Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Wireless Service Providers Finally Focus on Backhaul


The simple fact is, 4G systems won't sell to subscribers if the existing 3G networks are slow and cumbersome.

A couple of weeks ago I wrote about the accelerating demand for improvement in the backhaul networks of wireless service providers. It's the network segment that connects each wireless cell tower to the carrier's backbone network and, for most carriers, it's the weak link in the chain. It's was built for voice calls not the explosion of data.

Since that article we've had a number of the players report and the evidence continues to build that 2010 is going to be big for backhaul.

Ceragon Networks (CRNT)

Ceragon is purveyor of microwave backhaul solutions and it reported December quarter results earlier this month that were easily above consensus on both the top and bottom line.

Demand was especially strong in the EMEA region with growth of 24% YY and 38% QQ, driven largely by a contract with Hutchison 3. But the big winner was North American revenue up 80% from last year and 175% sequentially driven by an unnamed US wireless carrier. The company continues to see demand for backhaul being very strong throughout Asia but it was overshadowed by the other two regions in the fourth quarter.

I think the biggest surprise for investors was guidance for 2010. The company expects revenue to grow 30%-35% or $240-$249 million versus current consensus of $222 million.

Look at it from a carrier perspective: If your subscribers are taxing your 3G network with their smartphones and netbooks, what's going to happen when you want them to migrate to 4G? Carriers have no choice but to spend money now to improve throughput because, if they don't, there are alternatives.

Aviat Networks (AVNW)

Harris Stratex Networks changed its name and stock symbol a couple of weeks ago to Aviat Networks. Shortly after that, it reported what was an ugly quarter by most accounts. Revenue and pro forma EPS were essentially in-line with expectations but the guidance was soft and the stock took a hit. But don't let that fool you.

Aviat's book-to-bill was above one for the second consecutive quarter so demand obviously hasn't weakened. The problem with the top line being a tad lighter than many were expecting relates to revenue recognition requirements of FASB. Simply put, you can't call it revenue until the customer says yes (as in yes, it works and we accept it). Prior to that point, the shipment wound up on your balance sheet as deferred revenue.

In the December quarter, Aviat's deferred revenue account increased $4.6 million sequentially. Had Aviat had been able to recognize all that it shipped, revenue would have been closer to $130 million and above expectations. Not knowing exactly when the shipments will be recognized, guidance was appropriately conservative as well.

Aviat is seeing the same type of improving demand that we heard about from Ceragon but it's certainly a stock with more risk. That's mitigated somewhat by about $2.00/share in cash but management still has to demonstrate that it can execute.
< Previous
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos