How Ericsson Plans To Be An IoT Powerhouse

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The rapid evolution of the Internet of things (IoT) domain is likely to provide the next wave of growth for network infrastructure companies such as Ericsson (NASDAQ:ERIC) and Nokia (NYSE:NOK). In fact, Ericsson is aiming to become a leader in the market, investing heavily in the development of technologies for 5G, which is expected to trigger a widespread adoption of IoT. The company believes that 5G network will play a key role in enabling IoT communication and connectivity across markets. In addition to pushing 5G, Ericsson is striving for the development of cost- and power-efficient IoT devices, applications and software, working closely with several ecosystem companies. Ericsson has even collaborated with Nokia and Intel (NASDAQ:INTC) for the development and roll-out of NB-LTE (narrow-band LTE), which can help it square off against Chinese rival Huawei.

Ericsson, which is involved in almost all stages of IoT transformation, has its eyes set on Asia, which is a big potential market for IoT deployment. The number of connected devices in Asia is already huge, and it is set for further growth going forward with the improvement in network infrastructure. Ericsson sees Thailand as an important market in the region, and it is urging regulators to allocate more spectrum to operators in order to accelerate the expansion of 5G and IoT.

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We have a price estimate of $12 for Ericsson, which is about 15% premium to the current market price.

See Full Analysis For Ericsson Here

Global IoT Domain Set To Get Huge

The IoT domain includes computing devices other than PCs, tablets and smartphones. The main factors that have contributed to the growing interconnectedness of objects are: 1) The emergence of the cloud platform, which enables the storage of large amounts of data to be transmitted and received via wired or wireless devices, and 2) The declining cost of manufacturing semiconductors, which makes their installation on frequently used devices economically feasible.

Cisco (NASDAQ:CSCO) estimates that the IoT market will be worth $19 trillion over the next decade, representing a $1.7 trillion market for service providers. [1] McKinsey estimates that IoT could have an impact of up to $6.2 trillion on the global economy by 2025. [2]

The installed base for IoT devices is estimated to grow from around 10 billion connected devices today to as many as 30 billion devices (or 50 as per some estimates) by 2020. [3] While these estimates may vary, they are in agreement regarding the huge potential of the market. Clearly there is a lot of growth potential for network infrastructure players, in addition to semiconductor companies.

Ericsson Pushing 5G To Pave The Way For IoT

Ericsson regards IoT as a subset of 5G, which essentially means that the widespread deployment of 5G networks will not only improve person-to-person connections, but also enable seamless IoT connectivity and communication. The company invests close to $2.5 billion each year in research and development, focusing mainly on the improvement of 5G network performance, standardization of IoT and MTC (machine type communication), as well as product development. These R&D focus areas bode well for the company’s IoT goals.

The networking giant is aggressively collaborating with mobile operators to run 5G trials. Its has cut several jobs in its R&D unit related to 2G and 3G, in order to divert its resources to the development of 4G, 5G and small cell technologies. During the last quarter, Ericsson collaborated with Softbank in Japan and Turkcell in Turkey to run 5G trials. [4] [5] It also strengthened its collaboration with leading South Korean telecom operator KT by adding the Internet of Things to the scope of collaboration. [6] These steps clearly indicate Ericsson’s intent to aggressively explore the 5G space.

Collaborating To Develop Better Products

Ericsson is reportedly working with some ecosystem providers for the development of affordable and power-efficient products and applications, to address an array of issues hindering mass IoT uptake including cost, coverage and battery life. The company recently introduced its 16B software that offers service prioritization, improves coverage, and supports low-cost devices. [7]

Last month, Nokia announced that it was working closely with Ericsson and Intel for the development and commercial roll-out of NB-LTE technology. NB-LTE networks allow data to be transmitted and received via the 200KHz channels, which means that reframed GSM bands can be used for the technology. However, it can also be used in shared spectrum with existing LTE networks. [8] This provides NB-LTE with an advantage over Huawei’s comparable NB-CIoT technology, which isn’t compatible with LTE networks older than Release 13. [9]

NB-LTE is well-suited for the IoT domain since it is easy to use, power-efficient and has a low cost of implementation. According to Nokia, products compatible with NB-LTE will improve user experience by providing them with improved connectivity at lower costs. Working with Nokia and Intel, Ericsson is looking to accelerate IoT adoption by driving the existing ecosystem and ensuring a strong global foundation across verticals such as consumer, industry and government for the launch of IoT applications. Intel will play a supporting role in the technology’s commercial roll-out with NB-LTE chipsets and product upgrades from 2016 onwards. [10]

Ericsson Is Particularly Interested In Asia

Almost half of the world’s population lives in Asia, which makes it a crucial market for telecom and telecom hardware companies. Earlier this year, Ericsson partnered with Bridge Alliance, which is comprised of 36 mobile operators across Asia-Pacific, the Middle East and Africa, to supply a device connectivity platform (DCP), a multi-domestic solution for IoT. [11] Most recently, Ericsson’s business radio unit head said that the company is asking regulators to provide more spectrum to operators in Thailand.

The Asia-Pacific region is likely to become an IoT powerhouse, with the number of connected devices expected to increase from 3.1 billion currently to 8.6 billion by 2020, with $583 billion in revenues for the companies involved. Within the region, China should remain the most dominant market and is projected to account for 59% of the Asia-Pacific IoT market, excluding Japan. Other markets such as South Korea, India, Indonesia and Thailand are also expected to be a notable part of this market. [12] Therefore it makes sense for Ericsson to leverage this opportunity, and seek to become a global leader in the IoT domain.

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Notes:
  1. Press release, Cisco, June 8 2015 []
  2. ((The Internet of Things: Sizing up the Opportunity, Mckinsey, Dec 2014 []
  3. The Internet of Things: Sizing up the Opportunity, Mckinsey, Dec 2014 []
  4. Ericsson collaborates with Softbank on 5G trials in Tokyo, Ericsson, Jul 16 2015 []
  5. Turkcell and Ericsson collaborate on 5G research and development in Turkey, Ericsson, Jul 13 2015 []
  6. Ericsson and KT strengthen collaboration to develop 5G and IoT technologies, Ericsson, Jun 5 2015 []
  7. Ericsson aims to lead world in IoT and 5G network development, National Multimedia, Oct 7 2015 []
  8. Tech giants team on Narrow Band LTE effort for IoT, Mobile World Live, Sept 14 2015 []
  9. NB-LTE Vs NB-CIoT: You new favorite 3GPP acronym war, Telecom Asia, Sept 16 2015 []
  10. Press Release, Nokia, Sept 11 2015 []
  11. Bridge Alliance, Ericsson partner on Internet of Things, Mobile World Live, Feb 25 2015 []
  12. Press Release, IDC, Apr 9 2015 []