Ericsson (ERIC Quick QuoteERIC - Free Report) recently released preliminary third-quarter 2023 results. The preliminary metrics has shed light on the company's business outlook and trends in its various end markets for the September quarter.

In the third quarter, Ericsson is likely to have generated revenue of SEK 64.5 billion ($6 billion) down 5% year over year. In the Networks vertical, ERIC witnessed a substantial 60% drop in organic sales from North America. It was induced by reduced capital expenditure by operators and inventory corrections. However, positive demand trends in India helped offset this decline to some extent. In Networks vertical, the company expected to have registered a revenue of SEK 41.5 billion ($3.9 billion) down 14% year over year.

The company announced that a decline in Vonage’s core operations, higher interest rates and a drop in its market capitalization has resulted in non-cash impairment charges of SEK 32 billion ($3 billion). The impairment charges account for approximately 50% of the total value of goodwill and other intangible assets associated with Vonage. While the Enterprise vertical has been affected by the Vonage slowdown, healthy demand for Enterprise Wireless Solutions supported the top line in this segment. From the Enterprise segment, the company is expected to have recorded SEK 6.7 billion ($619.5 million) in reveneues compared to SEK 5 billion in the year-ago quarter.

With the Vonage buyout, Ericsson aimed to establish a market for easy-to-adapt global network platform with application program interfaces that will drive the next digitalization wave. Despite the recent setbacks, Vonage remains a crucial part of Ericsson's roadmap to capitalize on the market potential of the Global Network Platform. The market valuation is projected to reach a staggering $20 billion by 2028.

The selective metrics offer a preliminary perspective, excluding restructuring and impairment charges. Ericsson had earlier expected EBITA margin for the third quarter to be in line with or marginally better than the second-quarter levels. The company’s EBITA margin for the third quarter is now likely to be 7.3% compared to 5.7% in the June-end quarter. The Cloud Software and Services vertical reported 10% year-over-year growth and achieved break even on a four-rolling-quarter basis. In the September quarter, Management expects SEK15.6 billion ($1.4 billion) in revenues from this segment.  The EBITA margin from this segment rose to 2.8% from a negative 5% in the year-ago quarter. These results are aligned with the company’s third-quarter guidance.

Despite weakness in some end markets, management is confident about a gradual market recovery. Ericsson is well-positioned to cash in on the market momentum with its competitive 5G product portfolio. The company continues to execute its strategy to become a leading mobile infrastructure provider and establish a focused enterprise business. Its patent licensing business continues to perform well on the back of a strong intellectual property rights portfolio.

Courtesy of investments in R&D, combined with operational efficiency, Ericsson has the world’s leading patent portfolio in cellular technology. It currently has 152 live 5G networks in 65 countries. Its ‘cost and efficiency program’ has been devised to generate higher cost savings. The company is focused on structural changes that will generate lasting efficiency gains and boost cost competitiveness. It is also focused on stabilizing its IT, cloud and project portfolio; and re-establishing profitability in Managed Services by handling existing contracts, and investing in automation and artificial intelligence.

The stock has lost 21.6% over the past year compared with the industry’s decline of 8%.

Image Source: Zacks Investment Research

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

Stocks to Consider

Motorola Solutions, Inc. (MSI Quick QuoteMSI - Free Report) , carrying a Zacks Rank #2 (Buy) at present, delivered an earnings surprise of 5.62%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 5.58%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MSI provides services and solutions to government segments and public safety programs, along with large enterprises and wireless infrastructure service providers. It develops and services analog and digital two-way radio, voice and data communication products, and systems for private networks, wireless broadband systems and end-to-end enterprise mobility solutions to a wide range of enterprise markets.

NVIDIA Corporation (NVDA Quick QuoteNVDA - Free Report) , currently sporting a Zacks Rank #1, delivered an earnings surprise of 9.79%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 29.19%.

NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit or GPU. Over the years, the company’s focus has evolved from PC graphics to artificial intelligence-based solutions that now support high-performance computing, gaming and virtual reality platforms.

Arista Networks, Inc. (ANET Quick QuoteANET - Free Report) , presently carrying a Zacks Rank #2, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has delivered an earnings surprise of 12.8%, on average, in the trailing four quarters.

It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. Arista is increasingly gaining market traction in 200 and 400-gig high-performance switching products and is well-positioned for healthy growth in the data-driven cloud networking business with proactive platforms and predictive operations.

Note: SEK 1 = $0.0924748 (period average from Jul 1, 2023 to Sep 30, 2023)