Tero Kuittinen from Avian Securities believes that Svanberg is indeed on the way out after the investor relations fiasco involving Ericsson's seemingly evolving story lines from September, October and now November. Investor, the biggest owner of Ericsson, has already announced that it still backs Svanberg, but in the most cursory manner.
Obviously, Ericsson (NASDAQ:ERIC) is now heading towards value territory - but it's just as clear that the market no longer believes that the operating margin slide will halt at 13-15% level. Investors have started pricing in the global mobile CAPEX spending decline in early 2008 - the scenario Avian has been discussing throughout the summer and autumn.
Nevertheless, Ericsson has several things going for it. First - some of its market share gains may have come from lowballing orders in India and China, but they are likely to stick. Ericsson may well head into the next CAPEX upswing with 45%-plus global infra share. Second - Ericsson's margins may well dip into single digits, but it now has a new multimedia business line that might actually thrive in recession conditions. Operators may opt to begin outsource more of their billing and content design/operation if they decide to cut costs in a recession environment. Ericsson is far ahead of its smaller rivals in this category of offering advanced outsourcing services to mobile carriers. Third - the massive China 3G orders loom in the horizon, probably 2Q or 3Q 2009 in our conservative estimate. That's still 6-7 quarters out - but it's a concrete and sizeable new revenue cake from which Ericsson has a reasonable chance of carving a 30-40% slice even with the likely domestic vendor quotas.
The firm thinks Ericsson may become one of the first major telecom stocks to bottom out - though most likely much grief and panic lies ahead as the sector comes to grips with a true cyclical downturn. It is well worth considering as a prime candidate for a robust rebound if the stock tumbles again today on the back of global sell-off wave. They think the resignation of Svanberg might perk up considerable interest from investors - the CEO's credibility is more or less gone after the curious tonal shifts between the three major investor meetings of September, October and November.
Notablecalls: Interesting comments for sure. Please see further color from today.
Obviously, Ericsson (NASDAQ:ERIC) is now heading towards value territory - but it's just as clear that the market no longer believes that the operating margin slide will halt at 13-15% level. Investors have started pricing in the global mobile CAPEX spending decline in early 2008 - the scenario Avian has been discussing throughout the summer and autumn.
Nevertheless, Ericsson has several things going for it. First - some of its market share gains may have come from lowballing orders in India and China, but they are likely to stick. Ericsson may well head into the next CAPEX upswing with 45%-plus global infra share. Second - Ericsson's margins may well dip into single digits, but it now has a new multimedia business line that might actually thrive in recession conditions. Operators may opt to begin outsource more of their billing and content design/operation if they decide to cut costs in a recession environment. Ericsson is far ahead of its smaller rivals in this category of offering advanced outsourcing services to mobile carriers. Third - the massive China 3G orders loom in the horizon, probably 2Q or 3Q 2009 in our conservative estimate. That's still 6-7 quarters out - but it's a concrete and sizeable new revenue cake from which Ericsson has a reasonable chance of carving a 30-40% slice even with the likely domestic vendor quotas.
The firm thinks Ericsson may become one of the first major telecom stocks to bottom out - though most likely much grief and panic lies ahead as the sector comes to grips with a true cyclical downturn. It is well worth considering as a prime candidate for a robust rebound if the stock tumbles again today on the back of global sell-off wave. They think the resignation of Svanberg might perk up considerable interest from investors - the CEO's credibility is more or less gone after the curious tonal shifts between the three major investor meetings of September, October and November.
Notablecalls: Interesting comments for sure. Please see further color from today.
This comment has been removed by the author.
ReplyDeleteIs it even worth it to follow the ERIC story? There are soo many other trades that are working and worth discussing. What's exciting about ERIC to you NC? ..
ReplyDelete