Earnings Call Transcript - CRNT Q4 2020

Operator, Operator

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. As a reminder, your conference today is being recorded. It is now my pleasure to introduce your host, Maya Lustig, Head of Investor Relations at Ceragon. Thank you. You may begin.

Maya Lustig, Head of Investor Relations

Thank you, Alan, and good morning, everyone. I’m joined by Ira Palti, Ceragon’s President and Chief Executive Officer, and Ran Vered, Ceragon’s Chief Financial Officer. Before we start, I would like to note that this call includes information that constitutes forward-looking statements within the meaning of the Securities Act of 1933 as 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 expectations will be obtained or that any deviations therefrom 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 the results as detailed in our press release that was published earlier today and as further detailed in Ceragon’s most recent annual report on Form 20-F and in Ceragon’s other filings with the Securities and Exchange Commission. Such forward-looking statements represent our views only as of the date they are made and should not be relied upon as representing our views as of any subsequent date. Such forward-looking statements do not purport to be predictions of future events or results, and there could be no assurance that it will prove to be accurate. Ceragon may elect to update these forward-looking statements at some point in the future, but it specifically disclaims any obligation to do so. Ceragon’s public filings are available on the Securities and Exchange Commission website at www.sec.gov and may also be obtained from Ceragon’s website at www.ceragon.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 was issued earlier today. I will now turn the call over to Ira. Please go ahead.

Ira Palti, President and CEO

Thank you, Maya, and good morning, everyone. In the fourth quarter of 2020, as well as almost the entire year, the macro environment remained challenging. Fast forward to the present, the vaccine rollout in Israel is inspiring, setting 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 revenues and business activities returning to the normal run rate. Ran will give you the details later in the call. I would like to take the opportunity to say a few words about our most recent technology focus, the evolving market, and our emerging roadmap. 2020 was a unique year for business and as an economist once said, 'a crisis is a terrible thing to waste.' A big opportunity for us this past year was to be a key player in moving the 5G evolution from hype to reality. As you would agree, 2020 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, entertaining ourselves, and more. This has generated massive traffic and complexity that strain existing networks, creating an urgent need for more network capacity. To keep pace, operators are pushing 5G from initial trials into the field, and this is what we have been waiting for and are very excited about. We believe we are poised to provide operators with the technology, expertise, and services they need to make this transition happen, and we foresee a significant opportunity to grow and take market share. At Ceragon, we have a history of benefiting from the transition between wireless generations. As 5G services and networks build momentum, we believe that once again we will do what we do best, leverage this transition, and continue our successful Company story in 2021 and beyond. When we look back, we see that the three main technological breakthroughs that empowered us to become a true global player were wireless SDH, wireless IP, and compact multicore all-outdoor wireless backhaul solutions. And more than that, we became present in all corners of the world, positioned to benefit from the wave when it occurs, where it occurs, which is something our best-of-breed competitors cannot boast. Our first big revenue jump was a decade and a half ago when our wireless SDH solution drove the transition from 2G to 3G. 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 hauling compact all-outdoor solutions, dual-core chipset, which allowed us to ride the 4G wave globally and took us from $160 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 5G evolution. I’d now like to spend just a few minutes to explain why, especially for those of you who are new to Ceragon, it might help to break down the elements that contribute to our 5G positioning. 