Ericsson (ERIC - Free Report) recently said that it has been chosen by NTT DOCOMO, a leading Japanese communication service provider, as the AI-powered optimization solution supplier for its radio access network (RAN). The Swedish telecom gear maker’s solution maximizes end-user experience in service provider’s networks while minimizing their total cost of ownership.
Ericsson’s R&D investments in Managed Services increased in 2019 and a new AI-based offering for operators, Ericsson Operations Engine, was launched in the first quarter. Its AI and data driven Managed Services offering proactively deals with telecom operator networks to enhance customer experience and drive agile service creation. It is investing in automation, analytics and AI driven offerings to support 5G, IoT and cloud as well as to increase service delivery efficiency.
The company’s Performance Diagnostic solution will apply innovative machine learning and complex problem-solving techniques to classify cell performance issues and recommend changes. NTT DOCOMO’s planning and optimization teams will be able to evaluate the solution’s output to expedite optimization efforts accurately and in a timely manner. Conducting trials in 12 cities, the Ericsson Performance Diagnostics solution achieved 98% accuracy in classifying performance issues. The commercial operation to cover nationwide network is planned for March 2020.
In fourth-quarter 2019, net sales at Managed Services increased 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. The introduction of 5G and IoT is driving new opportunities for Managed Services, as growth in data traffic and number of devices increases network complexity, generates a high demand for better end-user experience.
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.
By the end of 2019, Ericsson announced 78 commercial 5G agreements with individual operators and 24 live 5G networks across the globe. Ericsson also increased investments within R&D, and reported organic growth and gross margin improvement. Ericsson is on track with its 2020 and 2022 financial targets while making progress toward building a stronger company in the long term. Its Managed Services has a high contract renewal rate and a higher capital turnover ratio than Group average.
Thanks to investments in R&D combined with operational efficiency, shares of Ericsson have gained 18% compared with 3.3% growth recorded by the industry in the past two years.
Ericsson currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the industry are PCTEL, Inc. (PCTI - Free Report) , Motorola Solutions, Inc. (MSI - Free Report) and Qualcomm Incorporated (QCOM - Free Report) . While PCTEL sports a Zacks Rank #1 (Strong Buy), Motorola and Qualcomm carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
PCTEL topped earnings estimates in the trailing four quarters, the surprise being 150.6%, on average.
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.
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