Ceragon Networks, Ltd. Rating: Buy

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1 TECHNOLOGY Kevin Dede, CFA James R. Moore Company Update September 25, 2008 Key Metrics CRNT - NASDAQ $7.45 Pricing Date 09/24/2008 Price Target $ Week Range $21.89-$6.07 Shares Outstanding (mm) 36.9 Market Capitalization ($mm) $ Mo Average Daily Volume 363,792 Institutional Ownership 41% Debt/Total Capital 0.0% ROE 14.9% Book Value/Share $4.69 Price/Book 1.6x Dividend Yield 0.0% LTM EBITDA Margin NM EPS($) FY: December Prior Curr. Prior Curr. 2007A 2008E 2008E 2009E 2009E 1Q-Mar A Q-Jun A Q-Sep E Q-Dec E FY E E P/E 15.5x 14.3x 10.6x Revenue($mm) Prior Curr. Prior Curr. 2007A 2008E 2008E 2009E 2009E 1Q-Mar A Q-Jun A Q-Sep E Q-Dec E FY E E 1 Year Price History for CRNT Q3 Q1 Q Created by BlueMatrix Company Description: Ceragon Networks ( based in Tel Aviv, Israel, is a leading independent manufacturer of technologically advanced broadband wireless telecommunications equipment. Employing approximately 275 people worldwide, Ceragon supplies equipment to cellular operators and private networks Ceragon Networks, Ltd. Rating: Buy Wireless Backhaul Market Fueled by Mobile Data; Buy Investment Highlights: Robust backhaul market. We continue to see strong demand for radio transmission equipment used in mobile networks. Next generation networks require higher capacity, and massive coverage expansion in areas such as India, which has chosen wireless backhaul for speed, cost, and efficiency in deployment. As these macro drivers should propel 3Q08 sales, we believe Ceragon is on track to meet our $58.0mm and $0.13 estimates. Just last week, Harris Stratex raised its guidance range by $10mm, or 6%, to $ mm for the September quarter. Competitive environment remains intense, from our perspective. Ceragon is not the only market player to see burgeoning demand for radio gear, which we believe has sparked relatively new entrants such as Exalt, DragonWave, and Radwin. Importantly however, new network technology demands have created the need for radio manufacturers to answer with compatible transmission and network functionality. As such, we have seen new products stream from otherwise lackadaisical innovators, such as Alcatel-Lucent's 9500 Microwave Cross Connect, which had previously negotiated an OEM agreement with Harris Stratex to market that company's Eclipse product. Nokia Siemens. Of greater importance to Ceragon investors, and those considering new investments (any tech value investor), was Tuesday's Nokia Siemens (NSN) new product announcement: the FlexiHybrid, which uses what we believe is an OEM-ed indoor unit (IDU) as a stopgap measure to address the confluence of protocols required in mobile data networks. We think NSN is working on an internally developed high-capacity, IP-core radio in the background, but because it won't be commercially available anytime soon, it decided to OEM. We understand Ceragon's IP-10 has both pricing and flexibility advantages over the new NSN offering, and just because NSN now has its own product, that doesn't guarantee inclusion in NSN network deployments. We understand the existing internal competitive bake off process remains in place, and that Ceragon retains its ticket to enter the fray. Superior growth track record. At current valuation levels, it becomes quite apparent that the Street disregards Ceragon's unique historical growth record. In each quarter over the past 27 quarters, or since September 2001, Ceragon has posted sequentially increasing sales that have resulted in annual sales growth of 49% in 2007 and 47% in While our forecasts don't include such lofty rates, we still have 36% sales growth factored into our estimates this year, which provides the backdrop for a conservative 20x P/E valuation multiple and our $14 price target. The Disclosure section may be found on pages 6-8 of this report. The Valuation section may be found on page 6 of this report.

