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Ericsson Boosts 5G Enterprise Bouquet With Cradlepoint Buyout

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Ericsson (ERIC - Free Report) recently made a significant headway in strengthening its market position in the 5G Enterprise market by acquiring Cradlepoint for an enterprise value of $1.1 billion. The buyout of this leading U.S.-based player in the Wireless Edge WAN 4G and 5G Enterprise solutions segment will enable Ericsson to offer a full spectrum of 5G-enabled services to business enterprise customers and augment its revenues. The transaction is expected to be complete by the end of 2020, subject to mandatory regulatory approvals and other closing conditions.

Since its inception in 2006, Cradlepoint has carved a niche in wireless WAN solutions with a subscription-based business model that combines cloud-delivered software with hardware endpoints, support and training. Headquartered in Boise, ID, the firm has an R&D facility in Silicon Valley, CA, along with market offices in the United Kingdom and Australia for serving global clients.

Notably, the market for wireless WAN Edge solutions is primed for annual growth of 25-30% with faster deployments of 5G technology across the world. With a rich portfolio of high quality products that deliver fast, secure and flexible connectivity for businesses, mobility and critical frontline emergency services, Cradlepoint is likely to be key to Ericsson’s strategy of garnering healthy market share within the 5G Enterprise space.

Post-acquisition, Cradlepoint will become a fully owned subsidiary of Ericsson, forming an integral part of its Business Area Technologies & New Businesses segment. It will continue to operate under the existing brand, thereby leveraging its brand image, while its 650-strong employee base will remain within the company fold.

Ericsson will fund the acquisition with available cash in hand. The transaction is expected to negatively impact its operating margins in 2021 due to amortization of intangible assets related to the deal. Cradlepoint is expected to be accretive to cash flow from 2022 onwards. Consequently, Ericsson has kept its financial targets for 2022 unchanged.

Owing to the wide proliferation of the smartphone market and subsequent usage of mobile broadband, user demand for coverage speed and quality has increased. Further, to maintain superior performance with traffic increases, 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. The Sweden-based telecommunications equipment provider is arguably the world’s largest supplier of LTE technology with a significant market share and has established a large number of LTE networks worldwide.

The fast 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, while recurrent contracts ensure a steady revenue stream.

The stock has gained 34.8% in the past year compared with the industry’s rally of 15.8%.

We are impressed with the inherent growth potential of this Zacks Rank #2 (Buy) stock. Some other top-ranked stocks in the industry are Clearfield, Inc. (CLFD - Free Report) , Motorola Solutions, Inc. (MSI - Free Report) and Qualcomm Incorporated (QCOM - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Clearfield delivered a positive earnings surprise of 45.6%, on average, in the trailing four quarters.

Motorola has a long-term earnings growth expectation of 9%. It delivered a positive earnings surprise of 11.1%, on average, in the trailing four quarters.

Qualcomm has a long-term earnings growth expectation of 19.8%. It delivered a positive earnings surprise of 14.3%, on average, in the trailing four quarters.

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