Cisco and Ericsson Form a Portfolio Partnership

“The Best of Both Companies”

Cisco_Ericsson_lYesterday, Cisco and Ericsson announced the formation of a partnership to build what the firms refer to as “networks of the future”. The deal will initially create a cross-company portfolio of products and services spanning mobility and IP networking. Longer term, the partnership is expected to grow beyond a simple reseller arrangement to become a wider collaboration encompassing research and development and strategy creation.

The two companies have chosen to collaborate rather than merge, despite significant synergies between Cisco and Ericsson and an environment of consolidation in the infrastructure business. The companies explain that a partnership will allow them to bypass many of the customary regulatory processes associated with acquisitions. Skipping these means the partnership can hit the ground running, enabling Cisco and Ericsson to resell each other’s products and services from day one. The companies expect the arrangement to generate $1 billion in additional revenue for each firm by 2018.

The deal is substantial given the market clout of the partners. Each are tier-one network equipment suppliers with a global reach and a portfolio of top clients. Cisco and Ericsson also have two emerging threats in common, as Huawei and Nokia develop or acquire competing products.

CCS Insight has stated several times in 2015 that we expect more consolidation in the network infrastructure business, particularly after Nokia announced its intentions to acquire Alcatel-Lucent in April. Cisco and Ericsson have chosen a partnership given the complications of a merger, but the motivating factors are the same. The deal will allow the companies to cross-license patents, share development costs and expand their portfolios as customers require improved network management and look for new opportunities in connecting things.

Many of Cisco and Ericsson’s top operator customers are facing a new generation of competitive threats in the way of Wi-Fi services and manufacturer instalment plans. Their need to innovate and differentiate is stronger than ever.

The Cisco–Ericsson partnership is a grouping of two strong, influential market participants. Combined, California-based Cisco and Stockholm-based Ericsson would have close to 190,000 employees. But they’re not combining, they’re cooperating — affording them continued flexibility and, importantly, a way out.

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