5G networks require massive capacity, density, and flexibility with extremely low latency, and we believe our differentiated solution leads the market in all these areas. We 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, and site acquisition. Thanks to all this, we believe our customers succeed more often and more efficiently in today’s competitive market. I’d like to speak a bit more about our leadership in the best-of-breed portion of the wireless hauling market. We were at the forefront leading a change that created more possibilities for operators to build and manage higher performance and more operationally efficient networks by integrating the best solution for every network domain. This is what made us the number one wireless hauling specialist first in the 3G days with wireless SDH, and then in 4G days with wireless IP and multicore, all outdoor solutions. Today, another change is already picking up speed. The industry’s move led by operators towards open networks, the OpenRAN or disaggregated environment. This enables operators to integrate specialist solutions 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, Telefónica, and Vodafone formed a collaboration around the rollout and development of OpenRAN technology in a bid to ensure that Europe keeps up with the U.S. and Japan. In 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 geographical coverage. The transition from 4G to 5G is creating a huge change in the way networks are designed and architected. That’s why often we help operators achieve an evolutionary approach. We provide a wireless-based backhaul network that is supporting 4G networks and that can be upgraded cost-effectively to 5G at any point to increase 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 we recently acquired. This includes major Tier 1 operators in North America, Europe, and Southeast Asia as well as Tier 1 and Tier 2 operators across the globe, plus smaller ISPs and regional players. It’s what we believe makes us an essential partner for operators as they evolve to 5G. So, what makes us the technology leader of wireless hauling and even more so when it comes to wireless hauling for 5G? The answer is the combination of four elements: First of all, we are the only player that builds our own purpose-driven chipsets, giving us the tightest integration in the market, functionality and cost-wise. Second, total vertical integration. We are the only player that does everything in-house from chipset development, from microwave and millimeter wave to complete radio and networking system. Third, we are the only player with leadership in all three domains of the disaggregated wireless hauling network, networking software, networking hardware and radios. And finally, we believe we are the kings of compact all-outdoor solutions with nearly 40% market share of the segment as measured by Sky Light Research firm. Putting all this together, you see the full extent of our capabilities, solutions and roadmap, 2 gigabits per second to 100 gigabits 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 5G scenario. Now that we believe we are perfectly positioned to leverage the 5G evolution, the open question is the timing. We see signs that this evolution will start building at a larger scale toward the end of 2021 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 5G since late 2019 and shares leadership of the transition today with China. Network build-outs using wireless hauling for transport across networks have recently begun. We’ve increased our 5G design wins to nine this quarter, and we are participating in numerous 5G proof-of-concept and initial rollouts in the U.S., Europe and the Pacific Rim, and plans are being finalized for mass rollouts. We anticipate that the first large-scale networks to make use of wireless hauling in mass are likely to pick off toward the end of 2021 and then 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 5G 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 4G projects to increase network reach and capacity. In some of these projects, the operators are already seeding in the wireless holding infrastructure required for 5G. To conclude, we are moving into a new kind of future, building on a growing collective online mobile presence and global hyperconnectivity with full ramifications and potential we are yet 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 5G evolution. I would now like to turn the call over to Ran to discuss our financials in more detail.

