Ceragon Networks Ltd. (NASDAQ:CRNT), a leading provider of wireless backhaul solutions, has reported a robust second quarter, marked by an 11.5% year-over-year increase in revenue to $96.1 million. The company's strategic focus on diversifying its business and enhancing its competitive position through the integration of Siklu acquisition has paid off, particularly in the private networks segment.
With significant bookings from new private network customers, Ceragon is also making strides in software-led recurring revenue and is maintaining its market share among Tier 1 carriers, especially in India and North America.
Key Takeaways
- Ceragon Networks reported increased Q2 revenues of $96.1 million, up 11.5% YoY.
- The company is diversifying its business, with over 50% of new customers and dollars coming from the private networks segment.
- The Siklu acquisition has strengthened Ceragon's competitive position with ISP and private network customers.
- There is a meaningful adoption of Ceragon's smart activation key software and proof of concept engagements for network digital twin solutions.
- Non-GAAP operating income rose to $13.1 million from $7.4 million in the previous year's quarter.
- Ceragon expects 2024 revenue to be between $385 million and $405 million, a growth of 11% to 17% compared to 2023.
Company Outlook
- Ceragon reiterates its full-year revenue forecast, projecting growth between 11% and 17% for 2024.
- The company is focused on generating higher software-led recurring revenue and sees significant potential for growth in software and managed services.
- Ceragon is engaged with prospects in Europe and is exploring expansion with Tier 1 operators in the US.
Bearish Highlights
- Deployment in Europe may face delays, though interest has been piqued due to the ban on Chinese products.
Bullish Highlights
- Ceragon's strategic plan is yielding an increase in market share in private networks.
- The company has seen a decrease in general and administrative expenses and collected $8 million from a $12 million debt.
- Ceragon is in discussions with two additional Tier 1 operators in the US.
Misses
- There are no specific figures disclosed for the potential revenue from software and managed services.
Q&A Highlights
- CEO Doron Arazi discussed the potential for revenue growth from software and managed services, noting significant opportunities with Tier 1 operators and smaller players.
- Arazi mentioned the competitive advantage of Ceragon's own chip development, expecting commercial deployments in 2025 and a more substantial impact on revenue and income in 2026 and 2027.
- The company continues to pursue small mergers and acquisitions to augment their organic strategy execution.
Ceragon Networks Ltd. is positioning itself for sustained growth by leveraging its strategic initiatives and technological advancements. With a strong performance in Q2 and a clear focus on diversifying its revenue streams, Ceragon is set to capitalize on the growing demand for private network solutions and software-led services. Despite potential delays in Europe, the company's outlook remains positive, driven by its competitive position and ongoing discussions with major US carriers. The anticipation of revenue impact from its proprietary chip development further underscores Ceragon's commitment to innovation and market leadership.
InvestingPro Insights
Ceragon Networks Ltd. (CRNT) has demonstrated resilience with its latest financial results, showcasing an 11.5% increase in revenue year-over-year and a strategic expansion into the private networks sector. To provide a deeper understanding of Ceragon's financial health and market positioning, let's consider some key metrics and insights from InvestingPro.
InvestingPro Data reveals a market capitalization of $224.38 million, indicating the company's size and market value. The Price/Earnings (P/E) ratio, a measure of the company's current share price relative to its per-share earnings, stands at 47.27, with an adjusted P/E ratio for the last twelve months as of Q1 2024 at 31.58. This suggests a high valuation by the market, possibly reflecting investor confidence in future growth. The company's revenue growth also remains solid, with a 14.28% increase over the last twelve months as of Q1 2024.
An InvestingPro Tip highlights that Ceragon is trading at a low P/E ratio relative to near-term earnings growth, which could indicate an undervalued stock that may be attractive to investors looking for growth at a reasonable price. Additionally, the company is expected to be profitable this year, with analysts predicting a positive net income, as per another InvestingPro Tip. This aligns with the company's positive outlook and strategic initiatives aimed at increasing market share and diversifying revenue streams.
For those seeking more detailed analysis and additional insights, InvestingPro offers a suite of tips, with a total of 9 InvestingPro Tips available for Ceragon Networks Ltd. at https://www.investing.com/pro/CRNT. These tips can guide investors in making more informed decisions based on the latest financial data and expert analysis.
