Telecom stocks
Ericsson
and
Nokia
were ticking higher Friday after Jefferies said to buy one and hold the other.
Earlier this week,
AT&T
said it reached a deal with Ericsson to buy up to $14 billion worth of network equipment over five years. The agreement is part of
AT&T’s
effort to build out a commercial-scale open radio access, or RAN, network beginning next year, Barron’s previously reported. Open RAN technology allows telecom companies to create networks using equipment from a variety of suppliers.
In short, this is good news for Ericsson and bad news for
Nokia.
The latter has said AT&T accounts for 5% to 8% of its mobile networks revenue this year and sees that proportion sliding over the next two to three years, Jefferies analysts explained in a Friday report.
Jefferies estimated the AT&T contract could boost Ericsson’s earnings by more than 10% in the years ahead, while pressuring Nokia’s by 5% to 10%.
The firm upgraded Swedish telecommunications company Ericsson to Buy from Hold and lifted the price target to SEK70 (about $6.67) from SEK 58. The company’s American depositary receipts rose 1.3% to $5.66. The AT&T contract should prompt growth in network revenues, analysts explained, adding that they expect gross margins to increase next year, pointing to cost-reduction efforts as one driver.
In the same report, the analysts cut their rating on Finnish equipment supplier Nokia to Hold from Buy and lowered their price target to €3 (about $3.22) from €4.10. Nokia’s American depositary receipts gained 3.2% to $3.20.
“We expect the company to continue to struggle to raise its margins outside of the possible signing of Intellectual Property Rights licenses,” Jefferies wrote. Loss of AT&T revenue is going to be one challenge for the company, they continued, while another will be ongoing inventory correction and weak growth impacting its network infrastructure division.
The announcement is a tough one for Nokia, but Jefferies doesn’t think it means the company’s technology isn’t up to par. Instead the analysts suggest that the decision stems from Ericcson’s ”larger footprint” and how in the open RAN space, AT&T may want to expand beyond traditional suppliers.
Write to Emily Dattilo at emily.dattilo@dowjones.com
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