Q4 2020 Ceragon Networks Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by greetings and welcome to Ceragon networks limited fourth quarter and full year 2020 earnings conference call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
If you should require assistance during the conference call. Please press Star then zero in At&t's specialists to let's say to you offline.
As a reminder, your conference today is being recorded.
It is now my pleasure to introduce your host Myra Lustig head of Investor Relations at Ceragon.
Thank you you may begin.
Okay.
Hello, ladies and gentlemen, thanks for standing by greetings and welcome to Ceragon networks limited fourth quarter and full year 'twenty 'twenty earnings Conference call.
At this time all participants are in a listen only mode a brief.
A question and answer session will follow the formal presentation.
If you should require assistance during the conference call. Please press Star then zero.
And as a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Myra Lustig head of Investor Relations of Ceragon. Thank you you may begin.
Thank you Alan and good morning, everyone I'm joined by IRA Palti shotguns, President and Chief Executive Officer, and Ron Faris Ceragon Chief Financial Officer.
Before we start I would like to note that this call includes information that constitutes forward looking statements. We didn't get as many of the Securities Act of 1933 I think.
Amended and the Securities Exchange Act of 1934 as amended and the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Although we believe that the expectations reflected in such forward looking statements are based upon reasonable assumptions, we can give no assurance that our expectation would be obtained what if any deviation there from will not be material.
Such statements involve risks and uncertainties that may cause future results to differ materially from those anticipated.
These risks and uncertainties include but are not limited to such risks uncertainties and other factors that could affect on yourselves as detailed in our press release that was published earlier today and a third of the children's children. Most recently on a report on form 20-F and <unk> other.
Fillings with the Securities and Exchange Commission.
Such forward looking statements represent our views.
R&D is off the day, there are made and should not be relied upon as representing our views of any subsequent date.
Such forward looking statements do not support too to be predictions of future events or results and there can be no assurance that they will prove to be accurate.
Ceragon.
To update these forward looking statements at some point in the future, but it's specifically disclaims any obligation to do so.
Ceragon public filings are available on the securities and exchange Commission's website.
Www Dot S E C Dot golf and May also be obtained from Ceragon swaps on that.
Www Dot Ceragon dot 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's what he's debt issued earlier today.
I will now turn the call over to Iowa. Please go ahead.
Thank you Michael and good morning, everyone.
In the fourth quarter of 'twenty or 'twenty, one is almost the entire you you're the macro environment remains challenging.
Fast forward to the president of the vaccine rollout in Israel is inspiring.
On a world record and an example to other nations.
Personally I got my second shot already and I'm happy to share with you that I'm feeling.
Perfectly fine.
For Ceragon the fourth quarter was a relatively good end to a volatile year with revenue and business activities returning to their normal run rate.
Ron will give you the details later in the call.
I would like to take their potency to say a few words about our most recent technology focus the evolving market and now emerging roadmap.
'twenty 'twenty was a unique year for business and an economist Juan said the crisis is a terrible thing to waste.
A big opportunity for us this past year was to be a key player in moving the five day evolution from hype to reality.
As you would agree Twenty-twenty created a deep cultural change in our global Society.
Due to the Lockdowns limited face to face interactions and reduced travel online services became the lifeline.
We all adopted new ways of communicating doing business shopping and to maintaining ourselves and more this will generate massive traffic and complexity that's train existing networks, creating an urgent need for more network capacity.
To keep pace operators are pushing five G from initial twice into the field and this what we have been in.
What we have been waiting for and are very excited about.
We believe we are poised to provide operators with a technology expertise and services they need to make this transition happen and we foresee that.
Significant opportunity to grow and take market share.
At Ceragon, and we have a history of benefiting from the transition between wireless generations.
It's five day services and networks to build momentum we believe that once again, we will do what we do best Leverages. This transition and continue a successful company story in 'twenty 'twenty, one and be on.
When we look back we see that the three main technological breakthrough that empower us to become a true global player where wireless is D. H wireless IP and compact multi core all outdoor wireless backhaul solutions.