Ran Vered, Chief Financial Officer

Thank you, Ira, and good morning, everyone. To help you understand the results, I will be referring mainly to non-GAAP numbers. For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures, we refer you to today’s press release. During the fourth quarter, we made further progress moving back toward normal operations, continuing the positive trend that began in Q3 2020. Our revenues returned to a strong level and are at the high end of our projections for the quarter as well as the high end of our normal quarterly revenue run rate range pre-COVID. They reflect the return to strong execution of almost all our ongoing activities in an industry that will see new urgency for network building. At the same time, COVID has increased our supply chain expenses significantly, reducing our gross margin. This compared with the large technology write-off and some year-end 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 million in loans. In fact, all main balance sheet indicators, DSO, inventory, short and long-term cash flow moved in the right direction this quarter, despite a very challenging environment. Let me now review the actual numbers with you. Revenues for the fourth quarter were $74 million, up 5% compared with the third quarter 2020 and up 4% compared with Q4 last year. The revenues varied from region to region, in line with the effect that COVID has had on local business operations and network build-out plans. Europe had its strongest quarter in the last three years, reflecting some initial revenues from 5G projects. Our strongest revenue for the quarter was from India, reflecting ongoing deliveries for Bharti. Revenues in North America were strong, reflecting continued positive momentum with ISPs and smaller carriers. Africa too had a strong quarter, reflecting shipments for the Orange Niger project we announced in August as well as to another customer we won this quarter. This is further proof of our strong 4G success in Africa. Latin America had the strongest quarter in 2020, reflecting some gradual return to activity in our project in Peru. However, we are still facing frozen CapEx budgets in the face of COVID-19. APAC had a relatively weak quarter with one above 10% customer in the fourth quarter. For the year, revenues were almost $263 million, down 8% from 2019. This reflected the weak first half of the year due to COVID, following a much stronger second half. The booking to revenue ratio for the quarter was slightly below one. Overall, our annual book-to-bill ratio for 2020 was above 1, while overall bookings were slightly higher than 2019. Gross profit for the quarter on a non-GAAP basis was $21.4 million, giving us a non-GAAP gross margin of 28.9% compared with 31.3% for the fourth quarter of 2019. This reflects few one-time negative effects, some of which are agreements reached 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 costs that we have had to deal with in the COVID environment with a major increase in airfreight costs, higher material costs, and more. This is likely to continue to fluctuate over the next few quarters until there is a full recovery. For the full year 2020, the non-GAAP gross margin was 28.7% compared with 33.8% in 2019. This is not a level we are pleased with, and we have taken some operational steps to improve it for 2021. Operating expenses on a non-GAAP basis for the fourth quarter were $20.8 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 from Q4 2019, mainly due to our progress with chip development. As planned, these expenses will continue to stay high until we reach tape-out in mid-2021. Sales and marketing expenses for the fourth quarter on a non-GAAP basis were $8.5 million, down from $10 million in Q4 2019, reflecting reduced travel and variable compensation that have come with COVID. General and administrative expenses for the fourth quarter on a non-GAAP basis were $4.7 million, in line with our expectations and down from $6.8 million in Q4 2019, which was impacted by one-time provisions. Operating expenses on a non-GAAP basis for the full year period were $79.9 million, down from $87.6 million in 2019, primarily due to reduced sales and marketing expenses. For 2021, we expect to have higher R&D expenses during the first half as we complete the new chip, to gradually increase our sales and marketing expenses throughout the year as markets open post-COVID. Financial and other expenses for the fourth quarter on a non-GAAP basis were $2.5 million, which is much higher than the normal expected level. We do expect them to return to the regular levels in Q1 2021. Our tax expenses for the quarter on a non-GAAP basis were $1.6 million, which was higher than expected. However, when we 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 of 2020, with $0.5 million equity loss together with $1.8 million 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 a non-GAAP basis for the quarter was $3.5 million or $0.04 per diluted share. On a GAAP basis, net loss was $6.3 million or $0.08 per diluted share. As to our balance sheet, we continue to improve our stability and working capital, and you can see our success in the following parameters. We reduced our inventory to $50.6 million, down from $62.1 million at the end of 2019. Our receivables are now at $107.4 million, down from $118.5 million at the end of 2019. Our DSO now stands at 140 days, which is a bit lower than in Q4 2019. Cash flow from operating activities for the fourth 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 our 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 targeting revenue growth in 2021. Although we expect a slow start for the first half of the year, based on Q4 book-to-bill below 1, thus typical seasonal factors negatively affecting the first half, we continue to expect yearly 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 impact on supply chain expenses and other cost factors, the gross margin might deviate from that range. For Q1 2021, we expect our non-GAAP operating expenses to be in the range of $20 million to $21.5 million, taking into consideration the investment needed in our unique multi-core chipset technology. With that, I will now open the call for your questions.

Operator, Operator

For our first question, we’ll go to the line of Alex Henderson. One moment please, while we open your line. Your line is open. Go ahead, please.

Alex Henderson, Analyst

Thank you very much. I would like you to discuss the significant variance in gross margin for the quarter, which was steeper than we expected. While the guidance of 30% to 34% for 2021 gives us some insight into the expected trend, I would appreciate your thoughts on whether you believe you will remain within that range for the entire year. Additionally, how much should we expect to be at the lower end of that range during the typically weaker first quarter, considering the potential larger impact of COVID? Could you also provide an overview of what contributed to the decline in gross margins during the December quarter?

Ran Vered, Chief Financial Officer

It was a low gross margin, primarily due to four main reasons. First, the higher supply chain costs resulting from COVID, such as increased airfreight and shipment costs, are likely to persist until we see some relief in the upcoming quarters. Second, we faced challenges with arrangements involving several customers, which we believe will ultimately enhance our future business with them, but it had a one-time negative effect in Q4. Additionally, we recorded one-time year-end expenses in this quarter that adversely affected the gross margin, mainly due to the timing of these expenses. Finally, there were regions where the customer mix was less favorable in certain quarters. For instance, in Q3, we experienced a better customer mix in several regions. Overall, if we look at the average quarterly run rate, the gross margin for Q3 and Q4 is between 31% and 32% with some fluctuations. This is why we offered a broad range for the full year 2021, between 30% and 34%, with the possibility of variation in specific quarters.

