Question-and-Answer Session
Operator
Thank you. [Operator Instructions]. Your first question comes from the line of Ross Muken, representing Deutsche Bank. Please proceed.
Ross Muken - Deutsche Bank
Hi, guys.
Earl H. Devanny, III - President
Hi, there.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Hi, Ross.
Ross Muken - Deutsche Bank
So, in terms of the sort of shortfall on the revenue line, on the bookings line, could you just go into little more depth, sort of how you are thinking about hardware going forward, I mean, obviously, it's not really, as you said, impacting your gross margin dollars or the profitability given how low margin it is of an item. How should we think about this is sort of building out our model for next year as well, and just sort of your thoughts on whether or not this just a seasonability issue or sort of a variability issue or something that strategic and that you are going to, want to include less hardware in the overall mix going forward?
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Yes, Ross, this is Marc. I will just start-off a little bit from numbers, and let Mike comment on the... from the client community and the marketplace, but I think clearly 84.5% gross margins is higher than we would expect to have. This was a multiyear low in hardware, so if I... the Q2 number was 79% which I think is lower because of the record level we have there. So, I think gross margins that are in 80%, 81% range are probably realistic. We are not giving up hardware as a marketplace for us to go sell into and I think that there is still that opportunity outside. So, that's kind of from a... at least from a guidance standpoint, what I'd put out, Michael, you're your comments and view.
Michael G. Valentine - Executive Vice President and General Manager, US Client Organization
Yes, what I would add is, as Marc mentioned, we had a big Q2 in terms of technology, resell in the hardware space. We actually see, going forward, the combination of the 2007 release and the demand for that and the growth of utilization. We expect the hardware business to continue to be a good business for us. Because of the combination the 2000 release... 2007 release and the fact that one of one of our major suppliers, HP, is migrating from OpenVMS platform to an HP-UX platform, it does cause our clients to pause a bit and do an analysis. The good news in that analysis is the business will come our way, but it does pause as may make the technology resale business a little bit lumpier than it has been traditionally, but in any outcome whether it's an HP platform, IBM platform or a hosted decision. All three of those are good answers for us.
Ross Muken - Deutsche Bank
Okay. And one other thing on RFP activity, could you sort of break that down in between sort of what you are seeing in the small, medium, and large size hospitals. And then also if, Trace, you can contrast that to what you are seeing internationally. I mean is it still sort of broad across the globe or there are certain regions where we are seeing a lot more activity than we had over say the last six months?
Michael G. Valentine - Executive Vice President and General Manager, US Client Organization
I will take the first part of your question, Ross. The breakdown and the composition of the RFPs hasn't changed quarter-over-quarter, so as it was last quarter, we see equal demand across all of our segments that we focus on. So, pediatrics, academic, community hospital, IDN, the core mix of those hasn't changed in the US. Trace?
Earl H. Devanny, III - President
Yes, I think, Ross, globally we see single pair of systems in most countries around the world. Most countries are very active in the healthcare space at this point, but relatively speaking it's mostly governments that are making a hard... taking a hard look at the... at their cost of care. To Mike's point, it's broadly spread across all segments, though what we see and given our ability to scale, we are spending more time with the large providers, the government branches, if you will, the large medical centers. The better, in a way to mean the activity across all segments.
Ross Muken - Deutsche Bank
Great. Thanks guys.
Operator
Your next question comes from the line of George Hill representing Leerink Swann. Please proceed.
George Hill - Leerink Swann
Hey guys, good afternoon. I guess one thing I... Marc I'll ask you first, are we still targeting $60 million to $70 million of free cash flow for 2007?
Marc G. Naughton - Senior Vice President and Chief Financial Officer
I don't think we've been targeting that for quite sometime for 2007.
George Hill - Leerink Swann
Yes, well okay.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
But in the last call we kind of indicated that we would... if you stretch to get kind of within $10 million of last year's, which was $40 million, so that kind of put us around a $30 million. We had strong cash flow performance this quarter relative to getting back on track. Our expectation is to go into Q4 with kind of run rate that you would expect to see, the ability to deliver somewhere in the $80 million to $100 million range in 2008.
