LM Ericsson Telephone Company (ERIC) has formed an agreement with Spain’s fourth-largest operator and a subsidiary of TeliaSonera, called Yoigo, to jointly expand the existing 3G HSPA mobile broadband network of Yoigo. With this deed, Yoigo makes Ericsson its sole vendor of the newest technology in the radio access and core network and an individual managed services partner.

Expanding of the existing 3G network will further spread out the network coverage of Yoigo and will fulfill the requirements of the rising number of subscribers. Yoigo will be able to better compete in the market with an increase in its profitability and will be able to prepare itself for the 4G/LTE.

The agreement between Ericsson and Yoigo is valid till 2014. The companies have also renewed an existing agreement between them, due to end in September 2011, till 2014.

As a technology and market leader in wireless equipment (based on the GSM standard), Ericsson stands to benefit from the continued growth of the wireless industry, especially in the emerging markets. GSM-based network expansions in the emerging markets (including Latin America, Eastern Europe, Africa, China and India) are expected to drive moderate revenue growth over the next several years. Having established partnerships with local companies and having set up R&D centers in numerous locations, Ericsson is well positioned to win additional network expansion contracts in Asia over the next couple of years.

We expect the continued consolidation in the telecom industry to hamper growth and squeeze margins over the long term, as competitors that cannot compete on technology will begin to cut prices to win business. A major competitor of Ericsson is Alcatel-Lucent (ALU).

Headquartered in Stockholm, Sweden, LM Ericsson Telephone Company is a multinational company, engaged in manufacturing and selling wireless infrastructure equipment for the telecom sector. The company is a total network solutions provider, serving wireless and wireline operators, enterprises, and consumers.

We currently maintain our Neutral rating on Ericsson with a Zacks #3 Rank (short-term Hold recommendation) over the next one-to-three months.

 
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