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Ceragon Networks Ltd. (CRNT) CEO Ira Palti on Q1 2020 Results - Earnings Call Transcript

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Ceragon Networks Ltd. (NASDAQ:CRNT) Q1 2020 Earnings Conference Call May 4, 2020 9:00 AM ET

Company Participants

Ira Palti - President and CEO

Ran Vered - CFO

Conference Call Participants

Alex Henderson - Needham & Company

George Iwanyc - Oppenheimer

Gunther Karger - Discovery Group


Good day, everyone. Welcome to the Ceragon Networks Limited First Quarter 2020 Results Conference Call. Today's call is being recorded and will be hosted by Mr. Ira Palti, President and CEO of Ceragon Networks.

Today's call will include statements concerning Ceragon's future prospects that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on the certain beliefs, expectations, and assumptions of Ceragon's management. For examples of forward-looking statements, please refer to the forward-looking statements paragraph in our press release that was published earlier today.

These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially including the risks of disruption to our and our customers’ business related to the outbreak of the novel coronavirus COVID-19 pandemic, “Coronavirus”; the risk of macro-economic downturn and slowdown of development and significant decline of business that can harm our and our customers’ ability to conduct or further develop our/their business, including, cancellation, suspension or reduction in the investment in new equipment purchase, postponement or cancellation of rollout of wireless networks, postponement in the transition to 5G technologies and in the introduction of new products and capabilities, inability to deliver and perform under our contracts, disruption to our supply chain and production capacity, adverse effect on our and our customers’ financial performance, cash flow, revenue and financial results, available cash and financing, and our ability to bill and collect amounts due from our customers; the risks relating to the concentration of a significant portion of Ceragon's expected business in certain countries and particularly in India, where a small number of customers are

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Comments (90)

On 7/16 Ceragon issued blog about 3 GPP Release 16. The below article discusses Verizon’s efforts with 3GPP...appears Ericsson is lead dog for them at this time.

I’m feeling good about CRNT right now Mr Glory. There will be plenty to go around with the buildout and CRNT tech is on the cutting edge. The orders will start piling up. Staying long and tmrw is getting closer.....
I agree. the article mentions VZ working with vendors (plural) and is in testing mode...CRNT's last CC mentioned being in the lab with a U.S. tier 1 (could be VZ or T).
binartech profile picture
@GloryDays Ill try to explain IAB.

Imagine you have truck to take goods from LA to NY and as in LA you get the fuel a 2 bucks cheaper than you put on your truck 200 gallons of fuel so you save 800 bucks because you refuel from what you take instead of refueling in a gas station. But the fuel tank you take on the truck occupies space that you could use to take more goods and charge for them 2000. So at the end you lost 1200.

IAB is the same, you use the bandwidth to serve customers that you pay billions in licenses.

From an Article : "Verizon won 4,940 licenses across 411 PEAs after bidding about $3.4 billion. Verizon received an incentive payment of about $1.79 billion. Verizon in 2018 purchased Straight Path Communications and its extensive portfolio of 38 GHz and 28 GHZ spectrum licenses for $3.1 billion."

So you paid billions to serve customers and will use the spectrum to avoid putting some thousands to deploy backhaul. Moreover, Ericsson or NOK are not going to give that for free they will charge more for integrated IAB so the saving is even less and functionality is even less.

And there is another problem in IAB, you have to place the base station in certain place and the transmitter and antenna for IAB should see the other base station because mmWave backhaul antennas should literally see one each other so you either do not save in installation.

Finally if you have a base station to serve other which in turn serve another one than you lose even more bandwidth because of this:

Base Station --------- Base Station ------------ Base Station

1000 - 200 200 -100 100

800 available 100 available

200 used for BH

So you can see to serve two base stations you lose a lot at the first

one and than you lose all the way down. And at the end you under serve

all base stations.

Base station can serve several radio heads which are those that ultimately the mobile users connects to and there you need a lot of bandwidth and this can't be fronthauled with the base stations.