Alex Henderson, Analyst

Can you provide details on the difference from 33.5% to 28.9%? How much was attributed to supply chain issues? Was that around 200 basis points? And wasn’t there an audio disturbance in the September quarter as well? I'm unclear on why this would be significantly different.

Ran Vered, Chief Financial Officer

Approximately 50% to 30% of the deviation can be attributed to the agreement we made with several customers. 20% to 30% was due to a less favorable customer mix, and the remaining portion was related to supply chain challenges we encountered, particularly increased air freight and air shipment costs.

Alex Henderson, Analyst

As I evaluate the first quarter, which typically has lower seasonal performance and where COVID-related challenges are greater than in the December quarter, I believe that several one-time factors should no longer be an issue. This indicates that we might expect results above 30% in the March quarter. Is that an appropriate estimate for the first quarter?

Ran Vered, Chief Financial Officer

Yes, it’s a fair calibration.

Alex Henderson, Analyst

Okay. And then, on the OpEx side, can you remind us your position relative to hedging the shekel-dollar relationship? And obviously, the shekel has been quite strong. Are you anticipating a little bit of pressure from that and therefore towards the higher end of your guidance band of ‘20 to ‘21 on a quarterly basis?

Ran Vered, Chief Financial Officer

So, I will compare it to 2020. Our policy is to hedge close to 100% of our shekel expenses. In 2020, our hedging rate was around 3.44, while in 2021, it is fixed at 3.35. Currently, we are okay with the shekel, and it's going to remain fixed. Therefore, you won't see the shekel affecting our costs because it's fully hedged. The concern will be what we do regarding the shekel in 2022, as it does impact us. Even for 2021, the weak shekel affects us, and the hedging rate is not particularly favorable. However, for 2021, we have a fixed hedge of 3.35.

Alex Henderson, Analyst

Down on the interest line, you said you expect that to normalize. You paid down a bunch of debt. What is the normal rate on interest income expense line?

Ran Vered, Chief Financial Officer

I will say any number between $1.1 million to $1.5 million.

Operator, Operator

For our next question, we’ll go to the line of George Iwanyc. Please go ahead.

George Iwanyc, Analyst

Thank you for taking my question. So, Ran, just following up on your OpEx discussion. When you look at the potential cost savings from 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 a wash for the full year and you stay in that $20 million to $22 million range for OpEx throughout 2021?

Ran Vered, Chief Financial Officer

Yes, George. This is the expectation. Exactly, this will be a wash with a slight decrease in R&D in exchange for an increase in sales and marketing, but ultimately it aligns with the range you mentioned.

George Iwanyc, Analyst

Okay. And then when you look at taping out, and this might be a question for you, Ira, how soon after you tape out do you start to fill in the portfolio with products that you end up having available to customers?

Ira Palti, President and CEO

Typically, the timeframe for having systems deployed at customer sites is around 18 months following tape out, although it can sometimes be shorter. We anticipate being able to demonstrate our work and conduct proof-of-concept projects with customers in that timeframe, targeting a year, which is quite an ambitious goal. More realistically, it usually falls within the one to 18-month range for product availability. However, this is just part of our longer-term strategy. The current 5G deployment strategy is centered around the products we released in the last two quarters, primarily our IP-50 family, which is performing well in the market. This chipset is designed for the next wave of 5G when demand is expected to surge. With our current design wins, we have a significant competitive advantage, as the 50 family supports capabilities like 20 Gbps in E-band and wide channels in Europe for deploying macro 5G base stations with 4 and 8 Gbps capabilities while maintaining a compact footprint. This is part of a larger evolution, similar to what we experienced with 4G. It involves a range of products that build upon the initial offerings we have now and expands into additional products and services across the radio, networking, and management domains, which support our customers in effectively deploying 5G. Our approach is not just about one milestone; it's a continuous process of working with customers, and while this is a crucial step, it's just a segment of our overarching strategy. We aim to rapidly capitalize on the 5G opportunity in various regions worldwide, starting with Europe, the U.S., and the Pacific Rim, before moving into emerging markets. Notably, we’ve increased our design wins from five to nine in the last quarter, and I believe we are nearing ten this quarter, having received positive indications from a key customer. However, I will officially count it as ten once I have the formal documentation.

