Question-and-Answer Session
Operator
(Operator Instructions). It looks like first we'll go to the side of Cobb Sadler from Deutsche Bank. Go ahead please.
Cobb Sadler - Deutsche Bank
I think if I'll -- I had a question on the XMR MLX router. If I just make sure I've my numbers right, it looks like it was 19% of revenue this quarter and 13 last quarter up about 50% quarter-on-quarter. Could you talk about what carrier types did the revenue for the quarter address, is it still Tier 2 and below? And also on the application front, are most of your products shipping with MPLS functionality? Thanks a lot.
Mike Iburg
Hi, Cobb. This is Mike. Before Bobby answers the question, I will provide just a brief clarification on the numbers. We reported 13% of total revenues back in the fourth quarter of 2006 and this quarter we reported 19% of product revenue.
Cobb Sadler - Deutsche Bank
Okay.
Mike Iburg
Now, just for everybody's clarification, our service revenues or support revenues from the quarter were about $20.5 million, and obviously the balance is all product revenue. So when you do the math, what you'll find is that the growth quarter-on-quarter was about 12% and the one thing that we've adjusted as well is the fact that last quarter, we excluded accessories.
And this quarter we've put accessories under the calculation because the accessories are required to make the boxes run. So now we believe we have a more comparable set of numbers. It changes the numbers from last quarter from $17 million to $19 million and the number for this quarter is about $21.5 million. So $19 million to $21.5 million should get you about a 12% sequential growth.
Cobb Sadler - Deutsche Bank
Okay. Got it. And it will be apples-to-apples going forward, correct?
Mike Iburg
That's correct.
Cobb Sadler - Deutsche Bank
Okay.
Mike Iburg
And now, I will turn it over to Bobby for the positioning.
Bobby Johnson
Okay. First for the MLX and the XMR both platforms are MPLS enabled. Not everybody uses MPLS on those platforms. So some people use MPLS from day one. Some people buy it because their MPLS ready for whenever they need it. In terms of key verticals and key customers for the XMR MPLS platforms we have several different verticals and applications we sell into. Let me give you kind of a flavor.
We sell into both national and regional backbones. We sell into Voice-over-IP providers; we sell into other content delivery providers such as IPTV environments, we sell into cable and MSO environments, we sell into Metro environments and we do sell into Internet backbone environments.
Some of our customers are Tier 1, Tier 2 and Tier 3 in all environments. We also sell the XMR and the MLX into big universities. We sell them into big enterprises as well. Additionally, the RX family, which is not MPLS enabled but it is a very powerful IP router, service providers buy it for V-4 or V-6 routing because it's less expensive than its cousins the MLX and XMR if all they ever want is just IP routing. So sometimes we sell the RX into those same applications. Okay?
Cobb Sadler - Deutsche Bank
Okay. And you were talking in a major Tier 1 carrier, I mean, the competing box would be a Juniper T-640 type box, where are you on a pricing level versus maybe not talking about competitor, but generally OC-48 to OC-48, are you...
Bobby Johnson
If you take a fully loaded box, where somewhere probably in the 10% to 25% list price of comparable platforms from Juniper, we do have trials. We do have initial small PO's. I'd say give us a little bit more time before we talk about any real major installs there for, I would say big Tier-1's. We certainly have some Tier 1 national customers, and we certainly have some brand name Voice-over-IP and IPTV and cable companies. And we will overtime release more of those names I think we've released some in the past.
Cobb Sadler - Deutsche Bank
Okay, great. And last question. Government is up about 10% quarter-on-quarter in a seasonally weak quarter. You must be exposed to some programs that are ramping within the overall federal budget. I guess in a seasonally weak quarter you're growing the business, I'm just thinking that you've got to be exposed to some particular projects that are outgrowing the overall federal wallet?
Bobby Johnson
As Dan talked about in his part of the presentation or the disclosures, federal was indeed strong, I disclosed that as well. We are still expecting strength for federal in this quarter. We are certainly expecting strength in federal in the second half. We do believe that we have diversified quite a bit in federal.