George Hill - Leerink Swann
Right, I see, I was looking in the wrong column. I am sorry about that.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
That's all right. I think I do think if you look forward to '08, then if you take just the increase in net earnings, given this CapEx does turn into deprecation expense which benefits on the cash flow line. So you've taken net earnings, somewhere in the neighborhood of $25 million for D&A, benefit over what we got this year, maybe use up a little bit, working capital, incremental, if it's not much and then you take CapEx down $40 million. I think the math would tell you that, that's in $80 million to $100 million free cash flow number in '08 and we probably would expect to kind of hit Q4, then it would be in a range that that would illustrate our ability to drive toward that number.
George Hill - Leerink Swann
Okay, and I see Marc or Trace, are we still expecting UK to be a profitable business in National Program for IT in 2008.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
The current expectation is that the undelivered elements that currently mean that we don't or are unable to take margin on that contract. We expect it to be resolved in 2008 and therefore we would expect to start getting margins from that contract sometime in '08 and we've indicated that's probably in the last part of the year that is still our expectation. No change there.
George Hill - Leerink Swann
Okay. And then the last question I ask is, let's say that we are now looking for 12% bookings growth. In my model, we call it a low double digit bookings for through the back half for the share income in total. You guys are still guiding to double digit top line growth in 2008 versus what were low single digit quarters in the back half of the year. Does this mean that we should expect a reacceleration of the bookings growth in the first half of '08.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
I think you kind of have seen in '07 and '06 some of the lumpiness of the bookings. In '06 we've big bookings quarters at the last half of the year in '07, we've seen the big bookings quarter in the first half of the year. I think that overall George, I think its kind of low single... low double digits. So your 12% on bookings and 12% revenue probably is in bad way to start out on the modeling. I think that's pretty consistent with where our guidance is on those areas today.
George Hill - Leerink Swann
Okay, I'll hold back in the queue. Thanks.
Operator
Your next question comes from the line of James Kumpel representing Friedman, Billings, Ramsey. Please proceed.
James Kumpel - Friedman, Billings, Ramsey
Hi, good afternoon.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Hello.
James Kumpel - Friedman, Billings, Ramsey
Hey Marc, can you just remind us about how much of it makes the total bookings hardware tends to be ?
Marc G. Naughton - Senior Vice President and Chief Financial Officer
From the revenue standpoint there is pretty significantly. So, it can... it could be anywhere from somewhere in the 5% range to where it's going to be 15%. So the interesting thing in this quarter is the kind of contribution from all the other elements of the business state relatively constant. So software, mail services, services, those all stay at pretty consistent, they all went up a little bit as the percentage because hardware was in much lower percentage but anywhere between kind of that rate.
James Kumpel - Friedman, Billings, Ramsey
It appears that the in the market seems to be reacting pretty heavily to the revenue side of the equation this quarter, released after hours and I think a lot of it has to do with not necessarily getting the visibility on kind of that mix because it looks like software and services were pretty much in line. Does it make sense, do you think at some point in the future to really focus bookings guidance on the non-hardware element, does that stuff that you are a little bit more in control of.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Jim, we are the only company that provides booking guidance, in the level that we provide and I think we try to do it in later where allow people to see what the business is going to deliver. I think it's pretty clear from the numbers that the shortfall that occurred in Q3 was related to hardware.
Yes, we've said many times on this call, we manage to the margin level, that's how we manage the business. That's one of the reasons that we are able to retain earnings by paying. We are managing the business at that level, the mix is always going to change and we are going to give you our best shot at the bookings guidance when we come into a quarter. Put that number out there and in Q3 we blew it out by $30 million and this quarter we were short by a little bit. So there is going to be some variability but we think long-term investors understand that we are going to focus on fundamentals.
James Kumpel - Friedman, Billings, Ramsey
Okay. And then also just wanted to check on your... on your current ambulatory offerings. Can you talk a little bit about how effectively, your products are penetrating current marketplace and I think its... a lot of people are of the view that the ambulatory side is really where a lot of the... and the near term growth is in. And I just wondered to see where you fit in. And its... if you are developing any new products that might kick start, and that much more opportunity?
