Ceragon's CEO Ira Palti and CFO Doron Arazi graciously agreed to meet with me two days ago (Tuesday). I was mainly interested in their views on the microwave backhaul market and Ceragon's place in it. I think that Ceragon followers might benefit from a report of the meeting and I hope the following accurately depicts what was said there.
In the CEO's opinion there is room in the market for specialty microwave backhaul companies. Although about half of the tenders are for the whole network, in the other half the projects are broken down to their components with a separate tender for each one of them. The first approach is favoured by carriers seeking better financial terms (price and timing of payment) and less hassle. The second approach is favoured by the big carriers that don't want to be at the mercy of one supplier or carriers that want to have a technological edge.
Among the two market leaders with about 25% of the market share each there are opposing approaches: Huawei invests in the development of its microwave backhaul business and participates in separate microwave backhaul tenders. Ericsson reduced its investment in the field and doesn't participate in such tenders, possibly because it is losing money in them. Also some of the smaller suppliers of whole networks are downgrading their efforts and are considering to sell their microwave backhaul business.
Among the specialty microwave backhaul companies the serious contenders are the publicly traded Ceragon, Aviat and Dragonwave and the privately held Siae. Ceragon's CEO doesn't see a future for the smaller ones. The CEO believes that Ceragon will survive this transition period and will come out the leader among the specialty companies.
Regarding the short term, the pace of carriers upgrading to LTE is accelerating, mainly in order to gain a technological advantage for marketing purposes. The majority of these upgrades is currently in developing countries, where there is more emphasis on getting better financial terms. North America, where margins are better and payment is quicker, is delaying. Improvement is expected in 2015. Till then, Ceragon is taking measures to control its working capital and DSO. The CFO pointed out the positive 3.5M$ EBIDTA for the third quarter.
This concludes the main points of the meeting. In my opinion, there is indeed a future for Ceragon in the microwave backhaul business. There is also a good chance that Ceragon could be profitable in the near future. If this happens, Ceragon's stock is obviously very cheap.
Disclosure: The author is long CRNT.
Additional disclosure: I'm not a registered investment adviser and this report contains only my impressions and opinions. The fund I manage is long Ceragon.