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Ericsson Selected by the City of Dallas for Traffic Solution

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Ericsson (ERIC - Free Report) has been selected by the City of Dallas to install and host an Advanced Traffic Management System (“ATMS”) based on the company’s Connected Urban Transport solution. The solution will enable the City of Dallas and its adjoining cities to aggregate as well as analyze real-time data from traffic sensors and cameras, facilitating dynamic control of traffic lights, school flashers and message signs.

The system features an ecosystem, which will allow share of data and system services with other organizations in a controlled manner. Moreover, the systems’ key performance indicators will enable monitoring as well as tracking of the city’s goals and suppliers’ performance. The solution will enable the city to control increasing traffic as well as enhance driver safety more efficiently at a cheaper cost. The implementation of the system commenced at the end of 2017 and will be fully functional by next two years.

Our Take

Being one of the premier telecom services providers, Ericsson is much in demand among operators to expand network coverage and upgrade networks for higher speed and capacity. However, the company’s revenues and gross margins continue to take a grave beating from adverse industry trends. Persistent low investments in mobile broadband in certain markets and lower managed services sales have harmed the sales of Networks segment, while lower legacy product sales have hurt IT & Cloud revenues. Lower IPR licensing revenue and an unfavorable mix between coverage & capacity and services are adding to concerns.

The company has been facing investment headwinds in network developments in Mediterranean, Northern Europe and Central Asia regions as well as in Latin America and the Middle East. Additionally, soft mobile broadband demand and challenging macroeconomic conditions in the emerging markets are acting as a deterrent for major investments by telecom equipment behemoths, and this significantly dented performance.

Moreover, high restructuring charges are knocking on the company’s door, and we also have a subdued view of operator spending and investments in R&D. The company’s current savings plans and job reductions do not seem enough to counter macroeconomic miseries and swiftly waning product demand, further adding to woes. Notably, the Zacks Rank #5 (Strong Sell) company has lost 6.7% in the past six months, against the industry’s growth of 6.2%.

Further, spectrum crunch has become a major issue in the U.S. telecom industry that has a saturated wireless market. This apart, the company’s cash flow could be materially hurt by market and customer project adjustments. Though the company is working diligently to improve the situation, tangible results are yet to materialize.

Stocks to Consider

Some better-ranked stocks from the same space include Comtech Telecommunications Corp. (CMTL - Free Report) , Arista Networks, Inc. (ANET - Free Report) and AMTEK, Inc. (AME - Free Report) . While Comtech Telecommunications sports a Zacks Rank #1 (Strong Buy), Arista Networks and AMTEK carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Comtech Telecommunications has surpassed estimates in the trailing four quarters, with an average positive earnings surprise of 88.7%.

Arista Networks has outpaced estimates in the preceding four quarters, with an average earnings surprise of 27.5%.

AMTEK has surpassed estimates thrice in the preceding four quarters, with an average positive earnings surprise of 4.1%.

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