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Ericsson to Buy CENX for Boosting Network Automation Ability

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Ericsson (ERIC - Free Report) recently announced that it will acquire all of the shares of CENX, a U.S.-based service assurance technology company, for an undisclosed amount. The strategic move is aimed at enhancing the company’s Operations Support Systems (OSS) portfolio with vendor-agnostic service assurance and closed-loop automation capability. The transaction is subject to customary regulatory approvals. Ericsson has held a minority stake in CENX since 2012.

The Swedish firm has a market leading position in network functions virtualization and orchestration. It is focusing on 5G system development and has undertaken notable endeavors to position itself for market leadership on 5G. Dynamic orchestration is crucial in 5G-ready virtualized networks. Ericsson believes that standardization of 5G is the cornerstone for digitization of industries and broadband. With CENX buyout, it can build upon the strong competitive advantage. CENX employs approximately 185 people who will join Ericsson.

The Ericsson Mobility report suggests that almost 90% of smartphone subscriptions, which are on 3G and 4G networks today, will be upgraded to 5G networks when it becomes commercially available in 2020. Accordingly, telecom operators will have to leverage their network virtualization and automate network slices to meet the requirements of enterprise customers toward digital transformation while minimizing operational costs.

Ericsson has already introduced pre-standard 5G networks. 5G will accelerate the digital transformation in many industries, enabling new use cases in areas such as IoT, automation, transport and big data. Closed-loop automation enables the company to offer its service provider customers an orchestration solution that is optimized for 5G use cases like network slicing, taking full advantage of Ericsson’s distributed cloud offering.

Ericsson is accelerating its planned cost cuts and efficiency measures, and focus on the company’s core business of selling networking equipment prior to the expected roll-out of 5G networks. Its global sales and delivery presence along with strong R&D will create economies of scale in the CENX portfolio and help the company to offer in-house solutions for OSS automation and assurance.

Over the past three months, shares of Ericsson have gained 15.9% compared with 9.6% growth for the industry.

Ericsson currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Ribbon Communications Inc. (RBBN - Free Report) , Clearfield, Inc. (CLFD - Free Report) and QUALCOMM Incorporated (QCOM - Free Report) . While Ribbon Communications sports a Zacks Rank #1 (Strong Buy), Clearfield and QUALCOMM carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ribbon Communications has a long-term earnings growth expectation of 12%. It beat earnings estimates in each of the trailing four quarters, the average surprise being 168.1%.         

Clearfield beat earnings estimates in each of the trailing four quarters, the average surprise being 52.8%.   

QUALCOMM has a long-term earnings growth expectation of 10.9%. It beat earnings estimates in each of the trailing four quarters, the average surprise being 19.8%.    

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