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Ericsson (ERIC) to Power 5G Radio Access Network in China

Ericsson ERIC recently inked a deal for an undisclosed amount with China Telecom and China Unicom to offer core products and solutions for 5G network connectivity across the communist nation. The contract with two leading state-owned telecom carriers amid these testing times, when trade skirmishes between the United States and China have reached a new dimension, assumes significance as the East Asian country rolls out 5G network throughout its territories.

The contract entails Ericsson to offer both indoor and outdoor products and solutions to augment the network coverage and capabilities in the 3.5GHz and 2.1GHz bands. The company will also offer network services such as provisioning, installation and testing to provide support to their technical needs and enable them to build and share 5G networks. In particular, this Sweden-based communication equipment firm will deploy Ericsson Radio System and Ericsson Spectrum Sharing (ESS) in both the carriers to fortify their 5G capabilities. 

Ericsson Radio System comprises hardware, software and services for radio, Radio Access Network (RAN) Compute, antenna system, transport, power and site solutions. It enables a smooth and cost-effective migration from 4G to 5G, supporting communications service providers to launch the avant-garde technology and expand the 5G coverage fast. The company’s 5G radio access technologies provide the infrastructure required to meet the growing demand for high-bandwidth connections and support the real-time, low-latency, high-reliability communication requirements of mission-critical applications.

Ericsson Radio System products are likely to facilitate the telecom operator’s standalone (SA) RAN. Ericsson's 5G NR (New Radio) RAN is an integral component of its 5G Platform and includes software support for migration from LTE (Long-Term Evolution), a 4G mobile communications standard, to NR, which is a global 5G standard. It reportedly offers an industry-leading performance on the smallest site footprint with the lowest energy consumption as networks grow in scale and complexity. While Ericsson’s 3.5GHz wideband 5G radio solutions will help meet the network building needs for high-call-volume, its 2.1GHz 5G radio solutions will support the deployments of 3G, 4G and 5G technology within the network.

The ESS technology enables both 4G and 5G to be deployed in the same band and on the same radio through a software upgrade. Ericsson believes that its dynamic solution is the most economically feasible way to deploy 5G on existing bands by proactively allocating spectrum resources between 4G and 5G, based on user demand. The combination of faster commercialization and lower investment requirements has made spectrum sharing an essential part of an operator’s 5G strategies.

With the emergence of the smartphone market and the subsequent usage of mobile broadband, user demand for coverage speed and quality has increased exponentially. Further, to maintain performance with increased traffic, there is a continuous need for network tuning and optimization. Ericsson, being one of the premier telecom service providers, is much in demand among operators to expand network coverage and upgrade networks for higher speed and capacity. Notably, it is the world’s largest supplier of LTE technology with a significant market share and has established a large number of LTE networks worldwide.

To date, Ericsson has secured 91 commercial 5G agreements with unique communication service providers, of which 36 are live networks. The company is increasingly focusing on 5G system development to capitalize on the upcoming market opportunities. The company believes 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 impending deployment of 5G networks is expected to boost the adoption of IoT devices, with technologies like network slicing gaining more prominence. Currently, Ericsson is investing in its competitive 5G-ready portfolio to enable customers to seamlessly migrate to 5G. AI and automation remain key enablers for its business development.

The stock has lost 9.7% over the past year compared with the industry’s decline of 7.7%.

We remain impressed with the inherent growth potential of this Zacks Rank #2 (Buy) stock. Some other same-ranked stocks in the industry are InterDigital, Inc. IDCC, PCTEL, Inc. PCTI and Ubiquiti Inc. UI. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

InterDigital has a long-term earnings growth expectation of 15%. It delivered a positive earnings surprise of 99.5%, on average, in the trailing four quarters.

PCTEL delivered a positive earnings surprise of 33.9%, on average, in the trailing four quarters.

Ubiquiti has a long-term earnings growth expectation of 12.5%. It delivered a positive earnings surprise of 4.6%, on average, in the trailing four quarters.

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