And more than that we became present in all corners of the world positioned to benefit from the wave one or two carriers, where he took cares which is something our best of breed competitors cannot boost.
Oh first big revenue jumped was a decade and a half ago when on wireless it's the H solution drove the transition from two <unk> to three G. This.
This almost tripled our revenues at the time from 55 million to above 160 million per year.
We were the first to introduce wireless SDH technologies, a game changer that opened a world of possibilities for operators to bring the internet to mobile devices.
Our next big step was over the next 10 years. When we were the first to introduce wireless IP holding compact all are those solutions do you all called chipsets, which allowed us to ride the <unk> wave globally and took us from hunting 60 million to a yearly run rate of about $300 million.
And that's exactly the position we are in today.
We expect to continue to be a key enabler of the exciting five G evolution.
I'd now like to spend just a few minutes to explain why especially for those of you on youth Ceragon It might help to break down the elements that contribute to our five G positioning.
Five gene networks will require massive capacity density and flexibility with extremely low latency.
And we believe our differentiated solution lead the market in all these areas.
Enable operators to utilize a much wider range of spectrum and our open network architecture supports more flexible and operationally efficient network rollouts and quicker time to revenue.
We are one of the only players that develops all network components in house.
We believe this gives our customers networks the performance advantage along with several years lead in network capacity and network resource management.
Such as spectrum energy insight acquisition.
Thanks, Thanks to all of this we believe our customers succeeded more often and more efficiently in today's competitive markets.
Okay.
I'd like to speak a bit more about our leadership in the best of breed portion on the wireless hauling market.
We were at the front front, leading a change that created more possibilities for operators to build and manage higher performance and more operationally efficient networks, but integrating the best solution for every networking domain.
This is what made us the number one wireless wholesaling specialist.
In first in the three days with wireless sensors, the H and then in 40 days with wireless IP and Multicore on all of those solutions.
Today.
And other changes already picking up speed.
The industry's move led by operators towards open networks, the opened up on well this aggregated environment.
This enables operators to integrate especially solution for each network domain from different vendors.
The market is becoming more democratized, which plays to our favor.
Just a couple of weeks ago, we learned that Europe's Deutsche Telekom, Orange Telefonica, and Vodafone formed a collaboration around the rollout and development of opened up on technology innovated to ensure that your keeps up with the U S and Japan.
And the wireless hauling best of breed market segment, we believe the leading provider is us ceragon.
We believe we have the most advanced and flexible set of technologies and solutions, the largest market share and the most comprehensive services and expertise and the widest.
This geographical coverage.
The transition from 42 five G is creating a huge change in the way networks are designed and Architected.
That's why often we help operators achieve an evolutionary approach may provide a wireless based backhaul network that is supporting 14 networks and that can be upgrade cost effectively two five G at any point.
[laughter] capacity by tenfold.
We help them optimize their network performance and network resources, including reuse of equipment where needed.
This total support approach is how we have built our extensive customer base worldwide. Some of whom are recently acquired this include major tier one operators in North America, Europe, and southeast Asia, as well as tier one and tier two operators across the globe close smaller I S.
PS and regional players.
What we believe makes us an essential partner for operators as they evolve to five G.
So.
What makes us the technology leader of wireless holding and even more so when it comes to wireless holding four five G.
The answer is the combination of four elements.
First of all we are the only player that builds are on purpose the ribbon chipsets, giving us the tight integration to the market functionality and cost twice.
Second.
Total vertical integration, we are the only player that does everything in house from chipset development for microwave and millimeter wave to complete video and that's walking system.
Third we are the only player with leadership in all three domains of the disaggregated wireless holding net walk networking software networking hardware and radios.
And finally, we believe we are the kings of complex or are those solutions with nearly 40% market share of the segment as measured by skylight research firm.
Putting all this together you see the full extent of our capabilities.
Solutions and roadmap two gigabytes per second 200 gigabit per second over a wide range of spectrum going well above 100 gigahertz. This is what is needed to support the capacities and capabilities for any and every possible five G scenario.
Now that we believe are perfectly positioned to leverage the five G evolution. The open question is the timing.