George Iwanyc, Analyst

Okay. And then, I guess, following up on the 9, 10 design wins, can you give us a sense of how rich the pipeline activity is both on the 4G side and the 5G side for the next six months? And then, just maybe a bigger picture question about that, which will be my last question is like the puts and takes on your annual guidance like what would be something that accelerates towards the higher end and what would pull it down towards the lower end of the range?

Ira Palti, President and CEO

Let's begin with Q4 and the pipeline. Q4 reached the upper end of our revenue expectations. In 2019, even amid COVID, we achieved higher bookings than we did in 2019. In 2020, bookings remained strong despite COVID and mainly related to 4G, albeit slightly below 2019 levels. We are progressing in two key areas. Firstly, we're witnessing substantial 4G deployments in many regions where 5G has yet to emerge due to factors such as handset prices and technology readiness. This has resulted in significant 4G capacity being deployed, particularly in India, Africa, and Latin America, although there has been a slowdown in Latin America due to capital expenditures and COVID-related issues. Currently, our 5G pipeline isn't extensive, which is why we anticipate more activity in the second half of the year. The 5G design wins we observe are primarily focused on initial deployments, especially on fiber. While not quite entering a second phase, these projects are expanding beyond metropolitan centers as we work on densifying urban areas, involving various technologies like wireless hauling and backhauling that will influence our revenue trajectory. We expect these developments to translate into significant orders in the latter half of the year. Additionally, there's a broader shift we're noticing with 5G regarding the move towards OpenRAN architectures, which will further modify network structures, particularly later in the 5G rollout. Our chipsets are specifically being developed to support high capacity within this framework. We're seeing daily updates around OpenRAN and its growing acceptance as a 5G technology, which positions us favorably as it aligns with our strengths. OpenRAN is fundamentally about best-in-class solutions, and our engagement with customers puts us in a very advantageous position as we advance this technology.

Ran Vered, Chief Financial Officer

George, I want to add to what Ira mentioned about the 5G design wins. It's important to note that some of these wins are with customers we haven't worked with before, including the tenth one that Ira just talked about, which we announced this morning. This indicates that we are reaching new customers due to our 5G capabilities.

George Iwanyc, Analyst

So just following up on that, and then I’ll end the questions. When you penetrate a new customer, is there much gross margin variability with ramping up initially versus once they are an existing mature customer?

Ira Palti, President and CEO

No, not really. Usually, yes, there’s a little bit upfront of course of coming in and investing upfront, and it’s sometimes adding people and things, but it’s not as significant on the overall business.

Operator, Operator

We have a follow-up question from the line of Alex Henderson. Go ahead, please.

Alex Henderson, Analyst

So, it seems pretty clear that when I look at the numbers that you’re not going to be looking at a meaningful amount of profitability in ‘21, but it also seems pretty clear that the trajectory of revenues is very heavily back-half weighted. So, is it reasonable to think that we’re likely to 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 and you get some of the taping costs behind you? Is that kind of the way we should be thinking about the way the year is going to unfold?

Ira Palti, President and CEO

I think, what you are putting on the table is reasonable, although from a manager’s perspective, driving everyone crazy here to stay profitable and return to profitability. But, I think that your assumption that the first half is a little bit weaker on profitability and might be also in the last and then in the second half as positive is a reasonable assumption.

Alex Henderson, Analyst

The first quarter is typically the weakest seasonally. I assume you don’t expect to reach the March 2019 quarterly run rate of $69 million in the first quarter. So, my assumption is that you recognize this is the weakest quarter of the year. Is that correct?

Ira Palti, President and CEO

It usually is the weakest quarter of the year.

Alex Henderson, Analyst

And, in terms of the order book as we’re looking into ‘21, can you talk about what regions you expect to be stronger? It seems like you should, as the year progresses, see a mix shift to 5G, which tends to be the richer feature set, the richer geographies, the U.S., the European markets tend to buy full features as opposed to say, LATAM and Africa and India that have historically tended to buy the lesser feature systems. So, should we see a mix shift as the year progresses?

Ira Palti, President and CEO

We will see a mix shift, as you say, more towards Europe and the U.S. towards the second half.