Earl H. Devanny, III - President
Yes James we obviously agree. We are very-very focused on the physician opportunity. About 85% of the physicians in the U.S. do not have an electronic medical record. So we like that opportunity and we have a long history of success, our multi generation success around building that type of a technology in providing it for our clients, who I think Cerner separates itself from the rest of the players of which there is a great number, is that we can bring on a common platform across both the ambulatory and the in-patient set-ins, we can bring that critical information if not available by other players who don't have access to lab information for radiology information, to that critical pharmacy or those med information.
I bet you can get access to it but they can't run on a platform though as we have delivered on Millennium. So we think we have a very good story, the subscription model has had great... has that great acceptance in the marketplace and I think you will see us focus more and more as we spread our wings across other opportunities in the ambulatory space.
James Kumpel - Friedman, Billings, Ramsey
Do you have any kind of metrics that you can point to in this past quarter that may be gives us a sense of how well its being adopted and kind of maybe pipeline that you see going forward.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Yes Jim, this is Marc. We kind of indicated in this business that we are little ways off from providing metrics. It's as we went to a subscription model the revenue growth is not significant because of the method... method we use going subscription based.
I think probably the next milestone you will see from us is talking a little bit about some of our provider clients looking to promote and restart and provide this across a broad range of physicians or in the case of certain other providers may be not assisting in the payment, but indicating that that's what we are running inside our four walls and that's what we want you to connect with if you are going to be an affiliated physician, a specialist is available at such a reasonable cost in the marketplace.
James Kumpel - Friedman, Billings, Ramsey
Okay, thank you very much guys.
Operator
Your next question comes from the line of Steve Halper representing Thomas Weisel partners. Please proceed.
Steve Halper - Thomas Weisel PartnersLLC
Hi just a follow up on the hardware component and the impact of margins as best as you can forecast. You are given a lumpiness in the hardware. You... are you still on track to get to that 20% margin goal in 2009 or could that be sooner now?
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Steve, that is an interesting question. I was doing some of the math earlier this afternoon and basically the results that we have right now and based on the guidance kind of that we put out for Q4 would indicate that we are within 30 basis points retaining our interim level of operating margins on the path to get to that. So, we actually are right on track with delivering those operating margin results.
Steve Halper - Thomas Weisel PartnersLLC
So Q4 assumes that you have another soft quarter of hardware, correct?
Marc G. Naughton - Senior Vice President and Chief Financial Officer
It assumes... it certainly is someplace between the all time high and the multi year low. But we would... it is... we don't assume it will be at the same level as Q3. The interest... after Q2, we actually bumped up our revenue side of our guidance part, which now, we are... it's lower than that, so, people were getting some comments on that. The reality is we think putting in a conservative number for hardware in Q4 is good, if some of the platform changes, that Mike said, indicated, are actually come to fruition, people make a decision and order we could exceed that. But I think we've taken a conservative approach to our hardware bookings relative to our Q4 numbers.
Steve Halper - Thomas Weisel PartnersLLC
And you mentioned, my last question is you mentioned in 2008, $80 million to $100 million in free cash flow. Is that, could you just confirm that?
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Yes, I think just doing the basic math, we will put you in that range, Steve.
Steve Halper - Thomas Weisel PartnersLLC
So, you like to have free cash flow in the Q4 that annualizes to 8,200, is that what you are saying?
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Yes, I think we would be pleased if we were somewhere in the $20 million to $25 million free cash flow range in Q4 or something that certainly would annualize given the volatility you get on quarter, sometimes on cash flow to get us in that range.
Steve Halper - Thomas Weisel PartnersLLC
Right.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
We think, it still be... it should be relatively indicative.
Steve Halper - Thomas Weisel PartnersLLC
Right, but you are not expecting any huge building projects again in 2000... new building projects in 2000 --?
Marc G. Naughton - Senior Vice President and Chief Financial Officer
It answers the same question you asked last quarter, our expectation... we have not added anything to the list and we certainly are... our budget process, as we speak, and the capital budget is certainly as focus as everyone in this room.
Steve Halper - Thomas Weisel PartnersLLC
Okay, just asking. Thank you.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
No problem.
Operator
Your next question comes from the line of Atif Rahim representing JP Morgan. Please proceed.