We see signs that this evolution will start building at the largest scale towards the end of 'twenty 'twenty, one and then go through 2022 and 2023.
The exact timetable might be impacted by Covid, but we believe this is a general direction.
The U S has been deploying five G. Since late 2019.
And shares the leadership of the transition to day with China.
Network build outs using wireless hauling for transport across networks have recently begun.
We've increased our five key design wins two nine.
This quarter.
And we are participating in numerous five G proofs of concept and initial rollouts in the U S Europe and the Pacific Rim and plans are being finalized for mess rollouts.
We anticipate that the first large scale networks to make use of wireless hauling in mass are likely to pick off towards the end of 'twenty 'twenty, one and then to pick up speed at first gradually through 2022 and 2023.
We expect to benefit from the growth of this market and also to take market share.
After Japan and Western Europe, we expect to see five G momentum build in the rest of Europe, APAC and Latam followed by Africa three years down the road.
In the meantime, we continue to benefit from large expedited for G projects to increase network reach and capacity.
In some of this project the operators already sitting in the wireless holding infrastructure required for five G.
To conclude we.
We're moving into a new kind of your wheelchair built.
Building on our growing collective online mobile presence and global hyper connectivity, because full ramification and potential well wait to witness.
In this new context, we believe there are and will be an increasing number of business opportunities for us across the globe starting already this year.
We are working hard to leverage these opportunities and to continue to be a key enabler of the multiyear five G evolution.
I would now like to turn the call over to Ron to discuss our financials in more detail on.
Thank you IRA.
And good morning, everyone.
To help you understand the results.
Ill be referring mainly to non-GAAP numbers.
More information regarding our use of non-GAAP financial measures.
Including reconciliations of these measures.
It was a failure to today's press release.
During the first quarter, we made further progress moving back towards normal operations, continuing the positive trend that began in Q3 2020.
Our revenues return to a strong level.
I end of our projections for the quarter as well as the I N will follow normal quarterly revenue run rate range pre COVID-19.
They reflect the return to strong execution of almost all of our ongoing activities in an industry that will see new urgency for networks building.
At the same time.
Coffee this increase our supply chain expenses significantly reducing our gross margin.
These compounded with the large technology write off and some eat and expenses recorded in the quarter gave us a low gross margin and took us into a net loss for the quarter. Despite the strong revenues.
Nevertheless, our financial performance in the fourth quarter remained strong with strong collections, enabling us to generate $9 $3 million in cash flow from operating and investing activities.
And to repay almost $12 billion in loans.
In fact, all the main balance sheet indicators. These so inventory short term loans and cash flow moving the right direction. This quarter, despite the very challenging environment.
Let me now review the actual numbers with you.
Revenues for the first quarter was $74 million up 5% compared with the third quarter 2020, and up 4% compared with Q4 last year.
The revenues volume from region to region and that would affect that Covid has had on local business operations and network build out plans.
Europe had its strongest quarter in the last few years, reflecting some initial revenue from five day projects.
Our strongest revenue for the quarter were from India.
I think ongoing deliveries for Barbie.
Revenues in North America were strong, reflecting continued positive momentum with ISP and smaller carriers.
I forgot to had a strong quarter on the second shipments for the LNG project, we announced in August as well as to another customer we won this quarter.
This is further proof of our strong.
Soldiers success in Africa.
Latin America had the strongest quarter in 2020, reflecting some gradual return to activity in the project in total.
However, we are still facing falls on Capex capex budgets in the face of COVID-19.
APAC is relatively weak waddell.
With one above 10% customer in the first quarter.
So the revenue so almost $263 million down 8% from 2019.
This reflected the weak first half of the year due to COVID-19 following a much stronger second half.
The booking to revenue ratio for the quarter was slightly below one.
Overall.
Annual book to Bill ratio for 2020 was above one while overall bookings were slightly higher than 2019.
Gross profit for the quarter on a non-GAAP basis was $21 million.
Given goss and non-GAAP gross margin of 28, 9% compared with 71, 3% for the fourth quarter of 2019.
