Radcom Plummets 9% After Slashing 2018 Outlook on NFV Gloom

Shares in Radcom plunged 9% on Tuesday after the Israeli software company lowered earnings guidance on a weak outlook in the market for network functions virtualization (NFV).

The company, which sells NFV service assurance software to operators including Globe Telecom Inc. and AT&T Inc. (NYSE: T), is now expecting revenues of between $33 million and $35 million this year, down from a previous forecast of $43-47 million. Radcom Ltd. also said it expects to generate third-quarter sales of $8-8.5 million, down from earlier guidance of around $10.6 million. (See How Radcom's Pricing Model Is Set to Disrupt the Market.)

The revised forecast implies a sales decline this year compared with 2017, when Radcom generated $37.2 million in revenues and a net profit of $2.9 million.

During a call with analysts, CEO Yaron Ravkaie said the "pace of NFV adoption is slower than we expected" and that delays would hit Radcom's top line.

"While the motivation and desire to virtualize exists, reaching mature infrastructure for NFV in the industry is taking time as CSPs are still trying to figure out the best approach," he told analysts, according to a Seeking Alpha transcript.

Ravkaie insisted the new guidance did not reflect any concern about Radcom's products, but the company has also been rocked by several high-profile executive departures in recent days.

On Tuesday's call, Keren Rubanenko, Radcom's vice president of professional services, was revealed to have quit to pursue another opportunity. In September, it lost Ran Vered, its chief financial officer, and Harel Givon, its chief business officer, with both also leaving to pursue other opportunities, according to Radcom.

When Givon quit, Radcom said it would be reorganizing its sales organization based on a "regional model" and that Ravkaie would supervise this structure. The company has also moved quickly to replace Vered with Amir Hai, who was previously the chief financial officer of a healthcare technology business called Smart Medical Systems.

Ravkaie revealed on Tuesday's call that Tal Birenzweig, Radcom's director of customer success, would succeed Rubanenko as vice president of professional services.

The turmoil at Radcom seems to reflect some of the current uncertainty in the market for NFV. First conceived in 2012, the technology should allow operators to separate network hardware from software, and then run network functions as software programs on commodity servers. Among other things, it promises cost savings, speedier service development and an end to vendor "lock-in." (See Orange Issues Telco Cloud Rallying Cry, Vodafone's Heeran: Defining the Telco Cloud and NFV 1.0 Is Passé; Cloud Native Is Coming.)

For more NFV-related coverage and insights, check out our dedicated NFV content channel here on Light Reading.

Telcos, however, have recently complained they cannot get the "cloud-native" NFV they really need, and that vendors have still not developed fully interoperable products.

Ravkaie acknowledged that Radcom's 2018 expectations may have been too optimistic while alluding to some of the challenges operators face. Virtualizing components in a mobile network and getting them to work on NFV infrastructure is "not simple," he said.

He also indicated that some operators would prefer to use a major vendor like Ericsson AB (Nasdaq: ERIC), Huawei Technologies Co. Ltd. or Nokia Corp. (NYSE: NOK) as a "one stop shop" for NFV, with others opting for the "best-of-breed" approach that would seem to open doors for the likes of Radcom.

But he denied Radcom was losing customers to its chief rivals. "Our big competitor NetScout, we don't see them winning any big new logos and any virtual transformation projects," he said. "AT&T is propelling us forward."

Even so, one pressure point appears to be the bundling of service assurance with 5G products by the industry giants. "A company like Ericsson or Nokia or Huawei can come in and say, OK, I'm giving you 5G, I'll give you the assurance for it," said Ravkaie.

Radcom's share price closed at $9.90 on Tuesday and has fallen from a high point this year of $21.45 in mid-July.

— Iain Morris, International Editor, Light Reading