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Ericsson ERIC has surged 62% over the past year compared with the industry’s growth of 43.2%, outperforming peers like Nokia Inc. NOK and Motorola Solutions Inc. MSI.

Ericsson is well-positioned to capitalize on the market momentum with a competitive 5G product portfolio. With a holistic growth focus, the company strives to be the leading telecommunications infrastructure provider worldwide and establish a focused enterprise business.

One-Year Price Performance

ERIC Rides on Portfolio Strength

With the emergence of the smartphone market and subsequent usage of mobile broadband, user demand for coverage speed and quality has increased manifold. Further, there is a continuous need for network tuning and optimization to maintain superior performance as traffic increases. Ericsson is much in demand among operators to expand network coverage and upgrade networks for higher speed and capacity. It is reportedly the world’s largest supplier of LTE (Long-Term Evolution) technology with a significant market share and has established several LTE networks across the globe.

Ericsson is focusing on 5G system development and has undertaken many notable endeavors to position itself for market leadership on 5G. It currently has 170 live 5G networks across the globe, spanning 72 countries. The company believes that the standardization of 5G is the cornerstone for digitizing industries and broadband. The deployment of 5G networks is likely to boost the adoption of IoT (Internet of Things) devices, with technologies like network slicing gaining more prominence.

Ericsson continues to invest in the Enterprise business to make it a sizeable part of its business. The company has introduced on-demand network slicing capability in Android 14 devices. It empowers developers to enhance the flexibility of applications and allows service providers to better align network connectivity with user-specific requirements.

ERIC Bets Big on AT&T Contract

Ericsson has inked a five-year contract worth $14 billion with AT&T Inc. T to modernize the latter’s network infrastructure. AT&T intends to leverage Ericsson technology to deploy a commercial-scale open radio access network (Open RAN) across the country to help build a more robust ecosystem of network infrastructure providers and suppliers. For Ericsson, the deal marks a remarkable achievement in outdoing rivals by embracing Open RAN technology to help create an open, agile, programmable wireless network.

Ericsson has stepped up production in its 5G Smart factory in Lewisville, TX, to cater to the increased demand for 5G equipment with an additional $50 million investment, bringing it to the forefront of 5G innovation. With highly automated and efficient processes, the factory is fully powered by renewable electricity, producing next-generation 5G and Advanced Antenna System radios for Ericsson's U.S. customers.

Estimate Revision Trend of ERIC

Earnings estimates for ERIC for 2024 have moved up 7.3% to 44 over the past 60 days, while the same for 2025 has remained steady at 51 cents. The positive estimate revision depicts bullish sentiments for the stock.

ERIC Plagued by Margin Erosion

Ericsson operates in the highly competitive wireless equipment market. It has to cut its production costs and bring down its selling price to attract new customers in emerging markets while maintaining existing business relationships. The industry consolidation among customers and major rivals is posing a threat to Ericsson, intensifying price competition. Moreover, Ericsson operates in a dynamic market characterized by rapid technological changes, high product obsolescence and evolving standards, necessitating frequent product introductions and short product life cycles that substantially increase R&D costs and erode margins.

Soft China Markets Weigh on ERIC

Ericsson’s business is likely to be affected by geopolitical turmoil and economic uncertainties in its operating countries. With a substantially lower market share, the company is witnessing a revenue decline in China in the Networks and Digital Services segments. Ericsson had warned that Sweden’s decision to exclude China-based vendors from Swedish 5G networks might adversely impact its business in the East Asian country. Disturbances in the supply chain are likely to further hamper its sales. It is also witnessing a revenue decline in the Middle East, Africa and India owing to lower capex spend from operators.

End Note

By investing steadily in infrastructure for a leading 5G coverage, Ericsson is well-positioned to strengthen its leading market position. New 5G licensing agreements are driving growth in the Networks segment. Ericsson’s policy of strategic buyouts and continuous product innovation is accelerating commercial expansion with a holistic growth focus. The AT&T deal is further likely to drive organic growth. The uptrend in estimate revisions further portrays optimism about the stock’s growth potential.

However, price wars owing to competitive pressure have eroded its profitability. Soft China market conditions are weighing on profitability. With a Zacks Rank #3 (Hold), ERIC appears to be treading in the middle of the road, and investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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