2 Nokia Relationship We think there was some confusion over Ceragon's working relationship with Nokia Siemens on the NSN FlexiHypbrid backhaul solution announcement on Tuesday. Our understanding is that the new NSN offering is less competitive both in terms of price and flexibility and that Ceragon maintains its ability to compete for NSN network business as it has in the past. Nokia business has contributed more than 10% of Ceragon's sales in the June quarter, and according to Ceragon's F filing, Nokia was a 10.0% customer that year. Meanwhile, while we suspect that Nokia, through its Siemens radio arm in Italy, is working on an IP-core telecoms radio for the growing wireless backhaul market; however, the launch of this new platform is not expected anytime soon. A strong contender. Nokia's position in the mobile infrastructure market is nothing to sneeze at, in our view, as noted in the ABI 1Q08 market share pie chart included below. Nokia is engaged with some of the major wireless operators in India, a market that is growing rapidly. However, Ceragon is not dependent on Nokia for success in that market as it serves four of the top seven India-based operators on its own, and another two of the seven through Nokia. Growing Demand on Backhaul Infrastructure We thought we'd add a graphic to supplement earlier discussion regarding backhaul requirements on next-generation mobile networks. The graph below illustrates Heavy Reading's view on the backhaul capacity required per cell site over time as network data capacity increases. Devices such as the iphone and T-Mobile's G1 are geared specifically to ease Internet access, and as we see more smartphone penetration increase, data consumption should follow. This trend obviously bodes well for Ceragon as greater capacity links are used in networks, and we should see the use of Ceragon's radio gear in not only the network core, but also closer to the network edge. 2 MORGAN JOSEPH & CO. INC.

3 Public companies mentioned in this report: Alcatel-Lucent (ALU - $ NYSE) DragonWave Inc. (DWI - $ TO) Harris Stratex Networks, Inc. (HSTX - $ NASDAQ: Hold) Nokia Corp. (NOK - $ NYSE) 3 MORGAN JOSEPH & CO. INC.

4 Wireless Equipment Companies - Comparable Valuation Analysis September 25, /24/08 Market Sales EV/Sales EPS P/E Company Ticker Rating Price Cap C2008E C2009E C2008E C2009E C2008E C2009E C2008E C2009E Airspan Networks Inc. AIRN NR $0.28 $17 $89 $118 NM NM ($0.45) ($0.24) NM NM Alvarion Ltd. ALVR BUY $5.97 $385 $292 $ x 0.7x $0.16 $0.35 NM 17.1x Anaren, Inc. ANEN NR $10.49 $151 $138 $ x 0.7x $0.74 $ x 10.3x Aruba Networks, Inc. ARUN BUY $4.80 $427 $196 $ x 1.3x $0.02 $0.19 NM 25.3x Axesstel, Inc. AFT NR $0.66 $15 $124 $ x 0.2x $0.10 $ x 6.6x CommScope Inc. CTV NR $37.07 $3,000 $4,232 $4, x 1.1x $3.52 $ x 8.8x EMS Technologies, Inc. ELMG NR $22.36 $353 $333 $ x 0.7x $1.33 $ x 14.1x Endwave Corporation ENWV NR $5.25 $48 $66 $78 NM NM $0.09 $0.30 NM 17.5x Harris Stratex Networks, Inc. HSTX HOLD $7.02 $411 $752 $ x 0.4x $0.60 $ x 8.8x Novatel Wireless, Inc. NVTL HOLD $6.13 $193 $350 $ x 0.1x $0.41 $ x 13.6x Palm, Inc. PALM BUY $7.10 $769 $1,305 $1, x 0.7x ($0.64) ($0.11) NM NM Powerwave Technologies, Inc. PWAV BUY $4.04 $529 $942 $ x 0.8x $0.18 $ x 12.6x Sierra Wireless, Inc. SWIR BUY $10.12 $319 $588 $ x 0.2x $1.48 $ x 6.3x Starent Networks, Corp. STAR SELL $12.50 $930 $242 $ x 2.1x $0.83 $ x 17.1x AVERAGE $ x 0.8x 13.2x 13.2x Ceragon Networks Ltd. CRNT BUY $7.45 $290 $220 $ x 0.7x $0.52 $ x 10.6x Source: Company reports, First Call, and Morgan Joseph & Co. Inc. estimates NOTE: Estimates for uncovered companies are based on First Call Consensus estimates. NOTE 2: Prices are as of close of date above "Price" column. 4 MORGAN JOSEPH & CO. INC.