This reflects a few one time negative effects.
All of which are agreements with several customers, which we believe will improve our future business with them.
As well as less favorable customer mix.
It also reflects the continued high supply chain cost that we have had to deal with the COVID-19 environment.
With the major increase in air freight cost high on my material cost and more.
This is likely to continue to fluctuate over the next few quarters until there's a full recovery.
For the full 2020, and then the non-GAAP gross margin was 28, 7% compared with 73, 8% in 2019.
This is not the level, we're pleased with and we have taken.
Some operational steps to improve it for 2021.
Operating expenses on a non-GAAP basis for the first quarter was $28 million in line with our expectations.
Research and development expenses for the fourth quarter on a non-GAAP basis were $7 7 million a slight increase on Q4 2019.
Mainly due to our progress with chip development.
As planned this expense will continue to stay high until we reached tape out in mid 2021.
Sales and marketing expenses for the first quarter on a non-GAAP basis was $8 $5 million.
<unk> form $10 million in Q4 2019.
Second the reduced travel and variable compensation that does come with Covid.
General and administrative expenses for the first quarter on a non-GAAP basis will stop on $7 million in line with all expectations and down from six $1 million in Q4, 2019, which was impacted by one time provision.
Operating expenses on a non-GAAP basis for the full year period was $79 $9 million down from $87 $6 million in 2019.
Primarily due to reduced sales and marketing expenses.
For 'twenty and 'twenty, one we expect to have higher R&D expenses during the the sales stuff as we complete the new cheap and to gradually increase our sales and marketing expenses throughout the year as markets Open post COVID-19.
Financial and other expense for the fourth quarter on a non-GAAP basis were $2 $5 million, which is my highest then expect than the normal expected level.
We do expect them to return to the regular level in Q1, 'twenty 'twenty one.
Our tax expense for the quarter on a non-GAAP basis were one $6 million, which was higher than expected. However.
When you take a step back and look at the annual 2020 tax expenses, we see that they are in line with our typical annual tax expenses.
During the fourth quarter 2020, with zero up on 5 million equity loss together with 1.8 million dot on the impairment of intangible assets related to the write off of technology investment.
This was taken in view of our decision to use an alternative solution, which we believe is a better fit for our customers and the market.
Net loss on non-GAAP basis for the quarter was $3 $5 million on a false sense that they look at you.
On a GAAP basis, net loss was $6 3 million or eight cents per diluted share.
That's all balance sheet will continue to improve our stability in working capital and you can see our success in the following parameters.
Well it just total inventory the $56 million down from $62 1 billion at the end of 2019.
Our receivables are now at $107 million.
<unk> for 119 point suddenly on doors at the end of 2019.
Although these so now stand at four at 140 days, which is a bit lower than in Q4 2019.
Cash flow from operating activities for the first quarter was $11 $1 million.
Net cash used this quarter for investing activities was $1 8 million.
This strong cash flow enabled us to repay 11 $9 million of on short term loans.
Looking forward, we continue to expect to see significant operating activities.
Alongside continued uncertainty.
Although the situation remains volatile we believe that we are maintaining good control.
And are well positioned to take full advantage of long term opportunities.
We are talking ticketing revenue growth in 2021.
Although we expect a slow start for the first half of these based on Q4 book to Bill below one thus typical season seasonal factors negatively affecting the first half.
We continue to expect revenue to be between $275 million to $295 million.
We are aiming to reach non-GAAP gross margin in the range of 30% to 34% in 2021.
However, with the continued COVID-19 impact on supply chain expenses and other cost factors the gross margin might deviate from that range.
Yeah.
For Q1, 'twenty 'twenty, one we expect our non-GAAP operating expenses to be in the range of 20 to $21 5 million Doris taken.
Taking into consideration the investment needed.
Unique multi core chipset technology.
With that I will now open the call for your questions operator.
Thank you ladies and gentlemen, if you do have questions. Please press one then zero on your Touchtone phone.
You'll hear an indication that you've been placed in the queue and you may remove yourself from the queue by repeating the one zero command.