Atif Rahim - JP Morgan
All right. Thanks guys. Marc could you talk about the software amortization that you talked about, that kind of marks the reversal from what you did a couple of years ago, actually last year, when you went to one release schedule. So, how are numbers going to be affected? You said there will be a small increase in amortization, but does everything you have capitalized so far for Millennium '08 start getting amortized prior to the launch and when would we expect that '08 launch at this point which you said will be delayed?
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Yes, it's a good question... relative to the '08 we still... we will continue to have a next release of Millennium, most likely it's going to be on the Java platform, and it will be a significant different release from Millennium 2007. So, we are continuing... the work we are doing on '08 is going to continue to roll forward on '08. It still remains capitalized. It will trigger when we release, whatever that release is called which... it may not be obviously 2008 at this point. Our marketing department will come up with a great name, I guarantee you.
But what it means in the near term, relative to the adoption of Millennium '07, obviously we would love to be able to go on 12 to 18 month releases. We just think the opportunity to go to the marketplace with some enhancements to '07 that build on the adoption that we are getting is too great an opportunity for us to pass up. So, we are going to be putting out some interim releases, what will be different from what we would have done in the past where we had interim releases or continuing releases is rather than aggregating them all during the year and beginning the amortization in January, those will begin amortizing when they go GA. So, we will keep you apprised of when something has gone to GA. The net impact in any one quarter is going to probably be less than $1 million. So, it will be something that's not going to be a major impact to the models but you will be able to kind of see it and follow through your models going forward.
Atif Rahim - JP Morgan
Okay, a word, I'd just like to clarify is it, are we expecting amortization expense to go down just because the capitalization associated with '08 won't become, won't be amortized next year.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Well the anticipation has always been that relative to '08 continue to be capitalized and not amortized until '08 went GA, is that you wouldn't have any additional amortization hit that line until '08 and in January you would have had a whatever fully amortized and its five-year life in December were it rolled off in January. At this time what you are going to find is a little bit of reduction for the stuff that roles off where you will start seeing incremental additions to that amortization throughout the year in 2008 as we go roll out two or three of these releases during the year.
Atif Rahim - JP Morgan
Right, okay. And then just quickly the revenue guidance that you provided, I think, you definitely indicated you are being conservative about the hardware sales but what percentage of your current quarter's hardware bookings actually flow into revenues. My assumption was that it doesn't necessarily mean 100% of the current hardware book that's flowing to the current quarter's revenues, is that different --?
Marc G. Naughton - Senior Vice President and Chief Financial Officer
It's actually pretty close, Atif, the hardware is the one thing. They order it, we put in the order to our supplier who are really excited to get the things shipped for their revenue. And so a lot of those orders happen and get revenued in the same quarter they book. So, if the bookings and the revenue are... for that as one element where they are very much in sync.
Atif Rahim - JP Morgan
Okay. All right. Thank you.
Operator
The next question comes from the line of Anthony Vendetti representing Maxim Group. Please proceed.
Earl H. Devanny, III - President
Anthony. Why don't we go to the next caller?
Operator
Your next question comes from the line of Sean Wieland representing Piper Jaffray. Please proceed.
Sean Wieland - Piper Jaffray
Hi, thanks. I just want to go back to this hardware issue and see if I can get my arms wrapped around the story behind both the underperformance in Q3 and the over-performance in Q2. And we can talk about and the kind of things going on in the market that's causing that. Was it related to, as you mentioned in your comments, HP/Sun setting the alpha server. And halfway through the second quarter was there a rush to go out and buy these things and then no demand in the third quarter. Does it have anything to do with the movement over to managed services? Can you just help me kind of explain the trend in hardware?
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Andrew, this is Marc, I'd like to comment.
Sean Wieland - Piper Jaffray
It's actually, Sean.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Sean, I am sorry.
Sean Wieland - Piper Jaffray
That's all right.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Sean. The hardware tends to be lumpy, and there is no systemic issues that we've seen. I think the issues that Mike talked about relative to platform that will occur over time as people look to migrate from that platform. So, that's not something that's kind of got a drop dead date; at least currently built in for most of our client. It depends on large clients who are going to host themselves, that make large hardware purchases. In Q2, some of that, we have a little bit of... some global participation from some clients there that were buying hardware to populate data centers. So, it really just depends on what clients are in the pipeline and when they are pulling the trigger.
