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Ceragon Networks Ltd  (NASDAQ:CRNT)
Q4 2018 Earnings Conference Call
Feb. 20, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone. Welcome to the Ceragon Networks Limited Fourth Quarter and Full Year 2018 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 current 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 risks relating to the concentration of Ceragon's business in certain geographic regions and particularly in India; risks associated with the decline in demand from the single-market segment on which we focus; risks relating to certain guarantees granted by Ceragon on behalf of Orocom to FITEL, in the framework of the FITEL project; risks associated with any failure to effectively compete with other wireless equipments providers; risks associated with a change in our gross margin as a result of changes in the geographic mix of revenue; risks related to the fact that our operating results may vary significantly from quarter-to-quarter and from our expectations for any specific period; risks related to our ability to meet the supply demands of our customers in a timely manner due to the high volatility in their supply needs; risks associated with difficulties in obtaining market acceptance of newly introduced products; risks associated with technical difficulties that may be discovered in newly developed products; and other risks and uncertainties detailed from time to time in Ceragon's Annual Report on Form 20-F and Ceragon's other filings with the Securities and Exchange Commission, that represent our views only as of the date they are made and should not be relied upon as representing our views as of any subsequent date. We do not assume any obligation to update any forward-looking statements.

Ceragon's public filings are available from the Securities and Exchange Commission's website at www.sec.gov or may be obtained from Ceragon's website at www.ceragon.com. Also today's call will include certain non-GAAP numbers. For a reconciliation between GAAP and non-GAAP results, please see the table attached to the press release that was issued earlier today.

I will now turn the call over to Mr. Ira Palti, President and CEO of Ceragon. Please go ahead, sir.

Ira Palti -- Chief Executive Officer and President

Thank you for joining us today. We had a great fourth quarter and 2018 was an excellent year. And we are targeting a fifth year of growth in net income in 2019. We are looking forward to sharing the details with you.

With me on the call is Doron Arazi, as most of you are aware Doron is Deputy CEO and Chief Financial Officer, which means that Doron has two separate time consuming roles. This morning, we announced that Ran Vered has joined Ceragon to assume the CFO role, and he is here with us on the call today. Both Doron and I will continue to do what we have been doing, which is make sure that between the two of us we are maintaining at the executive level key customer channel and supply chain relationships. With Ran as CFO, we'll both be able to bring more focus to our work, so we're very pleased that Ran has joined us. Welcome, Ran.

Turning to our results. We had a very strong finish to the year. The fourth quarter exceeded our expectations for revenue, gross margin and net income. We also had a book-to-bill above one in Q4. The strong finish contributed to 2018 being an excellent year in several respects. In addition to achieving our primary goal of net income growth, our revenue increased about 4%, which is ahead of our original expectations. We were successful in gradually increasing our market share in Latin America, Africa, Asia and some vertical markets in North America.

Gross margin improved and we kept operating expenses within our target range. We also generated close to $10 million in positive cash flow in 2018, which enable us to end the year with even stronger balance sheet. On balance, the organization executed very well and we continue to believe our strategy of managing to the bottom line is the right one for our business. Therefore, we are aiming for 2019 to be the fifth consecutive year of growth in net income. We have not seen any significant changes in demand or overall deployment activity anywhere around the world. We're expecting operators to be moving along the path to 5G this year, before increasing the pace of ordering next year and beyond.

Within this very positive overall picture of our business, we need to mention one caveat. Lack of linearity, which causes lumpiness. Those of you who have followed our business for some time are aware that it is typical for Tier 1 operators to pause orders temporarily during a major deployment. Usually the reason is to bring site acquisition, installation capabilities and equipment inventory into alignment. And it often means when the orders resume, they are larger than they would have been without the pause. As a result, we tend to see lumpy order and revenue recognition patterns as well. Lack of linearity is normal in our business and we need to keep this in mind as we think about each region, the timing of orders and how they combine into the overall picture. Also, it's worth noting, that we have also some potentially large projects in the pipeline. Those could provide some upside to the detailed regional picture we are going to describe for you today.

Turning to the regional update. We'll discuss India first. There seems to be some confusion about our expectations in this region, so we'll try to be as clear as possible. Revenues from India were very high in 2018. In fact, the same high level as 2017 which we did not expect. We expected a pause in order during the first half of 2018 that didn't happen. If it had, 2018 would have been somewhat lower than 2017 having nothing to do with demand or deployment plans or anything else except the timing of orders and revenue recognition.

