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Ericsson CEO's New Business Logic

Ray Le Maistre

The networking worlds of radio access and cloud need require a "different business logic," Ericsson CEO Hans Vestberg told Light Reading Thursday after the Swedish vendor announced it will carve out two new units, "Radio" and "Cloud & IP," from its current networks division. (See Ericsson Creates Cloud & IP Unit.)

Though Ericsson AB (Nasdaq: ERIC) is the market leader in radio access networks (RAN), "we are a challenger in routers," Vestberg said.

Positioning the company as a "challenger" puts a positive spin on its router market position. Alcatel-Lucent (NYSE: ALU) built a significant router business following its TiMetra acquisition in 2003, challenging Juniper Networks Inc. (NYSE: JNPR) and Huawei Technologies Co. Ltd. for the No. 2 spot behind Cisco Systems Inc. (Nasdaq: CSCO). But Ericsson is still a minnow in the market with a low single-digit marketshare, seven years after spending $2.1 billion on Redback Networks. (See TiMetra at Heart of AlcaLu's Shift.)

But the Ericsson CEO is determined to change that. Without providing any financial specifics, Vestberg said his company is significantly increasing its capital allocation to IP and is aiming to be the No. 3 player in the market. That's a target we've heard before -- back in 2008. (See Redback Targets 30% Market Share.)

"We need to work in a different way while keeping the synergies we have built up in the networks business unit," he said. "We need a different unit to act in a different way. It's business logic that is driving the split" of the networks division.

Quite how this logic will manifest itself is another matter, and it's not likely to be communicated until the cloud and IP unit has a lead executive. Since this is a different type of unit, focused on cloud, data centers, SDN, NFV, and other IT-oriented sectors, will Ericsson seek to hire a business leader from outside the company? Vestberg said only that the process to appoint a leader is under way, and he couldn't say whether it might be an external appointment or not.

Whoever that executive is will be tasked with building on the marquee telco cloud engagement Ericsson has struck with AT&T Inc. (NYSE: T) and to further develop the virtualized network element process that's under way within the vendor. (See AT&T's Cloud Future Takes Shape.)

"We started the virtualization process in 2010, and many of our products are already virtualized -- IMS, packet core, part of the billing systems… we are working towards virtualizing the whole portfolio apart from the radio interface, as there's nothing to gain from virtualizing that," Vestberg stated. "This is happening in telecom… the cloudification of telecom."

So was it this virtualization strategy that attracted AT&T? What exactly is Ericsson's role in the US operator's Domain 2.0 program?

"That is for AT&T to say," Vestberg said diplomatically. "But we have been early to virtualization, and we also have a very large professional services team with a lot of systems integration capabilities. I'd like to think it's a combination of our virtualized assets and those integration capabilities that has attracted AT&T." He then reiterated his opinion that Brazil would win this summer's soccer World Cup and rushed off to his next engagement.

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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User Rank: Light Sabre
4/28/2014 | 10:37:23 AM
Re : Ericsson CEO's New Business Logic
Ericsson needs to adopt new business logics by placing in a new and better networks business unit that will act in a different way. This is the only way to ensure that it beefs up its synergy as a challenger against Juniper and Alcatel-Lucent and their likes in the router business world. The newly elected leader for the new unit, whether external or internal, should come with the full spirit and determination of developing the marquee Telco cloud engagement Ericson has stuck with AT & T Inc, data centers, SDN, NFV, and other IT-oriented sectors. 
User Rank: Light Sabre
4/27/2014 | 11:40:48 PM
Re: Devil in the details
@Ray: What exactly has Alcatel Lucent been able to do with Nuage? Pardon my ignorance on Nuage, but is it a very successful business line.
User Rank: Light Sabre
4/26/2014 | 6:19:58 AM
Re: Devil in the details
@Ray, very well put; the devil is in the details. It is interesting to note that the Ericsson CEO was very careful not to mention any specific figures when it came to the exact amount of money that the company was allocating for investment in the new cloud and IP section of the business. It is hard to speculate or predict whether such a venture will be successful or not. The more the financial investment, the likelier the venture is likely to succeed but for now, since those figures are absent, all we have to do is watch and hope that its not 2008 all over again.
User Rank: Blogger
4/24/2014 | 12:32:52 PM
Devil in the details
THis is all very well, but let's see exactly what the yet-to-be-appointed Cloud & IP lead exec has to say and how this unit is going to behave any differently from a regular telco vendor operation. 

It's not just the operators that need to start thinking differently. 

Dare I say it, but I think Alcatel-Lucent has lead the way here with Nuage.
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