There is some risk in Q2 over the supplemental but right at this moment, we feel we have more diversification in federal than we did in Q2 of last year. But we are exposed to growing sectors. I would also say that our extended product family, one of the enterprise customers for some of our MPLS routers that is competing against some of our very worthwhile competitors is in some of the federal government sectors, whereas we have won quite a few MPLS routers for certain defense applications.
That's been very good for us, and it would have gone to other worthwhile competitors, if we did not have that product family. So that is one of our continued strengths and diversifications into an adjacent market in our federal verticals.
Cobb Sadler - Deutsche Bank
Okay. Great. Thanks a lot.
Operator
Our next question comes from the side of Matt Robison of Ferris, Baker, Watts. Go ahead please.
Matt Robison - Ferris, Baker Watts
Hi, good afternoon. Looking at your Service Provider business, do you anticipate that growing as fast as enterprise -- it sounds like in the second half you may but here in the current quarter and around mid year and is that, if you do have some surprise on the federal, downside surprise on the federal side, is it enough to offset? And then I'm also curious on this settlement you have with Alcatel Lucent, if it's -- how it would compare to the one that you had back in 2004?
Mike Iburg
Okay. So why don't -- are you comfortable, Dan, with an answer?
Dan Fairfax
Yes. I think on -- let me talk about the Alcatel situation. So we are under restriction our agreement to talk about the details of the transaction. I guess, we can get directionally I think you're referring to the Nortel arrangement, Matt, is that right?
Matt Robison - Ferris, Baker Watts
Yes.
Dan Fairfax
Yes. So our settlement in this situation is much more robust agreement with a lot less cost associated with it and we're really pleased to get the legal drag behind us.
Matt Robison - Ferris, Baker Watts
Okay. And then my cumbersome question about service versus federal and the growth prospects potential to offset there?
Bobby Johnson
Are you talking about general commercial?
Matt Robison - Ferris, Baker Watts
Well, the Service Provider business, it sounds like that may --it is growing off of relatively small numbers and maybe, that has faster percentage of growth rates here in the near-term. I don't know if that's true, but it seems like it might be.
Bobby Johnson
Well, that's what -- one of our key strategies, our first key strategy years ago was, go become a dominant player in the federal vertical. Our second strategy after we accomplished that was, diversify within the federal and diversify away from federal, and we're still continuing in those programs.
We think we have mitigated our risk. Our crystal ball is not perfect, but we're feeling more comfortable today than in the past that we have other geographic strengths and that we have diversification within federal and we've diversified away from federal.
Dan Fairfax
I think the other thing we can add is, with our support organization, we're looking to make ourselves match up better with the needs of that marketplace in anticipation of growing the business there.
Bobby Johnson
And therefore, that was some of the downward gross margin pressure as we put more support inventory out to support both current and in anticipated future clients.
Matt Robison - Ferris, Baker Watts
And then to finish, could you comment on the growth rate in 10-Gig ports?
Bobby Johnson
For the quarter, 10-Gig was approximately the same as in Q4 of last year, but up 75% from the year ago.
Matt Robison - Ferris, Baker Watts
Okay, and thank you.
Operator
Next, we'll go to the side of Mark Sue from RBC Capital Markets. Go ahead, please.
Mark Sue - RBC Capital Markets
Thank you. Bob, you're recognizing it's early, any comments on the outlook for growth for this year versus last year? What do you think the industry growth rate is? I get this sense that you're feeling very confident on your ability to accelerate revenues during the back half of the year.
Bobby Johnson
Well, we don't give specific guidance. I would say that our three key objectives on our product family, on our branding, and I think growing our sales force is we're making good progress in those and I think those will and have, over a time, expanded our revenues. We are on similar goals, similar metrics internally. We certainly are hoping for growth. We certainly believe we'll see growth. There may be the occasional quarter or so of digestion of both new products and new people and new clients.
But hopefully, over the last few years, we have rebounded after the attack on Boston and 9/11 and then, we've certainly expanded our presence. We've kept our revenues per employee at or near the top of the networking industry and we're continuing to execute on those same strategies, and we're hopeful for the result.
