Microwave Backhaul Will Struggle As Fiber Advances But May Recover

Key Takeaways

• Competitive threats from fiber-optics, industry consolidation, and rapid technology shifts challenge Aviat's revenue, pricing power, and innovation capacity.
  
• Rising costs, intensified price competition, and international market risks threaten margin stability and limit sustainable long-term growth.
  
• Heavy reliance on microwave solutions, narrow product focus, and small scale expose Aviat to growth, margin, and market share risks amid fiber expansion and global competition.

Catalysts

Provides microwave networking and wireless access networking solutions in North America, Africa, the Middle East, Europe, Latin America, and the Asia Pacific.

• While demand for microwave backhaul infrastructure is likely to grow as 5G, IoT, and rural broadband initiatives expand, accelerated global deployment of fiber-optics and increasing telecommunications industry consolidation could undermine Aviat's core market, limiting long-term addressable revenue and reducing pricing power, which puts recurring revenue and operating margins at risk.
  
• Despite Aviat's progress on cost control and operational discipline, sustained heavy reliance on specialized microwave backhaul, along with a relatively small scale compared to major industry peers, hampers their ability to respond rapidly to technological shifts like integrated cloud-native and open-networking architectures. This constraint could erode revenue stability and compress net margins as larger rivals out-innovate.
  
• Though recent acquisitions and integration (such as Pasolink and Aprisa) have temporarily enhanced gross margins and expanded Aviat's product and customer base, the increasing adoption of white-box hardware and multi-vendor interoperability threatens Aviat's competitive moats, potentially intensifying price competition and squeezing earnings over time.
  
• While Aviat seeks growth through international expansion and cross-selling in private networks, persistent foreign exchange headwinds, macro uncertainty (especially in Africa), and heightened regulatory/cybersecurity demands could drive up compliance costs and dampen international growth, thereby pressuring both top-line revenues and net income.
  
• Although Tier 1 U.S. capex appears to have bottomed and may offer incremental demand over the next several quarters, high customer concentration and a lack of significant fixed wireless access contracts could leave Aviat exposed to project volatility, limiting their ability to sustainably grow revenues and deliver consistent earnings leverage over the long term.

Aviat Networks Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Aviat Networks compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Aviat Networks's revenue will grow by 5.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -0.5% today to 6.8% in 3 years time.
• The bearish analysts expect earnings to reach $34.9 million (and earnings per share of $2.64) by about July 2028, up from $-2.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.0x on those 2028 earnings, up from -133.5x today. This future PE is lower than the current PE for the US Communications industry at 28.4x.
• Analysts expect the number of shares outstanding to grow by 0.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.93%, as per the Simply Wall St company report.

Aviat Networks Future Earnings Per Share Growth

Risks

• The accelerating global shift toward fiber-optic network deployment poses a significant long-term risk, as capital spending by Tier 1 operators tends to prioritize fiber first, relegating microwave solutions (Aviat's primary market) to less dense, rural deployments, ultimately constraining growth in core revenue streams over time.
  
• Intensifying exposure to international tariffs and ongoing macroeconomic uncertainty threaten to erode gross margins, as management anticipates near-term cost pressures (up to 2–2.5% of cost of goods sold) and must rely on mitigation and cost pass-through strategies, the effectiveness of which remains uncertain for long-term net margins and profitability.
  
• Prolonged periods between large Tier 1 network projects and muted demand in international regions like Africa due to currency constraints and high interest rates increase topline revenue volatility, indicating Aviat remains reliant on cyclical and region-specific demand that may not provide consistent long-term earnings growth.
  
• The company's product focus remains heavily skewed toward microwave backhaul and related software, exposing Aviat to market share losses should telco and private network customers accelerate adoption of alternative, cloud-native, or open-standard solutions, which could compress revenues and limit Aviat's ability to protect or expand its net margins.
  
• While Aviat touts disciplined OpEx and supply chain management, its small scale relative to peers-as highlighted by careful cost control and static R&D levels-suggests limited capability to out-innovate or diversify rapidly, leaving the company vulnerable to margin and earnings pressure if larger competitors advance technologically or if hardware commoditization further intensifies.

Valuation

• The assumed bearish price target for Aviat Networks is $30.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Aviat Networks's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $42.0, and the most bearish reporting a price target of just $30.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $513.0 million, earnings will come to $34.9 million, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 7.9%.
• Given the current share price of $24.27, the bearish analyst price target of $30.0 is 19.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.