5 Quarterly Income Statement & Forecast ($'s millions) CRNT FYE 12/31 Sales COGS Gross Profit R&D S&M G&A Def. Stock Comp. Total Exp. Operating Income Other Income Pretax Tax Exp. Net EPS Reported EPS Shares Outstanding 12/31/07 A 12/31/08 E 12/31/09 E Q1A Q2A Q3A Q4A YEAR Q1A Q2A Q3E Q4E YEAR-Est. YEAR-Est. 3/31/07 6/30/07 9/30/07 12/31/07 12/31/07 3/31/08 6/30/08 9/30/08 12/31/08 12/31/08 12/31/09 $33.94 $37.34 $44.47 $46.15 $ $47.18 $55.23 $58.00 $60.00 $ $ $0.10 $0.11 $0.13 $0.14 $0.48 $0.13 $0.13 $0.13 $0.14 $0.52 $ Margin Analysis Gross Margin R&D Ratio S&M G&A Ratio Operating Margin Pretax Margin Tax Rate Net Margin 36.4% 36.3% 36.0% 36.2% 36.2% 35.5% 34.0% 34.0% 35.0% 34.6% 35.4% 10.1% 9.1% 9.1% 9.3% 9.4% 9.9% 9.1% 9.3% 9.7% 9.5% 9.2% 15.0% 16.2% 14.5% 15.2% 15.2% 14.3% 14.1% 13.8% 13.8% 14.0% 13.1% 2.9% 2.2% 3.3% 3.0% 2.9% 2.6% 3.1% 3.1% 3.2% 3.0% 3.2% 8.4% 8.7% 9.1% 8.8% 8.7% 8.7% 7.8% 7.8% 8.3% 8.1% 10.0% 8.9% 8.8% 9.3% 10.6% 9.5% 10.4% 9.2% 9.0% 9.5% 9.5% 11.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.1% 5.0% 6.0% 3.6% 8.7% 8.9% 8.8% 9.3% 10.6% 9.5% 10.4% 8.9% 8.6% 8.9% 9.1% 10.1% Percent Change Total Sales Cost of Revenue Gross Profit R&D Expenses S&M Expenses G&A Expenses Operating Income Pretax Income Net Income Share Count EPS Source: Company reports and MJ & & Co. 59.2% 57.9% 45.8% 40.1% 49.3% 39.0% 47.9% 30.4% 30.0% 36.1% 24.8% 62.1% 59.0% 36.2% 40.2% 47.2% 41.0% 53.1% 34.5% 32.6% 39.6% 23.2% 54.2% 56.1% 66.5% 39.9% 53.3% 35.6% 38.8% 23.2% 25.6% 30.1% 27.8% 28.2% 28.0% 48.1% 25.4% 32.1% 35.9% 47.8% 33.0% 35.4% 37.7% 21.2% 36.3% 49.0% 54.7% 40.5% 45.1% 32.2% 28.8% 24.3% 18.6% 25.4% 16.4% 3.1% -19.9% 32.4% 4.0% 5.4% 26.5% 101.1% 21.1% 36.3% 41.1% 32.4% 340.3% 258.8% 153.4% 82.4% 164.2% 44.3% 32.0% 12.3% 23.4% 26.4% 53.5% 191.1% 200.7% 119.4% 82.8% 129.1% 63.2% 54.6% 26.4% 16.1% 36.4% 44.7% 191.1% 200.7% 119.4% 82.8% 129.1% 63.2% 49.7% 20.1% 9.2% 31.4% 37.1% 4.0% 8.1% 15.0% 24.6% 13.0% 33.2% 26.7% 20.2% 9.5% 21.7% 1.0% 179.9% 178.3% 90.9% 46.8% 102.8% 22.5% 18.2% -0.1% -0.3% 8.0% 35.8% 5 MORGAN JOSEPH & CO. INC.