A pair of IP-40E cost about USD 16000 list price and carriers get a much lower price, probably half of that. A base station cost around 150000, fiber backhaul will cost much more and IAB will save just a little compared to deploy Ceragon backhaul.

And in terms of performance and efficiency, IAB can't be compared with a Ceragon Backhaul.
Can we infer anything from this exchange on the VZ call:

David Barden

Hi, guys. Thanks so much for taking the questions. I guess I want to follow up on that answer, Matt. Obviously at the top line, we’re seeing some sequential improvement. The question I think that people have is as you start to see the equipment revenue velocity or the equipment volume velocity improve in third quarter, are we going to see an equal or potential even offsetting effect on margins as we kind of look ahead? And I guess the second question I have would be just kind of zooming out a little bit and thinking about the 5G millimeter wave. Obviously, the critique has been that 5G millimeter wave availability is not that great. Is there any way that you guys can kind of offer some kind of metric or some kind of KPI on 5G millimeter wave availability in the markets where you’ve put it out so we can kind of measure its growth? Thank you.

Hans Vestberg

Hi, David. Let me start on the millimeter wave and have a discussion about that. So, as I said, we are on plan to deploy more than 5x more millimeter wave base station this year compared to last year, so the footprint will be much broader and we will be into 60 cities and those cities will be much more covered than they were last year. And we are disclosing that – usually on a fairly frequent basis how that map is growing. As you have seen, we have launched fairly few markets the first half when it comes to the 60, so you should expect quite a lot of noise from us in the second half and we’re really excited about that. But you also need to think about our model will also include nationwide, so think about our model being a millimeter wave that is transformative. No one is even close to it in the world. Then we will have national coverage on top of that. And then in the bottom, we have the best 4G network in the world. And then I don’t think that our customer will be disappointed with that. We build things that are transformative that are so different than others. So I would be excited for the second half if I would be you. It’s crunch time for Verizon. We have been talking about this for one and a half year. I think our customers will be very excited in the second half. Matt?
I got it. Some good news are in the streets.
Why today surged to Another 13%?
binartech profile picture
Today was the annual shareholder meeting , no sec filing yet but they may said something that some liked !
Ericsson had a huge earnings beat, any clues for Ceragon?
After sold out above 4.5. I am not watching CRNT for a long time. Time to buy back?
Why spiked to 2.49 and big volume 1.38 million shares? No news...
Any predictions for quarterly revenue? my tight range guess is 60-62M. hoping we get Q3 guidance and that it is at least mid 70's.
binartech profile picture
I expect near 70 MMs and 2 or 3 cents EPS
despite the CFO prepared remarks to the effect "they are not expecting 70-75M as previously discussed". these are not exact works and going from memory.
Any thoughts on jio making own 5g solution? I think it's a positive for ceragon as an existing vendor and disaggregated bavkhy
Also FB made a $5.7B investment in Jio and now Google is about to onvest another $4B. Will Jio use this cash for 5G rollout to get ahead of its competitors?
binartech profile picture
@i concur Samsung is an existing vendor, but now will be a former vendor as all Base Stations are from Samsung but it looks like all 5G base stations will be in house built as 5G is basically a lot of software running on standardize hardware. Jio will still have to buy the Radio Heads and antennas for the 5G base stations and Backhaul from Ceragon or NEC. So at the end I agree with you, this is positive for Ceragon.
binartech profile picture
@tinkalm they have a lot of debt so they are offloading debt but yes, this will let them spearhead in 5G like they did in 4G.
binartech profile picture
The total BAN of Huawei in UK opens the door for Ceragon specially with VODAFONE.
This will change Ceragon position in Backhaul. Huawei owns 30% of the Backhaul Market and will lose a big chunk on it.
Huawei will lose the most profitable markets.... Will see how much time it takes to translate into revenue but I think will see this starting next year.
seekingalpha.com/...Seems NEC and Fujitsu are in the running.
Thoughts everyone? www.fiercewireless.com/...
binartech profile picture
@i concur IAB is the most stupid strategy for a carrier to use.
The Spectrum you use for Mobile communication even if its mmWave is expensive and its what you use to serve your customers.
Using IAB use valuable resources to serve other cell.

