Ericsson's Leviathan in for Rough Seas

Over the past 12 months, the mobile infrastructure segment has underperformed the tech market, not to mention the Dow Jones Industrial Average, platinum and pork bellies. But breaking out of the pack, Ericsson (ERICY - commentary - Cramer's Take) has stubbornly held on to the gains it made during the stellar 2002-04 mobile network recovery.

Pressure on Ericsson over the next six months is going to be formidable, and investors may not stick out the tough times. I believe the stock could dip to the high $20s from where it trades now, around $34.45. But long-term holders should take heart from the growing distance between Ericsson and the rest of the infrapack.

Ericsson and Everybody Else

The mobile network market had a heady recovery from the dark depths of 2002: Ericsson, Nortel (NT - commentary - Cramer's Take), Lucent (LU - commentary - Cramer's Take) and Alcatel (ALA - commentary - Cramer's Take) all soared throughout 2003. The herrings -- Nortel, Lucent and Alcatel -- peaked in early 2004 and now display distinct blotches of gray around their gills. But the whale has continued rising majestically above the fray. Ericsson flipped its tail playfully at $37 in August, November and January. I thought the August $37 level was the peak, was sure November $37 was the peak -- and Ericsson frolicked there again just a week ago.

There is little doubt that Ericsson's superiority over its smaller infrarivals is only becoming more pronounced. Lucent is too dependent on its North American backyard, Nortel's grasp on the crucially important W-CDMA market continues to slip and Alcatel remains largely an emerging-market play. Only Ericsson has a solid grip on major operators in North America, Latin America, Asia and Europe. Not coincidentally, only Ericsson has emerged as a serious service player as all operators try to pull an IBM and move from hardware into services like billing, mobile content management and customer profiling.

Until recently, many of Ericsson's major service clients remained shrouded in secrecy, as big operator brands shied away from admitting that they were letting somebody else run significant aspects of their businesses. Last December, the British 3G operator called "3" took the gutsy step of going public with its giant, nearly $1.9 billion service deal with Ericsson. This cemented Ericsson's new identity as a blended service/hardware powerhouse, a kind of telecom General Electric.

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Tero Kuittinen is a senior product specialist for Nordic Partners, Inc., a pan-Nordic brokerage firm. Although Kuittinen is an employee of Nordic Partners, Inc., the statements above are being made in Kuittinen's personal capacity and are in no way are the statements of Nordic Partners, Inc., nor attributable to the company. At the time of publication, Kuittinen had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback; click here to send an email.