$	(10.60	)		$	(5.30	)		$	0.01			$	0.97			$	0.44
Diluted net income (loss) per dilutive potential common share		$	(10.60	)		$	(5.30	)		$	0.01			$	0.87			$	0.42
Weighted average basic common shares			74,493				82,170				83,840				85,525				89,146
Weighted average dilutive potential common shares			74,493				82,170				85,011				99,604				110,605

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     This section contains statements that discuss future events or expectations, projections of results of operations or financial condition, changes in the markets for our products and services, or other “forward-looking” information. Our “forward-looking” information is based on various factors and was derived using numerous assumptions. In some cases, you can identify these “forward-looking statements” by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of those words and other comparable words. You should be aware that these statements only reflect our current predictions and beliefs. These statements are subject to known and unknown risks, uncertainties and other factors, and actual events or results may differ materially. Important factors that could cause our actual results to be materially different from the forward-looking statements are disclosed throughout this report, particularly under the heading “Risk Factors” in Item 1A of Part I of this annual report. You should review these risk factors for a more complete understanding of the risks associated with an investment in our securities. We undertake no obligation to revise or update any forward-looking statements. The following discussion and analysis should be read in conjunction with our “Selected Consolidated Financial Data” and consolidated financial statements and notes thereto included elsewhere in this annual report.

Overview

     We are a provider of communications networking equipment, software and services that support the transport, switching, aggregation and management of voice, video and data traffic. Our optical service delivery and carrier Ethernet service delivery products are used, individually or as part of an integrated solution, in networks operated by communications service providers, cable operators, governments and enterprises around the globe. We are a network specialist targeting the transition of disparate, legacy communications networks to converged, next-generation architectures, better able to handle increased traffic and to deliver more efficiently a broader mix of high-bandwidth communications services. Our products, along with our service-aware operating system and unified service and transport management enable service providers to efficiently and cost-effectively deliver critical enterprise and consumer-oriented communication services. Together with our professional support and consulting services, our product offering seeks to address holistically the business and network needs of our customers. By improving network productivity, reducing operating costs and enabling new and integrated service offerings, we create business and operational value for our customers.

Effect of Recent Market Conditions and Uncertain Macroeconomic Environment on our Business

     Through the first nine months of fiscal 2008, our financial performance continued to be strong. We achieved meaningful sequential quarterly revenue growth during this period and revenue was up 28.3% over the first nine months of fiscal 2007. Income from operations increased from $21.5 million in the first nine months of fiscal 2007 to $52.3 million for the first nine months of fiscal 2008. During the second half of 2008, however, our business began to experience the effects of worsening macroeconomic conditions, further exacerbated by customer-specific challenges and significant disruptions in the financial and credit markets globally. We initially experienced order delays, lengthening sales cycles and slowing deployments, principally among our largest service provider customers in North America and Europe. As economic conditions worsened globally, these effects on our business spread across our industry into other customer segments and geographies. Revenue was $179.7 million for the fourth quarter of fiscal 2008, representing a 29.0% sequential decrease from the third quarter and a 16.9% decrease from our results in the fourth quarter of fiscal 2007. We also suffered a $30.5 million loss from operations during the fourth quarter of 2008.

     Significant uncertainty around current macroeconomic and industry conditions persists, particularly the effect these conditions and any sustained lack of liquidity in the capital markets may have upon the capital spending of our largest customers. Moreover, we are uncertain of the impact of any near-term change of enterprise and consumer spending and behavior, in response to these market conditions, may have on the spending or financial position of our customers. The level of competition we face during periods of economic weakness can be expected to increase. We can not be certain how long these conditions will continue and the magnitude of their effects on our business and results of operations. Consequently, these conditions have negatively affected visibility of our business and made our forecasting and planning more difficult.

     While we expect the near term market conditions to be challenging, we continue to believe in our longer term market opportunities. We believe growing consumer and enterprise use, and increased dependence upon, high-bandwidth applications and services, will require our customers to continue to invest in their networks and transition to more efficient, robust and economical network architectures. As a result, we intend to continue to invest in our business, prioritizing spending related to product development and sales efforts.

     During this period of uncertainty, we intend to balance our strategy of continued investment for the long-term and manage our workforce and operating costs carefully to ensure that they are aligned with our business and market opportunities. To

that end, during the fourth quarter of fiscal 2008, we effected a targeted headcount reduction of 56 employees. This headcount reduction resulted in a restructuring charge of approximately $1.1 million, principally associated with severance costs.

Acquisition of World Wide Packets

     On March 3, 2008, we completed our acquisition of World Wide Packets, Inc. (“WWP”), a provider of communications network equipment that enables the cost-effective delivery of a variety of carrier Ethernet-based services, including business Ethernet services, Internet access, video conferencing and VoIP. WWP’s service delivery and aggregation switches support the access and aggregation tiers of communications networks and are typically deployed in metro and access networks. Through our acquisition of WWP, we expanded our Ethernet offering beyond infrastructure to include service delivery capability and enhanced our embedded and management software suites. We believe that this transaction will improve our time to market with carrier Ethernet products and allow us to reach new customers and market segments, while strengthening and diversifying our position within existing customer networks. We also believe that the service delivery switching and aggregation technology acquired through this acquisition will enable us to penetrate additional application segments, including Ethernet business services, mobile backhaul for 4G wireless networks, and Ethernet infrastructure for high-bandwidth services such as IPTV and triple play.

