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Ericsson Gears Up for South Korea 5G Launch With Local Firms

Supriyo Bose

Ericsson ERIC has inked a three-year Memorandum of Understanding (MoU) with South Korean wireless telecommunications operator SK Telecom to help drive the evolution of 5G network in the country. At the same time, the company has secured a deal from South Korea's largest telecom firm KT to support its transition to 5G network as local operators target 5G launch in the country in April 2019.

The MoU focuses on the development of more agile and programmable 5G standalone core network that efficiently manages growth with automation and simplified operations. R&D experts from SKT and Ericsson intend to work in unison to build solutions that optimize performance for predictable output and better utilization of resources with more flexible and granular scaling. The strategic collaboration will facilitate the companies to introduce new services at a faster rate while improving operational efficiency.

As the Korean operators aim for a nationwide commercial launch of 5G services, KT has entrusted Ericsson to spearhead its foray in 5G. In addition to 3GPP standards-based 5G New Radio hardware and software to cover KT's 3.5 GHz Non-Standalone network, Ericsson is facilitating KT to open up Internet of Things (IoT) and Industry 4.0 opportunities to local enterprises on a global scale.  

With such concerted efforts, Ericsson is focusing on the development of 5G ecosystem to position itself for market leadership. The company believes that standardization of 5G is the cornerstone for digitization of industries and broadband. Moreover, Ericsson foresees mainstream 4G offerings to give way to 5G technology in the future.

Meanwhile, the extensive deployment of 5G network is expected to boost the adoption of IoT devices with technologies like network slicing gaining more prominence. As 5G accelerates the digital transformation in many industries, enabling new use cases in areas such as IoT, automation, transport and Big Data, Ericsson is poised to benefit from favorable growth dynamics. The company is investing heavily in its competitive 5G-ready portfolio to enable customers to seamlessly migrate to 5G.

The stock has outperformed the industry with an average return of 43.9% compared with growth of 5.9% for the latter over the past year.

However, Ericsson’s gross margin at Digital Services continues to take a beating from adverse industry trends. Persistent low investments in mobile broadband in certain markets and lower managed services sales have affected Networks segment, while lower legacy product sales have hurt IT & Cloud revenues. Lower IPR licensing revenues and an unfavorable mix between coverage & capacity and services are adding to the company’s concerns. Moreover, this Zacks Rank #5 (Strong Sell) firm has been facing investment headwinds in network developments in Mediterranean, Northern Europe and Central Asia (especially Russia) regions, Latin America and the Middle East.

Better-ranked stocks in the industry include Harris Corporation HRS, Clearfield, Inc. CLFD and Motorola Solutions, Inc. MSI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Harris has a long-term earnings growth expectation of 8%. It delivered average positive earnings surprise of 2.9% in the trailing four quarters, beating estimates in each.

Clearfield delivered average positive earnings surprise of 96.1% in the trailing four quarters, beating estimates in each.

Motorola has a long-term earnings growth expectation of 8%. It delivered average positive earnings surprise of 13.2% in the trailing four quarters, beating estimates on each occasion.

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