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Ericsson & Cisco to Fortify Nextel IP Network in Brazil

Zacks Equity Research

Ericsson ERIC and its partner Cisco Systems, Inc. CSCO have joined hands once again, this time, to supply and install IP routers for Nextel. This is their first agreement in Brazil.

Earlier this year, the two companies collaborated to develop a modern, IP-based network for Telefonica Guatemala. They also took up the transformation of Vodafone Hutchison Australia's networks.

The key components in the latest deal include Cisco's hardware, and services and project management from Ericsson. The deal will serve to strengthen Nextel's IP network, thus enabling support for traffic growth and better performance on the mobile network.

Ericsson and Cisco's collaboration dates back to Nov 2015, with the communications technology behemoths inking a global business and technology partnership to create futuristic networks. The Ericsson-Cisco duo extends routing, data center, networking, cloud, mobility, management and control, and global services capabilities to clients across the globe.

It appears that this collaboration is shaping up well, with the companies jointly bagging more than 100 deals in IP (routing and transport) and services. At present, they enjoy 300 active customer engagements and remain optimistic that these will lead to lucrative award wins, going forward.

However, despite forging strategic partnerships and having a dominant presence in high-traffic LTE markets, Ericsson had a disastrous run on the bourse in 2016. Its share price plunged 39.3% over the year, far wider than the Zacks Wireless Equipment industry's average decline of 7.7%. Soft mobile broadband demand, slowdown in emerging markets and weaker-than-expected benefits from cost-cutting initiatives hampered the company's growth significantly.

Since then, the company has managed to recoup some of those losses, having appreciated 12.4% so far in 2017, in stark contrast to the industry's average decline of 3.4%.

With four back-to-back earnings misses over the trailing four quarters, Ericsson has an unimpressive average negative earnings surprise of 35.9%. Further, the company's earnings estimates moved south over the past month, which makes the outlook even more bleak. With one downward revision compared with none upward in the past 30 days, the Zacks Consensus Estimate for fiscal 2017 declined 6.5% to 29 cents.

To turn its fortunes around, Ericsson recently revealed a comprehensive restructuring plan to cut costs and streamline its focus areas, as well as explore options for the company's media business. The company expects to take provisions, write-downs and restructuring charges this year, with most of them being booked in the fiscal first quarter.

Whether these steps will enable Ericsson to jump back on the growth track, remains to be seen. However, as of now, we have a Zacks Rank #4 (Sell) on the stock, as we are apprehensive over the impact of the restructuring on the company's profits and share price in the near term.

Stocks to Consider

Some better-ranked stocks in the same space include Sierra Wireless, Inc. SWIR and Motorola Solutions, Inc. MSI. While Sierra Wireless sports a Zacks Rank #1 (Strong Buy), Motorola holds a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Sierra Wireless has an outstanding average positive earnings surprise of 179.6% for the trailing four quarters, thanks to three huge earnings beats.

Motorola has a striking earnings surprise history for the last four quarters, having beaten estimates all through, for an impressive average beat of 16.4%.

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