SecProbe.io

CORRESP
1
filename1.htm

SEC Correspondence

 Aviat Networks, Inc.

 5200 Great America Parkway

 Santa Clara, CA 95054

Phone: 408 567 7000

 Fax: 408 567 7111

 www.aviatnetworks.com

February 25, 2011

 VIA EDGAR AND
FACSIMILE

 Securities and Exchange Commission

 Division of Corporation Finance

 100 F Street, N.E.

Washington, DC 20549

 Fax. No.
(703) 813-6981

Attention:

Larry Spirgel, Assistant Director

Re:

Comment Letter Dated February 4, 2011

Aviat Networks, Inc.

Form 10-K for the year ended July 2, 2010

Filed September 9, 2010

File Number 001-33278

 Dear Mr. Spirgel:

 Aviat Networks, Inc. (“Aviat Networks” or the “Company”) is submitting this letter in response to the comments from the
staff (“Staff”) of the Securities and Exchange Commission (the “Commission”) contained in the letter dated February 4, 2011 (the “Comment Letter”) regarding the Form 10-K for the year ended July 2, 2010 of the
Company (the “Form 10-K”). Please find our responses to the Staff’s comments below. For your convenience, we have copied each of the comments in the Comment Letter immediately preceding our response thereto and the headings and
numbered responses in this response letter correspond to the headings and numbered comments contained in the Comment Letter.

 Staff Comment
#1

 Form 10-K for the Fiscal Year Ended July 2, 2010

Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 31

1.
We note that you had significant decreases in revenue from prior periods. However your disclosure regarding the decrease only states the regions that had the
decrease/increase and provides general reasons that could be applicable to most companies. Please identify and discuss key performance indicators, including non-financial performance indicators that you use to manage the business and that would be
material to investors. Your discussion should include the decline in sales attributable to product pricing and/or product volume. You should identify and disclose known trends, events, demands, commitments and uncertainties that are reasonably
likely to have a material effect on financial condition or operating performance in the future. Please refer to Commission Guidance Regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations, Release Nos.
33-8350; 34-48960; FR-72 at: http://wvvw.sec.gov/rules/interp/33-8350.htm. Please provide us with the proposed disclosures that you will include in your future to provide the details above.

 1

 Company Response to Comment #1:

 We develop, manufacture and sell wireless telecommunications equipment that is used to transport voice and data information within public and private communications networks, particularly for the backhaul
portions of these networks. In North America, we provide complete turnkey communications solutions for state and local governments, energy utilities and public networks operators. We have two market segments: North America and International. Our key
performance indicators within each segment are top line revenue growth and operating profit. Generally, we focus on the growth of our sales and we measure both revenue growth and profitability, the latter in terms of operating profit. In our
International segment, wireless transmission comprises more than half of the total backhaul market, whereas in North America, wireless transmission makes up less than 20% of the backhaul market. Fiber optics cable makes up the remaining 80% of the
backhaul market. In our North American segment, the majority of our customers have historically purchased our legacy products. Beginning in June 2010, we began notifying our customers that we would no longer manufacture or sell our Legacy products
after June 2011. We are now transitioning these customers to our Eclipse product line. In our International segment, customers have our Eclipse product line installed in their networks. Furthermore, the majority of revenue in our International
segment is from carriers, whereas our North American segment generates significant amounts of revenue from state and local governments. Within the International segment, revenue by region is also a key performance indicator due to the differing
industry growth trends among these regions. Mobile operators in developing countries like those in Africa and parts of Asia have different purchasing patterns from mobile operators in developed countries which has an impact on our product mix and
pricing. In addition, competitors vary by region which also impacts the purchasing decision. In light of the differences in the two segments noted above, management’s key performance indicators within each segment are revenue and operating
profit.

 We believe that our Management’s Discussion and Analysis in our 10-K complied with the SEC’s requirements for such section.
However, in future filings we will revise our Management’s Discussion and Analysis section to provide more extensive information on geographic revenue trends, and the impact of other key events such as new product introductions and pricing
pressures on these trends, where applicable. We will include a discussion of key performance indicators similar in nature to the preceding paragraph.

