The global 5G services market could be worth $41.5 billion this year, according to Grand View Research, and grow at a compound annual growth rate of 43.9% between 2021 and 2027. Those types of bullish forecasts have inspired many companies to cite the 5G market as a secular tailwind, but it can be tough to sort out the winners from the losers.
Stockholm-based Ericsson controlled 14% of the world’s telecom equipment market last year, according to Dell’Oro Group, and ranked third behind Chinese tech giant Huawei‘s 28% share and its Finnish rival Nokia‘s (NYSE:NOK) 16% share.
Huawei is privately held and faces U.S.-China trade war restrictions, while Nokia is struggling with slow 5G upgrades, tough competition in China, and an abrupt CEO change. Ericsson faces fewer headwinds than either larger rival.
Ericsson fared better than Nokia in China, remaining in China Mobile‘s good graces even after the state-backed telco dropped Nokia from its second round of 5G upgrades. It’s also been gaining new 5G contracts in countries that are ditching Huawei due to national security concerns.
Ericsson isn’t struggling with management changes, and it’s already secured 99 commercial 5G agreements, announced 57 5G contracts, and supports 55 live 5G networks. Nokia has secured more contracts, but it only operates 32 live 5G networks so far.
Analysts expect Ericsson’s revenue and earnings to rise 5% and 15% this year, respectively, as carriers ramp up their 5G spending. Nokia’s revenue is expected to dip 2% as cost-cutting measures boost its earnings by 8%. In short, Ericsson offers investors a simple and safe way to invest in the long-term growth of 5G networks.
Qualcomm is the world’s largest mobile system on chip (SoC) maker. Its Snapdragon SoCs bundle together a CPU, GPU, and baseband modem, and its massive portfolio of wireless licenses grants it a cut of every smartphone sold worldwide — even if they don’t use Qualcomm’s chips.
Qualcomm’s growth has been anemic over the past year, due to sluggish smartphone sales and licensing disputes with handset makers. But over the past 12 months, three catalysts lifted its stock more than 50% to an all-time high: resolving its licensing disputes with Apple and Huawei, aggressive buybacks, and rising demand for its 5G chips, modems, and licenses.
Bank of America analyst Tal Liani estimates Qualcomm will generate $5 billion to $10 billion in revenue from its 5G and mmWave connectivity solutions in fiscal 2021, which starts in late September. That would account for 18%-36% of Qualcomm’s projected revenue, and diversify its top line away from its aging 3G/4G chips.
Qualcomm has already secured over 100 5G licensing agreements, which will generate a steady stream of higher-margin revenue to support its lower-margin chip business. Analysts expect those tailwinds to boost Qualcomm’s revenue and earnings 32% and 63%, respectively, next year.
3. Skyworks Solutions
Skyworks Solutions produces a wide range of wireless and analog chips for the mobile, automotive, home automation, wireless infrastructure, and industrial markets. It’s primarily known as an Apple supplier, since the iPhone maker generated over half its sales last year, but it also serves other tech giants like Amazon and Cisco.
In the near term, Skyworks will benefit from…
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