With India sustaining such a blistering pace in 2018, it seems even more likely that we would soon see a pause in the order pattern, which is why we put a lot of emphasis on the potential lumpiness on our last call. Sure enough orders from India in Q4 were lower. We expect another large batch of orders during the first half, but we don't know the exact timing which creates the possibility that Q1 revenues from India could drop temporarily. The important thing to emphasize is that we expect the overall strength of the Indian market to continue for at least the next several years. We are only talking about the timing of orders and how they cause revenues to be recorded in various reporting periods.

You also are probably wondering how Vodafone/Idea fits into our expectations for the market in India. Nothing has been finalized yet, but we have very strong indications that we are a preferred vendor from the technology standpoint. However, we would not necessarily be able to reach a satisfactory agreement on other aspects such as price or payment terms. There are considerable challenges in this regard before we have a deal that will meet our criteria. If eventually we are able to overcome these challenges, this will generate significantly higher business and revenue from India than our current expectations.

After increasing our market share in APAC during 2018, we expect this region to remain generally strong in terms of ongoing business during 2019. There is a major bidding process going on for a large project in the APAC region where the service provider is preparing for 5G. This is factored into our projections in small numbers and could generate higher revenue than we currently expect toward the late 2019 and into next year.

Africa began to pick up in 2018, and this business looks likely to remain strong this year. Our major customer in Africa along with new customers we brought on board continue to invest in building out 4G in various regions of the continent. Meanwhile, Europe seems likely to remain flat during 2019. 4G technology has been widely deployed across Western Europe and there is no apparent disruptors among the European operators that seems likely to make an aggressive move on 5G that would force the others to follow soon.

In Latin America, we are expecting a very good year that will certainly represent growth over 2018 due to the large project we won in Peru, which is aimed at bridging the digital divide in large rural areas of the country. In Q4, we began shipping to this Orocom project. We also believe our customers in the South Cone will continue to invest as 4G penetration in several countries gradually increases. We also saw a pickup in revenues from North America in Q4, and we expect to sustain these higher levels during 2019. The temporary government shutdown may have had some effect on the T-Mobile/Sprint process, but there are still targeting a closing during the first half.

Any further acceleration of orders from these customers is part of the potential upside we referred to earlier. But we are not building it into our forecast until we have better sense of the post closing plans and the timing. Meanwhile, we continue to target gradual gains in market share in various vertical markets and among smaller operators until we see a 5G related pickup, which we don't expect until 2020.

The trends we see in most geographic regions reflect the various stages service providers are in as they prepare for 5G, so we should talk about how we see 5G affecting wireless backhaul. From a technology and market perspective 5G means, it means orders of magnitude more complexity, to plan a network, to build or densify a network and to operate a network. It means, more sites, perhaps five times more sites. It means more capacity to all the sites. It could be a 100 times more capacity. It means service providers must plan for new and more varied service offerings or what is called use cases. For example, gigabit mobile broadband to support activities, like mobile online game, for example, connecting billions of things from vending machines to parking meters, for example, mission-critical applications requiring very low latency such as self-driving cars, real-time inspection of critical infrastructure and real-time collaborative robotics.

What 5G does not mean is orders of magnitude larger CapEx budgets. So we have to help our customers meet these challenges in ways that are not only simple and fast, but also conserve valuable spectrum assets, minimize expensive real estate for mounting equipment, reduce power consumption and so on. So doing all these things at scale requires innovation in deployment and professional services. It's also important to remember that not every network will suddenly need 100 times more capacity all at once. Different operators and service providers have different needs and are beginning the transition to 5G from different places. So we have to be prepared to meet customers where they are today and give them solutions that will take them where they need to go, at the pace they need to get there in a future-proof way.

Yesterday, we announced our new IP-50 platform that represents a premium solution providing certain additional capabilities which will command a premium in the market. The IP-50 platform is not a replacement for the IP-20. It is an incremental and complementary to our IP-20 offering, because not all networks require the particular capabilities of the IP-50 platform now or in the foreseeable future. Our IP-20 platform is helping customers move along the path from 4G to 5G by providing multiple type of radios, each with multi-core capabilities, delivering high capacity in a variety of configurations including all-outdoor split and all indoor depending on the specific needs of the operators.

So, we are continuing to develop the IP-20 platform offering new releases with higher speeds and more functionality, while we also make the IP-50 premium products available. We believe the IP-50 platform is unique, in that it offers certain advantages that are based on the concept of disaggregation, which in its simplest form means separating the path of innovation among radio technology, networking software and hardware to increase flexibility and available options. The IP-50 leverages software and hardware disaggregation to create an ultra-scalable platform that enables the customer to add capacity and interfaces by simply moving to a larger hardware variant while keeping all the software functionality intact.

Without getting into all the technical details, in addition to offering multi-core technology like the IP-20, the IP-50 offers additional capabilities that include a single radio for all deployment scenarios and routing software capabilities that are separated from the hardware to enable simpler, faster deployments with lowest possible total cost of ownership.

Our first IP-50 products will be showcased at Mobile World Congress next week and we expect to start recognize significant revenue from the IP-50 products beginning next year.

To summarize, we are looking forward to an excellent year in 2019, because we expect higher revenue from North America, Latin America and Africa to compensate for the impact of a temporary pause in India at the beginning of the year. So currently, we are expecting overall revenue to be about the same in 2019 as in 2018, and with a more favorable geographic mix, we are again setting a goal of growing net income for the fifth straight year. And again, generating positive cash flow. And, we intend to do both, while also continuing to invest aggressively in our next generation technology. The next generation of our multi-core technology known as Octacore will enable service providers to address the challenges of a full 5G world. 2019 promises to be a busy, exciting and profitable year, that will provide an excellent transition to 2020 when we expect to see 5G deployments start to make an impact.

Now, I'll turn the call over to Doron.

Doron Arazi -- Deputy CEO

Thank you, Ira. Since you've all seen the press release, I'll just highlight some of the significant items in the report. The fourth quarter was a strong finish to the year and we achieved our primary goal for 2018, which was improving net income. Our primary benchmark non-GAAP net income was up 14.8% to $17.5 million. As Ira noted, revenues grew about 4% for the year, which was likely more related to timing of orders and revenue recognition factors, although we do believe we are gradually increasing our market share.

For those of you on the call who might be new to our story, we managed to the bottom line, not the top line. We look at each deal according to the amount of incremental gross profit it can bring, and we keep stringent control of our operating expenses. We increased our GAAP gross profit by 8.2% in 2018 and our gross margin improved to 33.8%, which was in line with our expectations, despite some higher component costs. Our GAAP operating expenses for the year were also in line with our expectations and higher than 2017, mainly due to foreign currency headwinds, increased R&D investment to continue our technology leadership and performance related compensation expense. Our GAAP EPS in 2018 was $0.28 per diluted share compared to $0.19 per diluted share in 2017. I will further elaborate on the big jump in the GAAP EPS in 2018 when reviewing the Q4 results shortly.

Turning to the details of our fourth quarter, revenues were better than expected and about even with both the third quarter and the fourth quarter of 2017. We saw strength in virtually all regions except India, which was below the very high level of recent quarters, as we ate through the backlog from the large orders received earlier in the year and in Q4 of last year.

Even Europe picked up a little in Q4 compared with the last few quarters. We had three above 10% customers or customer groups in the fourth quarter. One customer in India, a customer group with presence in India and Africa, and a customer group in Latin America. India continue to dominate the breakdown of revenues, but with the more moderate 25% of the total. Aside from India, there were no major changes in the geographic breakdown.

GAAP gross margin was 34.4% and non-GAAP gross margin was 34.7% in Q4, similar to Q3 and an improvement from the same period in 2017, primarily due to a more favorable geographic mix. We believe the trend toward a more favorable geographic revenue mix will continue, which we expect to result in slightly higher gross margin in 2019, with the typical fluctuations from quarter-to-quarter. Turning to operating expenses. Non-GAAP OpEx of $23 million was slightly higher than our target quarterly arrange, due to higher variable compensation expenses, primarily related to our strong business results.

Looking at 2019, we expect operating expenses to remain in our target range of $21 million to $22 million per quarter during the first half of the year and slightly exceeding $23 million per quarter during the second half, primarily due to our investment in our next generation platform, and the expected higher level of revenue. As we have noted in the past, we expect to continue to spend aggressively, but carefully on our next-generation 5G solutions.

Our financial expenses declined sequentially again in Q4, declining from $1.8 million in Q3 to about $900,000 on a non-GAAP basis, due to less exchange rate differences and lower discounting fees. We expect financial expense to range between $1 million to $1.5 million this year, assuming no further significant fluctuations in exchange rates.

