It was announced Wednesday that Ceragon Networks (CRNT) has reached an agreement to acquire Nera Networks of Norway. Both are in the backhaul sector of the wireless business. As frequent readers know, I have long been a bull on Ceragon for a number of reasons:
- Large customer base and high growth
- Low cost structure
- Excellent management team
- Outstanding market niche
As mobile networks grow, the interconnections between towers and switching hubs (backhaul) requires faster and faster connections. Putting in microwave solutions such as those Ceragon (and Nera) provide is signficantly cheaper than replacing pokey copper T-1's with optical fiber. And in the parts of the world where growth is fastest (China, India, etc.) there isn't even any copper to replace. Moreover, in many regions (e.g Africa, South America) the topology precludes wired backhaul.
Ceragon, with its roots in the Israeli military, has long been the technology leader in this segment. The addition of Nera's complementary product line and customer set (particularly in South America) will provide a significant boost to its prospects. It also reduces reliance on Nokia-Siemens, Ceragon's biggest customer.
But the biggest advantage coming from this consolidation is that it will ultimately make Ceragon a much more attractive takeover candidate than it already is. Potential acquirers are the large, diversified telecoms like Alcatel-Lucent (ALU), Nokia-Siemens (NOK), NEC (NELTY.PK), or Ericsson (ERIC).
This has been a long-term buy-and-hold recommendation of mine for years, and that's even more so now (though I'd probably wait a quarter or two for a lower price as Ceragon absorbs some losses from the acquisition and rationalizes Nera's cost structure).
I would expect it's even more likely to see Ceragon taken out itself, perhaps within 2 years or so. I plan on holding shares when it is.
Disclosure: No position