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Telefonaktiebolaget LM Ericsson (ERIC - Free Report) has collaborated with French telecommunications firm, Orange, for the development and testing of “selected 5G use cases and services,” including technical alignment and external demonstrations. This partnership reflects Ericsson’s efforts to promote 5G development. This is part of its three-pronged “core business growth,” the other two being targeted growth and cost and efficiency program. 

Leveraging on Orange’s network and Ericsson’s profound 5G knowledge, the collaboration is aimed at enabling 5G technology building blocks, proof of concepts, and commence pilot programs in Europe from 2017. The use cases and services will include wireless multi-gigabits internet access in remote areas, development of a robust “Internet of Things” infrastructure, huge mobile coverage solutions and making connected cars.

Ericsson and Orange will also work on other critical areas, such as Software Defined Network (SDN), Network Function Virtualization (NFV) and development of technology. These are needed to upgrade existing 4G networks to 5G. Orange believes that this partnership will empower its customers to achieve greater data speed and access specialized services, thus boosting their satisfaction.

Paving Way for the 5G Commercialization

Industry players expect 5G standards to be finalized at the earliest, in 2019, with commercial deployments to roll out after 2020. In order to take advantage of this, Ericsson continues to aggressively drive progress in 5G technology and currently has 5G network trials scheduled with 24 operators. In addition, it is working on 5G projects and future use cases, with 12 industry partners and about 20 research institutes and universities.

Ericsson has already signed significant 5G agreements with telecom biggies, like Vodafone Group (VOD - Free Report) ), Telefonica and Qualcomm Inc. (QCOM - Free Report) , to bank upon the commercialization of 5G technology. Meanwhile, the mobility report of the company, released last year, signals bright prospects for 5G network with strong demand from key end markets, including U.S., China, South Korea and Japan. We believe that strategic partnerships, dominant market share and favorable industry trends will help the company benefit significantly from the impending commercialization of the networks.

Macroeconomic Headwinds Hurting Prospects

Reduced consumer telecom spending, including the delayed spectrum auction have been playing a spoilsport for Ericsson. The company’s mobile broadband sales continue to take a beating from the soft macroeconomic environment and weakness in countries like Brazil, Russia and the Middle East. Moreover, the company has been facing investment headwinds in network developments in the Mediterranean, Northern Europe and Central Asia (especially Russia) regions as well as in Latin America and the Middle East.

Additionally, given that the company derives a major portion of its revenues in various foreign currencies, it is prone to negative impacts from currency fluctuation. During second-quarter 2016, weakening currencies across some of the major Latin America markets and floating of the Nigerian currency were major dampeners for the company. Further, stiff competition from peers, prolonged weakness in key end-markets and ongoing industry consolidation among customers & major rivals are adding to this Zacks Rank #4 (Sell) company’s woes.

InterDigital, Inc. (IDCC - Free Report) develops and markets advanced digital wireless telecommunications systems using proprietary technologies for voice and data communications. The Zacks Rank #1 (Strong Buy) company has an excellent earnings surprise history over the trailing four quarters, beating estimates all through with a robust average positive surprise of 82.43%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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