If you're using a speaker phone we ask you to please pickup your handset and to make sure that your phone is on mute it before pressing anybody's.
Again for questions Press, one then zero on your Touchtone phone at this time.
One moment please for our first question.
Our first question will go to the line of Alex Henderson.
One moment, please while we opened your line.
Your line is open go ahead please.
Thank you very much.
I was hoping you could talk a little bit about the gross margin very simple.
Quarter on quite a bit steeper than we'd anticipated.
You know obviously.
The guide for 30 to 34 for U C. Y 21 gives you some sense of.
The trajectory, but I would hope to have some sense of whether you think you'll stay in that band throughout the 'twenty one period end.
To what extent, we should be at the very low end of that day in the seasonally weak first quarter with Covid probably.
Probably having a bigger impact, but could you just give us a little bit of a waterfall on what caused the decline in the gross margins in the <unk> or the pressure on the gross margins.
The December quarter to start with.
Hi, Alex.
So a question so.
Yes, it was a low gross margin and was actually compounded Phil I'll always say four buckets of freezing.
The first one is at the higher cost of supply chain.
The impacted by the Covid higher airfreight higher shipments cost.
And this is actually probably going to a keep staying with us until we see some relief on debt in the next few quarters.
The second item is are we had some impact on the arrangement with several customers that we will believe will improve our future business with them and had a negative one time effect in Q4.
In addition, we had some a one time event expenses recorded in the ER to the quota that also impacted the gross margin, it's really a in terms of.
The timing of several expenses that they impacted us specifically in Q4.
And the last item I would say is debt in between the regions with some some quarters that in the specific region with some less favorable customer mix in specific regions.
I will take you through for example, whereas in several regions better customer mix in this specific reasons all in all if I need to balance.
On a if I take the revenue if I take the average revenue quarterly run rate and you look on Q3 and Q4 day average of the gross margin is between 70, 172% with some volatility between quarters and this is why we also provide debt I will say.
Wide range for the full 2021 between 30% to 34% and again with the possibility to deviate a below all of the above in specific quarters.
Can you give us a any kind of waterfall, the 33 and a half to 28.9.
Delta you know how much of it was supply chain is that you.
200 basis points and isn't that wasn't bad debt and.
In the September quarter, as well I'm, a little confused why that would be meaningfully different.
So the ballpark of off of a.
The tanks was I would say roughly a 50 50, 50% out of this deviation was the impact of the agreement we reach with several customers.
20% to 30% of it was specifically a less favorable customer mix and I will say, a the reminder, or.
Four feet was a supply chain issues that we faced specific supply chain, such as higher air freight and air shipments cost. This was the remainder of debt.
Okay.
So as I'm looking at the first quarter, which is normally a seasonally weak quarter, where COVID-19 pressures ours.
Higher than they were in the December quarter.
I guess the.
Several of those are you know the one timers should fall out that would suggest that you get.
You'd be above 30% at least in the March quarter or is that a fair.
No calibration of <unk>.
Yes, it's a fair calibration.
Okay, and then on the Opex side can you remind us of your position relative to hedging are the shekel dollar relationship.
<unk>.
Obviously, the shekel has been quite strong.
Are you anticipating a little bit of pressure net and therefore, you know towards the higher end of your guidance.
Guidance band on 'twenty to 'twenty, one on a quarterly basis.
So Alex.
So I will compare to 2020, so our policy is to hedge 100% or close to 100% will fall shekel expenses.
Last year or in early 2020, our hedging rate was close to 3.4.
Before on.
On 'twenty 'twenty, one and the hedging is fixed to 3.3 and three five.
So actually the current S shekel.
We are okay, and its going to be fixed so you don't see the impact of the shekel on our cost because it's 100% hedged.
The issue is going to be a chicken what theyre going to do with 2022, because it does impact us even on 'twenty on 'twenty 'twenty, one it's a weak check out its impact us and even the hedging great is not is not that great and but for 'twenty 'twenty one it's a fixed.
<unk> of 3.3 F 35, and this is the fixed.