Mark Sue - RBC Capital Markets
Bobby, do you think mid-teens growth for the industry is a reasonable assumption?
Bobby Johnson
In certain players and certain sectors.
Mark Sue - RBC Capital Markets
Okay. And then, can I ask what's your personal preference between dividend payments versus a share repurchase program?
Bobby Johnson
I don't have a personal preference. It's going to be what the Board of Directors collectively views as the best use of cash. Certainly, you've just detailed two of the alternatives that are being considered by the Board and there's other alternatives that are being considered.
Until the restatement is done, and there is more input given by management to the Board of Directors on short-term, long-term prospects, other alternatives, there are no decisions. I would say, we certainly are spending more time deliberating and discussing this topic at Board meetings.
Mark Sue - RBC Capital Markets
I see, and is there a base amount of cash you think you could be comfortable with on the balance sheet? Is it $500 million, $600 million?
Dan Fairfax
You know, we're looking at that. That's just one more factor as Bobby was talking about the different possibilities we have going forward. It's one factor we're considering I don't think we would say. Yet we've determined exactly what we would like to have for that operating cash balance.
Mark Sue - RBC Capital Markets
Okay, that's helpful. And lastly, Dan, just when you said your target gross margins, what would that be again for the second half?
Dan Fairfax
So, the Company has been operating with the target range of 60% to 65% and as we talked about, we fell just slightly below that for the quarter. And so, our view is that we're still driving the business to perform within that range going forward.
Mark Sue - RBC Capital Markets
That's helpful. Thank you and good luck, gentlemen.
Dan Fairfax
Thank you.
Operator
Next, we'll go to the side of Ken Muth from Robert Baird. Go ahead, please.
Ken Muth - Robert W. Baird
Hi. I'll just quickly follow-up on the gross margin, can you tell us why it fell below 60% or is it going to this quarter? Some -- just more detail on that.
Bobby Johnson
So really for the shift, as I tried to at least summarize and we won't on this call go into any further details, but it really fell out on the service side of our business, and it was really to expense that we've been looking at putting in place in order to plan for scalability and better match-up with the customers we're targeting.
Ken Muth - Robert W. Baird
Okay.
Bobby Johnson
And then, as I also mentioned, the product margins were unchanged year-over-year.
Ken Muth - Robert W. Baird
I guess just one of the concerns, I mean, as you ramp these newer products, do these products have at or above where your historical margins may have been or are they below the 60% level in the MLX and the XMR and some of the newer products you are talking about coming out with?
Bobby Johnson
Well, we see some, as we wrap new products and build volumes, we don't see the target margins that we designed the products to until we get volume production. So that will be moving as the volumes increase and there's -- not every product cost structure is the same, so there is a mix of specific product margins. I don't think that Ken, on this call we would go into that level of detail.
Ken Muth - Robert W. Baird
Okay. And then lastly, on the Service Provider vertical, obviously seeing a good ramp up there, is it because you're also hiring or what percent of your sales force you're hiring for that vertical or how are you getting to that vertical so quickly?
Bobby Johnson
Well, we are both hiring there, but we also have established customers from that vertical for a long time. If we roll back the clock to '99 and 2000, Foundry actually received 65% of its revenues in the year 2000 from the Service Provider sector. Today, we receive probably 75% of our revenues from enterprise. So we did a complete seat change, because of the tech bust at the end of 2000 and 2001-2002. So we still have legacy customers. We still have very astute sales and support people for that vertical, and as well as we are hiring new SP sales guys.
So, we are trying to really balance the Foundry business. As I said we're trying to diversify into new geographic markets as well as new product in adjacent markets. So what Foundry is trying to do over time is build a balanced business across multiple sectors, both geographic and vertical market. We still are smarting as an organization from our concentration in SP's in the year 2000 when the tech bust came. We did very well on the rebound in 2003 based upon federal.
