The following discussion and analysis of our financial condition and results of operations should be read together with the condensed consolidated financial statements and related notes included elsewhere in this report.

When used in this discussion or elsewhere in this report, the words "expects," "anticipates," "estimates," "believes," "plans," "will," "intend," "can" and similar expressions are intended to identify forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

These risks and uncertainties include, but are not limited to, risks relating to general economic conditions in the markets we address and the telecommunications market in general, risks related to the development of our new products and services, the effects of competition and competitive pricing pressure, uncertainties associated with changing intellectual property laws, developments in and expenses related to litigation, increased competition in our markets, inability to obtain sufficient amounts of key components, the rescheduling or cancellations of key customer orders, the loss of a key customer, the effects of new and emerging technologies, the risk that excess inventory may result in write-offs, price erosion and decreased demand, fluctuations in the rate of exchange of foreign currency, changes in our effective tax rate, potential short-term investment losses and other risks due to credit market dislocation, changes in accounting for convertible debt, market acceptance of our new products and services, technological advancements, undetected errors or defects in our products, the risks associated with our international sales, geopolitical risks and risk of terrorist activities, the risks associated with attempting to integrate other companies and businesses we acquire, and the risks set forth below in Part II, Item 1A, "Risk Factors."

These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances or on which any such statement is based.

All references to "Symmetricom," "we," "us," and "our" mean Symmetricom, Inc. and its subsidiaries, except where it is made clear that the term means only the parent company.

Overview

Symmetricom is a leading supplier of timing and synchronization hardware, software, and services. Our technology plays a critical role in network reliability and quality of service for wireline, wireless and cable networks. We also provide end-to-end quality monitoring solutions for triple-play voice, data, and digital video. We sell our solutions to telecom and cable service providers, government agencies, enterprises, and research facilities. Symmetricom products are deployed in more than 90 countries. Our products include atomic frequency references, such as rubidium and cesium oscillators; hydrogen masers; GPS time and frequency receivers, as well as time and frequency distribution systems; network management software; video quality monitoring solutions and professional services.

We manufacture precision time products that allow our customers to keep accurate time to within 40 billionths of a second over a 24-hour period. Our clocks tell us the time of day and allow us to measure the time interval between when an event starts and when it stops. The difference between conventional time measuring devices and our precise time products lies in the accuracy of the measurements. To place the accuracy or resolution of our clocks in perspective, if a clock accumulates a 40 billionth of a second time error over a 24-hour period, it would require more than 60,000 years to accumulate an error of one second.

On July 27, 2009, we announced that David G. Côté had been named as President and Chief Executive Officer, effective August 3, 2009. The Board of Directors has also appointed Mr. Côté to the Board of Directors.

New Accounting for Convertible Subordinated Notes- Fiscal 2010

Effective June 29, 2009, we adopted new authoritative guidance on accounting for our contingent convertible subordinated notes. This guidance applies to certain convertible debt instruments that may be settled in cash or other assets, or partially in cash, upon conversion and is required to be applied retrospectively. The adoption impacted the accounting for the Notes by requiring the initial proceeds to be allocated between a liability and an equity component based on the fair value of the liability component as of the issuance date.

We determined that the initial liability component of the Notes was valued at $77.0 million, with the equity component representing the residual amount of the Notes proceeds. As a result, for fiscal 2005, we retrospectively recorded $43.0 million as a component of equity and a corresponding debt discount as of the date of issuance, and a deferred tax liability of $15.9 million.

In addition, we allocated $0.9 million, net of tax, of the total issuance costs of $4.0 million to the equity component of the Notes and the remaining $2.6 million of the issuance costs remained classified as long-term other assets. The issuance costs were allocated pro rata based on the relative carrying amounts of the liability and equity components. The debt discount and the issuance costs allocated to the liability component are amortized using the effective interest method as additional interest expense over a seven-year period ending June 2012 at which point the Notes may be redeemed by the holders. The equity component of the issuance costs of $1.4 million is included in common stock as additional paid-in-capital.

As a result of the partial redemption of the Notes in the first quarter of fiscal 2009, we recognized a pre-tax loss on partial redemption of $5.6 million, which represents the difference between the carrying value of the liability component of the redeemed amount and its fair value at the date of redemption in the first quarter of fiscal 2009.