Debt down on the interest total line you said you expect that to normalize you paid down a bunch of debt.
What is the normal rate on interest income expense on I will say I will say.
Any number between one one to $1 $5 million.
I see.
On the 1.5.
Okay, I'll see the floor and let somebody else go and I'll get back in queue. Thanks.
Thanks, Alex.
Our next question will go to the line of George <unk>. Please go ahead.
Thank you for taking my question. So Ron just following up on your Opex discussion when you look at the potential cost savings R&D starting to normalize after you tape out.
And then the increases on the sales and marketing side do you expect that to be necessarily on a wash for the full year and you stay on that $20 million to $22 million range for Opex throughout FY 'twenty one.
Yes, George this is the expectation on exactly this debt this will be awash.
The decrease in the R&D and returned to an increase in the sales and marketing, but eventually it is in the range that you mentioned.
Okay, and then when you look at taping out and just maybe a question for you I R. S.
How soon after you tape out do you start to fill in the portfolio with products that you end up having.
Having available to customers.
Usually having systems are deployed and customers about 18 months on tape out sometimes shorter than this we'd probably be able to them on war could do.
On a P O sees with the customers out there and really fully operational systems about that number.
We target a year, but it's a very aggressive type of targeting about a year after tape out usually somewhere between a year and 18 months is the more type of a reasonable type of assumption.
For getting a product out but lets remember that.
That this is not a the whole strategy. This is the longer term strategy. The five G deployment strategy that we're doing today is done around the product. We just released over the last two quarters or on the IP 50 family, which is winning in the market right now the whole.
Chipset is targeted for the second wave of five G. When capacity is really really saw a for the current.
Design wins that we having and when we have a significant lead over the competition. The 50 family gives us the capabilities both for our 20 gigs in E band gives us capabilities like very wide channels in Europe for winning for being able to deploy.
Macro five G base stations with four and eight gig capabilities with very very small.
Our footprint, so it's a whole evolution, which I mentioned and I think that's the same story, we had around the <unk>, it's a set of products.
That continuously rises the wave starts with a certain set of products, which we are already at this point and then additional products and services both in the video domain in the networking domain.
And the management domains, which help the customers really deploy a five day, so it's that whole sequence of.
Now that we are.
Walking deployed walking with customers and it's not just one point of time, which is okay. Yeah.
Yes. That's the next step is a very important step a leading step, which I think very hard for others will be to catch ups are there, but that's the only part of the story the whole story as the whole strategy. We have been building on how do we very fast.
Ride the five G wave in different places around the world starting in Europe U S specific volume and then later on.
And.
The emerging market types of places, where we have seen that.
As an interesting point on this we've been talking that we won are in.
We moved in the last quarter from five to nine.
Our design wins and the interesting point this quarter I think we are close to 10.
Oh I got news from one customer.
A very important one.
That they are.
<unk> selected us.
And but.
I want to say all counted as 10, when they'll see the official paper on the table.
Okay, and then I guess following up on the 910 design wins can you give us a sense of how.
Rich the pipeline activity is both on the board decided on the buy side or.
The next six months.
And then just maybe a bigger picture question about that.
And my last question is like the puts and takes on your annual guidance like what what would be something that accelerates it towards the higher end and what would pull it down towards the lower.
End of the range.
Okay.
So let's start because I think the questions that we're focused on the profitability, but let's start with Q4 and the pipeline.
Yes.
Q4 was at the high end of our revenue run rate.
19, even with Covid, we had higher bookings than we had in 2019. So in 2020 higher bookings with Covid around four G. A little bit then in 19.
So we are running.
And I think that we were running in two areas. One we'll continue to see significant force deployments in a lot of places where we tune in.
That's C. Five G. Yet for all sorts of reasons like handset pricing technology readiness, and others and people are deploying and delivering on.
Still a lot of capacity around four G C India see Africa.
See Latam Latam, although net come slowed down because of Capex on Covid and different places.
The five G that we see right now and as the pipeline on the table not large and that's why we say second half reason is that when we look at the five G design wins. They are all initial deployments.