Full transcript - Ceragon Networks Ltd (CRNT) Q2 2024:
Operator: Ladies and gentlemen, thank you for standing by and welcome to Ceragon Networks Earnings Call. Our presentation today will be followed by a question-and-answer session. [Operator Instructions] I must advise you that this call is being recorded today. I'd like to hand over the call now to first speaker today Rob Fink, Head of Investor Relations. Please go ahead.
Rob Fink: Thank you, operator, and good morning, everyone. Hosting today's call is Doron Arazi, Ceragon's Chief Executive Officer and Ronen Stein, Chief Financial Officer. Before we start, I would like to note that certain statements made on this call including projected financial information and other results and the company's future initiatives, future events, business outlook, development efforts and their potential outcome, anticipated progress and plans, results and timelines and other financial accounting related matters constitute forward-looking statements within the meaning of the Securities Act of 1933, as amended and the Securities Act of 1934, as amended and the safe harbor provisions of the Securities Litigation Reform Act of 1995. Ceragon intends forward-looking terminology, such as believes, expects, may, will, should, anticipates, plans or similar expressions to identify forward-looking statements. Such statements reflect current expectations and assumptions of Ceragon's management. Actual results may differ materially, as they are subject to certain risks and uncertainties, which could cause the actual results to differ materially from those projected in forward-looking statements. Such risks and uncertainties include, but are not limited to those that are described in Ceragon's most recent annual report on Form 20-F and as may be supplemented from time-to-time in Ceragon's other filings with the SEC, including today's earlier filing of the earnings press release, all of which are expressly incorporated herein by reference. Forward-looking statements related to the date initially made and they are not predictions of future events or results and there could be no assurances that they will prove to be accurate, and Ceragon undertakes no obligation to update them. Ceragon's public filings are available on the Securities and Exchange Commission's website at sec.gov and they may also be obtained from Ceragon's website at ceragon.com. On today's call we will include non-GAAP numbers. For reconciliation between GAAP and non-GAAP results, please see the table that was attached to the press release that was issued earlier today, which is posted on the Investor Relations section of Ceragon's website. With all that said, I’d now like to turn the call over to Doron. Doron, the call is yours.
Doron Arazi: Thank you, Rob. And good morning, everyone. Let me start by providing some context. Over the past year or so we have been implementing a strategic plan to diversify our business. Under this plan we intend to increase our market share in private networks and move up the value chain from an equipment provider to assisting our customers with network operation optimizing their investments, or while maintaining our strong position in Tier 1 carriers. We expect that successful execution of this strategy will result in increased customer diversification, higher levels of recurring revenues and expanded margins. The second quarter results reflect continued progress in implementing this strategy. We had another quarter of significant bookings from new private network customers. New customers from private networks accounted for more than 50% of our overall new customers, both in number of accounts, as well as in dollars. For further evidence, our first-half annualized booking in private networks was up more than 35% versus last year and we are growing our funnel of opportunities. The integration of the recent Siklu acquisition has continued in accordance with our plans and has been helping to enhance our competitive position with ISP and private network customers. In our journey to generate higher software-led recurring revenue, we also started generating meaningful adoption of our smart activation key software, as well as creating opportunities for our network digital twin solutions leading to proof of concept engagements. All of that while continuing to maintain and even increase our market share in T1 operators, primarily in India and North America. To summarize, each of these initiatives is showing progress, and this progress is increasing our confidence in our strategy. Demand for our solution from our customers remained strong across the globe, and we were able to gain new customers primarily in private networks. Our dependency on 5G-related spending is decreasing as we are focusing on increasing our market share in private networks and a significant spending is ongoing in 4G upgrades and expansions, primarily in rural areas. In fact, our backlog, especially in North America and India, gives us confidence that we can continue with our growth momentum into the second-half of the year. As expected our new offerings have started to translate to bookings and revenue. For example some of the new solutions in our portfolio that are worth highlighting include the IP-50EX, which continues to garner customer interest. This is an