Ericsson, Cisco Pool Telecom, Internet Savvy in Wide-Reaching Alliance -- 2nd Update
November 09 2015 - 11:41AM
Dow Jones News
By Jens Hansegard
STOCKHOLM-- Ericsson AB and Cisco Systems Inc., two of the
world's biggest telecom-equipment providers, have clinched a broad
technology and commercial partnership that stops short of a
full-blown merger but covers cooperation from research and
development to customer service.
The two companies said Monday they would team up across the
board, including jointly working on a wide range of products used i
n wireless networks and Internet infrastructure as they face
heightened competition from the EUR15.6 billion takeover of
Alcatel-Lucent SA by Nokia Corp ., expected to be formally launched
later this month, and the relentless rise of China-based Huawei
Technologies Co.
The alliance will help add $1 billion or more in annual sales
for each company by 2018, Sweden's Ericsson and U.S. company Cisco
said.
It is an unusual move in such an intensely competitive climate
where acquisition is the norm. And it could arouse political
concerns on both sides of the Atlantic, where governments are eager
to closely monitor suppliers of equipment regarded as highly
sensitive for security and privacy reasons. Huawei has been
essentially shut out of the U.S. market after a U.S. congressional
report deemed it a risk to national security.
The pact between Ericsson and Cisco also highlights how the
demarcation between telecoms and Internet networks has become
increasingly blurred, forcing companies from both sides to consider
ways to address the wider market.
For Ericsson, the alliance could help it retain its position as
the world's biggest telecom-equipment supplier by sales just as
Nordic rival Nokia regains strength. Nokia's takeover of
Alcatel-Lucent could create a powerful challenger to both Ericsson,
a leader in wireless equipment, and Cisco, which dominates market
for Internet gear.
Ericsson said the partnership with Cisco will allow it to
broaden its offering immediately, much faster than what it could
have achieved through an acquisition or by developing Internet
equipment in-house.
"This is a much more agile and efficient choice," Ericsson Chief
Executive Hans Vestberg said in an interview. "We can start already
tomorrow."
Cisco said pairing up with Ericsson will help it address a
larger market without getting entangled in prolonged merger talks,
and didn't raise much of an overlap issue.
"The deal gives us an expanded reach around the world that we
don't have today," Cisco Chief Executive Chuck Robbins said during
a conference call.
Mr. Vestberg, who said talks with Cisco had begun 13 months ago,
pledged the alliance would generate cost savings of $1 billion at
the Swedish firm by 2018.
Ericsson, which has around 37,000 patents and employs 116,240
staff world-wide, reported revenue of 228.0 billion Swedish kronor
last year ($27.36 billion). San Jose, CA-based Cisco reported
revenue of $49.2 billion in its latest fiscal year to July 25.
Ericsson had sought to develop Internet equipment by itself but
has struggled to make significant headway. Its brand-new router for
telecoms operators was launched in February for example, but isn't
yet commercially available.
Meantime, its core business of supplying equipment to telecoms
operators has suffered from price pressure and the relatively slow
rollout of broadband wireless networks, known as 4G.
The Swedish company hasn't lost hope of expanding in new markets
relying on its own strength. Ericsson has spent the past two years
developing equipment for data centers used by telecoms
operators.
The new products are expected to hit shelves in the coming
months and won't be included in the alliance with Cisco, an
Ericsson spokeswoman said.
Write to Jens Hansegard at jens.hansegard@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 09, 2015 11:26 ET (16:26 GMT)
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