Yeah.
Where we start to see the deployment. The initial deployments are mainly on fiber.
I would say, even the second wave, but it's when you start growing a little bit outside the center of the Metropolitan and you start densify metropolitan you'll see a lot of.
Wireless holding front hauling back hauling all sorts of our technology is on the table.
The drive Ah that change and we believe this will start to being converted into.
Into revenues and significant orders in the second half.
Over the year.
Giving a twist on this and the other side is things that we see is also and this is the longer range and you start and then I'm going back to your question around the chipset in the beginning in the longer range.
Theres a significant underlying change that we see in the technologies. The five G is that move into the open or on a type of architectures.
Which is unchanged again the network architecture is probably the.
Second half or the other part of the wave of five G, where that's what we are mainly targeting chipsets for very very high high capacities.
And we are almost on a daily basis seeing news around open them on adoption of open run.
And.
Increasing believing people in.
And open them on as a technology to drive our five G, where I think we will play a significant role because it plays to our.
Oh Sweet smart of best of breed opened them on is all about best of breed, it's our sweet spot on.
With our customers and it plays very nicely for us as we build both the technology and ride that wave.
George Let me, let me just complement what I will say on the five design wins I think one important note is that few of them are with customers debt.
Never done business with including the one.
On the 10th one that as I, just mentioned that we announced that we got there. This morning. So this means we are penetrating to new customers because of our capabilities in regards to <unk>.
So just following up on that and then I'll, let the questions. When you penetrate a new customer is there much gross margin variability with.
Ramping up initially versus when they were an existing mature customer.
No not really usually yes, there's a little bit upfront of course of coming in then and on investing upfront and it's sometimes.
Adding people on things, but it's not a significant on the overall of the business.
Alright, Thank you very much.
Thank you George.
We have a follow up question from the line of Alex Henderson go ahead. Please.
Great. Thank you.
So.
It seems pretty clear that when I look at the numbers that you're you're not going to be looking at meaningful amount of profitability in 'twenty one.
But it also seems pretty clear that day.
Trajectory of our revenues.
<unk> is very heavily back half weighted so is it reasonable to think that day, we're likely to.
Yeah see losses in the first half of the year, and then turn to profitability in the back half of the year as you start to see some ramp to these contracts are and you get some of the tape and costs behind you.
Is that kind of the the way we should be thinking about you know the the way to you.
Theres been on Paul.
Okay.
I think what would you are putting on the table he is reasonable.
Although.
From a manager perspective.
Are driving everyone crazy here to stay profitable and returned to profitability, but I think that's your assumption that the first half is a little bit weaker on profitability. It might be also in the loss and then in the second half is positive it's a reasonable assumption.
The first quarter tends to be seasonally the weakest by by a long shot Oh I assume that you're not thinking that you can get back to the March 19.
Quarterly run rate of $769 million in the first quarter. So my assumption is as you sow.
That's the weakest quarter of the year is that.
Is that is that the right. It really is it's usually is the weakest quarter of the year.
And in terms of the you know.
The order book as you're looking into 'twenty. One can you talk about what regions you expect to be stronger. It seems like you should as the year progressed see a mix shift to a five G which tend to be the richer feature set the Richard geographies.
The U S. The European market.
We tend to buy pulp features as opposed to.
Latam on Africa and India.
Historically tended to buy the lesser feature our system.
So should we see a mix shift as the year progresses, we will see a mixed shift as you say more towards Europe, and the U S on towards.
Towards the second half.
And then on the book to Bill commentary I mean, it's not surprising your book to bills.
There's a little bit of pressure here in the Covid world.
But as we go through 'twenty, one I would assume that you would start to see a book to bill solidly above one with that book to Bill progressing so that as we exit the year Youre pretty strong order rates setting up on a much better 22 is that is that kind of how youre thinking about the way things that's true.
It's the way that's the way, we believe that the year needs to look like.
Uh huh.
A lot of factors around it so on timing and timing of orders and timing of sometimes you win a big project and but the timing of orders is deliberate a slow where because we count on.
