Ericsson ERIC and telecommunications operator Swisscom recently went live with a full-stack telco cloud infrastructure. The Swisscom cloud-based enterprise service has been deployed on Ericsson's Network Functions Virtualization infrastructure (NFVi) solution, and went into commercial operation last month, with the first service in support of small and medium enterprises.
The two companies collaborated last year when Swisscom chose Ericsson to transform its network infrastructure through the deployment of a full stack telecom cloud solution, including Network Functions Virtualization (NFV) and Software Defined Networking (SDN). Ericsson's NFVi solution enabled the speed, agility and efficiency which Swisscom required to deploy new services and leverage the opportunities presented by 5G and IoT (Internet of Things).
Across the world, operators are transforming their networks as they brace up for 5G and IoT, and network virtualization remains a key component of a 5G Ready Core network. Ericsson, Swisscom and EPFL have joined forces with several industry partners, in order to develop and trial industrial applications with 5G and IoT technology in diverse areas.
Per Ericsson, 5G has the potential to drive 34% revenue growth for operators in 2026 (compared with 2016). For consumers, it will roll out fresh applications like augmented reality and 4K video streaming, whereas the industries will likely benefit from innovative IoT applications like smart transport and remote healthcare.
Touted as the next generation of mobile technology, 5G achieved rapid momentum over the past year. Ericsson remains the first industry player to market with combined core and radio for 5G use cases, spearheading the 5G revolution.
The company continues to aggressively drive progress in 5G technology and is engaged in multiple trial engagements with different operators across the world.
However, when it comes to performance on the bourse, Ericsson has been facing tough times indeed. The beleaguered infrastructure giant's repeated earnings misses, eroding profitability and precipitous revenue decline have left investors high and dry. The stock has lost 19.9% in three months' time, much wider than the industry 's average decline of 4.3%.
Network equipment sales, particularly in the North America and Europe markets, continue to contract. Europe and Latin America - the markets with the biggest impact - are likely to have an increasingly challenging investment environment in the quarters to come.
Overall, the company expects the negative industry trends and business mix in mobile broadband to prevail this year as well. Ericsson plans to accelerate its planned cost cuts and scale back expansion plans that aren't moving as anticipated, and refocus on the company's core business of selling networking equipment prior to the anticipated roll-out of 5G networks.
In view of the numerous headwinds, we have a Zacks Rank #5 (Strong Sell) on the stock, as we are deeply concerned over the impact of the restructuring and tough market conditions on the company's profits and share price in the near term. Investors who are looking for exposure to the upcoming 5G upgrade cycle or IoT might look at players like Nokia Corporation NOK and Cisco Systems, Inc. CSCO .
Stocks to Consider
A better-ranked stock in the broader sector is Red Hat, Inc. RHT , carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Red Hat has a robust earnings surprise history, with an average positive surprise of 7%, driven by three earnings beats over the trailing four quarters.
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