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Ericsson (ERIC) to Divest Field Service Business in Sweden

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Ericsson (ERIC - Free Report) has decided to divest its field service business in Sweden to local communication infrastructure firm, Transtema Group, for an undisclosed amount. The transaction is likely to be completed by the third quarter of 2018, subject to mandatory closing conditions and regulatory approvals.

The to-be-divested unit — Ericsson Local Services AB (“LSS”) — primarily offers field services and maintenance of fixed and mobile networks in Sweden. With an employee base of around 700, the company has created a niche for itself and is reportedly the market leader in the field services operations market in the country.  

Ericsson decided to get rid of such a profitable unit to align its businesses with its corporate strategy of operating networks only on behalf of customers and not selling new standalone field services project on its own. Post divesture, LSS will operate as a legal entity of Transtema, with Ericsson as a minority stakeholder.

Ericsson is actively pursuing three main areas, namely core business expansion, targeted growth and cost & efficiency to fuel its growth. The company constantly seeks to seize business opportunities as operators shift toward 4G deployments and prepare grounds for the forthcoming 5G revolution. Ericsson also plans to focus more on software sales and recurring business that complements its thriving Professional Services business in terms of “targeted growth” investments. With such concerted efforts, Ericsson expects to be better-equipped to address the varied needs of its customer segments and capitalize on the market opportunities for faster growth.

The company has recorded an average return of 9.4% in the past six months, while the industry declined 0.2%.

With a broad proliferation of the Smartphone market and subsequent usage of mobile broadband, user demand for coverage speed and quality has increased in the recent times. In order to maintain superior performance as traffic increases, there is also a continuous need for network tuning and optimization. Ericsson, being one of the premier telecom services providers, is much in demand among operators to expand network coverage and upgrade networks for higher speed and capacity. Notably, Ericsson is the world’s largest supplier of LTE technology with a significant market share and has established a large number of LTE networks worldwide.

Therefore, the strategic sale of the field service operations is likely to serve the company in good stead.

Ericsson currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the industry include Juniper Networks, Inc. (JNPR - Free Report) , Arista Networks, Inc. (ANET - Free Report) and SeaChange International, Inc. (SEAC - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Juniper has an expected long-term earnings growth rate of 5.7%. It exceeded estimates thrice in the trailing four quarters with an average beat of 3.4%.

Arista has an expected long-term earnings growth rate of 21.2%. It exceeded estimates in each of the trailing four quarters with an average beat of 25.5%.

SeaChange International has an expected long-term earnings growth rate of 10%. It exceeded estimates thrice in the trailing four quarters with an average beat of 282.8%.

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