An order is an older I can deliver in the next six months, except you know as the lays on things like that is something which is very concrete sometimes they win.
Very big projects and then on over a three or four years, we see the orders coming in over a gradual basis, but yes, I think your assumptions are correct.
Okay, one more question and this one's a little bit longer trajectory on around it so.
Clearly you've got a very strong new technology coming down the pipe, assuming the tape and it's successful and they launched these products towards the back half of 'twenty.
21 that should set up a situation in 'twenty, two where you start shipping them would you be expecting initial.
Margins on the very first iterations of that product to be low until you get to volume and then you know should we then expect.
But the margins will be considerably higher than.
On the current run.
Run rates because at that point, a it's five G. B its advanced technology C. It's going into.
The more advanced geographies first is it possible to get back into that 34, 35% type gross margin on.
Vicinity has that home.
Okay, you're asking me two different questions in two different predictions are on the table first I'll say, yes, I think we can I believe we can reach back and get back to the 34 35 range although as.
Ron said at least initially for the year next year. We don't we are not in that range, but I think with the changes in technology and makeshift in a significant mix shift into Europe and the U S. The answer is yes.
But remember that the second part of the question I think you would do the right analysis.
But you need to overlay that with quantities.
And let's remember that initially the quantities of the new products will be small in the whole mix.
And then they will increase and when they are increasing yes, we have a better margins on them well then it's much larger volumes and much larger volumes with our customers. He was really also mean a little bit of reduction in price as to the customers, which means that it is balancing out.
Yes, we believe we can sustain the business where the margins will go up above where we are.
Today and can reach the 34 35 range and we have seen that when we have large volumes because large volumes also contributes on as our fixed costs are coming down around those numbers and my believe once we start shipping large quantities of five G products out.
There will be we can be and we believe we can be in those ranges.
And as a reminder, I don't need to wait for the next products around the chipset. We just introduced the 50 family.
Which is leading the change into the five G and over the next second half of this year and into 2022.
They are a significant ramp up in those products, which are also leading in the market and the labeling all sorts of very unique capabilities, which are not available. There are in there. So I will take your analysis, yes. It's on the next level of product on the new chipset, but it's also on the current level of product as we've introduced them into the market.
Perfect. Thank you very much great answers. Thank you Alex.
We will go next to the line of Gunther Karger.
One moment, while we opened your line.
Your line is open you May go ahead, yes. Thank you for taking on the Washington on.
Congratulations on a good year on quarter IRA.
The question is is there was there was a talk in the industry that there is.
A shortage of chipsets are on chips, which is inhibiting some companies from on.
Delivering on orders do I assume correctly it sounds ceragon yourselves.
On chipsets internally use on why you do not have thoughts on that.
No problems is that a correct assumption.
That's a partially correct assumption.
Because yes on their own chipsets, because we makes them you have less of the shortage, although we use outside factories, and if TSMC, which produce assesses the shortage on.
And I need to order, our chipsets of TSMC I'll get into the same.
Our level of problem, sometimes but yes, we are in a much better control.
Then in other environments and that's part of the challenges that we talked about COVID-19 on the one hand and going into an era, where we are much more digital with a lot more communication a lot more needs in doing this as part of the challenges of the day to day business the way we running them.
And managing.
The short the dishes as.
They progress around the table.
Hi, Thank you a follow up on this how do I also assume correctly that the major problem.
There is one man.
Case would be the materials on the raw materials that go into the manufacturer of the chipsets.
Our net you may assume but that's something I don't know, we order and raw materials going into them. It's there.
And it's a whole discussion around.
The supply chain with its complexity.
I'm going to thank you for asking and thanks for being with US This morning.
And I would like.
All of Us and all of you to thank you for joining us today. This morning.
We believe we have made great strides towards a key enabler of the five G evolution.
But we think the real story is how ceragon once more will enable an average of wireless generation transition.
We appreciate your time today, and we look forward to speaking with you again next quarter or anytime during the quarter as you know feel free to call us up all of my and we'll entertain and more details of the discussion with each and every one of you.
Have a good day everyone.
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