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Ericsson's R&D Center in France Furthers Its Europe 5G Push

Zacks Equity Research

Ericsson ERIC recently announced plans that it will establish a new R&D center in France to boost 5G momentum in Europe. The site, expected to employ up to 300 employees in a progressive ramp-up starting early 2020, will initially focus on 5G software development and security. This, in turn, will benefit the global 5G ecosystem while bolstering Ericsson’s relationship with French customers. The company, however, did not disclose the amount of investment for this project.

Ericsson’s ongoing activities include investing in R&D to safeguard a leading product portfolio and cost leadership; increase investments in automation and serviceability driving down costs; and selectively gain market shares based on technology and cost competitiveness. The company currently employs 15,000 engineers in Europe, which equates to 60% of its total R&D staff members. It has 18 R&D sites in Europe including Finland, Germany, Hungary, Ireland, Italy, Poland, Spain and Sweden.  

In December 2019, Ericsson communicated that it has inked an agreement for credit facility with the Nordic Investment Bank for $150 million. Apart from reinforcing its balance sheet, the loan was granted to support the company’s R&D investments in 5G technology during 2020-2022.

The Swedish telecom gear maker is leading the 5G race in Europe. Its Mobility Report, issued in November 2019, anticipates global 5G subscriptions to exceed 2.6 billion within the next six years on the back of a rapidly evolving ecosystem. The report states that 5G will cover up to 65% of the world’s population by the end of 2025, and handle 45% of global mobile data traffic.

Average monthly data-traffic-per-smartphone is expected to rise from 7.2 GB to 24 GB by the end of 2025, supported by consumer behavior like virtual reality streaming. Further, growth in 5G subscription is likely to be substantially faster than that of LTE. The fastest uptake is expected to be in North America with 74% of projected 5G mobile subscriptions by the end of 2025. North East Asia is projected to follow at 56%, with Europe at 55%.

In October 2019, Ericsson completed the acquisition of Kathrein’s antenna and filter business to expand its Radio System portfolio with new products and capabilities. The company has been executing its strategy and is on track to achieve its 2020 financial targets. It is working with communication service providers to modernize their network infrastructure, while capitalizing several opportunities. In September 2019, Ericsson completed a SEK 500 million investment at its factory in Tallinn, Estonia, to transform it into a 5G manufacturing facility.

Shares of Ericsson have added 25.5% compared with 17.3% growth recorded by the industry in the past two years. The stock is currently trading with a forward P/E of 16.61X.  



Ericsson currently has a Zacks Rank #3 (Hold).

Investors who are looking for solid profits in 2020 may consider some better-ranked stocks in the broader industry. These include Sogou Inc. SOGO, Paylocity Holding Corporation PCTY and Chegg, Inc. CHGG.

While Sogou and Paylocity sport a Zacks Rank #1 (Strong Buy), Chegg carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sogou has a long-term earnings growth expectation of 20.2%.

Paylocity topped earnings estimates in the trailing four quarters, the surprise being 18.9%, on average.

Chegg surpassed earnings estimates in the trailing four quarters, the beat being 49.4%, on average.

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