For Instance if your Base Station can serve 100 mobiles but you use IAB than you will be able to serve only 75 mobiles while using the capacity of 25 to serve another cell and as you are using 25 mobiles capacity, with the other Base Station you can only serve 25 mobiles. There's no magic here.
It can be a starting point when base station is serving very low amount of mobiles when recently deployed but why pay for a technology that will short live as in no time you will need serious backhaul and more in 5G that it supposed to need more and more speed.

Ceragon developed very high speed backhaul in the 10 Gbp-20 gbps range for 5G and Ceragon estimates more than that will be needed.

IAB can't provide those speeds as the complete base station will use less than that bandwidth to serve all mobile users.

Ceragon will release soon Bakchaul mmWave units with 25 gbps speed and in about one or two years 40 Gbps.

You will backhaul with IAB but will not be able to serve mobile users and vice versa.

Some Comments from Ceragon:

IAB is a concept that is implemented to some extent in LTE as well. Some of the operators deploy, many do not, because of the disadvantages of requiring large amount of LTE spectrum on the one hand, and the pressure for high services speeds and backhaul capacity on the other.

We don’t expect operators to use the 5G sub 6GHz spectrum for IAB with services in these bands, since there simply isn’t enough bandwidth in these bands to drive both access and backhaul through the same gNb.

We do anticipate some operators, which hold 5G mmW spectrum, to implement IAB for services which they run on these bands. However, with the capacity growth that is expected, the use will not be to a scale that will threaten the Ceragon business for the following reasons:

It simply takes away from the access spectrum resources, which are expensive for use as backhaul/fronthaul, and should be used for generating revenues (access).
The capacity growth will exceed a point where IAB will suffice (in the more mature stages of 5G rollout).
It’s really nice to have a resident maven. Thanks Binartech
Is disaggregated architecture same as Network slicing or is the former necessary to accomplish the latter?

binartech profile picture
@GloryDays none of the above.
Disaggregated Backhaul means you can use backhaul hardware with different Radio Head, base stations and Distributed units.
Basically its an open hardware which allows to mix hardware from different vendors... unbundle... not depending on one supplier for the complete solution for all scenarios. Before , if you bought a Radio head ( the part the the mobile device connects to ), to connect it to the base station ( the part that process parts of the signals sent by the mobile device to the radio head) you had no option but use same brand for all
Radio Head ----- Backhaul ------ Base Station. With Disaggregation each part can be of a different vemdor. Normally Radio Head and Base Station will be same brand, backhaul can be any with disaggregation support.
Disaggregation is a feature supported at hardware level.

Network slicing means dividing the network link in several sub networks so you can prioritize different protocols. This is more related to the software that runs on the base station.
For instance you slice the network in several sub networks and you can sell this sub networks in different configurations. For instance you can dedicate a sub network or "slice" fro safety with high priority, another slice to a company and other slice for the mobile communications.
This is not entirely new but now it is getting standardize and will be part of the 5G architecture. For instance concepts like SDN ( software defined network) and NFV ( Network virtual function) are converging or from part of this "slice" architecture.
At the end the idea is to have the flexibility of using the mobile access and the whole deployed network in a very flexible way.
You can even assign packages that will travel faster than others for instance standard video and emergency video and even change speed for different packages travelling on the network in different hours.
The network turns to be very flexible and let carriers sell different quality services to different users.

Another application is in IoT where you control you garage door from you sell phone. This is a small package but needs to get to destination very fast, you dont need a lot of bandwidth but you need to be prioritize as you dont want to wait several seconds to see the door starts to open or you will keep sending the order several times.
The above is a very simple applications but also critical apps like autonomous driving and remote surgery that require highest priority and thus telecom companies can prioritize each application using the same link be it microwave, mmwave or fiber that can carry all information but not with same speed and priority.
Ceragon has SDN and Disaggregation support.

You can see some info on Ceragon Blog:






enjoy the reading ;)
binartech profile picture
This can be good news for Ceragon if happens
Verizon using Samsung will require third party Backhaul.
Jeff Boyd profile picture
Good point.

