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In the November 2019 edition of the Ericson Mobility Report, the company said average monthly data-traffic-per-smartphone is forecast to increase from the current figure of 7.2 GB to 24 GB by the end of 2025. Ericsson expects 5G technology to cover up to 65% of the world’s population by 2020.
Below are key drivers of Ericsson’s value that present opportunities for upside or downside to the current Trefis price estimate:
For additional details, select a driver above or select a division from the interactive Trefis split for Ericsson at the top of the page.
Ericsson is a global telecommunications equipment and services provider based in Stockholm, Sweden. Operating in 180 countries, Ericsson is one of the leading suppliers of mobile networks with products in CDMA, WCDMA/3G, 4G/LTE, and now 5G technologies. It is also a strong player in Fixed-network solutions, including copper and fiber, microwave transport, and Internet Protocol. It boasts 33,000 patents from its 24,000 employee R&D unit. Ericsson is also one of the leading providers of IT services, such as systems integration, network, and consulting. It also has a significant presence in the Operations Support Systems (OSS), Business Support Systems (BSS) and m-commerce markets.
Accounting for over 65% of Ericsson’s overall revenues, Networks is the dominant division for the company. It is dominated by the Wireless division offering mobile communication equipment, including 3G and 4G/LTE solutions. Ericsson occupies the top spot in the global Wireless equipment market with about a 30% market share. It is positioned well to benefit from this $40 billion market over the short- to medium-term. The other products offered under this division are the fixed-line products for copper and fiber, microwave backhaul systems, and modems.
Operators across the world have started to outline plans for their 5G upgrades, with U.S. carriers commencing commercial deployments of the technology in 2018. For instance, AT&T and Verizon have deployed 5G mmWave services in over 30 markets by the end of 2019, while Verizon is bringing fixed 5G to homes in multiple U.S. cities. Other regions, including South Korea, China, Japan, and the Middle East, commenced their build-outs in 2019. Ericsson projects that there could be 3.5 billion “internet of things” connections on networks running 5G by 2023, with roughly 1 billion mobile customers, which translates to approximately 12% of total projected mobile subscriptions. Ericsson is betting on the next-generation technology to drive growth after posting mixed results over the last few years amid intense competition from Chinese equipment manufacturers and weaker spending by wireless carriers.
A study released by Cisco in early 2016 estimated that global mobile data traffic grew 74% in 2015, with 4G traffic exceeding 3G traffic for the first time. Going forward, Cisco expects to see the figure grow 7-fold by 2020 to 30.6 exabytes per month. Most of that rapid growth will be fueled by the burgeoning demand for video, which is expected to account for more than 75% of all mobile traffic by 2020.
Growing penetration of mobile devices such as smartphones and tablets is driving the demand for mobile data through the roof, causing wireless service providers to look for cost-effective ways to upgrade their networks in order to support and monetize the growing traffic. Ericsson, which has a strong position in the wireless and communications market, is positioned well with its strong customer relationships to benefit from the growing demand for network equipment in the long run.
Ericsson’s mobile equipment modernization drive in Europe is likely to improve profitability due to increased efficiency and lower costs. Also, a gradual shift from coverage projects to capacity building projects is being done by the company. Increasing coverage in Asia, Europe, and Latin America have come at the cost of margins in the past couple of years, but as it reaches completion in the near term, profitability is expected to rise which will help counter the stiff competition being provided by Chinese manufacturers such as Huawei and ZTE.
There is going to be an industry-wide shift in demand from hardware networking solutions to software-based ones in the long run. This poses an interesting challenge to traditional hardware-based players such as Ericsson, Cisco, and Juniper. However, Ericsson is showing adaptability with its increased focus on software and support solutions, where it is competing with many small and local service providers. The company made several acquisitions in 2014, such as Sentilla, Fabrix Systems, and MetraTech, to boost its capabilities to offer cloud-based support services.
The IoT domain includes computing devices other than PCs, tablets, and phones. Cisco estimates that the IoT market will be worth $19 trillion over the next decade, representing a $1.7 trillion market for service providers. McKinsey estimates that IoT could have an impact of up to $6.2 trillion on the global economy by 2025 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. 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 companies such as Ericsson in addition to networking players and semiconductor companies.