Ericsson in the Brave new World of 5G

05/13/2019 5:00 am EST

Focus: TELECOM

Eddy Elfenbein

Editor, Growth Stock Advisor

This is the year of 5G. The possibilities opened up by 5G’s significantly faster data transfer opens up a brave new world, asserts Eddy Elfenbein, editor of Growth Stock Advisor.

It will enable the newest technologies from autonomous vehicles to virtual reality gaming to advanced robotics. With speeds 100 times faster than current networks, 5G will enable transmission of huge amounts of data with little time delay.

With the new 5G technology, more devices than ever before can be connected in real time, bringing the concept of the “Internet of Things” closer to reality.

But costs will be a major headache. The European Commission estimates the cost of rolling out 5G and full fiber infrastructure across the continent to be in the range of 500 billion euros. This means the ‘pick and shovel’ companies that supply the equipment and components for 5G are going to make a lot of money.

That leads me to my top 5G pick, which is Ericsson (ERIC). The Swedish telecom player is making a big bet on 5G, and that bet seems to be paying off.

Ericsson expects there to be 3.5 billion Internet of Things connections running over 5G by 2023, with 20% of global mobile data carried by 5G in 2023, and one billion consumers on the faster networks, representing 12% of projected mobile subscriptions.

So now, the company’s recovery plans are closely tied to an uptick in spending by network operators on 5G networks along with restructuring, cost cutting and new partnerships such as that with Japan’s Fujitsu to develop 5G base stations.

The restructuring is already taking hold and shows signs of momentum. Ericsson’s gross margin in Q4 of 2018 rose to 36.3%, a nice uptick. And here’s what caught my eye: in 2018, Ericsson returned to full-year top-line growth for the first time since 2013!

Then on April 17, Ericsson did it again. The company reported adjusted earnings of nine cents per share. That nearly doubled Wall Street’s estimates of five cents per share. That’s their fifth earnings beat in a row.

Consider that about 40% of the world’s mobile phone traffic is currently carried through Ericsson networks. In addition, 5G should create more opportunities for tits software and services within Internet of Things device networks. Clearly, Ericsson is benefiting from a major turnaround as it helps usher in the Age of 5G.

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