We've had a little bit of a learning experience a year ago when we had a concentration in federal and had some delays, although not lost deals, but delayed deals. So, we are continually being aware of the past trying to really diversify across enterprise service provider, across U.S. versus federal versus other geographies.
Ken Muth - Robert W. Baird
Okay. Thank you.
Operator
Next we'll go to the side of Tim Long from Banc of America. Go ahead please.
Tim Long - Banc of America
Thank you. Could you talk a little bit about the, you mentioned the impact of the sales force, if you could just give us your sense as to how much contribution that relative to just macros having on the growth of the company.
And also, deal sizes related to that, that's number one. And never two, if you could just talk a little bit about the international business. It did, the U.S. growth was very strong in both enterprise and federal.
Could you just talk a little bit about why the slower growth in the international, was there just some timing of contracts that caused that region to grow a little slower this quarter? Thank you.
Bobby Johnson
Okay. Let me take the last question first because I remember that one. For us, Europe was more or less flat during the quarter. U.S. federal, the U.S. commercial were strong. And Northern Asia was a little down, a little weak.
In historical past, Japan had usually a more robust calendar Q1, it was their virtual Q4. And part of that was because of some government initiatives on doing capital spending in that quarter in certain sectors.
Now, from what I am being told, is those incentives were not there this past year, I mean this past Q1. So, it's not that we lost deals, it looks like it was a softer capital equipment investment environment in Japan, and we are feeling more confident.
We have been told about new wins from the quarter that we should expect purchase orders from this quarter that we've underwent a lot of trials. Obviously, July 19th, my crystal ball being a lot better than it is right now, but so we'll see.
Tim Long - Banc of America
Okay, that's great. And the first one was on just deal sizes and impact to the sales force?
Bobby Johnson
The sales force growth percentage-wise is slightly ahead of our growth rate because it takes six to 12 months for a new sales team to produce. So, we will probably retain 75% of our new sales forces.
We will have a 25% or so dropout in those first six to nine months, but it takes six to nine months, so we have to hire substantially ahead of our revenue ramp.
Tim Long - Banc of America
Okay, okay that's great, if I could just one last clarification here. You talked about the operating margin tracking the gross margins. Could you just remind us of what the operating margin target range is and does that mean that it was slightly below just like the first margin was? That's it for me. Thank you.
Dan Fairfax
Yes, so we've been planning against the 20% to 25% operating margin and this quarter again, without, unfortunately, being able to go into the details, we are below that. Part of it which is this modest change from the gross margin more affected by the payroll tax impact, our operating expenses are significantly in our personnel related to some growth on the sales and marketing expense line.
As Bobby said, we're hiring ahead of the ramp, but really affected by the bonus that I mentioned from the employee stock purchase plan and the payroll taxes being as kind of unusual items that hit the first quarter. So when we report it, it will be lower.
Tim Long - Banc of America
Okay. Thank you.
Operator
(Operator Instructions). It looks like we'll go next to the side of Samuel Wilson of JMP Securities. Go ahead please.
Samuel Wilson - JMP Securities
Good afternoon, gentlemen. I apologize, there's a lot of calls going on, so you may have addressed this, but several large technology companies have sort of indicated that U.S. enterprise acted particularly weak during the month of March. IBM, EMC, Sun, et cetera.
And I'm just wondering sort of what you guys saw color wise during the month of March and sort of just general tone of enterprise IT spending right now. Thank you.
Dan Fairfax
So, maybe I'll grab that, Bobby. So we didn't see that in our business, so we saw March as a strong month and the quarter being good for us.
Samuel Wilson - JMP Securities
Got it. Thank you very much.
Operator
Next we'll go to the side of Paul Mansky from Citigroup. Go ahead please.
Nigel Frankson - Citigroup
This is Nigel Frankson calling in for Paul, two quick questions. One, can you give us an idea of what sales from new products versus legacy products were? What percentage of sales?
Mike Iburg
This is Mike, and I'll just jump in and say that if we put together the XMR and the MLX, along with the new enterprise platforms, the RX and the Super X, and then a couple of the new stackables, which we have introduced more recently as well, because they're based on some of that same core technology.
