Something Big's Brewing in This Industry

Ceragon Networks (Nasdaq: CRNT  ) is pulling off a Houdini act right now. While many other companies have fallen after beating expectations and increasing guidance, Ceragon missed Wall Street's revenue target and guided flat for the next quarter. And the stock price is largely flat.

The wireless infrastructure installer reported sales of $60.9 million, 44% above the year-ago period but below the average analyst target of $61.3 million. Non-GAAP earnings came in at $0.13 per share, up from $0.03 a year ago and beating the Street's $0.11 consensus.

The drag on sales comes from India, where the government is implementing new security measures for data networks. Ceragon is still installing systems, but future orders are delayed for the time being. In effect, a generous portion of Ceragon's supposed sales have simply been pushed into future quarters. This goes a long way toward explaining the market reaction.

A tightly focused operation like Ceragon's or rival DragonWave's (Nasdaq: DRWI  ) is subject to these unexpected swings as one large customer or another accelerates or holds back on a network installation. Apart from the Indian operators, Ceragon is now waiting for Clearwire (Nasdaq: CLWR  ) to start buying fresh equipment after an extended order holiday. AT&T (NYSE: T  ) is another large Ceragon customer, so Ma Bell's continued network build-out could be a boon to this small-cap stock. In this space, contracts can ramp up and down extremely quickly.

I find it both amusing and encouraging to see Ceragon CEO Ira Palti comparing his company to the likes of LM Ericsson (Nasdaq: ERIC  ) . "We have only two primary competitors globally," Palti said in the earnings call. "Our strength compared to each of those competitors are difficult to replicate. More data in the network." Given that Ceragon sells some of its equipment through OEM partner Nokia Siemens, and looking at the limited reach of the other wireless backhaul providers, I have to think that he's talking about Ericsson and DragonWave.

Not bad company to keep, I'd say. There's a blatant difference of scale, of course. But if Ceragon keeps up the current growth rate, the comparison to Ericsson won't sound absurd in a couple of years.

Ceragon is a five-star CAPS stock and I'm heading over to reinforce that badge of honor with my own All-Star vote. Right this way, if you'd care to join me.