Tickers in this Article: ERIC, ALU, NOK, VOD, VZ, T, CHL, MMI
Like its fellow Nordic tech brother Nokia (NYSE:NOK), Ericsson (Nasdaq:ERIC) can only look back fondly on the days when it was a favorite of the tech crowd. Not only did the excessive build-out of the late '90s poison the well, but Ericsson has had to deal with the rise of Chinese competitors like Huawei and aggressive marketing and pricing moves from rivals like Alcatel-Lucent (NYSE:ALU) just trying to stay in business.

Tutorial: The Industry Handbook: Telecommunications

A Surprisingly Strong First Quarter
Even though Ericsson is not a widely loved stock in the analyst community, the business has been staging a comeback, and the first quarter was surprisingly strong. Revenue rose 17% as reported, and although this was a 16% sequential decline, it was better than analysts had expected. It is also worth noting that on a constant-currency basis year-over-year growth was actually on the order of 25% - a pretty respectable quarter by any standards.

Topline growth was let by the Networks business (up 35% from last year), where U.S. sales rose 53% and Chinese sales more than doubled. Ericsson continues to benefit from the LTE build-out in the U.S. from Verizon (NYSE:VZ) and AT&T (NYSE:T), as well as the expansion and upgrade of China Unicom's (NYSE:CHU) network. What's more, while Ericsson has seen some share erosion to Huawei and ZTE with China Mobile (NYSE:CHL), business is looking better here as well.

Elsewhere the performance was not quite so exceptional - Global Services declined again, as did the insignificant Multimedia business.

How Much and For How Long?
Ericsson is clearly benefiting from a network upgrade cycle in the U.S., but the question remains what the company does next. Operators like Vodafone (NYSE:VOD), Telecom Italia (NYSE:TIM), and Telefonica (NYSE:TEF) are all willing enough to expand networks in emerging markets like Brazil and India, but growth in Europe looks to be relatively unimpressive. Maybe smartphone usage will fuel more capacity demand than operators currently expect, but it is hard to see Apple (Nasdaq:AAPL) or Research In Motion (Nasdaq: RIMM) driving huge changes after the next few years.

What's more, Ericsson's joint venture with Sony (NYSE:SNE) (Sony-Ericsson) has still not emerged as much of a positive for the company. Like Nokia, this JV seems stuck in the phones of yesteryear, and has not become a meaningful player in the smartphones and tablets that are driving market growth in North America.

The good news for Ericsson is that it more than holds its own with rivals like Nokia Siemens and Huawei and holds almost one-third market share. Still, competitors like Alcatel-Lucent and Motorola Mobility (NYSE:MMI) need to make the most of this upswing in capital spending and will compete hard with Ericsson for business.

The Bottom Line
Right now, Ericsson looks like a modestly undervalued stock. The expectations for the company are not very robust, though (low single-digit revenue growth), so if the company can find a way to gain share or if operators find they need more capacity than they presently expect, these shares could continue to do well. (For related reading, see A Good Opportunity In Broadcom.)

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