On Dec 26, 2014, we issued an updated research report on Ericsson (ERIC), a leading provider of communication networks, telecom services and support solutions.
Ericsson enjoys a strong foothold in the Long-Term Evolution (“LTE”) technology market, with a large number of established LTE networks worldwide. The company has been benefiting from the rising demand for 4G/ LTE technologies across emerging nations like China, India and the Middle East.
Increasing adaptability of mobile devices like smartphones is driving the demand for mobile broadband. Subsequently, the consumer demand for coverage speed and quality has seen a significant increase in recent times. Ericsson is tapping this opportunity by offering efficient and reliable solutions for network upgrades to telecom companies across the globe. This apart, the company has also been strengthening its position in the TV and media segment through accretive acquisitions.
Of late, Ericsson has received a number of new network enhancement contracts from companies like Yoigo in Spain, Telefónica Peru in Amazon, the Ethiopia-based Ethio telecom and France-based Orange (ORAN), among others.
However, Ericcson’s business has been affected by reduced operator investments in key regions like North America. Coupled with increasing operating expenses, the company had posted weaker-than-expected third-quarter results due to prevailing softness in North America. At the same time, the bottom line was adversely impacted by hedge contracts. Additionally, political unrest in the Middle East and Northern African countries remains a concern.
This apart, the ongoing cost inflation is continuously burdening the price structure of the company by affecting its margins. Also, slower-than-expected GDP growth and current turmoil in the U.S. economy may remain a headwind.
Ericsson presently carries a Zacks Rank #3 (Hold). Some better-ranked companies in the industry include InterDigital, Inc. (IDCC) and ViaSat Inc. (VSAT). Both stocks sport a Zacks Rank #1 (Strong Buy).
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