Ericsson’s ERIC new 5G smart factory in Lewisville, TX that began operations in March is producing 5G base stations for the North American market. The facility complements the Sweden-based telecom gear maker’s global supply strategy, as it ensures that the company is working close to its customers through its American, European and Asian operations while securing fast deliveries to meet requirements.
The factory is considered to be one of the most advanced manufacturing complexes in the world. The first product manufactured at this site was the millimeter-wave Street Macro solution, which is crucial to Ericsson’s 5G portfolio for its North American customers. The Street Macro solution, part of the Ericsson Radio System portfolio, is helping to provide Ericsson’s 5G-enabled connectivity in the factory. Ericsson currently has 91 commercial 5G agreements (of which 48 are publicly announced) and includes 39 live 5G networks on four continents.
It has a 5G-enabled factory in Tallinn, Estonia, which has been operational for quite some time. By utilizing the powers of virtual reality (VR), new Ericsson employees were able to learn directly from peers in the company’s Tallinn factory. VR is being used for collaboration and knowledge sharing among other Ericsson factories. Plans are in place to develop collaboration and knowledge sharing through 5G. Ericsson’s fast and secure 5G connectivity has enabled the factory with agile operations and flexible production.
Ericsson is positive on the longer-term outlook, but second-quarter 2020 is likely to be a tad softer than normal due to the timing of strategic contracts and uncertainties caused by the COVID-19 pandemic. With current visibility, the company maintains the financial targets for 2020 and 2022. The targets for 2020 take into account an increasing share of strategic contracts, including 5G in China. The acquired antenna and filter business is expected to hurt Networks’ margins in 2020, with a gradual improvement during the second half.
The approved operator merger in North America is expected to build an even stronger 5G momentum and investments are expected to intensify during the second half of the year. However, Ericsson’s managed services contract is expected to be negatively impacted over time, starting in the second quarter. Improvements in Digital Services continue, but earnings will vary between quarters depending on the business mix and sales seasonality. In Managed Services, investments in automation and AI will continue to contribute to the gross margin. There will be quarterly variations depending on the timing of add-on sales and costs.
Shares of Ericsson have lost 10.6% compared with 1.2% decline of the industry in the past year.
Ericsson currently has a Zacks Rank #2 (Buy) and a VGM Score of B.
Some other top-ranked stocks in the broader industry are Turtle Beach Corporation HEAR, Plantronics, Inc. PLT and Ooma, Inc. OOMA. While Turtle Beach sports a Zacks Rank #1 (Strong Buy), Plantronics and Ooma carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Turtle Beach has a trailing four-quarter positive earnings surprise of 46.4%, on average.
Plantronics has a trailing four-quarter positive earnings surprise of 27.7%, on average. The company’s earnings beat the Zacks Consensus Estimate in three of the last four quarters.
Ooma has a trailing four-quarter positive earnings surprise of 124%, on average.
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