In a recent development, telecom giants Ericsson and Nokia have witnessed a surge in their stock prices. Investment bank Jefferies has recommended buying one of these stocks and holding the other. This recommendation follows AT&T's announcement of a significant deal with Ericsson, wherein the telecommunication company plans to invest up to $14 billion in network equipment over the next five years. This move is a crucial step forAT&T's ambitious project of constructing a commercial-scale open radio access network, known as RAN, starting from the upcoming year. The implementation of Open RAN technology enables telecom firms to establish networks by utilizing equipment from multiple suppliers.
Implications for Ericsson and Nokia
As a result of AT&T's collaboration with Ericsson, the Swedish telecom company's prospects seem bright, while its Finnish counterpart, Nokia, may face certain challenges. Experts at Jefferies point out that AT&T currently accounts for 5% to 8% of Nokia's mobile networks revenue for this year. However, they anticipate this proportion to decline gradually over the next two to three years.
Projected Impact on Earnings
Jefferies analysts estimate that the collaboration with AT&T could potentially increase Ericsson's earnings by more than 10% in the foreseeable future. In contrast, they predict that Nokia's earnings may face a decline of 5% to 10% due to this development.
The recently announced AT&T deal is undoubtedly a significant boon for Ericsson, as it bolsters their market position and provides them with a substantial revenue opportunity. As the telecom industry continues to evolve, such alliances play a vital role in determining the success of companies like Ericsson and Nokia.
Upgraded Ericsson's Growth Prospects
The Swedish telecommunications company, Ericsson, has recently received an upgrade from Hold to Buy by the prominent firm. Moreover, the price target for Ericsson has been boosted to SEK70 (approximately $6.67) from SEK58. This optimistic development has led to a 1.3% increase in the company's American depositary receipts, which now stand at $5.66.
The analysts behind this upgrade assert that Ericsson is poised for growth in network revenues, primarily due to a significant AT&T contract. Furthermore, they anticipate an improvement in gross margins for the upcoming year, highlighting the company's efforts in cost reduction as a significant driving force.
Nokia Faces Challenges Ahead
In contrast to Ericsson's favorable prospects, the Finnish equipment supplier, Nokia, has encountered a downgrade from Buy to Hold in the same report. Furthermore, the price target for Nokia has been revised to €3 (approximately $3.22) from €4.10. Despite this adjustment, Nokia's American depositary receipts have seen a positive response with a 3.2% increase, now valued at $3.20.
The analysts at Jefferies hold concerns regarding Nokia's future profitability. They believe that the company will continue to struggle in raising its margins, unless there are new Intellectual Property Rights licenses signed. Additionally, Nokia faces challenges such as the loss of AT&T revenue and ongoing inventory correction, both of which greatly impact its network infrastructure division.
In summary, Ericsson's upgraded status showcases promising growth opportunities, while Nokia grapples with obstacles that may impede its progress in the industry.
AT&T's Decision: An Opportunity for Ericsson
Nokia recently received news of a challenging announcement from AT&T. However, according to analysts at Jefferies, this should not be perceived as a reflection of Nokia's technological capabilities. Instead, they propose that AT&T's decision is more closely tied to Ericsson's "larger footprint" and the growing potential for expansion in the open RAN space.
The Expansion of AT&T
AT&T, a prominent player in the telecommunications industry, is contemplating a shift away from traditional suppliers. This move suggests a desire to explore new possibilities beyond the confines of traditional networks.
One key factor in AT&T's decision lies in the notable advantage Ericsson holds — its significant market presence. With a "larger footprint" compared to other competitors, Ericsson has a clear edge in the open RAN space. This advantageous positioning seems to have influenced AT&T's strategic considerations.
While Nokia faces disappointment due to AT&T's recent announcement, it is important to acknowledge that this decision does not cast doubt on Nokia's technological competence. Instead, it highlights the favorable position Ericsson currently enjoys in relation to the open RAN sector. As AT&T envisions expanding beyond established suppliers, Ericsson's noteworthy advantage becomes increasingly relevant.