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Ericsson (ERIC) Brings AI-Driven Energy Management Solution

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In 2019, Ericsson ERIC launched a new AI-based managed services offering for operators, Ericsson Operations Engine. With this, network and IT operations intend to shift from being reactive to proactive, data-driven operations, making sense of billions of data points so that actions can be taken before network issues impact customer experience. This will enable operators to address the increasing network complexity, the rising volumes of devices, multiple technologies such as 4G, 5G and IoT and more diverse service requirements.

Recently, the Swedish telecom gear maker unveiled AI-driven Energy Infrastructure Operations in order to help communication service providers reduce energy consumption and carbon footprint. The company’s new energy management solution leverages advanced data analytics to optimize energy consumption across network infrastructure. The solution, which is currently live in Telenor Myanmar’s network, has been tested with customers in Europe, Asia, Middle East and Latin America.

At the end of 2019, Ericsson had 78 commercial 5G agreements with communication service providers, 32 announced 5G contracts and 24 live 5G networks on four continents. We know that energy consumption varies from 20% to 40% of a site operational expenditure yearly. Per Ericsson, reduction in operating expenses ranks among the top priorities for service providers. Its AI-based data-driven approach enables operators to achieve operational expenditure and capital expenditure savings together with reduction in carbon emissions.

The company’s Energy Infrastructure Operations create energy efficiencies on the radio network, where most savings can be achieved. The solution not only addresses site-related energy savings, but also operational efficiencies to enable less site visits to be performed, ultimately resulting in carbon emission reduction across multiple layers. Ideally, the deployment is likely to achieve nearly 15% decrease in energy-related operating expenses, 15% reduction in site visits related to passive infrastructure, and 30% reduction in energy related outages.

In fourth-quarter 2019, net sales at Managed Services grew 1.4% year over year to SEK 7 billion backed by growth in Optimization (project business). Gross margin grew to 14.8% year over year from 11.4% essentially as a result of efficiency gains. Operating margin improved to 4.2% from 4.1%. The company’s target for Managed Services is 5-8% operating margin (excluding restructuring charges) in 2020. Investments will be made in automation, analytics and AI-driven offerings to support 5G, IoT and cloud as well as to increase the efficiency in service delivery.

Ericsson is witnessing healthy momentum in its business, based on the strategy to increase investments for technology leadership, including 5G. In Networks, the company’s ongoing activities are to invest in R&D to safeguard a leading product portfolio and cost leadership; increase investments in automation and serviceability driving down costs; and selectively gain market shares based on technology and cost competitiveness.

Ericsson is on track with its 2020 and 2022 financial targets while making progress toward building a stronger company in the long term. Large 5G deployments in China are likely to begin in 2020. It has invested in R&D and supply chain capacity in order to increase market share.

The acquired Kathrein business is expected to have a negative impact on Networks’ margins during 2020, with a gradual improvement in the second half. The improvement in Digital Services is likely to continue but earnings will vary between quarters depending on business mix and sales seasonality.

Thanks to investments in R&D combined with operational efficiency, shares of Ericsson have gained 8.4% compared with 6.4% growth recorded by the industry in the past six months.

Ericsson currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry are Motorola Solutions, Inc. MSI, Qualcomm Incorporated (QCOM - Free Report) and Viasat, Inc. VSAT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Motorola topped earnings estimates in the trailing four quarters, the surprise being 6.6%, on average.  

Qualcomm surpassed earnings estimates in the trailing four quarters, the beat being 10%, on average.

Viasat topped earnings estimates in the trailing four quarters, the surprise being 402%, on average.

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