T - Ericsson Off The Bottom But Hardly Thriving

2024-06-25 15:58:53 ET

Summary

• Ericsson has achieved some positives over the last year, including better-than-expected cost-cutting performance and a $14B-plus equipment win with AT&T.
• Ericsson's Open RAN win may ease concerns that it was moving too slowly in positioning itself for Open RAN demand, but margins on Open RAN business are a key unknown.
• Ericsson's other businesses like Cloud Software & Services and Enterprise show little obvious growth potential, and enterprise-relevant solutions are increasingly important.
• These shares don't look particularly pricey, but unless Open RAN margins are surprisingly good, it's tough to get very excited about the potential.

Ericsson ( ERIC ) has managed to do better than I’d expected. With the local shares up about 13% since my last update and the ADRs up closer to 25%, Ericsson hasn’t been the value trap I feared it might be. Some of that can likely be tied to the large win it got with AT&T ( T ) for an Open RAN deployment, but I’d also note that the company has done better than expected with cost efficiency moves, having beaten sell-side EBITA targets (by 12% in Q1’24 and 6% in Q4’23) despite missing on revenue....

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