For the most part new clients that are coming into our... from our pipeline and that we're signing, the majority of those are hosting, so they are not impacting our hardware at all, it's really our install base. The hard part is we don't... the visibility to that is pretty short-term. As I said, they buy it, they order it, get it and install that all within kind of a 90-day period. It's hard for us to get really good visibility on all those orders.
Earl H. Devanny, III - President
Yes Shawn, the only thing I would add to that, and just extending Mark's point. The move towards managed services or hosted environment for our new clients and even our install base, that's been going on for a while now. And so we've been actively backfilling that revenue and that volume by taking more of the IT spend of our clients, broadening out into the handheld devices, mobility, architecture, infrastructure decisions. So, we've been very, very active over the last two or three years in recognizing that there is a certain percentage of the spend that will go away given a hosted current environment. So, we are actively pushing the boundaries on how we go back to build that. And I would just reiterate again, I don't think there is anything going on in our marketplace and/or our solutions that leads me to believe that there is a... this one quarter represents a trend in a different direction.
Sean Wieland - Piper Jaffray
Okay.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Keep in mind that hardware is a nice thing for us to sell, because our clients buy it. We can make some money off of it, but it is not a huge driver of our gross margin or of our earnings. So, it's... we can sell no hardware and still make our numbers. The impact is going to be on the revenue line and that's once again, why internally we manage the margin line much more rounds out to the items that have high cost and there are margins, items that have no cost directly such as software.
Sean Wieland - Piper Jaffray
I understand that, it's just that the market, I think, is a little bit wrapped up right now. Do you know how many of your customers are still on the old alpha servers?
Michael G. Valentine - Executive Vice President and General Manager, US Client Organization
This is Mike. There is a... I wouldn't give you a specific number but you have to realize that our classic clients, so the pre-Millennium clients are almost entirely on a HP platform. So it's a combination of the millennium platform plus the classic platform. And I would say that it probably represents between probably in the 40% to 50%... 30% to 40% range of our installed base out there.
Sean Wieland - Piper Jaffray
Okay. And just one last question. Partners Healthcare and Boston just recently announced... I know they are your customer... but just announced that they are going to be mandating EHR adoption by community physicians. I'm wondering if you see that as a trend for hospitals to put away the carrot, break out the stick to get docs to adopting the HR.
Michael G. Valentine - Executive Vice President and General Manager, US Client Organization
This is Mike again, I'll take a... I'll give you my opinion. I think it's actually... we see more the opposite. We see more of our clients leveraging the Stark venue to allow themselves to go reach out to that physician community, so. And I know that, I saw probably a similar press release. It wasn't clear to me whether or not there would be any level of funding for the actual system other than just training, but I think we... our marketplace, we see it, the Stark laws being received and acted on through our client base. And we actually view that as very good news.
Earl H. Devanny, III - President
Yes, I think if there is a trend, you are going to see more and more providers reaching out to the physician community to create that sticky network. So, in that regard I believe it is a trend.
Sean Wieland - Piper Jaffray
Okay. Okay. Thank you very much.
Earl H. Devanny, III - President
Thanks Sean.
Operator
Your next question will come from the line of Richard Close representing Jefferies & Company. Please proceed.
Richard Close - Jefferies & Company
Great, thank you. I'm going to stay unfortunately on this hardware thing. I mean the variance versus your guidance on bookings and revenue, in the grand scheme of things is relatively small, but with that being said. I think coming out of last quarter you guys did talk a little bit about ratcheting up some new footprints in the back half of this year which, it appears that you did, and now saying that most of your new footprints are hosting. Wouldn't you have had better visibility with respect to the lower hardware sales in the quarter as you entered the quarter?
Earl H. Devanny, III - President
The visibility comes from the fact that a lot of those come from our install base... lot of the hardware purchases are not coming from new deals. If they were assigned to a new deal, so it's a new client that's going to host it themselves, we would have great visibility there, because we track those sales, we know there's going to be a hardware component, we are not seeing a lot of that. We are seeing most of those come in as a hosted agreement, so there isn't hardware. So what we get is the phone call that says we now made our technology decision, put in my order for hardware and I want it shifted at my location within 30 days. So, a lot of those are very tactical by the client, very quick. We have been working with them on roadmaps, but the triggering of your technical infrastructure is something that you can't land on a 12-month sales cycle like we do in most of our other deals. So, it's going to be volatile. And like you said, apparently it's getting a fair amount on focus here. It isn't a major part of our business. It's nice to have, and we will deliver earnings regardless of what our hardware bookings are. So, it's good stuff. We are not walk away from the business because it's easy for us to get it, but it isn't a material part of our business.
