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capital expenditures and operating costs. Also, we anticipate that demand will continue to decline for our traditional circuit switching products,
however, it is difficult to determine the extent to which future declines in demand will occur as a result of the migration to voice over packet
technologies. In 2005, we are focused on increasing our market presence with enterprise customers. In particular, we are focusing on leading
enterprise customers with high performance networking needs. While we have seen encouraging indicators in certain parts of the enterprise
market, we can provide no assurance that the growth areas that have begun to emerge will continue in the future.
Wireline Networks revenues
The following chart summarizes recent quarterly revenues for Wireline Networks:
Wireline Networks revenues declined 22% in 2003 compared to 2002. This decline was primarily due to a substantial reduction in capital
spending by our service provider customers as a result of the continued industry adjustment.
Revenues from the circuit and packet voice portion of this segment decreased substantially in 2003 compared to 2002 primarily due to a
substantial decrease in our traditional circuit switching product revenues and also uncertainty related to the impact of the Federal
Communications Commission, or FCC, decision regarding the regulation of the availability of unbundled network elements, or UNEs, released
on August 21, 2003 and subsequent judicial review and FCC reconsideration of the decision. The substantial decline in our circuit switching
revenues was primarily due to the continuing impact of capital spending restrictions experienced by our service provider customers during
2003 and tightened capital markets mainly during the first half of 2003. Revenues from our packet voice solutions increased substantially
across all regions except EMEA in 2003 compared to 2002 primarily due to new service provider contracts throughout 2003.
Revenues from the data networking and security portion of this segment decreased significantly in 2003 compared to 2002 primarily due to
substantial declines in the U.S. and Asia Pacific and a significant decline in CALA. In these regions, we experienced a decline in demand for
our mature products primarily due to the ongoing shift towards IP-based technology.
From a geographic perspective, the 22% decline in Wireline Networks revenues in 2003 compared to 2002 was primarily due to a:
60
2003 vs. 2002
• 32% decline in revenues in the U.S. primarily due to the continuing impact of capital spending restrictions experienced by our
service provider customers, tightened capital markets mainly during the first half of 2003 and also uncertainty related to the impact
of the FCC decision regarding the regulation of the availability of UNEs;
• 43% decline in revenues in CALA primarily due to the completion of a major contract in the first quarter of 2002 and continued
capital spending restrictions experienced by our service provider customers; and
• 5% decline in revenues in EMEA primarily due to a reduction in capital spending by service provider customers during 2003 and
tightened capital markets mainly during the first half of 2003; partially offset by
• 15% increase in Canada primarily due to increased revenues from our packet voice solutions primarily due to new service provider
contracts throughout 2003.