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· Ribbon’s CEO said Verizon’s modernization project was a key Q4 revenue growth contributor
As a key optical and IP services vendor, Ribbon Communications is keenly aware of the impacts that President Donald Trump’s tariffs could have on its business. Like other players, it can pivot its manufacturing capabilities.
Speaking to investors during Ribbon Communications' first-quarter earnings call, Bruce McLelland, CEO, said that while the tariff situation is fluid, it won’t be detrimental either.
“There remains a lot of uncertainty on where U.S. tariffs will settle and any reciprocal trade barriers that may be implemented,” he said. “We're not expecting a material impact on our business, but it's a dynamic situation.”
Ribbon can reallocate where it develops its IP optical, cloud, and edge products, and it is talking with its partners about mitigating any effects on its customer base.
“We have some agility to change the manufacturing location for our IP optical products, and we benefit from the U.S.-Mexico-Canada Agreement (USMCA) free trade agreement for the Cloud & Edge products we manufacture in Mexico,” McLelland said. “We're working closely with our manufacturing partners to anticipate multiple scenarios and react quickly, and hope to minimize the cost impact passed on to our customers.”
He added, “Given the substantial revenue tied to software and services, we believe we are relatively immune at a more macro level.”
Anticipating cloud and edge growth
Amidst the uncertainty over tariffs, Ribbon continued to see first-quarter growth in its Cloud & Edge segment.
Cloud & Edge business revenues were $108 million, up 6% year over year, with product and Professional Services revenue increasing 17% year over year.
However, Ribbon’s Cloud & Edge non-GAAP gross margins were 62.5%, down 350 basis points from the prior year. The company said this reduction is due to higher Professional Services and hardware revenue and lower software sales compared to the prior year.
Looking forward, McClelland said the company has forecast about 20% sales growth in the second quarter due to its ongoing work with Verizon.
“We expect another very good quarter with Verizon, similar to our record level in the fourth quarter last year, as the Voice Network modernization program continues to perform well and other network upgrades continue,” he said. “We're in the first year of this 3-year program with significant opportunity for multiple years beyond this, as well as a large potential opportunity as Verizon completes its acquisition of Frontier.”
Another key area is the federal government. McClelland said it is wrapping up several deals with federal government customers.
“Besides the deals delayed from Q1, we have a very good funnel of U.S. federal network modernization opportunities,” he said. “Several sizable deals are expected to close this quarter, including expansions of current projects and new project wins. Despite some delays in decision-making, these programs look very solid for the quarter.”
Additionally, Ribbon is pursuing new opportunities with enterprises that are conducting new network upgrades,
McCelland said, “We’re projecting several new enterprise wins in the quarter, including a Fortune 500 customer I mentioned at the forefront of leveraging AI to enhance contact center effectiveness.”
Also, Ribbon continues to find service providers looking to replace Metaswitch softswitch voice equipment, focusing on the top 25% of the larger installed customer base.
“In the first quarter, we closed new replacement deals in the U.K. and U.S., serving residential and commercial customers,” McClelland said. Similarly, we had an award with a Tier 1 provider in Central America to replace a high-profile Cisco BroadSoft government services deployment.”
IP Optical potential
In the Optical Networking segment, Ribbon’s results were impacted by the ongoing Eastern European war between Ukraine and Russia.
The company reported that the IP Optical unit’s revenues were $74 million in the first quarter, down 6% from the previous year.
“The optical networking results continue to be a tough comparison due to the suspension of shipments to Eastern Europe beginning partway through the second quarter last year,” McLelland said. “This accounted entirely for the drop year-over-year. We remain hopeful there's a path to resolution of the conflict in the region and a resumption of trade.”
However, Ribbon saw growth in Asia Pacific. The company noted that sales in India rose 80% yearly and were up 6% sequentially to the highest level in the last five years.
“We continue to have a strong business with Bharti and have benefited from Vodafone Idea's renewed network investment to expand mobile network capacity and coverage,” McLelland said. “Sales in Southeast Asia increased by over 20% year-over-year, with multiple new projects across the region.”
Ribbon also saw North American sales more than double year over year. McClelland said the North American IP Optical revenues were driven by a “mix of rural broadband projects, growth in critical infrastructure with utilities AEP, and major service providers such as Brightspeed.”
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Sean Buckley
Sean is responsible for establishing and executing the editorial strategies of Lightwave and Broadband Technology Report across their websites, email newsletters, events, and other information products.