ultra-compact, high-capacity e-band radio, which is ideally suited for a variety of use cases, especially when small size and low OpEx are priorities. In addition, our recently introduced Smart Activation Key software has generated meaningful customer adoption. Tens of thousands of licenses have been secured by several customers across multiple regions within the first-half of the fiscal year. This innovative software simplifies the activation process for network radios and their various licensable features, allowing customers to activate and upgrade thousands of devices simultaneously, significantly enhancing operational efficiency and reducing costs. Importantly, this software solution is a major step in our initiatives to drive recurring revenue, reducing the volatility inherent with project-based non-recovering revenue. Over time, we anticipate solutions like this to become an increasingly important contributor to our revenue. We continue to release more frequencies of our 50-CX, a solution that has already demonstrated huge success in India. These additional bands will enable us to cover additional market needs and meet demand in other regions. I'd now like to provide an overview of our Q2 highlights by region. Noting that on today's call we will focus primarily on activities in North America and India, the two regions that have and we expect will continue to have the greatest impact on our results in the near-term. In North America, revenue was $23 million. This was a strong quarter for our private network group as we added nine new customers and generated substantial private network bookings. In the first-half of 2024, on an annualized basis, we have delivered tremendous growth from private networks, with bookings up more than 45% of our 2023 booking. We also had another strong quarter selling and delivering Siklu by Ceragon products primarily to ISPs. Overall, we continue to maintain strong booking and revenue levels in North America and the growing contribution of private network and ISP business has smooth out natural fluctuations related to T1 service providers, CapEx friends. This result was exactly our objective to diversify our revenue and smooth out the impact of large project-based orders from tier 1 customers. We were successful in this quarter and we are encouraged by the trends. In India, revenue was $36 million. As a reminder in Q1, we had record bookings related to the large agreement we disclosed in the fourth quarter, as well as a high value of orders received from one of our long-standing customers. As expected, delivery and deployment of the new customer orders began in the second quarter, and deployment is expected to take approximately two years with about 75% of the $150 million project value expected to be recognized during this timeframe. Overall, in India, we are benefiting from 4G expansion in rural areas, as well as certain 5G upgrades. Key customers continue to invest heavily in both phases of this capacity upgrade and we are growing our market share in this regard. We are also seeing large opportunities which can fuel our business in 2025 and working to win them against competition. Clearly, we have continued to be successful in India and North America, and this has been facilitating our growth and profitability. As a last comment, I would point to our success in other regions as further evidence of success regarding our new strategy. I'd note that in the first-half of 2024, other regions, notably Latin America and APAC, have also seen the benefits of this new strategy with significant growth in private network business. This is very encouraging, especially in light of the first competition against Chinese vendors in those regions. With that, I'll turn the call over to Ronen Stein, our CFO, to discuss the results in more detail. Ronen, over to you.
Ronen Stein: Thank you, Doron, and good morning, everyone. As Doron outlined, we continue in our progress towards our stated strategy. Simultaneously, we continue to deliver on our growth plans and improve our operating leverage on a non-GAAP basis. To help you understand the results, I will be referring primarily to non-GAAP financials. For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures, we will refer you to today's press release. Let me now review the actual results. Revenues were $96.1 million, up 11.5% from $86.2 million in Q2 2023. Our strongest regions in terms of revenues for the quarter were India and North America, with $35.5 and $23.3 million respectively, in line with the continuous strong demand we see in these regions. Our third strongest region in terms of revenues was EMEA with $19 million. We had one customer in the second quarter that contributed more than 10% of our revenues. Gross profit for the second quarter on a non-GAAP basis was $33.8 million, an increase of 11.1%, compared to $30.4 million in Q2 2023. Our non-GAAP gross margin was 35.2%, compared with gross margin of 35.3% in Q2 2023. We continue to achieve high gross margins within the guidance range. Despite the fact, mixture changed and revenues from India increased significantly. We achieved this by increasing revenues and recognizing continued improvement in product costs. We also maintained control over our fixed costs, all of which had a positive effect. Our gross margins may continue