I would like to spend a couple of minutes on our tax line in our GAAP numbers, as this caused a big jump in our net income and EPS for Q4 and for the full year on a GAAP basis. In Q4, we recorded income on the tax line primarily due to the need to record a tax asset of $7.2 million on our balance sheet that reflects tax benefits we anticipate as a result of utilizing our NOLs against taxable income in Israel in future years. This also means that we are expected to record higher tax expenses on a GAAP basis in the upcoming years. This tax asset does not reflect the full tax benefit of the approximately $200 million of NOLs that we have accumulated. Therefore, assuming we continue to be profitable in the very long-term, one should expect to see a similar accounting pattern of a tax related income year followed by several years of tax expense.

Bottom line is that this is another indication of our strong performance in the previous couple of years as well as our expectations for continued strength in the upcoming years. On a GAAP basis, we reported $11.6 million in net income and non-GAAP net income of $5 million. This is a very good result and better than our expectations.

Turning to the balance sheet. At December 31st, receivables increased to $123.5 million, with DSOs of 131 days. This primarily relates to another timing issue, and since year-end we have already collected most of the amounts that distorted this DSOs for Q4 relative to our collection expectations. Mainly as a result of the timing of collections we just mentioned, we had negative cash flow of about $5.7 million in Q4. However, for all of 2018, we had positive cash flow of $9.7 million, while gradually reducing our factoring activities by approximately $13 million, which is an even bigger achievement.

We expect to continue to generate positive cash flow in -- sorry, in 2019 as well. At the year-end, we had cash and cash equivalents of $35.6 million with a $40 million unused line of credit, which gives us ample financial flexibility. Although our book-to-bill ratio was above one in Q4, we expect a temporary timing related dip in revenue in Q1. This is primarily due to timing factors related to our business in India, as Ira described on top of typical seasonality.

Since all regions are generally the same or stronger than 2018, in terms of overall demand in activity, we continue to expect revenue for 2019 as a whole to be about the same as 2018, but with a more favorable geographic mix due to a lower proportion of revenue from India related to the timing of orders.

Since we are talking only about timing issues, the lower our Q1 revenues turn out to be the higher we expect revenues to be in the remaining quarters of the year. Our revenues could be higher if some of the projects in our pipeline that are currently counted in our projections at very low amounts or not reflected at all will convert to orders and backlog in time to be recognized as revenue in 2019. We are targeting 34% non-GAAP gross margin in the near-term with some improvement during the second half of 2019. Non-GAAP operating expenses will be slightly higher than 2019 -- sorry in 2019 versus 2018, due mainly to increased R&D investment primarily during the second half. So, as Ira indicated, we're aiming to make 2019 our fifth consecutive year of growth in non-GAAP net income based on a similar level of revenue compared to 2018. We expect this additional net income improvement to be driven by a gradual increase in gross margin, tight control of operating expenses and lower financial expense versus 2018. With continued positive cash flow in 2019, we expect to have a solid foundation for taking advantage of the opportunities related to 5G deployments beyond this year.

Before we open the call to questions, I would like to also welcome Ran to our team and add how pleased I am that he is joining. I will supervise the completion of the 20-F. And Ran and I will work together during the next several weeks on the transition of my CFO duties. He will take full responsibility for Q1, and you will be hearing from him on our first quarter results call in May.

Is there anything you would like to say before we take questions, Ran?

Ran Vered -- Chief Financial Officer

Hello, everyone. I just like to say that I'm very excited to join the Ceragon team. I think we are in great position to take advantage of the transition to 5G technology. And I look forward to contributing as CFO. I'll be speaking with you on the next quarterly results call, and I'm eager to meet those of you I haven't met before. Thanks, Doron.

Doron Arazi -- Deputy CEO

Okay. Now we will open the call for questions. Operator?

Questions and Answers:

Operator

Thank you very much. (Operator Instructions) Our first question comes from George Iwanyc with Oppenheimer. Please go ahead.

George Iwanyc -- Oppenheimer -- Analyst

Thank you for taking my questions and congrats on the solid quarter. When you look at the March quarter, Ira, how much of a downtick do you expect revenue fall below the $80 million line that you kind of have set as the low end of the quarterly run rate?

Doron Arazi -- Deputy CEO

Hey, George, this is Doron. The short answer is yes, but if we are looking back on trends in previous years, if you look on Q1 2017, or even if you go far back to 2016, when there is seasonality and when you don't get the big orders toward the end of the year from India, we expect the numbers to be somewhat in between the numbers of Q1 of 2017 and Q1 of 2016, I believe that we'll be able to end up toward -- closer toward the 2017 numbers.

