Home » Features » Ericsson Stock Price Can Profit Immensely From the U.S. Campaign Against Huawei

Ericsson Stock Price Can Profit Immensely From the U.S. Campaign Against Huawei

Dimitar Bogdanov
  • January 25th, 20:25
  • Last Updated: January 25th, 20:26
  • U.S. lawmakers introduced a bill to spark the development of RAN and 5G
  • Ericsson reported lower-than-expected earnings, mostly due to a slowdown in North American market
  • The bulls will target 100 and then 120 if the 5G momentum increases

The United States lawmakers have continued to increase their efforts in building an infrastructure to combat China’s Huawei and ZTE in the area of 5G and radio access networks (RAN). 

It has been reported that U.S. senators introduced a bill that would channel more than $1 billion into 5G-related research and development in open RAN technologies. In the meantime, the U.S. has also continued to further improve its relationship with the Sweden-based Ericsson. 

“Ericsson has done a great job with 5G. I think we’re far advanced, much further than people understand,” said the U.S. President Trump recently.

Last year, the White House and respective federal agencies introduced trade sanctions and formally banned Huawei and ZTE from supplying 5G equipment to domestic operators, as they see both companies as a direct threat to national security. 

The aggressive anti-Huawei campaign has paved the way for other companies, namely Ericsson, to try and establish dominance in the United States market. Still, the Sweden-based company, which has had a turbulent last decade, hit by a temporary slowdown in the U.S. market. 

Ericsson reported adjusted fourth-quarter operating earnings of 5.7 billion Swedish crowns, lower than the 6.9 billion expected by market analysts. 

“The quarter came out negative in North America. But in general demand is very strong there,” said CEO Borje Ekholm. Despite the increase in sales for its 5G-related products, Elholm also forecasts higher costs associated with 5G.

“We expect that the initial challenging margins will shift to positive margins over the lifespan of the contracts,” he added.

China and the United States are currently frontrunners in the roll-out of 5G network, while the Western Europe currently lags behind. 

Technical analysis: The stock price retreats

Following the lower-than-expected Q4 earnings, the Ericsson stock price lost nearly 7% this week. The most recent drop bodes well with the overall downtrend that the stock had been experiencing since May last year. 

The May high of 94.74 also represents the 4-year high. The last time that Ericsson stock price traded above the 100 mark was in 2015. Still, many analysts believe that the expected roll-out of the 5G network in 2020 will help the company recover to the decade of early 2000s when Ericsson was at the forefront of mobile phone revolution. 

Ericsson stock price weekly chart (TradingView)

As seen in the chart above, the price has been supported by the 100-WMA at 78.75, which provides immediate support to the stock. On the other hand, the zone around 100 – consisting of the last year’s high and the down-slipping 14-year trend line – is the major resistance for the bulls. A break of this zone is likely to open the door for a move to 2015 high of 120.00.

Summary

The U.S.-led campaign against China’s Huawei and ZTE has opened the door of North American market to Ericsson and other 5G producers. The widely-expected rollout of 5G in 2020 and 2021 should facilitate a bigger push higher for the Ericsson stock, with 100 the first target, while 120 remains the mid-term target for the bulls. 

About the author

Dimitar Bogdanov
Dimitar Bogdanov
I have been a journalist for Invezz since 2012 and am one of the oldest on the team. My focus is on cryptocurrencies as well as general equity markets, although my experience is broad overall.

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