Ceragon Networks Ltd. (CRNT)
Q4 2009 Earnings Call Transcript
February 1, 2010 9:00 am ET
Ira Palti – President and CEO
Tali Idan – EVP and CFO
Matt Robison – Wedbush Securities
Bill Choi – Jefferies
Amir Rozwadowski – Barclays Capital
Steve Ferranti – Stephens Incorporated
Daniel Meron – RBC Capital Markets
Ilya Grozovsky – Morgan Joseph
Larry Harris – CL King
Matt Thornton – Avian Securities
James Faucette – PacificCrest
Scott Zero [ph] – Merriman Curhan Ford
Aalok Shah – D.A. Davidson
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Today’s presentation will include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause Ceragon’s actual results to be materially different from those expressed or implied by such statements. For additional information regarding the risks associated with Ceragon’s business, please refer to Ceragon’s annual report on Form 20-F and Ceragon’s report filed with the SEC. Web users can visit Ceragon at www.ceragon.com to read the complete forward-looking statement language.
Since we have a lot of questionnaires on the call, we will ask you to limit yourself to one question. If we have time, we will hold one more round of questions. With that being said, I’ll now turn the call with Mr. Ira Palti, President and CEO of Ceragon. Please go ahead, sir.
Thank you for joining us today. With me on the call is Tali Idan, our CFO. We are very pleased with our Q4 results. We ended the year with an excellent quarter, and the order (inaudible) continues to be very strong. We are looking forward to substantial growth in 2010.
To recap 2009, despite the global recession, underlying demand continued to grow based on subscriber growth and increased data usage. The most important trend in our industry was to have carriers looking to vendors like ourselves for network planning, design, and delivery with an eye towards migration to LTE-ready networks. The other side of the year was that due to the recession and weak currency, we saw customer hesitation and longer sales cycle, which hurt orders and poor visibility during the first half. Orders began to improve in the second half and have returned to a solid growth pattern. All of these resulted in only a 15% decline in revenue for the year. And by cleansing down on expenses, we achieved a net profit margin of close to 4%.
Coming out of the year, we are aiming for new records for growth and profitability. Tali will give more details about the outlook. Assuming there are people on our call who are new to our story, I will take a moment to clarify where the market is now, and how we expect it to change before I get into specific comments about the quarter.
Everyone seems to be focused on their call as an immediate paying point for mobile operators based on the projected growth in smart phone and other devices, all of these on top of worldwide subscriber growth. In addition, there’s a lot of media coverage of the backhaul opportunity inherent in the migration of mobile network stored LTE-ready IP architecture.
In the US, mobile backhaul today is fiber and mainly leased copper T1 line, with only about 15% of the market represented by microwave. That microwave is mostly low capacity. This is due to the widespread availability of wired copper infrastructure for backhaul. If copper becomes too costly and inefficient for the increased capacity required for high traffic of 3G and 4G network, the portion of the market served by copper will shift to either fiber or high capacity microwave.
As carriers migrate towards LTE, this translates to a major growth ahead for high capacity LTE-ready microwave backhaul in the US. But the opportunity outside the US is just as exciting because outside the US, 70% of mobile backhaul is already microwave, and all of it is migrating towards high capacity LTE-ready networks, which is our sweet spot.
In emerging markets, this need for high capacity backhaul is being driven by subscriber growth. But if the digital divide is conquered, data growth will strain networks even more on top of the growth and subscriber penetration. The carriers in emerging markets are already building and network ready for the migration. We understand why it’s interesting for investors to track the network quality wars between the largest US carriers and follow the LTE and 4G announcements.
Make no mistake, we see North America as a very important market with enormous potential. In fact, when I’m making major long term investment in a variety of areas such as sales and professional services capabilities, in order to fully capitalize on this opportunity as it evolves. However, it’s also important to keep the opportunity in perspective and recognize that today LTE is in the planning stage.
Fiber is available to address urgent bulk mix issues in the heart of major cities. And the majority of the global market for high capacity wireless vehicle is still outside the US, where we serve a very broad customer base of mobile operators on every continent. And our primary competitors are Ericsson, Huawei, and NEC.