Richard Close - Jefferies & Company
Okay. And then just to be clear, the guidance in the remainder part of this year assumes similar, existing client percentage hardware purchases as the third quarter?
Earl H. Devanny, III - President
It will be as I said between the multi-year low that represents in the record high of Q2. But it's closer to low, so it's a conservative number.
Richard Close - Jefferies & Company
And then when we think about the hosting. Obviously, the data center is impressive and new footprints seem to be going to the hosting or managed services side of things in great numbers. Can you talk a little bit or provide us sort of picture on existing customers and their transition to your hosted services?
Earl H. Devanny, III - President
In terms of what their... the rate at which they are coming into our data centers?
Richard Close - Jefferies & Company
Yes, I mean, your conference several weeks I think you had... I mean, at least in the short time we were there, we talked with several people there our move... plan on moving to you guys having or hosting the software. Can you talk about the overall trends you see with existing customers on that front and then wouldn't that imply maybe lower hardware sales on a go forward basis?
Earl H. Devanny, III - President
The... I think to your first question. We are and you probably saw the Lite-On network as... if you were at the CHC event that Jeff spoke about earlier. We are fully transparent in terms of what our capabilities are in our data center. And that includes not only the results in terms of availability, performance, things of that nature. But it also includes how we manage the system, the rigor in which we manage the system and the timeliness in which we can move and advance the platform. And I think that that transparency has a very direct affect on our installed base which they realize that in addition to it being a very nice facility, the engine that drives the performance, our people performance is very, very impressive and then we have a very unfair advantage at delivering computing results in that environment.
And I think they... as they learn more about our hosting capability absolutely look to be a part of that because economically and from a performance perspective it's a winning situation for them. So the answer to your first question is, we expect over time more and more of our installed base that our client hosted to become part of our data center operation, and we see that on every quarter about anywhere from two to five of our installed base come into our data center. So, and we are going to... we plan for that going forward.
The second part of your question I tried to address in my earlier response which is we know this has been a trend for quite some time and we've been working to backfill that revenue and backfill that margin in our tech resale business by expanding the breadth of the technologies that we offer. So, everywhere from mobile computing more in the care delivery process, expanding a high availability into our client's environment, there are just... there are lot of areas that we're pushing the boundaries from a tech resale perspective. And we fully expect that that... that we have to offset to continue to grow that business.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Yes, Rich, it is Marc. One... just one comment on, if you look at Q1, we had huge over-obtainment in hosting bookings and we still drove out a decent hardware sale. So --
Richard Close - Jefferies & Company
Okay. I just... you know if we were looking for or expecting in the future for a great number of existing customers to transfer over then there obviously, there wouldn't be the need for all the hardware possibly and I just wanted to make sure that I was understanding that and understanding that you guys understood.
Earl H. Devanny, III - President
If we see a trend that's consistent, we will certainly let everyone know.
Richard Close - Jefferies & Company
Thank you.
Earl H. Devanny, III - President
At this point it's an anomaly.
Richard Close - Jefferies & Company
Thanks appreciate it.
Earl H. Devanny, III - President
Why don't we take one more call, based on the time we have?
Operator
Your final question will come from the line of Dushan Batrovic representing Canaccord Adams. Please proceed.
Dushan Batrovic - Canaccord Adams
Hi, thank you. I was hoping you could help me develop a better sense of what impact some of the new initiatives could have to the financials later on in '08 and even '09 and by new initiatives I am talking about the PowerWorks, the CareAware, the Employer Services... if you want to call it... the non-core business. Could that be material enough to even cause a reacceleration in '09 or is it just too early to tell at this stage.