     As a result of this acquisition, we recorded $223.7 million in goodwill and $64.7 million in other intangible assets. We are amortizing the other intangible assets over their useful lives. See “Critical Accounting Policies and Estimates — Goodwill” and “—Long-lived Assets (excluding goodwill)” below for information relating to these items and our test for impairment. Under purchase accounting rules, we revalued the acquired WWP finished goods inventory to fair value at the time of the acquisition. This revaluation increased the marketable inventory carrying value by approximately $5.3 million above WWP’s original cost, of which we recognized $1.1 million in the second quarter of fiscal 2008 and $4.2 million in the third quarter of fiscal 2008, as an increase in cost of goods sold. See Note 2 to the Consolidated Financial Statements included in Item 8 of Part II of this report for additional information related to this acquisition.

Financial Results for Fiscal 2008 and Financial Position

     We generated revenue of $902.4 million, representing a 15.7% increase from fiscal 2007 revenue of $779.8 million. Results for fiscal 2008 include revenue from our acquisition of WWP, which closed during the second quarter. Optical service delivery product sales increased $86.1 million, reflecting a $67.9 million increase in sales of CN 4200™ FlexSelect™ Advanced Service Platform and a $52.6 million increase in sales of our core switching products. Fiscal 2008 revenue growth also benefited from an increase in service revenue. Our percentage of international revenue increased from $226.2 million, or 29.0% of total revenue in fiscal 2007, to $311.6 million, or 34.5% of total revenue in fiscal 2008.

     For fiscal 2008, two customers each accounted for greater than 10% of our revenue and 37.8% in the aggregate. AT&T represented 25.2% and BT represented 12.6% of total revenue. A small number of service providers continues to represent a large portion of our revenue. Our concentration of revenue has been affected in recent years by consolidation among communications service providers, including several of our largest customers. While we believe this illustrates our success in leveraging our incumbent position within service provider networks, the resulting concentration of revenue increases our risk of quarterly fluctuations in revenue and operating results. Our concentration in revenue can exacerbate our exposure to reductions in spending or changes in network strategy involving one or more of our significant customers.

     Gross margin for fiscal 2008 was 50.0%, up from 46.5% in fiscal 2007. Product gross margin was 53.1% in fiscal 2008, up from 51.4% in fiscal 2007. Gross margin improvement during fiscal 2008 reflects the effect of favorable product and customer mix, including increased sales of our core switching products, and a significant improvement in our services gross margin. Gross margin benefited from significant product cost reductions and improved manufacturing efficiencies as a result of supply chain consolidation efforts and our increased use of lower cost contract manufacturers and suppliers in Asia. Gross margin continues to be susceptible to quarterly fluctuation due to a number of factors, including product and customer mix during the period, our ability to drive product cost reductions, the level of pricing pressure we encounter, the effect of our services gross margin, the introduction of new products or entry into new markets, charges for excess and obsolete inventory and changes in warranty costs. Part of our strategy is to maintain the product gross margin improvements made in recent years by focusing our development and sale efforts on Ethernet-based, software-intensive products that enable the flexible, cost-effective delivery of higher value communications services.

     Operating expense increased from $313.6 in fiscal 2007 to $429.1 million in fiscal 2008, and increased as a percentage of revenue from 40.2% to 47.5%, respectively. Increased operating expense reflects the addition of the WWP operations

during the second quarter of fiscal 2008 and higher employee costs associated with headcount growth. Increased operating expense also reflects the expansion and acceleration of research and development initiatives that add features and functionality to our optical service delivery products and extend our portfolio of carrier Ethernet service delivery products to increase our addressable market.

     Income from operations decreased from $48.7 million in fiscal 2007 to $21.9 million in fiscal 2008, primarily due to increased operating expense as a percentage of revenue. Net income decreased from $82.8 million, or $0.87 per diluted share, in fiscal 2007, to $38.9 million, or $0.42 per diluted share, in fiscal 2008. The decrease in net income for fiscal 2008 reflects the reduction in operating income as well as a $39.7 million decrease in interest and other income, net, which was a significant component of our net income in fiscal 2007. Interest income decreased significantly during fiscal 2008 as a result of our repayment at maturity of the remaining principal balance of $542.3 million on our 3.75% convertible notes during the first quarter of fiscal 2008 and our payment, during the second quarter, of approximately $210.0 million in cash consideration for our acquisition of WWP. Lower cash balances resulting from these payments, together with lower interest rates, were the principal cause of our net income reduction. This decline was partially offset by a $14.1 million decrease in interest expense over this same period.

