Ceragon Dumps Shorts; RR Satellite Can See Clearly Now

As companies put the finishing touches to their first quarter results, amid growing fears that the recent tumble in share prices could herald a severe downturn in business, I found some hints as to how Israeli companies have been faring in the annual 20F filings that some of them are now releasing, and which all companies must publish by June 30. While this is a report that covers their results for the year just ended, companies are also required to include any material events that have may have occurred up to its actual date of publication.

One such instance this year is that of wireless backhaul solutions company Ceragon Networks Ltd.(CRNT). The sharp jump in its share in recent days was not, in my view, triggered by fresh rumors about the projected roll-out of Sprint Nextel Corp.'s (S) WiMAX network, which still looks a long way off, but by the unveiling of the company's full-year results last Wednesday, the same day as its share price rocketed on massive turnover of 2.2 million shares.

Short interest in Ceragon peaked at 1.3 million shares by the middle of quarter, and there were those who expected this to be followed by a warning and/or the loss of the OEM contract with its largest customer, Nokia (NOK)-Siemens (SI). Ceragon announced yesterday that it would publish its first quarter report on April 18, so it will not be issuing a warning this time round.

Ceragon's 20F filing from last week clearly hinted that there had been no change in its relationship with Nokia-Siemens. Anyone worried about what Ceragon has done with the cash pile it has accumulated, $122 million as of the end of 2007, can set his mind at rest, since it does not invest in speculative instruments, but in government notes, corporate debt with high ratings, and cash deposits. Nokia-Siemens accounted for 10% of Ceragon's sales in 2007, and management said that it expects its business with its three main OEM customers to continue to account for a significant proportion of total sales for the foreseeable future.

As for Nokia-Siemens specifically, Ceragon's contract with it expires on November 1, 2008, and is subject to automatic renewal, unless either sides gives notice of termination three months in advance. In short, if Ceragon had any problems with Nokia-Siemens, it would have been required to report them in its 20F, and on seeing that there were none, the short traders wasted little time in buying back Ceragon shares last week, closing most of their short positions. Ceragon will be meeting analysts during this week's CTIA conference in Las Vegas, and yesterday Bank of America announced it would also be attending the event, and would take the opportunity to issue an update on the company while it is there.

Another member of my portfolio, tracked by "Globes", which published its 20F report last week is RR Satellite Communications Ltd. (RRST), which specializes in the distribution of end-to-end television content on behalf of TV stations to customers' homes worldwide over fiber optic cables, satellites and the Internet. The analysts estimate its sales for 2007 at $76 million, and its 20F reveals that its current orders backlog of $155 million already includes $59 million worth of contracts which it will execute this year, which means the visibility for the next twelve months is excellent.

In addition, RR Satellite already has a further $49 million worth of orders due for delivery in 2009, and the company's visibility for the rest of the year is likely to improve even further, following the two acquisitions the company recently made. One is the acquisition in February of the Hawley Teleport in Pike County Pennsylvania from Skynet Satellite Corporation, which is due to close in the next few weeks, and the other is last week's acquisition of Bezeq's [TASE: BZEQ] satellites in the Elah valley.

Bezeq's satellite business generated $7 million sales in 2007, and its customers include global broadcasting networks such as BBC and CNN. The two acquisitions were made for a total of $20 million, which the company is financing out of the $64 million cash balance it had at the end of 2007. RR Satellite also announced that the board has approved the distribution of up to 50% of its accrued profit as an annual dividend.

Another company with some interesting information in its 20F is LanOptics (EZCH). The company said that its largest customer, network equipment manufacturer Juniper Networks (JNPR) is now integrating its NP-2 processor in the platforms it sells, and that it will also add Lanoptics' next generation NP-3 processor to its shopping list later this year. Juniper's orders accounted for 42% of Lanoptics' sales in 2007, and will increase to 50% in 2008. Juniper is integrating these processors in quite a few of its advanced switches and routers, but it is still highly precarious for any company to have half of its sales to one customer only.

Cisco Systems Inc. (CSCO) will join the prestigious list of Lanoptics customers in the second half of the year, when it integrates a special version of the NP-3 processor in its new product line, a processor developed especially for Cisco in a joint venture with Marvell Technology Group (MRVL) first announced in October 2006. Cisco is not mentioned by name in Lanoptics' report but is described instead as "the world's largest network equipment manufacturer" and one does not have to be a genius to realize who the company is referring to.

Lanoptics now owns 23 million shares in its subsidiary EZchip Technologies Ltd., following its purchase of most of its subsidiary's share capital in January. The other principal shareholders still remaining are JK&B Capital with 11.1%, Goldman Sachs with 10.4%, and founder and CEO Eli Fruchter with 2.6%.

Published originally by Globes [online], Israel business news - www.globes.co.il

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.