Ceragon Rides Backhaul Wave

Specialist Israeli vendor Ceragon showed today why wireless backhaul is regarded as one of the telecom sector's growth pockets by reporting a 48 percent increase in revenues and a 50 percent increase in net income for its second quarter. (See Ceragon Reports Q2 and Ethernet Microwave Starts to Sizzle.)

The vendor, which sells TDM-based and Ethernet microwave backhaul systems to cellular and WiMax network operators, clocked up revenues of $55.2 million, 47.9 percent better than a year earlier and 17 percent up from the first quarter.

Analysts had, on average, been expecting sales of $49.5 million.

Its GAAP net income was a whopping $15.5 million, or 42 cents per share, but that included a tax benefit of $11.2 million. Without that, and other one-time items, its non-GAAP net income was in line with expectations at $4.9 million, up 50 percent from last year's $3.3 million.

The news boosted Ceragon's share price by $0.85, more than 11 percent, to $8.54 in early trading Monday.

The vendor noted that growth has been strong in Asia/Pacific, and through OEM partners: Sales through Nokia Siemens Networks accounted for more than 10 percent of second quarter revenues, according to Ceragon. (See ECI Teams for Danish WiMax , Nokia OEMs Ceragon Microwave, and Ceragon Bags $5M Deal.)

In addition, the company's order book is fat, with a book-to-bill ratio of greater than 1, leading the company to predict annual sales growth of around 35 percent. That would give it 2008 revenues of around $219 million, about $12 million above analyst estimates.

Ceragon also noted "increasing interest" in its Ethernet-based backhaul solutions, from operators looking to build new backhaul connections and those looking to migrate from existing TDM-based links. The vendor, which says that 24 percent of its second quarter sales were from Ethernet products, said interest is "building faster than we expected." (See Digitel Picks Ceragon.)

The proportion of Ethernet-based product sales were even higher during the first quarter, at 37 percent, but that "lumpiness" was due to the conclusion of several projects during that three-month period, notes chief marketing officer Aviv Ronai.

But the shift toward Ethernet backhaul is slow, according to a recent industry survey, as carriers are reluctant at present to commit to technology that has yet to be widely proven in commercial networks. (See Carriers Don't Trust Ethernet Backhaul?)

Ceragon isn't the only microwave backhaul vendor benefiting from the wireless capacity boom -- DragonWave Inc. (AIM/Toronto: DWI; Nasdaq: DRWI) has also registered recent success. (See Sprint Rides DragonWave for Backhaul.)

— Ray Le Maistre, International News Editor, Light Reading