     We generated $117.6 million in cash from operations during fiscal 2008 as compared to $108.7 million during fiscal 2007. Cash from operations during fiscal 2008 consisted of $168.7 million in cash from net income (adjusted for non-cash charges) and a $51.1 million net decrease in cash resulting from changes in working capital. Cash from operations during fiscal 2007 consisted of $170.7 million in cash from net income (adjusted for non-cash charges) and a $62.0 million net decrease in cash resulting from changes in working capital.

     At October 31, 2008, we had $550.7 million in cash and cash equivalents and $522.5 million of short-term and long-term investments in marketable debt securities. During fiscal 2007 and 2008, we recognized a $13.0 million and $5.1 million loss, respectively, relating to our commercial paper investments in Rhinebridge LLC and SIV Portfolio plc (formerly known as Cheyne Finance plc). See “Critical Accounting Policies and Estimates — Investments” below for information relating to our losses associated with our investment in commercial paper issued by these two structured investment vehicles (SIVs). During fiscal 2008, we received final payment in connection with the completion of restructuring activities related to these SIVs and we no longer hold these investments.

     As of October 31, 2008, headcount was 2,203, an increase from 1,797 at October 31, 2007 and 1,485 at October 31, 2006.

Results of Operations

     Our results of operations for the fiscal 2008 include the operations of World Wide Packets beginning on March 3, 2008, the effective date of the acquisition.

Revenue

     We derive revenue from sales of our products and services, which we discuss in the following three major groupings:

	1.		Optical Service Delivery. Included in product revenue, this revenue grouping reflects sales of our transport and switching products and legacy data networking products and related software. This revenue grouping was previously referred to as our converged Ethernet infrastructure products.
	2.		Carrier Ethernet Service Delivery. Included in product revenue, this revenue grouping reflects sales of our service delivery and aggregation switches acquired from WWP, Ethernet access products, broadband access products, and the related software.
	3.		Global Network Services. Included in Global Network Services revenue are sales of services, including installation, deployment, maintenance support and training activities.

     A sizable portion of our revenue comes from sales to a small number of service providers for large communication network builds. These projects are generally characterized by large and sporadic equipment orders and contract terms that can result in the recognition or deferral of significant amounts of revenue in a given quarter. As a result, the nature of our business exposes us to the likelihood of quarterly fluctuation in revenue. The level of demand for our products, the timing and size of equipment orders, our ability to deliver products to fulfill those orders, and the timing of product acceptance for revenue recognition all contribute to and can cause significant fluctuations in our revenue and operating results on a quarterly basis.

Cost of Goods Sold

     Product cost of goods sold consists primarily of amounts paid to third-party contract manufacturers, component costs, direct compensation costs and overhead associated with manufacturing-related operations, warranty and other contractual obligations, royalties, license fees, amortization of intangible assets and cost of excess and obsolete inventory.

     Services cost of goods sold consists primarily of direct and third-party costs associated with provision of services including installation, deployment, maintenance support and training activities.

Operating Expense

     Research and development expense primarily consists of salaries and related employee expense, including share-based compensation expense, prototype costs relating to design, development, testing of our products and third-party consulting costs.

     Sales and marketing expense primarily consists of salaries, commissions and related employee expense, including share-based compensation expense, and sales and marketing support expense including travel, demonstration units, trade show expense and third-party consulting costs.

     General and administrative expense primarily consists of salaries and related employee expense, including share-based compensation expense, and costs for third-party consulting and other services.

     Amortization of intangible assets primarily reflects purchased technology and customer relationships, from our acquisitions.

Fiscal 2007 compared to Fiscal 2008

Revenue, cost of goods sold and gross profit

     The table below (in thousands, except percentage data) sets forth the changes in revenue, cost of goods sold and gross profit for the periods indicated:

		Fiscal Year																Increase
		2007				%*				2008				%*				(decrease)				%**
Revenue:
Products		$	695,289				89.2			$	791,415				87.7			$	96,126				13.8
Services			84,480				10.8				111,033				12.3				26,553				31.4
Total revenue			779,769				100.0				902,448				100.0				122,679				15.7
Costs:
Products			337,866				43.3				371,238				41.1				33,372				9.9
Services			79,634				10.2				80,283				8.9				649				0.8
Total cost of goods sold			417,500				53.5				451,521				50.0				34,021				8.1
Gross profit		$	362,269				46.5			$	450,927				50.0			$	88,658				24.5

     The table below (in thousands, except percentage data) sets forth the changes in product revenue, product cost of goods sold and product gross profit for the periods indicated:

		Fiscal Year																Increase
		2007				%*				2008				%*				(decrease)				%**
Product revenue		$	695,289				100.0			$	791,415				100.0			$	96,126				13.8
Product cost of goods sold			337,866				48.6				371,238				46.9				33,372				9.9
Product gross profit		$	357,423				51.4			$	420,177				53.1			$	62,754				17.6

     The table below (in thousands, except percentage data) sets forth the changes in service revenue, service cost of goods sold and service gross profit (loss) for the periods indicated:

		Fiscal Year																Increase
		2007				%*				2008				%*				(decrease)				%**
Service revenue		$	84,480				100.0			$	111,033				100.0			$	26,553				31.4
Service cost of goods sold			79,634				94.3				80,283				72.3				649				0.8
Service gross profit		$	4,846				5.7			$	30,750				27.7			$	25,904				534.5

     The table below (in thousands, except percentage data) sets forth the changes in distribution of revenue for the periods indicated:

		Fiscal Year																Increase
		2007				%*				2008				%*				(decrease)				%**
Optical service delivery		$	645,159				82.8			$	731,260				81.0			$	86,101				13.3
Carrier Ethernet service delivery			50,129				6.4				60,155				6.7				10,026				20.0
Global network services			84,481				10.8				111,033				12.3				26,552				31.4
Total		$	779,769				100.0			$	902,448				100.0			$	122,679				15.7

     Revenue from sales to customers outside of the United States is reflected as International in the geographic distribution of revenue below. The table below (in thousands, except percentage data) sets forth the changes in geographic distribution of revenue for the periods indicated:

		Fiscal Year																Increase
		2007				%*				2008				%*				(decrease)				%**
United States		$	553,582				71.0			$	590,868				65.5			$	37,286				6.7
International			226,187				29.0				311,580				34.5				85,393				37.8
Total		$	779,769				100.0			$	902,448				100.0			$	122,679				15.7

     Certain customers each accounted for at least 10% of our revenue for the periods indicated (in thousands, except percentage data) as follows:

		Fiscal Year
		2007				%*				2008				%*
AT&T		$	196,924				25.3			$	227,737				25.2
BT			n/a				—				113,981				12.6
Sprint			100,122				12.8				n/a				—
Total		$	297,046				38.1			$	341,718				37.8

     Revenue

	•		Product revenue increased primarily due to an $86.1 million increase in sales of our optical service delivery products. Increased optical service delivery revenue reflects a $67.9 million increase in sales of our CN 4200™ FlexSelect™ Advanced Service Platform and a $52.6 million increase in sales of core switching products. These increases were offset by a $17.7 million decrease in core transport revenue and $16.7 million decrease in our legacy metro and data networking products. We believe that our optical service delivery revenue during fiscal 2008 benefited from increasing network capacity requirements and customer transition to more efficient and economical network architectures. In particular, sales of our core switching products have benefited from an expansion in mesh-style optical networks. Revenue from our carrier Ethernet service delivery products increased by $10.0 million, reflecting the addition of $24.4 million in sales related to service delivery and aggregation switches from our acquisition of WWP. This increase offset a $14.6 million reduction in revenue from our broadband access products.
	•		Services revenue increased primarily due to a $15.1 million increase in deployment services sales and $9.7 million increase in maintenance and support services, reflecting higher sales volume and increased installation activity.
	•		United States revenue increased primarily due to a $15.0 million increase in sales of optical service delivery products. Increased optical service delivery revenue reflects a $38.8 million increase in sales of CN 4200 and a $22.5 million increase in sales of core switching products. These increases were partially offset by a $23.6 million decrease in core transport revenue and a $22.7 million decrease in sales of legacy metro and data networking products. Revenue from carrier Ethernet service delivery products increased by $5.2 million, reflecting the addition of $19.5 million in sales of products derived from our WWP acquisition. This increase offset a $14.6 million reduction in revenue from our broadband access products. In addition, U.S. revenue benefited from a $17.0 million increase in services revenue.
	•		International revenue increased primarily due to a $71.1 million increase in sales of our optical service delivery products. This primarily reflects increases of $30.1 million in sales of core switching products, $29.1 million in sales of CN 4200 and $5.9 million in sales of core transport products. International revenue also benefited from a $4.8 million increase in carrier Ethernet service delivery revenue and a $9.6 million increase in services revenue.

     Gross profit

	•		Gross profit as a percentage of revenue increased due to significant improvements in services gross margin, product cost reductions and favorable product mix.
	•		Gross profit on products as a percentage of product revenue increased primarily due to significant product cost reductions and improved manufacturing efficiencies as a result of consolidation efforts relating to our supply chain and our increased use of lower cost contract manufacturers and suppliers in Asia. Gross margin also benefited from a favorable product mix during fiscal 2008. This gross margin improvement was partially offset by the effect on product costs of goods sold of $5.3 million in costs related to the revaluation of the acquired WWP inventory, as described in “Overview” above, and $1.8 million in amortization of intangible assets costs relating to the acquisition of WWP.
	•		Gross profit on services as a percentage of services revenue increased significantly during fiscal 2008 due to improved deployment efficiencies. Services gross margin remains heavily dependent upon the mix of services in a given period and may fluctuate from quarter to quarter.

