Strategic deal for Ericsson, Cisco

Ericsson and Cisco have signed a global business and technology partnership to create the networks of the future.
The multi-faceted relationship will offer customers the best of both companies: routing, data center, networking, cloud, mobility, management and control, and global services capabilities. Together the companies plan to deliver customer value by:
* Offering service provider customers an end-to-end product and services portfolio, and joint innovation that accelerates new business models;
* Creating the mobile enterprise experience of the future through a highly secure technology architecture for seamless indoor/outdoor networks; and
* Channeling the combined scale and innovation of both companies to accelerate the platforms and services needed to digitise countries and create the Internet of Things.
In a world driven by mobility, cloud, and digitization, the networks of the future will require new design principles to ensure they are agile, autonomous, and highly secure. Ericsson and Cisco will meet this challenge together by offering end-to-end leadership across network architectures including 5G, cloud, IP, and the Internet of Things – from devices and sensors to access and core networks to the enterprise IT cloud. Customers will be able to accelerate their business transformation by drawing on the parties’ complementary capabilities, including global services capabilities such as consulting, integration, and support to managed operations across IT and networks.
Today’s announcement will be supported by multiple agreements that include commitments to network transformation through reference architectures and joint development, systems-based management and control, a broad reseller agreement, and collaboration in key emerging market segments. The parties have also agreed to discuss FRAND policies and enter a licensing agreement for their respective patent portfolios, enabling unfettered joint innovation and providing certainty for customers of both organizations. As part of this agreement, Ericsson will receive license fees from Cisco.
Ericsson and Cisco are strong and complementary partners, with a combined 56 000-plus patents, $11-billion of research and development investment, and more than 76 000 services professionals serving customers across more than 180 countries.
The strategic partnership will be a key driver of growth and value for the next decade, with each company benefiting from incremental revenue in calendar year 2016 and expected to ramp to $1-billion or more for each by 2018. New and greater opportunities are also expected, as the partnership enables both companies to drive their efforts and investments to deliver value in growth markets.
Teams from both organizations will also begin working on a joint initiative focused on SDN/NFV and network management and control.
Hans Vestberg, president and CEO of Ericsson, comments: “I am excited to work with Cisco on continuing to shape the Networked Society. Foremost, we share the same vision of the network’s strategic role at the center of every company’s and every industry’s digital transformation. Initially the partnership will focus on service providers, then on opportunities for the enterprise segment and accelerating the scale and adoption of IoT services across industries. For Ericsson, this partnership also fortifies the IP strategy we have developed over the past several years, and it is a key move forward in our own transformation.”
Chuck Robbins, CEO of Cisco, adds: “With the pace the market is moving, the successful companies will be those who build the right strategic partnerships to accelerate innovation, growth, and customer value. Today’s announcement brings together two visionary industry leaders, with complementary cultures and track records of innovation. We have worked with Ericsson during the last year on developing a strategy for future industry leadership, and can start executing together today. Our partnership will drive growth for both companies, unique value for our customers, and incredible innovation for the industry.”
Dana Cooperson, research director at global telecoms specialist Analysys Mason, comments on the partnership: “Given Ericsson’s annual revenues of more than $26-billion and Cisco’s of more than $49-billion, and opportunities in new enterprise-driven communications and IoT services, we think each company’s goal of driving $1-billion in new revenues by 2018 based on this strategic partnership is achievable.
“We see Ericsson’s nearly $5-billion and Cisco’s over $0,7-billion in telecom software professional services as just one area ripe for growth.”
Analysys Mason sees this as an aggressive move positioning Ericsson and Cisco against their main competitors, including Huawei, HP, and the combined Nokia/Alcatel-Lucent, for dominance as the partners of choice for CSPs wanting to become digital service providers (DSPs).
The companies have made few details available to assess, however, Analysys Mason sees three areas necessary for the success of this strategic partnership:
* The common architecture must be robust enough and the companies’ ability to pre-integrate solutions based on the architecture must be of sufficient value in time and money to be compelling to customers.
* The companies will need to show that they are not too big to move quickly to create joint solutions.
* Customers will need to be comfortable that Ericsson and Cisco are not, even with assurances of openness and embrace of OPNFV, Open Daylight, and other industry open source initiatives, strengthening their leading positions in mobile infrastructure, professional services and IP infrastructure to create de facto lock-in.
• Expected to generate USD 1 billion or more of additional sales by 2018
• Full-year effect from synergies of SEK 1 billion expected in 2018
• Accretive to operating income already in 2016
Ericsson (NASDAQ:ERIC) today announced a next-generation strategic partnership with Cisco (NASDAQ:CSCO) to create the networks of the future. The partnership will combine the best of both companies: routing, data center, networking, cloud, mobility, management and control, and global services capabilities. Ericsson will together with Cisco, leader in IP-networking, offer end-to-end leadership across network architectures for 5G, cloud and IP, and the Internet of Things.
Today’s announcement is supported by multiple agreements including a global service partner agreement, as well as a broad reseller agreement. The parties have also agreed to discuss FRAND policies and enter a licensing agreement for their respective patent portfolios.
Hans Vestberg, President and CEO, Ericsson, says: “This partnership fortifies the IP strategy we have developed over the past several years and it is a key step forward in our company transformation.”
Details of the partnership have been announced separately in a joint announcement and can be found on www.ericsson.com .
As a result of the partnership, Ericsson will extend its addressable market and is expected to generate USD 1 billion or more of additional sales by 2018 (full year). The extended addressable market is primarily in professional services, software and resell of Cisco products. The additional sales are expected to be accretive to operating income already in 2016. The partnership is expected to generate full-year effect from synergies, primarily in expenses of SEK 1 billion in 2018.
Ericsson and Cisco will continue to explore further joint business opportunities as the partnership progresses.
A media and analyst call with Hans Vestberg, President and CEO of Ericsson and Chuck Robbins, CEO of Cisco, will be held today at 14.15 CET. Details can be found at www.ericsson.com/press and www.ericsson.com/investors.
Ericsson is hosting its Capital Markets Day November 10 in Kista, Sweden. At this event Ericsson CEO Hans Vestberg and John Chambers, Executive Chairman, Cisco, will discuss the partnership and answer questions. The event will be presented in live webcast – more details can be found at www.ericsson.com/investors.