Communication technology and services behemoth Telefonaktiebolaget LM Ericsson (publ) ERIC recently released a Mobility Report, highlighting the compelling aspects of Internet of Things (“IoT”), which has taken the “Networked Society” universe by a storm. The report reveals that the IoT platform will be overtaking mobile phones as the leading category of connected device by 2018.
The company forecasts that cellular IoT will gather the maximum momentum in the IoT connected device space, growing about 23% between 2015 and 2021. Ericsson further believes that Western Europe, with expected 400% growth in IoT devices by 2021, will offer boundless opportunities for the company. Factors like regulatory requirements, surging popularity for connected cars and changing lifestyle of consumers will act as primary growth drivers in Western Europe.
Also, a decline in device costs with the launch of newer and more advanced technology is propelling IoT growth. Meanwhile, the impending deployment of 5G networks in 2020 is expected to boost the adoption of IoT devices with technologies like network slicing gaining more prominence. The teen lifestyle changes highlighted in the report represents lucrative opportunities for cellular operators to steer past competition.
For instance, viewing video on smartphones have escalated a substantial 127% between 2014 and 2015 while there has been a 50% decline in television viewing among teens, highlighting a marked 85% increase in video viewing on smartphones. Video streaming on smart devices is expected to replace conventional television viewing experience by 2021 which in turn is expected to drive smartphone subscriptions to 6.3 billion from the present 3.4 billion.
Moreover, with commercial LTE networks now progressing toward supporting downlink peak data transmission speeds of up to 1 Gbps, Ericsson believes that more devices which support high data speeds will be introduced in countries like Japan, U.S., South Korea and China in the second half of 2016. This will translate into two-thirds faster download speeds for consumers, boosting demand for IoT devices.
Also, as per the report, emerging countries like Middle East, Africa and India are set to offer lucrative mobile broadband and LTE opportunities going ahead.
We believe positive industry trends with Ericsson’s focus on three core areas, namely, core business growth, targeted investment and cost & efficiency programs will be conducive to growth. Notably, Ericsson is the world’s largest supplier of LTE technology with a significant market share and a large number of LTE networks worldwide. This along with bright 5G network prospects bodes well for the company’s long-term prospects.
Despite these positives, stiff competition and currency fluctuations are proving to be significant headwinds over the near term. Also, waning mobile broadband sales in some key end-markets, slowdown in 4G deployment in China and the ongoing industry consolidation among customers and major rivals are compounding the challenges for this Zacks Rank #4 (Sell) company.
Better-ranked stocks in the industry include Ubiquiti Networks, Inc. UBNT, Sonus Networks, Inc. SONS and Clearfield, Inc. CLFD. While Ubiquiti Networks sports a Zacks Rank #1 (Strong Buy), Sonus Networks and Clearfield carry a Zacks Rank #2 (Buy).
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