Operating expense

     Increased operating expense for fiscal 2008 reflects, in part our acquisition of WWP on March 3, 2008. The table below (in thousands, except percentage data) sets forth the changes in operating expense for the periods indicated:

		Fiscal Year																Increase
		2007				%*				2008				%*				(decrease)				%**
Research and development		$	127,296				16.3			$	175,023				19.4			$	47,727				37.5
Selling and marketing			118,015				15.1				152,018				16.8				34,003				28.8
General and administrative			50,248				6.4				68,639				7.6				18,391				36.6
Amortization of intangible assets			25,350				3.3				32,264				3.6				6,914				27.3
Restructuring (recoveries) costs			(2,435	)			(0.3	)			1,110				0.1				3,545				(145.6	)
Gain on lease settlement			(4,871	)			(0.6	)			—				—				4,871				(100.0	)
Total operating expenses		$	313,603				40.2			$	429,054				47.5			$	115,451				36.8

	•		Research and development expense increased due to higher employee compensation cost of $29.5 million, including a $3.6 million increase in share-based compensation expense, primarily reflecting increased headcount. Other increases included $7.3 million in consulting expense, $7.0 million in non-capitalized development tools and software maintenance support, and $2.4 million in depreciation expense.
	•		Selling and marketing expense increased primarily due a $19.4 million increase in employee compensation cost, including a $4.1 million increase in share-based compensation expense, primarily reflecting increased headcount. Other increases included $3.1 million in travel and entertainment expense, $2.5 million of demonstration equipment, $2.1 million in marketing programs, $2.1 million in facilities and information systems expense and $1.7 million in consulting expense.
	•		General and administrative expense increased due to higher employee compensation cost of $7.6 million, including a $2.1 million increase in share-based compensation expense, primarily reflecting increased headcount. In addition, legal expense increased by $5.8 million, reflecting $2.3 million and $7.7 million in patent litigation settlements in fiscal 2007 and fiscal 2008, respectively. Fiscal 2008 expense also reflects a $3.3 million increase in facilities and information systems expense.
	•		Amortization of intangible assets costs increased due to the purchase of intangible assets associated with the acquisition of WWP. See Note 2 to the Consolidated Financial Statements in Item 8 of Part II of this report for additional information related to purchased intangible assets.
	•		Restructuring (recoveries) costs for fiscal 2008 principally reflect costs associated with a workforce reduction of 56 employees during the fourth quarter. For fiscal 2007, recoveries primarily reflect adjustments related to the return to use of previously restructured facilities.
	•		Gain on lease settlement for fiscal 2007 was related to the termination of lease obligations for our former San Jose, CA facilities. During fiscal 2007, we paid $53.0 million in connection with the settlement of these lease obligations. This transaction resulted in a gain on lease settlement of approximately $4.9 million by eliminating the remaining unfavorable lease commitment balance of $34.9 million and reducing our restructuring liabilities by $23.5 million, offset by approximately $0.5 million of other expenses.

Other items

     The table below (in thousands, except percentage data) sets forth the changes in other items for the periods indicated:

		Fiscal Year																Increase
		2007				%*				2008				%*				(decrease)				%**
Interest and other income, net		$	76,483				9.8			$	36,762				4.1			$	(39,721	)			(51.9	)
Interest expense		$	26,996				3.5			$	12,927				1.4			$	(14,069	)			(52.1	)
Realized loss on marketable debt investments, net		$	13,013				1.7			$	5,101				0.6			$	(7,912	)			(60.8	)
Gain on extinguishment of debt		$	—				—			$	932				0.1			$	932				100.0
Gain on equity investments, net		$	592				0.1			$	—				—			$	(592	)			(100.0	)
Provision for income taxes		$	2,944				0.4			$	2,645				0.3			$	(299	)			(10.2	)

	•		Interest and other income, net decreased due to lower average cash and investment balances resulting from the repayment at maturity of the $542.3 million principal outstanding on our 3.75% convertible notes during the first quarter of fiscal 2008 and use of $210.0 million in cash consideration and acquisition-related expenses associated with our acquisition of WWP in the second quarter of fiscal 2008. Interest income was also significantly affected by lower interest rates on investment balances.
	•		Interest expense decreased primarily due to the repayment of 3.75% convertible notes at maturity at the end of the first quarter of fiscal 2008. This decrease was slightly offset by the interest associated with our June 11, 2007 issuance of $500 million in 0.875% convertible senior notes.
	•		Realized loss on marketable debt investments, net reflects losses related to commercial paper investments in SIV Portfolio plc (formerly known as Cheyne Finance plc) and Rhinebridge LLC, two structured investment vehicles (SIVs) that entered into receivership during the fourth quarter of fiscal 2007 and failed to make payment at maturity. See “Critical Accounting Policies and Estimates — Investments” below for information relating to these investments and related losses. During fiscal 2008, we received final payment in connection with the completion of restructuring activities related to these SIVs and we no longer hold these investments.
	•		Gain on extinguishment of debt reflects our repurchase of $2.0 million in principal amount of our outstanding 0.25 % convertible senior notes due May 1, 2013 in an open market transaction. We used $1.0 million of our cash to effect this repurchase, which resulted in a gain of approximately $0.9 million.
	•		Gain on equity investment, net during fiscal 2007 was related to a final payment from the sale of a privately held technology company in which we held a minority equity investment.
	•		Provision for income taxes was primarily attributable to foreign tax related to our foreign operations and recognition of domestic deferred tax assets from prior acquisitions. Federal tax is largely offset, except for any alternative minimum tax, by recognizing deferred tax assets that were previously reserved against by a valuation allowance. We will continue to maintain a valuation allowance against all net deferred tax assets until sufficient evidence exists to support its reversal. See “Critical Accounting Policies and Estimates — Deferred Tax Valuation Allowance” below for information relating to our deferred tax valuation allowance and the conditions required for its release.

