Cambium (CMBM) is a small networking equipment provider who has carved out a niche in tier-2 wireless networks and government/industrial networking applications. As such they operate “above the fray” in the tier-1 space where deals are larger but heavily discounted and “lumpy” in terms of sales.

That doesn’t mean Cambium doesn’t face competition – other vendors including Ubiquiti (UBNT) offer stiff competition. Cambium and Ubiquiti also have some ongoing legal disputes. However, the market is large and still underserved. At a high-level, Ubiquiti is more of a “DIY” equipment provider whereas Cambium has more of a tailored solution focus using their products and software. An older IPO, Ruckus Wireless (RKUS) was acquired first by Brocade for $1.5B in 2016 and then resold for $800M in 2017 to Arris after Broadcom (AVGO) acquired Brocade.

There are a few interesting things about Cambium and we are including some quotes from our transcript of the roadshow.

Special Sauce: “Handling challenging terrains and demanding radio frequency conditions is our key differentiator.” They do this with better utilization of available spectrum and a greater ability to adapt to changing conditions.

These comments from management summarize both their key competitive strengths and how they dovetail with their market approach:

“The first key differentiator is leading spectral efficiency. Spectrum is the most precious resource. Our RF algorithms improve spectral efficiency by 2x our primary competition, making us best in class. The spectral efficiency increases customer experience because of superior data throughput to the end user.

The second key differentiator is Cambium’s embedded network intelligence. RF conditions change continuously. Our network intelligence allows our products to self-optimize continuously. We sniff the air and pick the best channel based on our spectrum analyzer functionality.

Our third key differentiator is reliability. With superior hardware design we don’t lose connection and offer mission-critical connection which is very valuable, especially in government and industrial applications. We are designed for tough terrain and a tough outdoor environment.

This is an Everest base camp at 17,600 feet. You can see the extreme conditions, both in terms of terrain and temperature. Wireless connectivity, here, could not be elaborately done before with any type of architecture. Cambium came and created a 90-kilometer, point-to-point link from Everest base camp to the valley, offering 100 megabytes per second service. As a result, we can offer reliable outdoor Wi-Fi. Now climbers, hikers, and the local population are connected to the outside world, including healthcare agencies.

We are laser focused on our sweet spot: mid-sized service providers and enterprises that are traditionally underserved. We do not compete for Tier 1 service providers like Verizon and AT&T or large enterprises like Google. Cambium’s quality and cost are highly differentiated for mid-market enterprise and below. Government and industrials demand deliverability and reliability with extensive cloud-based management, which plays to our strengths.”

Business Dynamics: Instead of a few large customers Cambium has thousands of small ones. Many of these are using the Cambium network management software and make additional regular purchases to expand or upgrade their existing networks. The company touts 70% of its revenues coming from repeat purchasers. (We’re not 100% clear if these are end-user sales or channel partners.)

A large number of small customers and a fairly linear progression of revenue during the quarter supports the view that Cambium has a stable and predictable base of revenue and expenses. Growth is modest at 15-17%/year with newer products growing faster and offering better margins. Given the nature of the business, this company will be of interest to investors looking for “growth at a reasonable price (GARP)” stocks.

Competition: We’ve mentioned Ubiquiti (UBNT) and they are a strong direct competitor. There are also some smaller companies like Mimosa Networks that have been delivering some good products into the market. Mimosa was recently acquired by Airspan Networks (OTC PINK: AIRO) which is a company positioning itself in the “5G” space. It’s not a reporting company so we don’t have more information on it yet.

As noted above Ubiquiti is a bit more DIY than Cambium which seeks to provide a more tailored application-specific solution than the myriad off-the-shelf offerings of Ubiquiti. The market is fairly large though and UBNT isn’t a bad comparable to have – their market capitalization is $9B on $1.1B in TTM revenues. They do have very high operating profit margins though (30%) which means you can’t consider CMBM and UBNT on an apples-to-apples basis on valuation.

For those that might be interested, we found our old UBNT pre-IPO write-up (PDF) and you can get it here: Ubiquity Networks Pre-IPO Coverage October 13 2011

Valuation: We think the IPO is coming at a very fair price and based on our PFV model there is a substantial upside if the deal “comes quietly” into the public markets. UBNT came public back in 2011 with at $15 and now trades at $128. At the time the brash CEO alienated many institutional investors but they have certainly executed well on his vision.

 

 

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