You're now talking about probably slightly above half, slightly more than half of the total of product revenue for the company.
Nigel Frankson - Citigroup
How does that compare to last quarter?
Mike Iburg
It's got to be higher because both the RX and Super X combined are up and the XMR's and MLX's are up as well. I don't have an exact percentage for you, but I can probably dig it up later.
Bobby Johnson
Yes, if I just take a quick look at that, if we talk about products introduced over the last 12 to 18 months, including our newest ServerIrons and Layer 4-7, and our high-end 10 gigs ServerIrons introduced last year.
If we take service, which is approximately 20% of revenue out, that leaves you 80% on hardware, probably 80% to 90% of our hardware revenues were new platforms introduced in the last 12 to 18 months.
Nigel Frankson - Citigroup
And how would that compare to last quarter?
Bobby Johnson
It's up. It's trending strongly up.
Nigel Frankson - Citigroup
Okay. Second question is, I've been hearing rumblings about a larger competitor looking to enter the Layer 3 market. I was wondering if you could speak generally, the high-end enterprise, what are the barriers to entry there and if you could identify a couple of those, I would appreciate it.
Bobby Johnson
The barriers to entry deal with several different factors, from a hardware platform, it deals with switching capacity, expandability, port density, port types, do you support Voice over IP in Wireless environments with power over Ethernet capabilities?
Do you have a complete to product family, that is, do you offer stackables and edge products as well as beefy core products. Then, there is the whole software suite, which protocols, which multicast protocols do you support? So...
Nigel Frankson - Citigroup
What about as far as actually penetrating the account, is that particularly difficult? For example, how critical is it that you have reference accounts?
Bobby Johnson
Very critical.
Dan Fairfax
Yes, reference accounts create, become a cornerstone of anybody's entry into this market. As well as the direct sales, at least it's not a direct sales model, at least a direct touch, so you're going to have to have a direct sales footprint as well.
Nigel Frankson - Citigroup
Okay. Thank you much.
Operator
Next we'll go to the side of Jason Ader of Thomas Weisel. Go ahead please.
Jason Ader - Thomas Weisel
Yes. Thank you. Bobby, I wanted to follow up on a comment you made on the supplemental risks, the risks for supplemental for federal in Q2. Do you have a sense of, at this point, I don't know if you mentioned it or you've mentioned it on previous calls, but what percentage of your business would be exposed to that of the federal, what percentage of your federal business would be exposed to that kind of ballpark number?
Bobby Johnson
So, the answer to the overall business is a gut feeling of a very small single digit percent. To the federal outlook, it could be maybe a mid-teen size number, if we have any real exposure overall.
Jason Ader - Thomas Weisel
And overall for your federal, would you say that the kind of Armed Forces right now is -- I mean, could you compare that percentage, let's say, you said you've been able to diversify within federal.
Could you compare the percentage to, let's say, Armed Services, Armed Forces in Q1 to like Q1 a year ago? Is there any way you can quantify that?
Bobby Johnson
Well, we probably have a higher exposure in Q1 and Q2 of last year to specifically Army and Army OEM operational and maintenance type versus programs that we have right now. We have more diversification. We have more funded programs today than in the calendar Q2 of last year.
So, we are hoping first of all the supplemental gets signed. Second of all, we hope that the exposure is minimal. We hope that the other upside opportunities and diversification within federal takes care of this and we hope that the diversification away from federal takes care of everything as well.
Jason Ader - Thomas Weisel
And is there any reason to expect that enterprise, broadly speaking, enterprise would not be up in the June quarter based on, I know you don't give specific guidance, but is there anything you can think of where that this usual seasonal bounce that companies get in the June quarter in the enterprise side wouldn't happen for Foundry this year?
Bobby Johnson
It's very difficult to say. I don't have any particular knowledge of any disaster pending. I would hope that our worldwide Europe and Japan rebound a little bit and that if U.S. doesn't continue to grow, at least it stays flat. But the goal is growth in all sectors.