Fiscal 2006 compared to Fiscal 2007

Revenue, cost of goods sold and gross profit

     The table below (in thousands, except percentage data) sets forth the changes in revenue, cost of goods sold and gross profit for the periods indicated:

		Fiscal Year																Increase
		2006				%*				2007				%*				(decrease)				%**
Revenue:
Products		$	502,427				89.1			$	695,289				89.2			$	192,862				38.4
Services			61,629				10.9				84,480				10.8				22,851				37.1
Total revenue			564,056				100.0				779,769				100.0				215,713				38.2
Costs:
Products			263,667				46.7				337,866				43.3				74,199				28.1
Services			42,608				7.6				79,634				10.2				37,026				86.9
Total cost of goods sold			306,275				54.3				417,500				53.5				111,225				36.3
Gross profit		$	257,781				45.7			$	362,269				46.5			$	104,488				40.5

     The table below (in thousands, except percentage data) sets forth the changes in product revenue, product cost of goods sold and product gross profit for the periods indicated:

		Fiscal Year																Increase
		2006				%*				2007				%*				(decrease)				%**
Product revenue		$	502,427				100.0			$	695,289				100.0			$	192,862				38.4
Product cost of goods sold			263,667				52.5				337,866				48.6				74,199				28.1
Product gross profit		$	238,760				47.5			$	357,423				51.4			$	118,663				49.7

     The table below (in thousands, except percentage data) sets forth the changes in service revenue, service cost of goods sold and service gross profit (loss) for the periods indicated:

		Fiscal Year																Increase
		2006				%*				2007				%*				(decrease)				%**
Service revenue		$	61,629				100.0			$	84,480				100.0			$	22,851				37.1
Service cost of goods sold			42,608				69.1				79,634				94.3				37,026				86.9
Service gross profit		$	19,021				30.9			$	4,846				5.7			$	(14,175	)			(74.5	)

     The table below (in thousands, except percentage data) sets forth the changes in distribution of revenue for the periods indicated:

		Fiscal Year																Increase
		2006				%*				2007				%*				(decrease)				%**
Optical service delivery		$	420,567				74.6			$	645,159				82.8			$	224,592				53.4
Carrier Ethernet service delivery			81,860				14.5				50,129				6.4				(31,731	)			(38.8	)
Global network services			61,629				10.9				84,481				10.8				22,852				37.1
Total		$	564,056				100.0			$	779,769				100.0			$	215,713				38.2

     Revenue from sales to customers outside of the United States is reflected as International in the geographic distribution of revenue below. The table below (in thousands, except percentage data) sets forth the changes in geographic distribution of revenue for the periods indicated:

		Fiscal Year																Increase
		2006				%*				2007				%*				(decrease)				%**
United States		$	423,687				75.1			$	553,582				71.0			$	129,895				30.7
International			140,369				24.9				226,187				29.0				85,818				61.1
Total		$	564,056				100.0			$	779,769				100.0			$	215,713				38.2

     Certain customers each accounted for at least 10% of our revenue for the periods indicated (in thousands, except percentage data) as follows:

		Fiscal Year
		2006				%*				2007				%*
Verizon		$	70,225				12.4				n/a				—
Sprint			89,793				15.9				100,122				12.8
AT&T			66,926				11.9				196,924				25.3
Total		$	226,944				40.2			$	297,046				38.1

     Revenue

	•		Product revenue increased due to a $224.6 million increase in sales of our optical service delivery products. Increased product revenue for fiscal 2007 primarily reflects a $140.2 million increase in sales of core switching products, a $60.5 million increase in core transport and a $59.4 million increase of our CN 4200™ FlexSelect™ Advanced Service Platform. The decrease in carrier Ethernet service delivery product revenue reflects a $36.8 million reduction in sales of our CNX-5™ Broadband DSL System, which was negatively affected by customer consolidation activity.
	•		Service revenue increased primarily due to increases of $17.1 million in deployment service sales and $4.4 million in maintenance and support services, reflecting increased sales volume and increased installation activity.
	•		United States revenue increased due to a $152.6 million increase in sales of our optical service delivery products. This primarily reflects a $133.2 million increase in sales of core switching products, and a $40.0 million increase in core transport sales. United States revenue was also affected by a $31.9 million decrease in revenue from carrier Ethernet service delivery products.
	•		International revenue increased due to a $72.0 million increase in sales of our optical service delivery products. This primarily reflects a $53.3 million increase in sales of CN 4200 and a $20.5 million increase in sales of core transport products. International revenue also reflects an increase of $13.7 million in service revenue, primarily related to deployment.