George Iwanyc -- Oppenheimer -- Analyst

Okay. Thank you. And then, when you look at India, can you tell us where the confidence is that the revenues will come back at strong levels? And how good the visibility is? Is this 2Q, 3Q? Or is it some time just during the second half of the year?

Ira Palti -- Chief Executive Officer and President

It's probably 2Q, 3Q and 4Q. We have very good visibility, as I think we indicated in the call, the timing issues is usually having to do with people needing to align site acquisition, installations, equipment and there are pauses like that, that happen in almost any one of our large installations. We know the almost exact plans of how the progress forwards needs to look like the demand. And this time, it's the alignment of them having more equipment than they were able to do installations. By the way, we talked in the past about the alignment on the other side where we had issues to deliver quickly enough the equipment to meet site acquisition, installation, and the alignment issue is where it is. I think we have very good visibility as in moving forward while discussing with all the customers the specific plans.

George Iwanyc -- Oppenheimer -- Analyst

Okay. And shifting a little bit, Ira. The IP-50, it's a nice looking platform. Can you give us a sense of how that could impact the second half of this year? How that changes your go-to-market? Possibilities for market share gains and how that helps address 5G?

Ira Palti -- Chief Executive Officer and President

We will be introducing the IP from platforms in pieces over the next 18 months. The first pieces will be available at Mobile World Congress and will be available in shipping in the second half. As I indicated on the first part, we do expect significant revenues from the IP-50 only in the first half of 2020, not this year. There are certain areas where this will be part of the mix toward the second half of this year of '19, but only in smaller numbers.

George Iwanyc -- Oppenheimer -- Analyst

All right. Thank you.

Ira Palti -- Chief Executive Officer and President

Now, just as a question on that, one of the reasons for introducing is that usually, planning times and working with customers is a long process. And we are planning with them already the networks for 2020 and beyond. And there's a mixture between the IP-20 and the IP-50 that is required on those networks, and that's part of introducing and making some of the products available at different times.

George Iwanyc -- Oppenheimer -- Analyst

Thank you.

Operator

Thank you. (Operator Instructions) Our next question comes from Alex Henderson with Needham & Company. Please go ahead.

Roger Boyd -- Needham & Company -- Analyst

Hey, thanks, this is Roger Boyd on for Alex. Just a quick one on Africa. Nice to see revenues kind of ramp in there. Can you remind us what the margins look like there in comparison to the rest of your business?

Doron Arazi -- Deputy CEO

I would say that the margins are not too bad. They are not -- obviously, they're not as low as our margins in India. And I would say that if you look at the average corporate, they are not far away from these margins.

Roger Boyd -- Needham & Company -- Analyst

Okay. Makes sense. And then just another quick one. With the shekel, I know you mentioned that you began hedging in 4Q and presumably continue that as it reached kind of 52-week lows. How does that offset the planned increases in OpEx? Have you quantified the benefit you receive from that?

Doron Arazi -- Deputy CEO

Yeah. So, just to remind you, we usually hedge a portion of our shekel exposure during the year. And once we finalize the budget and it is approved we hedge the latter. So obviously, relative to previous year, the exchange rate in which we were able to hedge the expenses, the shekel expenses is higher than the exchange rate we had last year. However, the increased investment in R&D, especially relating to our next-generation chipset, is impacting the R&D level that we expect. So to a certain degree, it ate some of our potential reduction in the OpEx.

Roger Boyd -- Needham & Company -- Analyst

Okay. Makes sense. That's good for me. Thanks.

Operator

Thank you very much. Our next question in queue will come from Michael Staiger with Odeon Capital. Please go ahead.

Michael Staiger -- Odeon Capital -- Analyst

Hey, good morning. Thanks for taking my questions. You're focused on growing net income in 2019. Is there a range we should expect? And would this also be reflected in the free cash flow generation? And then one follow on would be, if you overcome some these challenges in India in 2019, is there sort of a revenue growth range you expect from India? Thanks.

Doron Arazi -- Deputy CEO

So, let me start with the first question first. We are not indicating a specific number of increase to the bottom line. But I think as a reference, if you look back at the achievements of this year relative to previous year, this should probably be a good ballpark. In terms of cash flow or free cash flow, yes, indeed we intend to continue generating free cash flow and we don't see any reason why not to do that. Let's just not forget that usually, or what we intend to do is to use our cash for increasing our business. So the bottom line is that, as long as we continue with this plan and we don't see any huge pickup or any, I would say, strategic moves in which we will have to spend more cash, our free cash flow is going to increase according to our plan in 2019.