Do you have an opinion on whether Huawei will make major in-roads in South America and Africa? If they get pushed out of the US, Western Europe, I would think they would redouble their efforts elsewhere.

Here is an article that talks about Brazil.
binartech profile picture
@Jeff Boyd While I think Huawei will try to make major in roads in Latin America and Africa, its not going to be easy for them, unless they start again to give everything fro free, like it happen before.
Their problem is carrier consolidation. In Latam you have Claro-America Movil dominating most countries and while they are a Huawei customer, they use most equipment from NOKIA and Backhaul from Ceragon. Movistar ( former Telefonica) has global agreement with Ericsson. So basically in Latam they have second tier carriers and where movistar may buy from them , movistar is trying to exit those markets.

In Africa you have Vodafone, Orange, Airtel and while vodafone use to be global partner of Huawei, with UK moving away from Chinese supplier it is forcing Vodafone to abandon Huawei. The french Orange is hearing their gov recommendation to avoid Huawei and Airtel in Africa may use Huawei but at home in India I dont think they will be able to do so and making deals with Ericsson or NOK or others. We know for instance Ceragon is Airtel preferred backhaul supplier.
At the end just a few 2nd tier may buy from Huawei along with a one or two big ones like MTN.

Huawei will have a rough time. But its their own fault. They played dirty for a long time and now they will have to pay back. And not because security, safety or espionage, but because dumping prices.
Microwave backhaul was one of the first markets they attacked, causing Ceragon and AVNW to lose money and sending DRWI to bankruptcy... Backhaul prices in India are very low thanks to Huawei !
telecom equip makers on the move...saw headline where UK is phasing out Hauwei.
Is anyone able to download what appears to be a “new” investor presentation from June. I only get to the point of the below link.
Really interested to see what Ceragon thinks their TAM is.

binartech profile picture
@GloryDays I downloaded the pdf in my server

Thanks so much. Slide 5 is disappointing. It suggests the TAM only goes from 3,180M in 2019 to 3550M in 2024...11.6% increase in 5 years? So I guess we are relying on them to take major market share...hmmm, it’s nice they mention majors market share gains towards end of presentation but I am really disappointed the TAM is not growing 70% - 100% in 5 years.
Slide 14 is nice to see the four 5G wins plus one unidentified U.S. win (AT&T ?).
Any chance they can do 125M in 3-4 quarters?
Slide 3 has AT&T logo under Significant Activity column (middle column) along with TMobile logo and some other logos.
NTT / NEC alliance... any concerns here.
binartech profile picture
On the contrary, ceragon will supply to nec chipset.... which in turn will supply to ntt....
I sleep better when you respond to the contrary of all my concerns...lol
doesn't seem there is anything here to read into that impacts us, but i'm not in the industry. Binartech?
If Ceragon and Microsoft announce anything it's off to the races. They've noted what Microsoft is up to multiple times in their blog
I thought the same thing, but it seems reckless to mention a “customer” without getting a PR...that could really tick off a MSFT, VZ, etc...
Perhaps they are just using it to show the trends.
binartech profile picture
IMHO I dont think MSFT will do anything with CRNT...
But what I see and if you look in detail the BLOG the scenarios are

MAIN SITE -------- CU ------ DU ----- Radio Head

All this '------' are a type of backhaul.
Backhaul, Midhaul or FrontHaul.

Most 4G scenarios where Main Site -------- [CU]
Where CU integrates everything.

But with 5G to achieve true 5G speeds you need to get the Radio Head as near as possible to the mobile.

So basically you have three backhauls when normally in most cases you had one, backhaul , very seldom you use mid haul or front haul in previous G.

Be it Fiber or Wireless you will need a lot of backhaul. And taking in account that fiber is very expensive to deploy at street level. Wireless will be very important for any 5G deployment.
hence the response to Needham's question about thinking of Ceragon as all of the above for front, mid and backhaul.
hopefully Lightreading (Heavyreading) will post the interview from today with Ceragon regarding Open RAN. Today, Nokia joined the Open RAN alliance.
Any concerns about this from Ericsson?
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