6 Required Disclosures Rating and Price Target History for: Ceragon Networks, Ltd. (CRNT) as of /20/07 I:Hold:NA 07/24/07 Buy:$16 10/08/07 Hold:NA 01/04/08 Buy:$16 01/29/08 Buy:$ Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q Created by BlueMatrix Price Target Our price target is $14. Valuation Methodology Our $14 price target reflects a multiple of 20x our $ EPS estimate. Our 20x multiple is based on a sizable discount to our forecast for 31% net income growth (earnings) in 2008 and our forecast 37% net income growth in From a historical perspective, Ceragon has posted consistently strong net income growth, including 126% in 2005, 84% in 2006, and 129% in We forecast net income growth of 31% in Risk Factors David versus Goliath. While Ceragon has clearly demonstrated an ability to grow its business, the company's sales, at $162mm in 2007, have hardly been significant in the eyes of some of the larger radio market share holders. However, if the company is to continue to post growth rates in the 35-60% range, as it has over the past three years, it will have to continue to steal market share, given Ceragon's addressable market is growing at a rate of about 15%. Established OEM-backed radio manufacturers are well entrenched with their carrier customers, so Ceragon may be less likely to continue to win contracts and gain market share. High-growth phase not eternal. Ceragon's growth has come as the large capacity market has flourished, its partnership with Nokia has developed, and perhaps to a certain extent, the fact that the Harris Stratex merger (that company's international sales force) was poorly integrated through the first six months of this year. Whatever the reasons driving the company's strong growth, given the laws of small numbers, we think Ceragon's recent history of sales growth is impressive. And while the growth rates may remain consistent in dollar terms, we believe the rates are likely to decline in percentage terms. Exchange rate dynamics. Ceragon, as most Israel-based companies, generates sales around the world in U.S. Dollars or in Euros. However, the majority of the company's operating expenses are paid in Israeli Shekels given most of the company's operations are based there. So far this year, the Shekel has appreciated approximately 16% versus the Dollar, forcing exchange-rate pressure on Shekel denominated expenses. This, of course, translates to earnings, and we note that future exchange rates cannot be accurately projected, and should the Shekel continue to appreciate, we would expect earnings to become more substantially negatively impacted in that Ceragon has not hedged its expenses against Shekel related moves for 2H08. Wireless ecosystem events. While we view any issues causing a downturn in the wireless environment as a whole as unlikely, especially given positive subscriber and capital spending trends, investors should be watchful of industry dynamics. Early 3G trends were not nearly as robust as initially expected given a downturn in the telecoms industry, and such factors could again emerge. 6 MORGAN JOSEPH & CO. INC.

7 Rating and Price Target History for: Harris Stratex Networks, Inc. (HSTX) as of /19/07 I:Buy:$22 01/31/08 Hold:NA Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q Created by BlueMatrix I, Kevin Dede, CFA, the author of this research report, certify that the views expressed in this report accurately reflect my personal views about the subject securities and issuers, and no part of my compensation was, is, or will be directly or indirectly tied to the specific recommendations or views contained in this research report. I, James Moore, the author of this research report, certify that the views expressed in this report accurately reflect my personal views about the subject securities and issuers, and no part of my compensation was, is, or will be directly or indirectly tied to the specific recommendations or views contained in this research report. Research analyst compensation is dependent, in part, upon investment banking revenues received by Morgan Joseph & Co. Inc. Morgan Joseph & Co. Inc. intends to seek or expects to receive compensation for investment banking services from the subject company within the next three months. Morgan Joseph & Co. Inc. makes a market in the shares of CRNT. Investment Banking Services/Past 12 Mos. Rating Percent Percent BUY [B] HOLD [H] SELL [S] Meaning of Ratings A) Buy means reasonable outperformance relative to the market over months. B) Hold means market-type risk adjusted performance; potential source of funds. C) Sell means expected to underperform the market. Other Disclosures The information contained herein is based upon sources believed to be reliable but is not guaranteed by us and is not considered to be all inclusive. It is not to be construed as an offer or the solicitation of an offer to sell or buy the securities mentioned herein. Morgan Joseph & Co. Inc., its affiliates, shareholders, officers, staff, and/or members of their families, may have a position in the securities mentioned herein, and, before or after your receipt of this report, may make or recommend purchases and/or sales for their own 7 MORGAN JOSEPH & CO. INC.

8 accounts or for the accounts of other customers of the Firm from time to time in the open market or otherwise. Opinions expressed are our present opinions only and are subject to change without notice. Morgan Joseph & Co. Inc. is under no obligation to provide updates to the opinions or information provided herein. Additional information is available upon request. Copyright 2008 by Morgan Joseph & Co. Inc. Morgan Joseph & Co. Inc. 600 Fifth Avenue, 19th Fl New York, NY Tel Fax Sales and Trading New York Tel Fax Pittsford Tel Fax MORGAN JOSEPH & CO. INC.