to fluctuate from quarter-to-quarter due to changes in product and regional mix. As for our operating expenses, in general, operating expenses in 2024 fully include the impact of the Siklu acquisition at the end of 2023 and thus impact the comparison to 2023 operating expenses. Research and development expenses for the second quarter on a non-GAAP basis were $8.2 million, up from $7.6 million in Q2 2023. As a percentage of revenue, our R&D expenses were 8.5% in the second quarter, compared to 8.8% in the second quarter last year. Sales and marketing expenses for the second quarter on a non-GAAP basis were $11 million, up from $9.4 million in Q2 2023. As a percentage of revenue, sales and marketing expenses were 11.5% in the second quarter, compared to 10.9% in the second quarter last year. General and administrative expenses for the second quarter on a non-GAAP basis were $1.4 million, compared to $6.1 million in Q2 2023. As a percentage of revenues G&A expenses were 1.5% in the second quarter, compared to 7% in the second quarter last year. The main reason for the reduction in G&A is the impact of a $4 million benefit related to an initial collection from a $12 million debt settlement agreement reached with a South American customer, for which we accounted a credit loss at the end of 2022. This is a great opportunity to note that last week, we collected the second installment of $4 million from this customer bringing us to a collection of $8 million out of $12 million debt. This recent collection is expected to be reflected in our financials Q3 results. I'd note that our GAAP operating expenses include integration costs related to Siklu. These charges are backed out of our non-GAAP operating expenses. We believe the integration is mostly completed, and we do not anticipate any further meaningful integration charges in future periods. Operating income for the second quarter on a non-GAAP basis was $13.1 million, compared with $7.4 million for Q2 2023. As a percentage of revenues, non-GAAP operating income was 13.7% in the second quarter, compared to 8.5% in the second quarter last year. Without the $4 million debt collection benefit included in the G&A, non-GAAP operating income would be $9.1 million and as a percentage of revenues, 9.5%. Financial and other expenses for the second quarter on a non-GAAP basis were $2.6 million. Our tax expenses for the second quarter on a non-GAAP basis were $0.6 million. Net income for the second quarter on a non-GAAP basis was $9.9 million or $0.11 per diluted share compared to $4.4 million or $0.05 per diluted share for Q2 2023. Without the $4 million benefit related to the debt collection included in the G&A, non-GAAP net income would be $5.9 million or $0.07 per diluted share. As for our balance sheet, our cash position at the end of the second quarter was $26.3 million, compared to $28.2 million at the end of 2023. Short-term loans were $28.5 million, compared to $32.6 million as of December 31, 2023. We believe we have cash and facilities that are sufficient for our operations and working capital needs. Our inventory at the end of Q2 2024 was $59.5 million, down from $68.8 million at the end of December 2023, and down from just over $61 million at March 31. The reduction is mainly as our efforts during 2023 to streamline inventory levels following the improvement in components availability have materialized and initial shipments to the larger order in India. We continue to monitor inventory levels taking into consideration the improvements in availability of components and expected changes in demand. Our trade receivables are at $112.9 million, as compared to $104.3 million at the end of December 2023. Our DSO now stands at 114 days. As for our cash flow, net cash flow generated by operations and investing activities in the first six months of 2024 was $1.7 million. We are reiterating our full-year outlook. For 2024, we expect revenue of $385 million to $405 million, representing growth of 11% to 17%, compared to 2023. This guidance includes the contribution from Siklu. Non-GAAP operating margins are targeted to be at least 10% at the midpoint of the revenue guidance. As a result, we expect increased non-GAAP profit and positive cash flow for the full-year of 2024. With that, I now open the call for your questions. Operator?
Operator: Thank you. [Operator Instructions] Our first question is from Alex Henderson of Needham & Company. Alex, please go ahead.
Alex Henderson: Great, thanks and nice execution again and it looks sounds like the visibility remains pretty good. I wanted to ask you a question on the competitive front, actually posed to me by a couple of investors. The -- one of the other people who developed a system on a chip for wireless had in 2022 talked about a significant upgrade, but I can't find any evidence of that product in the field. Can you talk about that upgrade, whether that's out there, whether you're seeing that or has that fallen by the wayside?
Doron Arazi: So, hi Alex, this is Doron. We have not seen any actual implementation in the field of new chip that actually allow for very, I would say significant enhanced capabilities rather than what we are seeing today.
Alex Henderson: So that, I think it was MaxLinear chip didn't make it into the field or didn't make it into product?
