According to reports, Ericsson and Nokia, the troubled mobile network equipment manufacturers, are regaining favor among investors as they begin to show signs of recovery before the 10-year new business cycle, while the US promulgates to their low-cost Chinese competitor ZTE. Export bans give them an unexpected boost.
Previously, ZTE seized the market share of Ericsson and Nokia in Europe and the Americas. Last year, ZTE grew at four times faster in these markets than its domestic market and dragged on equipment contract pricing and revenue growth for Ericsson and Nokia.
But now, ZTE is being forced to impose a devastating export ban for seven years. It has not announced how it will respond to the threat of the US cutting off its supply chain.
Ericsson and Nokia will release quarterly results on Friday and next Thursday, respectively, and the focus may be on the upgrade of the next generation 5G network. Countries are expected to start the next generation of 5G network upgrades in 2018 or 2019, ending the “dry period†of network equipment spending for three to four years.
At the same time, ZTE postponed the quarterly results report originally scheduled for release on Thursday.
Since April this year, Ericsson's share price has risen by 3%, and Nokia's share price has risen by 6%.
The head of the Swedish telecom consulting company Northstream Bent? Bengt Nordstrom said that it may take several months for ZTE to find alternative suppliers and redesign its products, including optical and mobile devices. This is a very serious setback for ZTE. â€
Whether the US Department of Commerce prohibits US companies from supplying parts to ZTE, Ericsson and Nokia are still facing a difficult year, as telecom operators strictly control capital expenditures on network equipment, resulting in weak overall market demand.
In the global mobile network equipment market, the three giants dominate: the top Chinese is Huawei, followed by Ericsson and Nokia. To make matters even more complicated, Huawei and Nokia are getting more revenue from other telecommunications businesses.
The three companies face competition from ZTE and Samsung Electronics, which are entering the network equipment market late, and more and more competitors focused on software and services.
Mild reboundEricsson and Nokia's quarterly earnings may only show signs of a weak recovery, even though their prospects are becoming brighter.
Stephane Teral, a mobile research analyst at market research firm IHS Markit, told Reuters: "No one on the planet is willing to go bankrupt for a 5G network. When the business opportunities brought about by 5G networks are still lacking, this The willingness is even lower.†He warned that even though 5G technology may reach its peak sometime in the next 10 years, the capital expenditure of network equipment may never return to the peak level set by the 4G network era in 2015.
UBS analysts said that Ericsson and Nokia's 2018 revenues are still under pressure, even though they are more promising to achieve steady growth in 2019. The analyst also said that compared to Ericsson, Nokia performed better, and there is still a lot of work to be done to make the contract price of equipment in this field more reasonable.
Sweden's Ericsson has taken comprehensive cost-cutting measures and has undergone drastic reforms in management, with a focus on profitability rather than growth.
Ericsson has found signs of recovery in several key markets, but the company warned that it has more work to do in order to meet its promised profit improvement target by 2020. Reuters survey shows that analysts on average expect Ericsson's revenue in the first quarter of this year to decline by 9% year-on-year, with revenue from major network equipment businesses down 11% year-on-year.
Nokia has said it expects its performance to bottom out this year and to achieve a profit recovery by 2020, which has encouraged investors who were frustrated by the general decline in global network spending last year and the frustration of mergers and acquisitions.
Most analysts believe that Nokia's recovery is faster than Ericsson, which is why Nokia's share price has risen 22% so far this year, and Ericsson's share price has only risen by 1%.
Investment bank Northern Trust analyst Gary Paulin believes that Nokia is a particularly safe bet in the turbulent technology market. He classified it as a "fallen angel" - a cheap stock that, although suffered a setback, is getting better, and once its short-term problems are resolved, it is ready to show its potential profitability.
In contrast, analysts at investment bank Credit Suisse said the stock market's expectations for Ericsson are still too high. Ericsson said that due to the implementation risks brought about by the company's ongoing restructuring and the lower-than-expected benefits from the adoption of 5G networks, this will lead to poor market performance.
Swedish investment fund CevianCapital said they bet that Ericsson will increase profits by improving efficiency and streamlining operations, rather than expecting a substantial increase in 5G networks in the next decade.
Christo Gardell, managing partner of Cevian Capital, said: "When the 5G network arrives, Ericsson will further increase its growth and profitability." As of February this year, the company holds an 8.5% stake in Ericsson.
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