Regarding India, so as we were trying to explain, India is very volatile because of the behavior of the operators. And we are very, very careful in giving indication where -- whether the revenue or the business from India will grow in a certain year or will go down because of this volatility. So my preference is not to comment specifically on any growth in India, but just say that we are highly confident that based on what we see now, we can make 2019 in terms of total revenue quite similar to 2018.

Operator

Thank you very much. (Operator Instructions) And next in queue is Gunther Karger with Discovery Group. And your line is open. And pardon me your line is open, please check your mute key.

Gunther Karger -- Discovery Group Inc. -- Analyst

Hello? Okay. Good morning and afternoon actually. Two comments. First of all, I want to congratulate the team for executing the long-term strategy. I've been following the Company for some years and you've done a great job in executing your plan. Congratulations. Secondly, my question...

Ira Palti -- Chief Executive Officer and President

Thank you, Gunther.

Gunther Karger -- Discovery Group Inc. -- Analyst

Yeah, and lastly, in industrywide, that has not been observed generally. So this is a unique accomplishment. The question is vertical markets. Could you care to make any comments on vertical markets?

Ira Palti -- Chief Executive Officer and President

I'll comment on vertical markets by saying that, we do put an effort on vertical markets, mainly in the North America and European business, a large proportion of both our North America and European business comes from different vertical markets. We do make progress in some of those mainly around, what we call, industrial and ISPs. We are targeting public safety application, which we won a few, and continuing to push there to gain market share with those in other places. We also focus and we had a nice initial successes, but in small numbers in all sorts of maritime type of applications. So it's a very segmented niche markets, and we need to work in a lot of those segments and in some of them we do -- did gain market share during 2018.

Gunther Karger -- Discovery Group Inc. -- Analyst

Thank you.

Operator

Gunther, we're ready for the next question in queue.

Gunther Karger -- Discovery Group Inc. -- Analyst

No, that was one my question. And thank you very much.

Operator

Okay. Thank you very much. We do have another question that's coming -- that's from David Allen with Woodbury Financial. Please go ahead.

David Allen -- Woodbury Financial -- Analyst

Good morning. Good results guys. Two quick questions. Number one is, can you talk about the competition in terms of landscape? And number two is, the cost structure for the 20 products versus the 50 product which you're anticipating coming out basically and I guess in the spring. Thank you.

Ira Palti -- Chief Executive Officer and President

So I'll talk about competition in general. We do have and I don't think the competitive landscape have changed significantly over the last year or even longer than that, although we see some of our competitors weakening because it's in some of the markets, it's where we gained market share. I've seen some of them weakening, some of it is public, some of it is less than public on the table. But we still have -- do have strong competition both from other specialists and the large generalist out there.

As a comment, and this is a question I'm being asked once in a while lately is, what does the Huawei ban effect -- have an effect on us? It does contribute in some places, but in other places, sometimes it balances out with them being a little bit more aggressive as we move forward and we still need to see how this develops in different markets and with different operators.

As going back to your question around the cost basis, there is a difference in the cost basis between the two, but there is also significant functionality difference between the two of them. But if we look at the needs and value generation and the total cost of ownerships from the operators as we move forward, the IP-50 in -- where it's targeted in, in 5G networks will continue to offer reduced total cost of ownership or significant additional value to our customers over the IP-20.

Operator

Thank you very much. (Operator Instructions) And allowing a few extra moments here, I'm showing no additional questions in the queue. Please continue.

Ira Palti -- Chief Executive Officer and President

So I'd like to thank everyone who has joined us on this call. I'd like to welcome Ran again to the team here. And we will be exhibiting in Hall five in Mobile World Congress next week. So anyone of you who plans to be in Barcelona, please, we would love to welcome you to our booth, show both the current product and the IP-50 products and have further discussions as we move along. Thank you very much, and have a good day.

Operator

Thank you. And ladies and gentlemen, that does conclude your conference call for today. We do thank you for your participation and for using AT&T's Executive TeleConference. You may now disconnect.

Duration: 45 minutes

Call participants:

Ira Palti -- Chief Executive Officer and President

Doron Arazi -- Deputy CEO

Ran Vered -- Chief Financial Officer

George Iwanyc -- Oppenheimer -- Analyst

Roger Boyd -- Needham & Company -- Analyst

Michael Staiger -- Odeon Capital -- Analyst

Gunther Karger -- Discovery Group Inc. -- Analyst

David Allen -- Woodbury Financial -- Analyst

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