Doron Arazi: Obviously, we don't know exactly what the MaxLinear plans are, but to the best of our knowledge and based on what we are hearing in the industry, at the minimum there is no chip available out there from MaxLinear that is enhanced and can be usable immediately.
Alex Henderson: Well great, Sounds good. In terms of the landscape, do you have any exposure in Eastern Europe that might be negatively impacted by increased regulations on shipments into that geography. And similarly, relative to Japan, been a lot of volatility on the Yen exchange rates. Does that have any impact on you guys?
Doron Arazi: So our business in the two countries less region you have mentioned is not high, is not big and therefore I see any sort of exposure insignificant on our business.
Alex Henderson: Okay, it's for both the Eastern Europe issue and the Japanese issue that neither are concerned?
Doron Arazi: No, there's no concern. We sell in most of the use cases in good years a few millions of dollars altogether. I don't see that as something that can -- that is perceived as a significant exposure.
Alex Henderson: Then just talking about the pipeline of activity, are you seeing any change in some of the mechanics there in terms of deal closure rates or deal sizes or how does the pipeline look as we go into the back half of the year and into 2025?
Doron Arazi: So first of all, as I mentioned in our prepared comments, we are seeing the benefits of our decision to increase focus on private networks. And we increased our booking and our deal closure on this side that is definitely helpful to streamline the total booking that we are seeing because of the T1 and 5G fluctuations and maybe some slowdown. So in terms -- but particularly in terms of deal closure, I would say that with T1s primarily outside India and to a certain degree also outside North America, at least for us. We saw certain slowdown just to give you a few examples, in Indonesia, for example, the business is going through consolidation. There are some consolidation in this particular market and this slows down the buying patterns. But generally speaking, other than in the T1 and to a certain degree in ISPs, primarily in Europe, we have not seen any significant slowdown.
Alex Henderson: In aggregate, the private networks combined with a little bit of slowdown in some of the Tier 1s is a net neutral environment?
Doron Arazi: I would very highly say that, yes, it's not one-to-one, but generally speaking, the situation is that the private networks can cover, especially the areas that I mentioned in my prepared comments, which is APAC, as well as Latin America, relative weakness in the T1 operators.
Alex Henderson: Great, thanks.
Operator: Thank you. Our next question is from Romel [Indiscernible] from HS Capital. Romel, please go ahead.
Unidentified Analyst: Yes, good morning. Just a question on the private networks. Obviously, you guys have made significant progress over the last few years in expanding that business. How do you think about boosting some of the resources behind that business, given the significant opportunities and the momentum that you have there, both in North America and in Europe and elsewhere in the world that you see opportunities there? Thank you.
Doron Arazi: So obviously, while we are executing successfully on our new strategy, we are very attentive to what's happening. And it is our intention to adjust our investments, especially in sales and marketing, accordingly in order to leverage the momentum. Said that we are always with a very close eye on our bottom line and our operating expenses. So it is our intention to do it as needed, but still keep as much as we can with the trajectory of improved operating margins.
Unidentified Analyst: Okay, fair enough, Doron. And specifically, could you just talk about the private networks in Europe? I know that you've made some progress there, but yes, just give us some geopolitical uncertainty. What's your outlook for private networks in Europe and signing up some new business there over the next few quarters going forward? Thanks.
Doron Arazi: Generally speaking, I would say that the funnel we see for the private networks across the world, but specifically also in Europe, to your question is increasing. Obviously the environment in Europe is not that, so to speak, friendly in terms of investments given the situation, but we still see opportunities to increase our private networks business in Europe in the coming quarters.
Unidentified Analyst: Great. Thank you very much, Doron.
Doron Arazi: Sure. Thank you, Romel.
Operator: Our next question is from Robert Marson of TB Partners. Robert, please go ahead.
Robert Marson: Hey guys, congratulations on a good quarter. The revenue growth of nearly 12% was particularly impressive, especially since it was against the 22% comparable last year. I just want to say we noted that. Regarding Neptune, can you give us an update?
Doron Arazi: Yes, look, I didn't put too much high focus on Neptune in my prepared comments because nothing has significantly changed since last quarter. But the general comment, I would say that we continue with the post silicon validation it is nearing the end and in parallel. As we already discussed in previous calls, we have already started developing the first product that will be based on this Neptune chip. So all in all, the bottom line is that we're moving forward as we were expecting and the forward is nothing new. So sometimes no news is good news.