     Gross profit

	•		Gross profit as a percentage of revenue increased primarily due to product gross margin improvement offset by a significant reduction in services gross margin.
	•		Gross profit on products as a percentage of product revenue increased primarily due to favorable product and customer mix, significant product cost reductions, improved manufacturing efficiencies, and lower warranty expense.
	•		Gross profit on services as a percentage of services revenue decreased significantly as a result of increased deployment overhead costs associated with the expansion of our internal resources related to deployment activities for international network infrastructure projects.

Operating expense

     The table below (in thousands, except percentage data) sets forth the changes in operating expense for the periods indicated:

		Fiscal Year																Increase
		2006				%*				2007				%*				(decrease)				%**
Research and development		$	111,069				19.7			$	127,296				16.3			$	16,227				14.6
Selling and marketing			104,434				18.5				118,015				15.1				13,581				13.0
General and administrative			44,445				7.9				50,248				6.4				5,803				13.1
Amortization of intangible assets			25,181				4.5				25,350				3.3				169				0.7
Restructuring (recoveries) costs			15,671				2.8				(2,435	)			(0.3	)			(18,106	)			(115.5	)
Gain on lease settlement			(11,648	)			(2.1	)			(4,871	)			(0.6	)			6,777				(58.2	)
Total operating expenses		$	289,152				51.3			$	313,603				40.2			$	24,451				8.5

	•		Research and development expense increased due to higher employee compensation cost of $10.9 million, primarily due to growth in headcount at our India development center. Other increases included $4.8 million in prototype expense, $1.2 million in facilities and information systems costs and $0.6 million in travel-related expenditures. This was partially offset by a decrease in consulting expense of $1.8 million.
	•		Selling and marketing expense increased primarily due a $9.4 million increase in employee compensation, which primarily reflects increased headcount in fiscal 2007. Other increases included $1.7 million in travel expense, $1.1 million in consulting, and $0.8 million in tradeshow activities.
	•		General and administrative expense increased due to an $8.6 million increase in employee compensation, which reflects a $3.2 million increase stock compensation cost and increased headcount. This increase was partially offset by a $7.1 million reduction in legal expense. Legal expense for fiscal 2006 and fiscal 2007 included $5.7 million and $2.3 million, respectively, in costs associated with settlement of patent litigation.
	•		Amortization of intangible assets costs increased slightly due to the purchase of certain developed technology during the fourth quarter of fiscal 2007.
	•		Restructuring (recoveries) costs during fiscal 2007 primarily reflect adjustments related to the return to use of previously restructured facilities. Restructuring costs during fiscal 2006 were primarily related to an adjustment of $10.0 million due to changes in market conditions related to our former facilities in San Jose, CA. During fiscal 2006, we also recorded charges totaling $6.3 million related to the closure of our facilities in Kanata, Ontario, Shrewsbury, NJ and Beijing, China.
	•		Gain on lease settlement for fiscal 2007 was related to the termination of lease obligations for our former San Jose, CA facilities. During the fourth quarter of fiscal 2007, we paid $53.0 million in connection with the settlement of this lease obligation. This transaction resulted in a gain on lease settlement of approximately $4.9 million by eliminating the remaining unfavorable lease commitment balance of $34.9 million and reducing our restructuring liabilities by $23.5 million, offset by approximately $0.5 million of other expenses. Gain during fiscal 2006 was related to the termination of the lease obligations for our former Freemont, CA and Cupertino, CA facilities.

Other items

     The table below (in thousands, except percentage data) sets forth the changes in other items for the periods indicated:

		Fiscal Year																Increase
		2006				%*				2007				%*				(decrease)				%**
Interest and other income, net		$	50,245				8.9			$	76,483				9.8			$	26,238				52.2
Interest expense		$	24,165				4.3			$	26,996				3.5			$	2,831				11.7
Relized loss on marketable debt investments, net		$	—				—			$	13,013				1.7			$	13,013				100.0
Gain on equity investments, net		$	215				—			$	592				0.1			$	377				175.3
Gain on extinguishment of debt		$	7,052				1.3			$	—				—			$	(7,052	)			(100.0	)
Provision for income taxes		$	1,381				0.2			$	2,944				0.4			$	1,563				113.2

	•		Interest and other income, net increased due to increased average cash and investment balances and in part due to higher interest rates. Cash balances increased as a result of our April 10, 2006 issuance of $300 million in 0.25% convertible senior notes and our June 11, 2007 issuance of $500 million in 0.875% convertible senior notes.
	•		Interest expense increased primarily due to interest associated with our issuance of 0.25% convertible senior notes and 0.875% convertible senior notes.
	•		Realized loss on marketable debt investments, net for fiscal 2007 was the result of a realized loss of $13.0 million related to our investments in SIV Portfolio plc (formerly known as Cheyne Finance plc) and Rhinebridge LLC, two structured investment vehicles (SIVs) that entered into receivership during the fourth quarter of fiscal 2007 and failed to make payment at maturity. See “Critical Accounting Policies and Estimates — Investments” below for information relating to these investments and related losses.
	•		Gain on equity investment, net during fiscal 2006 and fiscal 2007 related to final payments from the sale of privately held technology companies in which we held a minority equity investment.
	•		Gain on extinguishment of debt for fiscal 2006 resulted from our repurchase of $106.5 million of our outstanding 3.75% convertible notes in open market transactions for $98.4 million. We recorded a gain on the extinguishment of debt in the amount of $7.1 million, which consists of the $8.1 million gain from the repurchase of the notes, less $1.0 million of associated debt issuance costs.
	•		Provision for income taxes was primarily attributable to foreign tax related to our foreign operations. We will continue to maintain a valuation allowance against all net deferred tax assets until sufficient evidence exists to support its reversal. See “Critical Accounting Policies and Estimates — Deferred Tax Valuation Allowance” below for information relating to this valuation allowance and the conditions required for our release of the valuation allowance.

