Swedish telecommunications giant Ericsson (NASDAQ:ERIC) just announced the acquisition of Genaker, a Spanish company focused on MC-PTT solutions. MC-PTT stands for mission critical push-to-talk, technology aimed at replacing “walkie talkies” with cellular-based solutions that can also transmit pictures and video.
The move further strengthens Ericsson’s appeal to U.S. telcos. They are rushing to build out 5G infrastructure — a key Ericsson offering — and having next generation MC-PTT solutions strengthens ERIC’s pitch.
Despite a Q4 earnings miss that saw Ericsson stock take a 7% hit in January, the future looks bright.
Ericsson to Acquire Genaker
On March 12, Ericsson announced it was acquiring 100% of the shares in Spain’s Genaker. The move strengthens ERIC’s position for providing mission-critical communication solutions for customers.
Traditionally, communications of this sort have relied on LMR (land mobile radio) networks, allowing basic “walkie talkie” functionality. Technology has moved beyond simple voice communication, though.
Genaker’s MC-PTT solution supports more data-intensive applications using cellular networks. Instead of radios, emergency workers and other mission-critical staff can be equipped with smartphones. Rather than being limited to communication over radio bands with restricted coverage, they can connect using cellular or Wi-Fi networks for virtually unlimited service areas.
Here’s Ericsson’s summary of what it’s targeting with the Genaker acquisition:
With increasing demand for exchange of other types of data, such as pictures and videos, the legacy LMR networks need to be replaced, and cellular networks have proven to be the best fit for existing and emerging requirements.
5G Rollout
Even if the trade war with China is ultimately resolved, China’s Huawei is unlikely to be allowed to supply 5G network infrastructure in the American market. There’s simply too much mistrust there. With 5G smartphones becoming mainstream and U.S. telcos rushing to build out their next-generation 5G cellular networks, that’s left a big opening for Huawei’s European competition.
Nokia (NYSE:NOK) has signed contracts to supply 5G infrastructure for all four nationwide operators in the U.S., but Ericsson still holds a lead. The company says that the big four U.S. carriers are also using its 5G technology. This includes T-Mobile’s (NASDAQ:TMUS) 5G coverage in New York, Los Angeles and Las Vegas. That deal, which was signed in 2018, was worth $3.5 billion.
It has been projected that by the end of 2025, global cellular carriers will have spent over $1 trillion building out their 5G networks. As of January, Ericsson claimed 81 commercial 5G contracts worldwide, compared to 65 for Huawei, and 63 for Nokia. If the company can continue at this pace, there is plenty of room for Ericsson stock to see growth.
Being able to offer carriers an enhanced MC-PTT solution — which they can in turn pitch to their customers — makes ERIC’s 5G offering more compelling.
In addition, Ericsson has invested in the American market. Its new Texas factory is now churning out 5G base stations, and will be fully operational later this year. That “Made in America” label is another big draw for carriers.
Bottom Line for Ericsson Stock
The investment analysts polled by The Wall Street Journal have ERIC rated as “overweight,” with a $9.95 average 12-month price target. As InvestorPlace’s Vince Martin points out, the company is in the midst of a turnaround, addressing years of toxic corporate culture. The timing of that turnaround combined with the generational opportunity offered by 5G rollout makes Ericsson stock look pretty attractive at this point.
Once we get through the market turmoil caused by the coronavirus from China and an oil price war, ERIC is a stock that’s well-positioned for growth.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
