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A provider of telecommunications equipment and related services to operators of mobile and fixed networks worldwide.
ERIC is currently significantly undervalued because of a bad quarter in the end of Q4. We have seen this again: the market punishes heavily short term performance of companies irrespective of the market dynamics that may have created them. Telecom carrier spending has been soft lately, and expected to be flat for the remainder of 2008, affecting everyone in that space. This is very good news indeed for level-headed, rational investors who are looking to invest in solid, well-run companies at a significant discount, and reap significant benefits going forward.ERIC is a well-run company with significant growth potential over the next 2-4 years. This is driven predominantly by the following factors:1. Broadband Wireless. Wireless access speeds are today comparable with the dial up speeds of wireline connections before ADSL and Cable modems. The wireless technology that is the equivalent of ADSL in the wireless space is HSPA with the longer-term evolution to LTE. Guess what: ERIC is the absolute no-contest leader of both technologies and overall market leader. As carriers start deploying HSPA and LTE expect ERIC to take the lion's share of that market. And this is one huge market as whole networks have to be replaced. Verizon has already made public their decision to change their wireless network from CDMA to LTE. This project alone is worth billions (yes, you read right billions) of dollars. Expect all CDMA- based carriers to change over to LTE in the next 2-4 years, because CDMA is losing ground very rapidly to these technologies forcing the entire market to go that way (Like Beta vs. VHS many years ago).2. Emerging Markets. With the advent of advanced wireless access methods (see above) carriers in emerging markets with very little (or very bad quality) wired infrastructure will most certainly choose to deploy these wireless access networks versus paying one order of magnitude more money to build a comparable wired infrastructure. Do the math. ERIC will benefit again.3. Wireless-Wireline convergence. In more mature and sophisticated markets with advaced technology already in place (like the USA), carriers are looking to merge their wireless and wireline networks and operations in order to limit their OPEX and be able to offer services to their subscribers in a seamless and ubiquitus manner, irrespective of access method (wireline/wireless/DSL/GPON, etc). If you follow the news, ERIC spent several billions of dollars and made several VERY strategic acquisitions last year: Redback Networks (intelligent routing), Tandberg (IPTV headend), Entrisphere (GPON). These acquisitions are very strategic because these companies represent the cream of the crop for next-generation WIRELINE service delivery, which complements perfectly ERIC's superb WIRELESS service delivery. Make no mistake, ERIC is aiming to build a convincing wireless-wireline architecture for its sophisticated customers in mature markets, and get significant market share in the process of network convergence.All in all, ERIC is well run, well positioned for the future, has forward-looking management and business case, has dominating market share to build upon, it has money in the bank, it is profitable and it is at a discount right now...I think it has plenty of room to run.
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