Robert Marson: Excellent. Regarding software and managed services, the press release of tens of thousands of licenses sounds impressive, Doron, but the real question is what kind of revenue does that represent? In 2025, if we had to disclose software and service revenue as a percent of revenue, what kind of number could we expect realizing it's still in the early innings?
Doron Arazi: So first of all, at least so far, it's our policy not to disclose this partition. So you'll have to excuse me for not answering the second part of your question. As to the qualitative question about what is the potential there? I would say that the potential is significant, but it also entails a market education. T1 operators have their own reasons for buying CapEx model versus OpEx. At the same token, they are exploring seriously different use cases where it makes sense for them to pay a periodical fee or based on success fee to companies like us for improving also their operating results. And so T1 is something that we believe can generate a significant amount of revenues in the future, yet the adoption of this concept is going to take us time. But the fact that the software is already there and available for an immediate use in these models, in my view, is nearing the time where we'll be able to use it. If I look at the other segment, which is the, I would say, either smaller players, ISPs, and also private networks, I think that the results of such kind of capabilities in terms of new commercials, recovering models will come faster. And as I mentioned also in our press release, one of the customers that adopted this software is a smaller player they decided to go already for a term license. From my perspective, this is a very strong signal that there is a good chance to enjoy the fruits of this kind of technology with the recurring business model.
Robert Marson: All right. Thank you. Germany passed a rip and replace Huawei law this quarter or last quarter, excuse me, I believe. Is there any traction with that movement in any other geographies in the world, other parts of Europe, or maybe even Southeast Asia where people are concerned about data security? And is there any opportunity for us to take that kind of market share back from when they were given product away 10-years ago?
Doron Arazi: The short answer is yes. Just to give you slightly more color, just in Europe, since you mentioned Europe and you also mentioned Germany, we are engaged with at least two or three new prospects, relatively sizable, that are interested in our solutions as a result of the ban on the Chinese that is starting to take place in Europe. At the same token, I must tell you, and I don't want to offend anyone, the Europeans are much slower to kind of deploy these instructions. So I think it will take more time, but all in all, we have started discussions with new prospect, which is a good signal for us.
Robert Marson: Thank you. Regarding Tier 1s in the U.S., I believe we only service one. Is there any chance we could get any material business out of the other two?
Doron Arazi: So if I need to be very precise, we're not serving just one. But the other one that we are serving, the business there is not meaningful enough to have a grand discussion about it. But I must tell you that in that case, the nice thing about it is that we were the only vendor to resolve a very unique situation for them, or a very unique use case to be more precise with them. And that puts us in terms of technology, innovation, and customer oriented approach, probably in the front line. We will continue this dialogue with them, but you need to also bear in mind that the other, I would say two T1 operators have huge fiber network piece that they own. And therefore their economics is slightly different.
Robert Marson: Thank you. Regarding acquisitions, Siklu is turning out to be a gem. Congratulations on that. The balance sheet can afford some small bolt-on deals if they're done without risk and very accretively. Is there anything in the works for the rest of this year that might give us a little revenue bump for 2025 in the acquisition department?
Doron Arazi: I cannot be that specific. I will only say that we continue to pursue opportunities for small M&As and in order to augment our execution or our organic execution of our strategy. And I'm quite encouraged by the funnel and I would say that this is enough for this question.
Robert Marson: Thank you very much.
Doron Arazi: Sure.
Operator: Our next question comes from Alex Henderson from Needham & Company. Alex, go ahead.
Alex Henderson: I just wanted to address the question of the gain that shows up in the G&A, the $0.07 number versus the $0.11 number. Hopefully everybody will be on the same page, but it seems to me that having a $1 million G&A number in the second quarter just sets up a ridiculous comp into ‘25 because obviously that really is a one-time event? And I don't understand why you didn't back it out of the numbers. Why are we not using $0.07 as the non-GAAP number instead of $0.11?