Liquidity and Capital Resources

     At October 31, 2008, our principal sources of liquidity were cash and cash equivalents, short-term investments in marketable debt securities and cash from operations. The following table summarizes our cash and cash equivalents and investments in marketable debt securities (in thousands):

		October 31,								Increase
		2007				2008				(decrease)
Cash and cash equivalents		$	892,061			$	550,669			$	(341,392	)
Short-term investments in marketable debt securities			822,185				366,336				(455,849	)
Long-term investments in marketable debt securities			33,946				156,171				122,225
Total cash and cash equivalents and investments in marketable debt securities		$	1,748,192			$	1,073,176			$	(675,016	)

     The decrease in total cash and cash equivalents and investments in marketable debt securities at October 31, 2008 was primarily related to the repayment of the $542.3 million principal outstanding on our 3.75% convertible notes at maturity on February 1, 2008 and $210.0 million in cash consideration and acquisition-related expenses paid as part of our acquisition of WWP on March 3, 2008. This was partially offset by our cash provided by operating activities during fiscal 2008 described in “Operating Activities” below. Based on past performance and current expectations, we believe that our cash and cash equivalents, investments in marketable debt securities and cash generated from operations will satisfy our working capital needs, capital expenditures, and other liquidity requirements associated with our existing operations through at least the next 12 months.

     Included in long-term investments in marketable debt securities at October 31, 2007 is approximately $33.9 million in investments in commercial paper issued by two structured investment vehicles (SIVs) that entered into receivership during the fourth quarter of fiscal 2007 and failed to make payment at maturity. See “Critical Accounting Policies and Estimates — Investments” below for information relating to these investments and the related losses. During fiscal 2008, we received final payment in connection with the completion of restructuring activities related to these SIVs and we no longer hold these investments.

     The following sections review the significant activities that had an impact on our cash during fiscal 2008.

Operating Activities

     The following tables set forth (in thousands) components of our $117.6 million of cash generated by operating activities for fiscal 2008:

     Net income

		Year ended
		October 31,
		2008
Net income		$	38,894

     Our net income for fiscal 2008 included the significant non-cash items summarized in the following table (in thousands):

		Year Ended
		October 31,
		2008
Loss from equity investments and marketable debt securities		$	5,101
Depreciation of equipment, furniture and fixtures; and amortization of leasehold improvements			18,599
Share-based compensation costs			31,428
Amortization of intangible assets			37,956
Deferred tax provision			1,640
Provision for inventory excess and obsolescence			18,325
Provision for warranty			15,336
Total significant non-cash charges		$	128,385

     Accounts Receivable, Net

     Cash consumed by accounts receivable, net of allowance for doubtful accounts receivable, was $32.5 million from the end of fiscal 2007 through the end of fiscal 2008. Our days sales outstanding (DSOs) increased from 48 days for fiscal 2007 to 55 days for fiscal 2008.

     During fiscal 2008, we recorded an additional $2.0 million of accounts receivable in connection with the acquisition of WWP. The following table sets forth (in thousands) changes to our accounts receivable, net of allowance for doubtful accounts receivable, from the end of fiscal 2007 through the end of fiscal 2008:

		October 31,								Increase
		2007				2008				(decrease)
Accounts receivable, net		$	104,078			$	138,441			$	34,363

     Inventory

     Cash provided by inventory for fiscal 2008 was $3.7 million. Our inventory turns increased from 3.3 for fiscal 2007 to 4.0 for fiscal 2008.

     During fiscal 2008, changes in inventory reflect an $18.3 million reduction related to a non-cash provision for excess and obsolescence and a $12.9 million increase related to additional inventory recorded in connection with the acquisition of

WWP. The following table sets forth (in thousands) changes to the components of our inventory from the end of fiscal 2007 through the end of fiscal 2008:

		October 31,								Increase
		2007				2008				(decrease)
Raw materials		$	28,611			$	19,044			$	(9,567	)
Work-in-process			4,123				1,702				(2,421	)
Finished goods			96,054				95,963				(91	)
Gross inventory			128,788				116,709				(12,079	)
Provision for inventory excess and obsolescence			(26,170	)			(23,257	)			2,913
Inventory		$	102,618			$	93,452			$	(9,166	)