 The following narrative provides an example of how we propose to present this discussion in future filings based primarily on the disclosures excerpted from our recently filed 10-Q:

Revenue by region comparing the second quarter of fiscal 2011 with the second quarter of fiscal 2010 and the related changes are shown in
the table below:

Quarter Ended

Amount
Increase/(Decrease)

Percentage
Increase/(Decrease)

December 31,
2010

January 1,
2010

(In millions, except percentages)

 North America

$
40.4

$
49.4

$
(9.0
)

(18.2
)%

 International:

 Africa

26.2

18.6

7.6

40.9
%

 Europe, Middle East, and Russia

33.7

29.9

3.8

12.7
%

 Latin America and Asia Pacific

23.9

24.7

(0.8
)

(3.2
)%

 Total International

83.8

73.2

10.6

14.5
%

 Total Revenue

$
124.2

$
122.6

$
1.6

1.3
%

 The increase of our total revenue in the second quarter of fiscal 2011 compared with the same
quarter in fiscal 2010 resulted from significant increases in Africa and the Europe, Middle East and Russia (“EMER”) regions, where increased orders for the current product platform were delivered in the second quarter of fiscal 2011. The
substantial year to year increase in Africa came from a wireless customer who resumed purchasing after substantially reducing its orders in the prior year. In addition, certain other customers in the region increased spending during the fourth
quarter of the calendar year. We expect continued demand for our products and services in Africa during our third fiscal quarter. Revenue in the second quarter of fiscal 2010 included a substantial amount of purchases from a customer in the Middle
East that was not repeated in fiscal 2011.

 2

 However, wireless customers in Russia that had reduced their capital spending sharply in calendar 2009 and
early 2010 in response to the tightening in credit markets, increased spending allowing us to benefit from their incremental business in the second quarter of fiscal 2011. Competitive pricing pressures in Russia continue to impact the business so
future order levels may vary significantly. Finally, in the Asia Pacific region, the product mix varied from the second quarter of fiscal 2011 as compared with the same quarter in fiscal 2010. In the second quarter of fiscal 2011, revenue from
shipments of WiMAX product substantially increased in the region, mostly in India, while microwave business in other countries was flat or down compared to the previous year.

 We experienced a significant decrease in revenue in North America that resulted primarily from product transition to our current product platform from our legacy products, some continuing effects of the
economic downturn, as well as increased competition. In the second quarter of fiscal 2010, most of our North America business was in our legacy products. While we continued last time buy activity in those product lines in the second quarter of
fiscal 2011, we are also in the process of transitioning our North America customers to our current product. Many of our customers are now completing their first deployments of the current product. We expect orders for this line of products to
increase in future periods as market acceptance gains traction. Revenue in North America benefited in the second quarter of fiscal 2011 because shipments delayed in the first quarter of fiscal 2011 were delivered and recognized as revenue in the
second quarter of fiscal 2011. The shipment delays in the first quarter of fiscal 2011 were due to component shortages and supply chain issues from the transition to contract manufacturers.

During the second quarter of fiscal 2011 and fiscal 2010, none of our customers accounted for 10% or more of revenue.

In addition to the above we will provide additional trend information regarding our operating income for each segment in our future filings.

Staff Comment #2

 Liquidity,
Capital Resources and Financial Strategies, page 30

2.
Please consider enhancing your liquidity section to provide greater detail on historical sources and uses of cash including trends and uncertainties, and discussion
of prospective information regarding companies’ sources of and needs for capital. Refer to Commission Guidance Regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations, Release Nos. 33-8350; 34-48960;
FR-72 at: http://www.sec.gov/rules/interp/33-8350.htm. Please provide us with the proposed disclosures that you will include in future filings to provide the details above.

Company Response to Comment #2:

In future filings we will revise our liquidity section to provide greater detail on historical sources and uses of cash including trends and
uncertainties, and discussion of prospective information regarding our sources of and needs for capital.

 The following narrative provides an
example of how we propose to present this discussion in future filings based on the disclosures excerpted from our recently filed 10-Q:

Sources of Cash

As of December 31, 2010, our total cash and cash equivalents was $102.4 million. Approximately $37.6 million or 37% of our total cash
and cash equivalents was held by entities domiciled in the United States. The remaining balance of $64.8 million or 63% was held by entities outside the United States, primarily in Singapore, and could be subject to additional taxation if it were to
be repatriated to the United States.