Alex Henderson, Analyst

And then, on the book-to-bill commentary, I mean, it’s not surprising, the book-to-bill is under a little bit of pressure here in the COVID world. But, as we go through ‘21, I would assume that you would start to see a book-to-bill solidly above 1 with that book-to-bill progressing, so that as we exit the year, your pretty strong order rates setting up a much better ‘22. Is that kind of how you’re thinking about the way things progress through the year?

Ira Palti, President and CEO

We believe that the year should progress in a certain way. There are many factors affecting the timing of orders. Sometimes, we may win a significant project, but the arrival of orders can be slower due to lower demand. An order is something I can deliver in the next six months, although there are logistics and other practical considerations involved. Occasionally, I secure large projects, and the related orders come in gradually over three or four years. But yes, I agree that your assumptions are correct.

Alex Henderson, Analyst

Okay. One more question, and this one’s a little bit longer trajectory around it. So, clearly, you’ve got a very strong new technology coming down the pipe. Assuming the tape-in is successful and that you launch these products towards the back half of ‘21 that should set up a situation in ‘22 where you start shipping them. Would we be expecting initial margins on the very-first iterations of that product to be low until you get the volume? And then, should we then expect that the margins will be considerably higher than the current run rate because at that point, A, it’s 5G; B, it’s 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 of vicinity as that happens?

Ira Palti, President and CEO

You’re posing two distinct questions and predictions. First, I believe we can return to the 34% to 35% range, although, as Ran mentioned, at least at the beginning of next year, we are not in that range. However, with advancements in technology and a significant shift in our product mix towards Europe and the U.S., I am optimistic. That said, it's important to keep in mind that the second part of the question requires careful analysis, but it also needs to consider quantities. Initially, the volume of new products will be small in the overall mix, but that will change over time. As volumes increase, we may see improved margins, but larger orders often lead to some price reductions for customers, so it balances out. We believe we can maintain a business environment where margins will exceed current levels and achieve the 34% to 35% range. This has been evident in the past when we had large volumes, as they help reduce fixed costs. I am confident that once we start shipping significant quantities of 5G products, we can reach those margins. As a reminder, we don't have to wait for the next chipset product; we've just launched the 50 family, which is pivotal for 5G advancement. In the second half of this year and into 2022, we will see a substantial increase in these products, which lead the market and offer unique capabilities. Therefore, while your analysis pertains to the next generation of chipset products, it also applies to our current offerings in the market.

Operator, Operator

We will go next to the line of Gunther Karger. Your line is open. You may go ahead.

Gunther Karger, Analyst

Yes. Thank you for taking the question. And congratulations on the good year and quarter, Ira. The question is this. There is a talk in the industry that there’s a shortage of chipsets and chips, which is inhibiting some companies from delivering on orders. Do I assume correctly, since Ceragon, yourselves, make your own chipsets internally, you do not have such an inhibitional problem, is that a correct assumption?

Ira Palti, President and CEO

That’s a partially correct assumption, because, yes, on our own chipsets because we make them, we have less of the shortage although we use outside factories and if TSMC, which produces us as a shortage, and I need to order our chipsets at TSMC, I’ll get into the same level of problem sometimes. But yes, we are in much better control than in other environments. And that’s part of the challenges that we talked about COVID 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’re running them and managing shorter digits as they progress around the table.

Gunther Karger, Analyst

A follow-up on this. So, do I also assume correctly that the major problem, if there is one, in this case, would be the materials, the raw materials that go into the manufacture of your chipsets?

Ira Palti, President and CEO

You may assume, but it’s something I don’t know. We order raw materials going into them, it’s there. And it’s a whole discussion around the supply chain with its complexity. I want thank you for asking and thank you 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 being the key enabler of the 5G evolution. But, we think the real story is how Ceragon, once more, will enable and leverage a wireless generation transition. We appreciate your time today. And we look forward to speaking with you again next quarter or any time during the quarter, as you know, feel free to call us up, call up Maya and we’ll entertain more detailed discussions with each and every one of you. Have a good day, everyone.

Operator, Operator

Ladies and gentlemen, that will conclude your conference call for today. Thank you for your participation and for using AT&T event teleconferencing. You may now disconnect.