Upon adoption, interest expense increased on our Notes by adding a non-cash component to amortize a debt discount calculated based on the difference between the cash coupon rate (3.25% per year) of the Notes and the effective interest rate on the debt borrowing (10.69% per year). For the quarter ended September 27, 2009, the total interest expense relating to our Notes was $1.2 million, including $0.4 million related to the contractual interest coupon and $0.8 million related to amortization of the discount on the liability component. For the quarter ended September 28, 2008, the total interest expense relating to our Notes was $1.5 million, including $0.6 million related to the contractual interest coupon and $0.9 million related to amortization of the discount on the liability component.

Critical Accounting Estimates

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures at the date of our financial statements. On an ongoing basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. Other than the adoption of Financial Accounting Standards Board (FASB) issued authoritative guidance on accounting for our contingent convertible subordinated notes (See Item 1 of Part I, Financial Statements - Note 1 - Basis of Presentation and Recently Issued Accounting Policies), we believe that there have been no significant changes during the three months ended September 27, 2009 to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 28, 2009.

Known Trends and Uncertainties Impacting Future Results of Operations: Global Market and Economic Conditions

Financial markets in the U.S. and abroad have experienced a severe downturn arising from a multitude of factors, including concerns about the systemic impact of inflation and deflation, geopolitical issues, adverse credit conditions, higher energy costs, lower corporate profits and capital spending, and declining real estate and mortgage markets, combined with volatile oil prices, decreased business and consumer confidence and increased unemployment. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases cease, to provide funding to borrowers.

If current economic conditions or the constrained credit environment continue, our customers may delay or reduce capital expenditures. This could result in reductions in sales of our products, longer sales cycles, difficulties in collecting accounts receivable, additional excess and obsolete inventory, potential impairment charges related to our intangible assets, gross margin deterioration, slower adoption of new technologies, increased price competition and supplier difficulties.

Results of Operations

The following table presents selected items in our condensed consolidated
statements of operations as a percentage of total revenues for the three months
ended September 27, 2009 and September 28, 2008:



                                                      Three Months Ended
                                               September 27,       September 28,
                                                   2009                2008
 Net revenue
 Telecom Solutions Division:
 Wireline Products                                      42.8 %              49.8 %
 Wireless/OEM Products                                  10.8 %              12.4 %
 Global Services                                         8.1 %               7.2 %
 Quality of Experience Assurance                         0.4 %               0.4 %
 Timing, Test and Measurement Division                  37.9 %              30.2 %

 Total net revenue                                     100.0 %             100.0 %

 Cost of products and services                          56.4 %              47.6 %
 Amortization of purchased technology                    0.7 %               0.7 %
 Integration and restructuring charges                   1.6 %                -  %

 Gross profit                                           41.3 %              51.7 %
 Operating expenses:
 Research and development                               12.1 %              13.1 %
 Selling, general and administrative                    26.0 %              28.0 %
 Amortization of intangible assets                       0.2 %               0.2 %
 Integration and restructuring charges                   0.9 %               1.0 %

 Operating income                                        2.1 %               9.4 %
 Loss on repayment of convertible notes, net              -  %             (10.1 )%
 Loss on short-term investments, net                      -  %              (0.8 )%
 Interest income                                         0.9 %               1.4 %
 Interest expense                                       (2.4 )%             (3.0 )%

 Income (loss) before income taxes                       0.5 %              (3.1 )%
 Income tax provision (benefit)                          0.2 %              (1.0 )%

 Net income (loss)                                       0.3 %              (2.1 )%

Net Revenue:



                                                     Three Months Ended
                                            September 27,           September 28,
                                                2009                    2008              $ Change         % Change
Net Revenue (dollars in thousands):
Wireline Products                         $          22,511        $        27,772        $  (5,261 )         (18.9 )%
Wireless/OEM Products                                 5,645                  6,952           (1,307 )         (18.8 )
Global Services                                       4,237                  4,051              186             4.6
Quality of Experience Assurance                         206                    226              (20 )          (8.8 )
Timing, Test and Measurement Division                19,875                 16,897            2,978            17.6

Total Net Revenue                         $          52,474        $        55,898        $  (3,424 )          (6.1 )%
Percentage of Revenue                                 100.0 %                100.0 %

Net revenue consists of sales of products, software licenses and services. In the first quarter of fiscal 2010, net revenue decreased $3.4 million, or 6.1%, compared to the corresponding quarter of fiscal 2009. Wireline revenue decreased $5.3 million, or 18.9%, compared to the same quarter for the prior year, due to a decline in sales of cable products. Wireless/OEM Products revenue decreased $1.3 million, or 18.8%, compared to the same quarter for the prior year, due primarily to a decline in legacy Code Division Multiple Access (CDMA) technology investments by wireless carriers. Revenue for Global Services and Quality of Experience Assurance Products was essentially flat in the first quarter of fiscal 2010 compared to the same quarter in the prior year. Timing, Test and Measurement Division revenue increased by $3.0 million, or 17.6%, compared to the same quarter for the prior year, due to higher international and government sales.

