Will Ceragon Networks Avoid Surprises?

Generally, when a company announces the date it will report its financial results, it implies that it will not be issuing any warnings beforehand. Among large companies, Intel (Nasdaq: INTC) abandoned that standard when it issued a fourth quarter revenue warning several days after setting the date for its report. Among Israeli firms, it was Ceragon Networks Ltd. (Nasdaq: CRNT) that surprised and warned in October about the third quarter, two weeks after it had reported the date for its earnings release.

Last Thursday, Ceragon CFO Naftali Idan presented the firm at investment house Needham & Company's eleventh annual growth conference in New York, and after hearing Idan's words, I bet that this quarter Ceragon will not surprise us with a warning before its financial results are reported on February 4.

In the third quarter, Ceragon's sales to its biggest customer, Nokia-Siemens (NOK), were bigger than usual, and since the gross profit on OEM type sales is lower, Ceragon missed analysts' earnings per share forecast by a few cents per share.

While Idan did not directly refer in his presentation to fourth quarter results, he pointed out that OEM sales returned in the fourth quarter to their regular proportion, and in addition, the shekel-dollar exchange rate improved significantly. In general, his tone throughout his presentation, and his answers to questions, were positive, and it is possible to understand that Ceragon, a wireless infrastructure provider, still has not been hit by the great recession that everyone is talking about, and words like "growth" and "profitability" were repeated several times.

Ceragon's business is booming primarily in Asia and Africa, where there is still strong growth in the number of subscribers joining cellular telecommunications companies. This fact requires the companies to continue to invest in setting up additional communications lines and building up infrastructure equipment.

According to Idan, Ceragon is one of the only firms in the sector that knows how to profit in markets with very low prices, such as in Asia, led by India. Together with China, it is only now getting to the stage of massive investment in third generation networks. Regarding the U.S., Idan said that market is still in recession, and Ceragon is not relying on it, but there are a few large tenders - he mentioned one by Verizon (NYSE: VZ) - in which the company is participating.

The market anticipates that Ceragon will report revenue of $58 million in the fourth quarter, which is similar to the third quarter, but this will represent growth of 25% compared with the corresponding quarter of 2007. Earnings per share are expected to be $0.11.

However, what will really affect the share will be the guidance for the first quarter and full year of 2009. In its earlier conversation, the company estimated that despite the recession it would post 10-20% growth this year but what was said three months ago is already considered history, and one must hope that any changes won't be bad ones.

Disclosure: None

Published originally by Globes [online], Israel business news - www.globes.co.il

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.