Marc G. Naughton - Senior Vice President and Chief Financial Officer
Yes, this is Marc. I think going into '08, the things that are basically in our outside the US box graphic that we present, are a lot of the device area is going to be something that we look for contribution in '08. So some of the CareAware architecture, some of the things Mike talked about that were going on the technology side, the connectivity side, we think that business is already a good start and will contribute... will be a contributor in '08 to those results. Our cabinet business... we are on track, I think, to getting that off to ground. So, I think you should start seeing that contributing to both the top-line and the bottom-line as we go forward.
Think on the Healthe and the Employer initiatives, we still are in the initial stages of lot of that work. And so I think '08 will be a little early to see a material impact from that, but I think from the other two certainly we would expect to start seeing '08 opportunities come up.
Dushan Batrovic - Canaccord Adams
Would you ever split that revenue that contribution?
Earl H. Devanny, III - President
We will probably... at some point we may talk to it separately as we do our annual slide relative to business model. At some point when it gets to be large enough. We certainly will look to break it out in that model.
Dushan Batrovic - Canaccord Adams
Okay. Thank you.
Neal Patterson - Chairman and Chief Executive Officer
Okay, this is Neal. I am going to wrap up here just give comments. First, let me actually comment on hardware. It always been the lowest margin part of our business model. We've had a number of discussion whether we should stay in that business or not could be fairly easy to get a check from hardware manufacturers because we generate the demand form and not be the direct sales.
Our ads has always been the more we actually can spec and can control the overall environment the better we are. So we've stayed in that business, it is might... we never managed to a top line, we managed to a gross margin that is... margin on the hardware side is... it's because there always been the margin in the hardware side.
So, we've always... still on debate. So, we are going to pop... we will stay in the hardware business, but the systemic... there has been systemic impact of the managed services. So we have taken what was a one-time revenue and contribution to the margin and we have basically improved our business model by converting that to our fee that we charge on a monthly basis to our client. And that has decreased where hardware shows up in our basic sales cycle, and also hardware is very lumpy and there is more of variability in that.
So, we don't notice it quite as much as you all do, because we actually managed to the other line. But, so if we have one part of our business model whether working as well, this would be the one I want. And then I just want to comment third quarter is always the hardest because there is no, it's not the start of the year, it's not the finish of the year, which is usually motivates the clients and as the summer months too which everybody has more vacation. We never look forward to a third quarter. And we come out just pretty pleased internally. And if you were at the Health Conference or if you've actually been here, one thing you will see it Cerner is... we are getting a lot better amongst everything we do and I might say except management hardware revenue.
But the Cerner is really heading quite well here and it's hitting at a very, very good time. Let me add some extra, one of the comments just at the business model level and the physician marketplace which is undoubtedly the most exciting kind of big growth opportunity on a year-to-year basis out there. We made another business model decision and that was to go out there with true ASP type model where we're charging on a monthly basis. Something that we historically have used licenses to hardware.
So, which was very lumpy revenues, but they are kind of one-time revenues and margins. So, we have committed to you all to improve the business model, and you are seeing us make big decision, strategic decisions, long-term decisions that do that. It is adding some more very... it is slowing the growth... the top line growth down at the same time, it's improving the quality of the overall business platform and it's improving our ability to drive increased... manage to increasing operating margins.
Marc was very clear, we are on path to 20% operating margins, one of the first things I look out when everything gets pulled together is that trend. And you are also seeing the acceleration of really our... back to the free cash flow and accelerating that. So, we are... things are... things at Cerner are good and getting better and the marketplace, I mean, we looked at really close here. Marketplace still has a lot of life in the U.S. and then we really do love the global marketplace for this business.
And then, Dushan I really liked your last question. Thank you for asking something other than hardware, but the impacts were very transparent. So, you all know that we have to... we are strategically. I wouldn't say that they are outside the core Dushan I would say we are expanding the core. So, that we have a lot of strategic initiatives that have a lot of upside and we are cautious saying to you, what date and time to put that in your models.
And... but most everything we are doing on a strategic basis, it feels really good to me and our nexus becoming one of the seniors in this industry. So, I mean there is a long time. These are really exciting times and we are going to continue... we are going to always be inducing throughout the next decade. Next decade is only a couple of years away, I really like the way 2010 in that decade is lining up. So, the core is... core we think is, we think is going to be very strategic to us and we think we will expand the core.
So, thank you very much for your time. And have a great evening, we will see you later.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.
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