Ceragon: Gaining from Cellular Recovery

The dispute between bulls and bears about demand, or lack thereof, in future quarters, may be the reason Ceragon Networks Ltd.'s (Nasdaq: CRNT) management took a conservative stand and did not give second quarter guidance. This despite the fact that the situation today is much better than it was at the beginning of February, when it reported fourth quarter 2008 results.

Ceragon's results, and subsequent conference call, could point to an improvement in Ceragon's situation, in contrast to the financial freefall of previous quarters.

As I wrote last week, India's cellular market is beginning to revive, and Ceragon sees the improvement at two types of customers: original equipment manufacturers (OEM) and directly from the telecommunications companies. The reason behind the strengthening is the monthly addition of 15 million cellular subscribers in regions already covered by infrastructure of towers and equipment, which leads to continued investment in additional regions.

This process is liable to extend over the next few years, because the cellular penetration rate in India is only 35%.

In the U.S., there is strengthened investment in cellular infrastructure. For Ceragon, it was seen in the addition of a new customer during the quarter, a U.S. telecommunications company and a total of three new customers at that level, an OEM deal with Nokia-Siemens Networks, and a giant telecommunications company in South America.

Another positive sign is the fact that 40% of the $39 million inventory listed on Ceragon's books is already at customers and waiting to be installed, when it will be recorded as a sale. This is in addition to the deferred revenue section which grew a bit in the quarter.

First quarter profit was very small, but the company generated $4.8 million cash flow, and currently has cash of $93.5 million, which is half the firm's market cap.

Ceragon continues to buy back its shares on the stock market, and has so far bought back $14.3 million out of a budgeted $20 million announced at the end of October, 2008.

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.