Gross Profit:



                                                     Three Months Ended
                                            September 27,           September 28,
                                                2009                    2008              $ Change         % Change
Gross Profit (dollars in thousands):
Wireline Products                         $          12,911        $        18,675        $  (5,764 )         (30.9 )%
Wireless/OEM Products                                   451                  1,874           (1,423 )         (75.9 )
Global Services                                       1,381                  1,028              353            34.3
Quality of Experience Assurance                         146                    103               43            41.7
Timing, Test and Measurement Division                 7,988                  7,609              379             5.0
Other cost of sales                                  (1,230 )                 (368 )           (862 )         234.2

Total Gross Profit                        $          21,647        $        28,921        $  (7,274 )         (25.2 )%
Percentage of Revenue                                  41.3 %                 51.7 %

Gross profit in the first quarter of fiscal 2010 decreased by $7.3 million or 25.2% compared to the corresponding quarter of fiscal 2009. Gross profit for Wireline Products decreased by $5.8 million, or 30.9%, which is greater than the revenue decrease of 18.9%, due to a lower sales mix of higher margin cable products and higher period costs. Gross profit for Wireless/OEM Products decreased by $1.4 million, or 75.9%, which was greater than the revenue decrease of 18.8% for the same period, due to higher period costs and a sales mix towards lower margin products. Gross profit for Global Services increased $0.4 million, or 34.3%, which is greater than the revenue increase of 4.6% for the same period due primarily to staff reductions, resulting in lower services labor costs, implemented at the end of the fourth quarter of fiscal 2009. Gross profit for Quality of Experience Products, increased by $43,000, or 41.7%, due to lower manufacturing cost. Gross profit for the Timing, Test and Measurement Division increased by $0.4 million, or 5.0%, which is less than the revenue increase of 17.6%, primarily due to higher government sales, which have lower margins.

Other cost of sales increased $0.9 million or 234.2% due to restructuring costs related to certain manufacturing facilities space no longer providing future benefit and the increase in depreciation costs for the shorter estimated life of the respective assets. We expect that other cost of sales will increase in the second quarter of fiscal 2010 compared to the first quarter of fiscal 2010, due to increased restructuring costs primarily related to certain manufacturing facilities space no longer providing future benefit.

Operating Expenses:

Research and Development Expense:



                                               Three Months Ended
                                     September 27,            September 28,
                                          2009                    2008               $ Change         % Change
Research and development
expense (dollars in thousands)      $          6,334         $         7,304        $     (970 )         (13.3 )%
Percentage of Revenue                           12.1 %                  13.1 %

Research and development expense consists primarily of salaries and benefits, prototype expenses and fees paid to outside consultants. Research and development expense in the first quarter of fiscal 2010 decreased $1.0 million, or 13.3%, compared to the same quarter of fiscal 2009 due primarily to lower headcount as a result of the January 2009 restructuring, lower incentive compensation-related expenses, and lower stock-based compensation costs. In terms of dollar amount, we expect that research and development expenses in the second quarter of fiscal 2010 will be consistent with the first quarter of fiscal 2010.

Selling, General and Administrative:



                                                 Three Months Ended
                                        September 27,           September 28,
                                            2009                    2008              $ Change         % Change
Selling, general and
administrative (dollars in
thousands)                            $          13,660        $        15,679        $  (2,019 )         (12.9 )%
Percentage of Revenue                              26.0 %                 28.0 %

Selling, general and administrative expenses consist primarily of salaries, benefits, sales commissions and travel-related expenses for our sales and services, marketing, finance, human resources, information technology and facilities departments. These expenses decreased by 12.9% or $2.0 million, to $13.7 million for the first quarter of fiscal 2010, compared to $15.7 million for the corresponding quarter of fiscal 2009. The decrease in expenses consisted primarily of a $1.6 million reduction in compensation-related expenses including stock-based compensation and incentive compensation related expenses, and lower depreciation and commission expenses. In terms of dollar amount, we expect that selling, general and administrative expenses in the second quarter of fiscal 2010 will be consistent with the first quarter of fiscal 2010.

