Ericsson (ERIC) Last Update 1/5/25
Related: NOK CSCO JNPR MSI
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Ericsson
STOCK PRICE
DIVISION
% of STOCK PRICE
Networks
64.5%
$2.85
Net Debt
8.5% $0.37
TOTAL
100%
$4.42
$7.70
Yours
Trefis Price
N/A
$7.58
Market
 
Top Drivers for Period
Key Drivers
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TREFIS Analysis


Trefis Report
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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Ericsson Company

VALUATION HIGHLIGHTS

  1. Networks constitute 65% of the Trefis price estimate for Ericsson's stock.
  2. Cloud Software & Services constitutes 31% of the Trefis price estimate for Ericsson's stock.

WHAT HAS CHANGED?

  1. Latest Earnings - Q3'2024

Ericsson reported a slight year-over-year sales decline of 1%, totaling SEK 61.8 billion, despite a robust 55% increase in North America. Adjusted gross income rose to SEK 28.6 billion, supported by a significant increase in Networks segment gross margin to 48.7%. The reported gross margin improved to 45.6%, reflecting effective cost management and a favorable market mix.

The adjusted EBITA reached SEK 7.8 billion, with a 12.6% margin, benefiting from cost reduction initiatives. Net income improved to SEK 3.9 billion, compared to a loss of SEK 30.5 billion in the previous year, with diluted earnings per share (EPS) at SEK 1.14. Free cash flow before mergers and acquisitions was strong at SEK 12.9 billion, highlighting effective inventory management.

  1. Continues to Grow Operations

Ericsson’s Q3 2024 report showcases significant advancements in strategic and operational priorities, including growth in programmable networks and mobile network contract wins across multiple markets. A notable development was the establishment of a joint venture with leading mobile network operators to secure a global supply of Network APIs. Additionally, Ericsson signed further 5G patent licensing agreements, with projected intellectual property rights (IPR) revenues expected to reach at least SEK 13 billion in 2024.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Ericsson's value that present opportunities for upside or downside to the current Trefis price estimate:

Networks

  • Network Revenues: Ericsson is one of the top players in the Mobile (Wireless) Infrastructure market. The division also contributes roughly 65% of the company's revenues. We estimate that revenues will increase from levels of about $16 billion in 2023 to close to $17.5 billion by 2030, driven by slightly higher spending on 5G equipment. However, if Ericsson is not able to achieve this, due to increased competition and its revenue drops to about $14 billion in the same time frame, there could be a downside of about 10% to our price estimate.
  • Networks EBITDA Margin: Margins for the networking division stood at 13% by 2023. We expect the metric to improve to levels of around 15% by the end of our review period. However, if the metric remains flat at 13% due to competition from Chinese players, who are betting big on 5G technology, there could be a downside of about 10% to our price estimate. On the other hand, if the company boosts margins to 18% by the end of our review period, there could be an upside of close to 10% to our 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.

BUSINESS SUMMARY

Sweden-based Ericsson provides communication infrastructure, services, and software solutions to the telecom and other sectors. It operates through four segments: Networks, Cloud Software and Services, Enterprise, and Other.

SOURCES OF VALUE

Networks

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.

KEY TRENDS

The 5G Upgrade Cycle

There were 3.4 billion Internet of Things connections on networks running 5G in 2023, with roughly 1 billion mobile customers, which translates to approximately 12% of total mobile subscriptions. Ericsson is betting on 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.

Equipment Modernization in Europe and Capacity Building in Asia

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 has 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.

Hardware to Software Shift in Telecommunications Market

There has been 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.