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Ceragon Network Mulls Restructuring To Improve Profits

|Includes:Ceragon Networks Ltd. (CRNT), VDMCY

Ceragon Network (NASDAQ: CRNT) announced a couple of months that it has received additional orders of $7 million from Vodacom Tanzania, the largest mobile operator in the country. The upgrade will address the increased continued growth, as well as continued demand in advanced data services.

Vodacom Tanzania is a subsidiary of the Vodacom Group Ltd. (OTCMKTS: VDMCY) and has been using Ceragon technology to serve its 10 million clients. Rene Meza, Managing Director at Vodacom, said that the upgrade in the network's capacity is in line with increasing new data demand from its subscribers. Mr. Meza said that Ceragon has played a big role in enabling them to reach customers in urban and remote rural areas. As such, it believes that Ceragon will help them accomplish its goal to maintain overall market leadership. At present, Tanzania's market penetration is estimated at 51 percent. With the launch of 3G mobile broadband services, telecommunication players are upgrading their infrastructure to widen subscriber base. Ceragon Network is optimistic over the prospects of the wireless market in the African region. In fact, it expects to build more infrastructures in remote areas of the region and provide a good opportunity for the company.

Follow-on Offering of CRNT Shares

On November 20, 2013, the company disclosed that it priced the proposed public offering of its 14 million shares at $2.40 a share. It also granted its underwriters a 30-day option for the additional 1.6 million shares to cover the over allotment option for the offering. The offering closed on November 26, 2013 and net proceeds were estimated at $31.4 million for the company. However, the market was not happy with the announcement, as there were no details with regards to the public offering. Furthermore, the offering will dilute the existing shareholders by around 38 percent.

In fact, Ceragon Network shares have declined in excess of 20 percent during the week the public offering was announced. Year-to-date, shares are down by 44.21 percent. Its share price performance is in line with its peers.

Aviat Networks, Inc. (NASDAQ: AVNW) is also down by 33.13 percent for the year on lower revenue guidance compared to the previous years. On the other hand, Aruba Networks, Inc. (NASDAQ: ARUN) also declined by 22.23 percent this year despite strong quarterly performance.

Cost Reduction Priority

In the recent third quarter results, the company registered revenues of $92.1 million, lower by 21 percent compared to the same period last year. This translates to a net loss of $10.4 million, or loss per share of $0.28.

The company plans to realign its operations, which will result in the reduction of manpower and employ cost measures. Management expects an annual savings of $25 million a year. While the company receives good feedback from its new product offerings, its expenses have been growing faster than its revenues. The plan to reduce its expenses will provide strong support to reach its profit goals in the future. As a result of this, Ceragon Network will pare back some losses it experienced for the year.