Ceragon Networks' Asian Connection
By
Dave Mock
July 22, 2008
|
As many investors hunker down and prepare for the worst with earnings season kicking in, wireless solution provider and Motley Fool Hidden Gems recommendation Ceragon Networks (Nasdaq: CRNT) has helped to spread a little bit of cheer. The small cap delivered impressive financials even with weak demand in the U.S. region.
Quarterly revenue at the company soared 48% to an all-time high of $55.2 million. GAAP net income came in at a whopping $15.5 million, but most of that figure was from a one-time, $11.2 million tax benefit. And in any event, the market was obviously expecting worse, since the stock bounced up by nearly 14% after the announcement.
Recent trends of strong demand continued in the Asia-Pacific region and within Ceragon's original equipment manufacturing (OEM) sales channel. The Asia-Pacific region made up 57% of revenues, even ahead of the 22% that came from emerging markets. Ceragon's OEM business -- which includes the Nokia (NYSE: NOK) and Siemens network partnership -- brought in almost 37% of the revenues this quarter.
Ceragon sees the weakness in North America continuing throughout 2008. But it expects to see improvements after that. It even cites the Apple (Nasdaq: AAPL) iPhone and similar data-centric mobile devices as ways to drive higher data use on wireless networks. Ceragon also sees the WiMax partnership between Sprint Nextel (NYSE: S), Clearwire (NYSE: CLWR) and other partners such as Intel (Nasdaq: INTC) and Google (Nasdaq: GOOG) finally coming around in 2009 and potentially boosting demand for products in the United States.
On the downside, increasing OEM business means lower margins. Ceragon reported a slight dip in gross margin to 34%, and operating margins fell to 7.8%. Net income is also diluted further, with a higher share base following a secondary offering last year. A weak dollar and increasing commodity prices are also making it tough for the company to squeeze more profit from each dollar of revenue.
But with strong demand fueling top-line growth, Ceragon now expects more than 35% growth in 2008. Still, an increased focus should fall on the efficiency of Ceragon's operations going forward, to ensure that increased growth and profitability will overcome dilution and reward shareholders.
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