Ericsson (ERIC) Chosen By Melita As Strategic 5G Partner

Ericsson (BS:ERICAs) (NASDAQ:ERIC) has been selected by Melita to aid in the latter’s plan to transform and modernize its mobile network with 5G-ready multi-standard solutions. Ericsson will provide a superior network performance and experience to Melita’s subscribers.

Melita will leverage Ericsson’s flagship solution, the Ericsson Radio System (ERS). Ericsson will also help modernize and expand the virtual Evolved Packet Core. These features will offer Melita the flexibility required to meet the expanding demand for new 5G and IoT use cases.

Earlier this week, Ericsson joined forces with Vertiv and NorthStar to drive cost-effective and sustainable network evolution toward 5G, within the Ericsson Radio Site System. The partnership will merge Vertiv's faculties in power, thermal and infrastructure site management solutions with NorthStar's leadership in battery as well as energy storage solutions and incorporate it into the Ericsson Radio Site System.

ERS leverages a multi-standard, multi-band and multi-layer architecture to help mobile operators transform their radio networks. The system delivers industry-leading performance on the smallest site footprint with the least energy consumption.

ERS supports 5G New Radio capability and enables quick and smooth migration to 5G in existing bands, in addition to rapid coverage expansion of such services for operators.

In spite of solid offerings, Ericsson is witnessing negative industry trends and adverse business mix in mobile broadband. Particularly, uncertainty in the financial markets, reduced consumer telecom spending and delayed auctions of spectrums pose significant threats for the company.

Operators have been cautious in making new investments, especially in the emerging markets, which has affected the company’s revenues and profits. Further, Europe and Latin America — the markets with the biggest impact — are expected to witness an increasingly challenging investment environment.

Ericsson Price, Consensus and EPS Surprise

As far as earnings performance is concerned, Ericsson has had a dismal earnings surprise history over the trailing four quarters, missing estimates terribly all through. The company has lagged estimates by a whopping 552.5% on an average.

Ericsson’s earnings estimates have moved south in the past couple of months, indicating analyst’s bearish sentiment for the stock. For 2018, the Zacks Consensus Estimate for earnings has been revised downward from 17 cents to 3 cents over the past 60 days, driven by three downward estimate revisions versus just one upward.

Over the past year, the company’s shares have lost 1.6%, underperforming the industry's average gain of 5.9%.

Nevertheless, Ericsson expects to stabilize its operations amid a difficult market in 2018. CEO Ekholm’s restructuring plan will streamline the company’s focus areas, improve profitability and revitalize its technology as well as market leadership.

It is to be seen whether these steps will help Ericsson to get back on the growth track. Right now, we are apprehensive over the impact of the restructuring and tough market conditions on the company’s profits and share price in the near term.

We have a Zacks Rank #3 (Hold) on the stock, at present. Investors who are looking for exposure to the upcoming 5G upgrade cycle or IoT might look at players like Nokia (HE:NOKIA) Corp. (NYSE:NOK) and Cisco Systems, Inc. (NASDAQ:CSCO) .

Stock to Consider

A better-ranked stock in the same space is Harris Corporation (NYSE:HRS) , holding a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Harris Corporation has a decent earnings surprise history, with an average positive surprise of 6.7%, driven by three earnings beats over the trailing four quarters.

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