Doron Arazi: We need to be consistent with our accounting also when we are talking about non-GAAP. If you look back into comparative numbers and that's clearly seen in our investor presentation and after consulting with our lawyers, an allowance for credit loss cannot be taken out from the non-GAAP. And when we accounted for that, yes, it was late or beginning of 2023, we had to keep it in our numbers and you will see it in our comparable numbers. So when it's positive, we need to keep it also in the non-GAAP. However, in our prepared comments, we mentioned specifically the results without this one a liner item.
Alex Henderson: So do you think the street would be better off using the $0.11 number going forward or the $0.07 number for the baseline as opposed to the $0.11 for the simple reason that it sets up a very odd comparison and over inflates the ‘24 numbers, which make the ‘25 numbers look a lot softer in terms of appreciation. It seems to me that $0.07 number is probably the right number to be using.
Doron Arazi: If from my perspective, the normal course of business, if I need to use this term, because we don't write off $12 million every now and then, the normal cost of business should be probably taking the $0.07 and not the $0.11. And therefore, we are paying a lot of attention to this item. And you'll be able to see that in our investor presentation very clearly.
Alex Henderson: Okay, good. I'll see the floor back. Thanks.
Operator: Our next question comes from Gunther Kager. Please go ahead, Gunther. Gunther?
Doron Arazi: Yes, can you hear me now?
Ronen Stein: Hi, Gunther, how are you?
Unidentified Analyst: Fine, thank you. And first of all congratulations on excellent execution, and particularly probably with the advice of Fink. My question is chipsets. You did mention this in your earlier comments, but on a competitive basis, do you see any other companies coming out with chipsets that would encourage on your expectations for your systems?
Doron Arazi: So thank you, Gunter, and thank you for this question. To the best of our knowledge, the Chinese probably have their own chip. And as for the rest of the competition, they use usually MaxLinear chip. I am not aware, at least not at this point of any development of a chip, of a next generation chip other than MaxLinear. And as I answered the previous question regarding the chip, we don't really know where MaxLinear is in this development. We still believe that we have probably two to three years advantage with our own chip ahead of the competition.
Unidentified Analyst: Thank you. And to follow-up on that, do you still anticipate some of your products coming on later on this year to incorporate your new chip?
Doron Arazi: So, as I said, we will probably start seeing the chip being used especially for commercial deployments during 2025 and that hasn't changed.
Unidentified Analyst: Fine, Thank you. Thank you very much.
Doron Arazi: Sure. Thank you.
Operator: The next question will come from Robert Marson of TB Partners. Please go ahead, Robert.
Robert Marson: To follow-up on that, Daron, saying that you're going to ship commercially is one thing, but 2% of your product versus 30% of your product is a different thing. Are the shipments using Neptune next year going to be material?
Doron Arazi: So first of all, I want to make sure everybody is on the same page, because it looks to me that we need to put the content, the chip development and commercialization, sorry for that in context. Look it's not the first chip Ceragon has developed and it's probably not going to be the last chip. We believe that this chip will create once again, a significant advantage over the competition for a few years. Would that change the company totally? No, and therefore, we do expect to see significant business, but the implementation of such chip is gradual. It's not going to make the numbers suddenly become 50% growth if someone thinks that these are the numbers we should talk or 50. I think that next year we will start seeing a business I'm not sure to what extent the business is going to be very significant. Let's not forget the product, the first product is going to be at 20, at least 25 gigabit per second in the box. This is going to be the first version. Based on my experience in the industry now, there's hardly need. The most of the use cases are up to 10 gigabit per second. And before, while there is an interest, we'll start seeing the impact gradually.
Robert Marson: Okay. So a gradual ramp in ‘25 and more impact on the revenue and income statement in ‘26 and ‘27.
Doron Arazi: Exactly.
Robert Marson: Okay. Excellent. Thank you.
Doron Arazi: Thanks.
Operator: Okay. There are no further questions. I would like now to hand over the call to Doron for closing remarks.
Doron Arazi: Ceragon’s competitive position continues to improve and we continue to deliver on our strategic plan for growth and profitability. Our new products and solutions are gaining meaningful traction, and our wins in private networks are encouraging. We believe that our new products and solutions, as well as our roadmap, including the Neptune-based future products, are positioning us for long-term growth as they are expected to result in increasing market share in our space. I look forward to updating you further on our next quarterly call. Have a good day everyone.
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