Jason Ader - Thomas Weisel
Is there I mean Japan, based on your commentary earlier, it doesn't sound like you think Japan necessarily is down in Q2 seasonally?
Bobby Johnson
Where I sit right now. We'll also be spending some time in Japan later in the quarter, personally, on both product announcements and customer visits and partner visits. So...
Jason Ader - Thomas Weisel
Okay. Thank you.
Operator
Our next question comes from the side of Munjal Shah from Jefferies. Go ahead please.
Munjal Shah - Jefferies
This is Munjal for Bill Choi. I have a couple of questions. One, on the router, the XMR and the MLX, do you expect a solid second half ramp? My question was, is that dependent on say one or two customers or is it you think more broad-based with a number of customers? And is that dependent on the new products that you're going to introduce at the Implusai or is it based on the existing products that you have?
Bobby Johnson
It's a broad-base. It's primarily based upon existing products and that the new products that we've just introduced and will be debuting later this quarter for revenue next quarter will be hopefully additive to a broad-base.
Munjal Shah - Jefferies
Okay. And another question on the Layer 4-7. Could you tell us the breakout, as to what percentage that was and could you give us a little bit more color on the traction that you are seeing there?
Bobby Johnson
Okay...
Dan Fairfax
The 4-7 revenue was about 11% of the total revenue.
Bobby Johnson
Is that with support and...?
Dan Fairfax
That's without support.
Bobby Johnson
Okay, so simply with the Optix. Yeah, right.
Munjal Shah - Jefferies
11% of total?
Dan Fairfax
Correct.
Munjal Shah - Jefferies
And just traction with the new products. What are you seeing there in that market?
Bobby Johnson
Well, of the new products, we received revenue on 350 units for the quarter, so the new products seem to be ramping fairly well.
Munjal Shah - Jefferies
Okay. That's great.
Dan Fairfax
Just going back to the router markets just for a second, we have shipped those routers now to over 230 new customers since they began shipment in February of last year. So we're pretty pleased with the broad-base of business that we are seeing in those platforms.
Munjal Shah - Jefferies
Okay. All right, great. Thanks a lot, guys.
Operator
And we'll take our final question from side of Tim Daubenspeck of Pacific Crest Securities. Go ahead please.
Tim Daubenspeck - Pacific Crest Securities
Just within the XMR, MLX, you mentioned a lot of customers there. Are there any outsized or unusually large customers? And I think you have mentioned Limelight as a reference customer in the past. Can you give us any more color in terms of the quarterly contribution?
Bobby Johnson
I don't have Limelight's breakout for the quarter. I don't want to get into too much detail, but Limelight is a fairly significant install and we have several key customers, both in SP world, both in the federal world, some large enterprises that do IPTV type things, some large cable and some large national backbone providers that are continuing to do rollouts.
And we will disclose more and more names over time. On some of these national rollouts we need to get clearance to use the names.
Tim Daubenspeck - Pacific Crest Securities
Very helpful. And then just in terms of the new products coming in Vegas, can you just give us some general metrics, either 10 gig comparisons to products that are in the market or price per port or just some idea of how it measures up to existing products out there?
Bobby Johnson
Okay, so if we take a look at our two competitors that are larger than us, one is Juniper and one is Cisco. If we take a look at their router families, the Juniper T640 and the Cisco CRS, our existing high-end platforms support approximately double the performance of their existing platforms. So, this new platform doubles our own performance, so of existing other competitors platforms, this could be in the 3 to 4X performance range.
So, in other words, they talk about doing clustered virtual routers. We can do all of that in a single device in much less space, much less cooling, much less purchase price, and with a much better MTBF because ours has a lot less moving parts compared to putting four or more other vendor's products together to equal one of ours.
Tim Daubenspeck - Pacific Crest Securities
Thank you.
Operator
At this point, I'll go ahead and turn the program back over to the management for any closing remarks.
Bobby Johnson
Okay. Thank you, Blake. I would like to thank everybody for taking the time to join us this afternoon. We look forward to updating you in approximately 90 days. Thank you.
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