Amortization of intangibles:

                                                Three Months Ended
                                     September 27,              September 28,
                                         2009                       2008                 $ Change          % Change
Amortization of intangible
assets (dollars in thousands)       $            95           $             103         $       (8 )           (7.8 )%
Percentage of Revenue                           0.2 %                       0.2 %

Amortization of intangibles decreased in the first quarter of fiscal 2010 compared to the corresponding period of fiscal 2009 due to certain assets becoming fully amortized during the first quarter of fiscal 2010.

Integration and restructuring charges:

                                                Three Months Ended
                                     September 27,              September 28,
                                         2009                       2008                 $ Change          % Change
Integration and restructuring
charges (dollars in thousands)      $           476           $             585         $     (109 )          (18.6 )%
Percentage of Revenue                           0.9 %                       1.0 %

Integration and restructuring charges decreased in the first three months of fiscal 2010 compared to the corresponding period of fiscal 2009 due the higher costs in the first quarter of fiscal 2009 related to the shutdown of the Austin, Texas engineering facility. We anticipate that integration and restructuring charges will decrease in the second quarter of fiscal 2010 compared to the first quarter of fiscal 2010.

Loss on repayment of convertible notes, net:

                                                 Three Months Ended
                                      September 27,             September 28,
                                           2009                     2008                 $ Change      % Change
Loss on repayment of converible
notes, net (dollars in
thousands)                           $             -          $          (5,623 )       $    5,623       (100.0 )%
Percentage of Revenue                              -  %                   (10.1 )%

In the first quarter of fiscal 2009 we repaid $62.5 million principal amount of our convertible notes and incurred a loss of $5.6 million mostly related to the difference in the carrying value of the liability component of the redeemed amount compared to its fair value at redemption in the first quarter of fiscal 2009.

Loss on short-term investments, net:

                                                Three Months Ended
                                     September 27,              September 28,
                                         2009                       2008                 $ Change       % Change
Loss on short-term
investments, net (dollars in
thousands)                          $            -            $            (473 )        $     473        (100.0 )%
Percentage of Revenue                            -  %                      (0.8 )%

The $0.5 million net loss on short-term investments recognized in the first quarter of fiscal 2009 is attributable to an "other than temporary" loss of $0.6 million partially offset by a gain of $0.1 million related to a recovery on an investment for which we previously recognized an "other than temporary" loss in fiscal 2008.

Interest income:

                                                Three Months Ended
                                     September 27,              September 28,
                                         2009                       2008                 $ Change          % Change
Interest income (dollars in
thousands)                          $           461           $             768         $     (307 )          (40.0 )%
Percentage of Revenue                           0.9 %                       1.4 %

Interest income decreased $0.3 million in the first quarter of fiscal 2010 compared to the same period in the prior year due to lower invested balances and lower interest rates.

Interest expense:

                                               Three Months Ended
                                      September 27,           September 28,
                                          2009                    2008               $ Change      % Change
Interest expense (dollars in
thousands)                           $        (1,274 )       $        (1,654 )       $     380        (23.0 )%
Percentage of Revenue                           (2.4 )%                 (3.0 )%

Interest expense decreased $0.4 million in the first quarter of fiscal 2010 compared to the same period in the prior year due to the repayment of $62.5 million in convertible notes in the first quarter of fiscal 2009. Further, in the first quarter of fiscal 2010 we adopted FASB issued authoritative guidance on accounting for our contingent convertible subordinated notes. As a result of this adoption, interest expense includes non-cash interest costs of $0.8 million and $0.9 million in the first three months of fiscal 2010 and fiscal 2009, respectively.

Income taxes:

                                                Three Months Ended
                                     September 27,             September 28,
                                         2009                      2008                 $ Change       % Change
Income tax expense (dollars in
thousands)                          $            95          $            (556 )        $     651        (117.1 )%
Percentage of Revenue                           0.2 %                     (1.0 )%

Our income tax provision was $0.1 million in the first quarter of fiscal 2010, compared to a $0.6 million benefit in the corresponding quarter of fiscal 2009. Our effective tax rate in the first quarter of fiscal 2010 was 35.2 %, compared to an effective tax rate of 32.1% in the corresponding period of fiscal 2009.

Key Operating Metrics

Key operating metrics for measuring our performance include sales backlog and contract revenue. A comparison of these metrics at the end of the first quarter of fiscal 2010 with the end of fiscal 2009 is discussed below:

Sales Backlog:

Our backlog consists of firm orders that have yet to be shipped to the customer, or may not be shippable to a customer until a future period. Most orders included in backlog can be rescheduled or cancelled by customers without significant penalty. Historically, a substantial portion of net revenue in any fiscal period has been derived from orders received during that fiscal period.

. . .