 As of December 31, 2010, our principal sources of liquidity consisted of the $102.4
million in cash and cash equivalents, $24.4 million of available credit under our current $40.0 million credit facility with Silicon Valley Bank, and cash collections from our customers. Historically our primary sources of liquidity have been cash

 3

 flows from operations, credit facilities and cash proceeds from sale of our equity securities. During the
first two quarters of fiscal 2011, our total cash and cash equivalents decreased by $39.3 million primarily due to cash used in operating activities. During the first two quarters of fiscal 2010, we had positive operating cash flows of $3.9 million.

 Cash used in operating activities was $40.5 million in the first two quarters of fiscal 2011 primarily due to the net loss
after non-cash adjustments of $27.3 million and a year-to-date increase in receivables of approximately $38.9 million, partially offset by a year-to-date increase in accounts payable of $23.7 million. Our cash collections in each of the first two
quarters of fiscal year 2011 were substantially lower than in the fourth quarter of fiscal year 2010 in part due to shipment delays from the first quarter to the second quarter of fiscal 2011 including substantial shipments in the final month of the
second quarter. This limited our ability to collect receivables at the end of each quarter. The shipment delays were caused by the transition to outsourced manufacturing and the global parts shortages. In addition, a higher than expected volume of
shipments and the longer payment terms for WiMAX shipments have resulted in an increase in our accounts receivable balances at December 31, 2010. During the second quarter of fiscal 2011, we were able to re-negotiate longer payment terms with
two of our largest contract manufacturers. The result of higher volume and more favorable payment terms increased our accounts payable balance at the end of the second quarter of fiscal 2011. We expect to continue using cash in our operating
activities in the second half of fiscal 2011, but to a substantially lesser extent as compared with the amount of operating cash used in the first two quarters of fiscal 2011.

 We believe that our existing cash and cash equivalents, the available line of credit and future cash collections from customers will be sufficient to meet our working capital requirements for next 12
months and the foreseeable future.

 In addition, we will add the following paragraph to the disclosures above:

To accommodate our customers’ requests in granting them credit, we regularly accept longer term letters of credit from some
customers. These letters of credit are generally discounted without recourse shortly after shipment occurs in order to meet immediate liquidity requirements and to reduce our credit and sovereign risk.

Staff Comment #3

 Critical
Accounting Estimates, page 46

3.
We note that some of your critical accounting estimates, such as revenue recognition, are exactly the same as your accounting policies in the financial statements.
Critical accounting estimates should supplement, not duplicate, the description of accounting policies that are already disclosed in the notes to the financial statements. The disclosure should provide greater insight into the quality and
variability of information regarding financial condition and operating performance. While accounting policy notes in the financial statements generally describe the method used to apply an accounting principle, the discussion in MD&A should
present a company’s analysis of the uncertainties involved in applying a principle at a given time or the variability that is reasonably likely to result from its application over time. Please consider enhancing your critical accounting
estimates in future filings. Refer to Commission Guidance Regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations, Release Nos. 33-8350; 34-48960; FR-72 at: http://www.sec.gov/rules/interp/33-
8350.htm. Please provide us with the proposed disclosures that you will include in future filings to provide the details above.

 Company Response to Comment #3:

 In future filings we will revise the discussion of
our critical accounting policies to focus on the assumptions and uncertainties that underlie our critical accounting estimates. We will also address, when appropriate, both a qualitative and quantitative analysis of the sensitivity of reported
results to changes in our assumptions,

 4

 judgments, and estimates, including the likelihood of obtaining materially different results if different
reasonably likely assumptions were applied.

 The following narrative provides an example of how these disclosures may appear in future
filings:

 Revenue Recognition

 We generate substantially all of our revenue from the sales or licensing of our microwave radio and wireless access systems, network management software, and professional services including installation
and commissioning and training. Principal customers for our products and services include domestic and international wireless/mobile service providers, original equipment manufacturers, distributors, system integrators, as well as private network
users such as public safety agencies, government in