Ericsson Under Pressure, Confirms US Anticorruption Probe

Swedish communication technology and services giant Ericsson (ST:ERICAs) (NASDAQ:ERIC) is facing an investigation by U.S. authorities over possible corruption allegations related to its business in China, per recent reports by Swedish newspaper, Svenska Dagbladet.

The wireless networking equipment maker confirmed on Friday that seven of its current and former employees have received summons by a Greek prosecutor concerning charges of probable corruption in a 1999 deal, wherein Ericsson Microwave Systems (a unit the company sold to Saab AB in 2006) supplied an airborne radar system used in defense.

The U.S. Securities and Exchange Commission ("SEC") and the Department of Justice are reportedly reviewing recent activities in China as well as events from earlier years. According to the company, the SEC had started an investigation related to the U.S. Foreign Corrupt Practices Act in May 2013 concerning its payment system used in the process of winning contracts in the 1990s, including orders in Romania.

These charges further add to the pressure that CEO Hans Vestberg is already facing from shareholders as he grapples with constrained sales growth and brutal price competition.

Ericsson’s shares have plunged 30.4% in the past one year.

Ericsson is grappling with intense competition in the market for phone-network equipment, which seems to be stagnating after the latest-generation networks were built in the U.S. and China. Ericsson also intends to lay off about 3,000–4,000 employees this summer, coupled with big cost cuts.

The company is now targeting media and enterprise customers in its bid to expand beyond wireless networks. Also, the company is making commendable progress with respect to its 5G initiatives and stands to benefit significantly from the impending commercialization of the networks. In fact, we believe that Ericsson and its partners will emerge as key players in defining the next generation of mobile network technology and its subsequent commercialization.

Ericsson currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space include Ubiquiti Networks, Inc. (NASDAQ:UBNT) , Sonus Networks, Inc. (NASDAQ:SONS) and Clearfield, Inc. (NASDAQ:CLFD) . While Ubiquiti sports a Zacks Rank #1 (Strong Buy), Sonus and Clearfield both carry a Zacks Rank #2 (Buy).