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Nordic Firms Score Big on Commercial 5G Deals, Huawei Falters

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Supriyo Bose
·5 min read
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The fifth generation of cellular technology, or 5G, has fast-tracked the wide proliferation of video and other bandwidth-intensive applications with a data transmission rate that is about 10-100 times faster than the existing 4G networks. Billed as the technology of the future with faster download speed and low latency, 5G is touted to be the primary catalyst for next-generation IoT services. These include connected cars coupled with augmented reality and virtual reality platform, smart cities and connected devices, which are likely to revolutionize key industry verticals.

As the 5G ecosystem evolves with increased deployment across the globe, it is likely to offer a plethora of opportunities for diverse industries. The coronavirus outbreak has further highlighted the need for high-speed, high-bandwidth and low-latency connections — the hallmarks of the 5G network — for digital sustainability in the backdrop of social distancing and work-from-home trend.

Amid this backdrop, Nordic telecommunications equipment manufacturers like Ericsson and Nokia are increasingly gaining prominence at the expense of Huawei Technologies as more and more countries are dropping the China-based firm from their 5G vendor list on perceived security risks.

Ericsson ERIC: Backed by the relentless pursuit to develop 5G-enabled autonomous vehicles across the globe, Ericsson has secured 111 commercial 5G agreements with unique communication service providers, of which 65 are live networks. The company is increasingly focusing on 5G system development to capitalize on the upcoming market opportunities. The company believes that standardization of 5G is the cornerstone for digitization of industries and broadband. Moreover, Ericsson expects mainstream 4G offerings to give way to 5G technology in the future.

Moreover, as the Trump administration aims to thwart Huawei and ZTE from offering 5G gears across the globe, it has created new business opportunities for the Sweden-based firm. The increased adoption of IoT devices is further expected to give more prominence to technologies like network slicing, thereby benefiting Ericsson. The company has deployed 5G in high-, mid- and low-bands in different urban, suburban and rural locations. Its 5G radio access technologies provide the infrastructure required to meet the growing demand for high-bandwidth connections and support the real-time, high-reliability communication requirements of mission-critical applications.

With a VGM Score of A, the stock has long-term earnings growth expectation of 26.3%. Notably, earnings estimates for this Zacks Rank #3 (Hold) stock have moved up 9.8% in the past 90 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nokia Corporation NOK: This Finland-based telecom equipment manufacturer has secured 100 commercial 5G deals worldwide from diverse firms. Much of this healthy deal momentum can be attributed to the company’s solid foundation of mutual trust and confidence from the existing pool of customers that enabled seamless transition from 4G to 5G deployment. In addition, growing resentment about alleged attempts of data siphoning by Huawei has tilted the scales in favor of Nokia, despite the former’s low-price advantage. In particular, this Zacks Rank #3 stock has witnessed strong customer interests from Nordic countries as European firms largely stood by President Trump’s univocal calls to ban Huawei on security concerns.

Nokia is well positioned for the ongoing technology cycle given the strength of its end-to-end portfolio. Its installed base of high-capacity AirScale product, which enables customers to quickly upgrade to 5G, is growing fast. The company is driving the transition of global enterprises into smart virtual networks by creating a single network for all services, converging mobile and fixed broadband, IP routing and optical networks with the software and services to manage them. Leveraging state-of-the-art technology, Nokia is transforming the way people and things communicate and connect with each other. These include seamless transition to 5G technology, ultra-broadband access, IP and Software Defined Networking, cloud applications and IoT.

With a VGM Score of A, the stock has long-term earnings growth expectation of 15.6%. Notably, earnings estimates for this Zacks Rank #3 stock have moved up 12% in the past 90 days.

Moving Forward

Both Ericsson and Nokia have been the primary beneficiaries of global Huawei blacklist, gradually grabbing market share from the Chinese firm. From leading Canadian carriers like BCE Inc.’s BCE Bell Canada and TELUS Corporation TU to BT Group in the United Kingdom, Proximus in Belgium and Optus in Australia, the list of network providers that have opted for key 5G equipment from the Nordic firms is endless. Whether these two leading telecommunications equipment providers can continue their 5G contract winning streak remains to be seen.

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