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Max Rapaport is a corporate and telecommunications attorney with an avid interest in the universe of small cell technologies, including pico cell, femto cell and microcellular networks, generally. He also publishes articles on the Website related to developments in these areas.... More
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  • Evercore Partners Initiates Coverage On Ericsson At Equal Weight, Views Small Cells As Wild Card Which Could Negatively Impact Ericsson's Position As Leading Macro Cell Player 0 comments
    Jan 2, 2013 6:41 AM | about stocks: ERIC

    On December 16th, Evercore Partners initiated coverage on Ericsson, at Equal Weight, with an $11 price target. According to the report's authors, "[w]e view ERIC as a modest-growth cyclical play on increased's port wireless network traffic." In addition, the report observed that "[w]e view ERIC's margin profile and valuation as early cycle /depressed but look for expansion through the cycle, as spending shifts from low-margin coverage to high-margin capacity and 4G patterns shift from the US to the rest of the world….[and we] expect the 4G spend, which is well underway in the US, to spread to international markets in the coming years in the form of both coverage and/or capacity upgrades to 'modernized' networks."

    Notwithstanding, the authors surmised, "[w]e see ERIC's ~5% networks margins as depressed versus a more normalized 12-18% range, in part due to its "modernization" program in Europe." Moreover, the report continued, "[w]e estimate ~$1B in royalty revenues for ERIC from handsets and infrastructure, based on 30,000 patents….[and we] are encouraged by ERIC's efforts to monetize its patents and will closely watch its Samsung case for a shift towards a volume based IP revenue model and potential upside to our forecasts."

    With respect to small-cell related observations, the report notes, "Small cells a "wild card" which could take some "oomph" out of the capacity phase, but ERIC has incumbent advantage." This is because, "[w]e see small cells as a possible threat to ERIC who, as the leading macro-cell player, only has share to lose should the promise of openness play out in small cells, but also faces a potentially challenging margin structure for small cells versus its channel card/ software capacity upgrade model.

    On a positive note, however, the authors continued, that "we are encouraged by ERIC's purchase of carrier WiFi-play Belair networks who along with CSCO and RKUS are the three leading carrier WiFi providers….[and we] see the "het net" or heterogeneous network of the future comprised of all different sizes, shapes and configurations, from the 50W 4G macro cell to the 50mW 4G/Wi-Fi femto cell, with a myriad of products in between." Therefore, the authors continued, "[w]e believe this complexity should benefit a full systems supplier such as ERIC in the coming cycle.

    Stocks: ERIC
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