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Ericsson Creates Cloud & IP Unit

Ray Le Maistre
4/24/2014
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A day after announcing a 13% year-on-year decline in revenues from its Networks division, Ericsson has announced it is splitting that business unit into two separate units, called "Radio" and "Cloud & IP" respectively, to support its "growth strategy." (See Ericsson Looks to Future as Q1 Sales Slump.)

The Radio business unit will, naturally, include the vendor's radio access network (RAN) systems. Ericsson AB (Nasdaq: ERIC) is the global market leader in mobile access infrastructure, with a 38% share of the combined 3G and 4G RAN market in 2013, according to Dell'Oro Group , while Huawei Technologies Co. Ltd. had a 24% share, Nokia Networks a 17% share, and Alcatel-Lucent (NYSE: ALU) a 10% share. However, the 4G RAN market, which is fueling mobile access infrastructure growth, is more evenly split between the vendors, with the likes of Samsung Corp. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) (especially in the massive Chinese market) taking a greater share of the spoils.

In its official statement, Ericsson said that it is "committed to maintain [sic] our leadership as the market evolves with 5G," adding that the evolution towards 5G is dependent on cloud and IP capabilities. (See Ready or Not, Here Comes 5G, NGMN Kickstarts 5G Initiative and Ericsson Explores New Way to 5G.)

While the RAN unit will start its standalone life as a market leader, the Cloud & IP business unit, which will include the vendor's router, packet core, cloud platform, and SDN/NFV developments, will not. While Ericsson says it has "made significant progress" in the cloud and IP technology sectors, it admits that it is "still a challenger. In a transforming market we will now intensify our work to capture opportunities in virtualization and cloud, building on our leading position in core networks." (See Ericsson Commits to OpenStack With Mirantis , Ericsson's Network Slicing: It's Far Out, Man, Ericsson Pushes Blades Into the Data Center, and Ericsson Claims SDN Advantage.)

The two new units will come into effect on July 1, but the executives leading each business are not due to be named until some time in May.

Both units will be part of a new group in Ericsson called Segment Networks, which will try to ensure that the two units operate in the most efficient manner through "continued synergies in R&D, alignment of product portfolio as well as marketing across the segment." Johan Wibergh, currently head of Networks, will be the head of Segment Networks, and will retain his position on the Executive Leadership Team. The heads of the new units will report to Wibergh, who will also spend more time on "group-wide projects."

Why this matters
The key market sectors for any major telecom infrastructure vendor are mobile broadband, IP, packet-optical, video, Service Provider Information Technology (SPIT), and the cloud/telco data center (including SDN and NFV).

Ericsson has been the king of RAN for some time, and while rivals are challenging hard, especially as major 4G rollouts in markets such as China favor the likes of Huawei and ZTE, the Swedish giant is well placed to retain a leading position in mobile access for the foreseeable future.

And thanks to a number of strategic acquisitions, it's also strong in video and service provider IT, while its new partnership with Ciena gives it a healthy position in packet-optical. (See Ericsson's Ciena Tieup: It's a Migration Thing, Ciena, Ericsson Embark on SDN, Optical Love Affair, Ericsson Bags Azuki Systems, Ericsson Buys Microsoft's IPTV Unit, and Ericsson Buys More OSS Smarts.)

That leaves IP, cloud platforms, data center systems, SDN, and NFV as market sectors where Ericsson needs to strengthen its presence, which is precisely the focus of the Cloud & IP unit. The company has already been pouring resources into its virtualization efforts, is committed to boosting its market share in the IP router market (where it gained a foothold with the 2007 acquisition of Redback Networks for $2.1 billion), and has a Tier 1 engagement to boast about, having been named as a vendor partner for AT&T's "Domain 2.0" project. (See AT&T's Cloud Future Takes Shape.)

Now Ericsson needs to build on that engagement and develop a clear proposition for network operators that want to run their own data centers, introducing virtualized elements into their networks, and migrate to a secure, all-IP architecture. That's no small challenge for a company best known as a mobile network infrastructure vendor.

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

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SachinEE
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SachinEE,
User Rank: Light Sabre
4/28/2014 | 10:56:50 AM
Re: phones by Ericsson
Ericsson still maintains its position on top of the charts when it comes to the Radio Access Network (RAN). Though its rivals are challenging hard with the production of phones like the Huawei, Techno and the ZTE from china, this giant still presents great and promising future in the market. This is because of its renowned technological advancement in video and service provider services. Its affiliation with Ciena even makes it much more fit fro competition, giving it a good rank when it comes to packet-optical.
nasimson
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nasimson,
User Rank: Light Sabre
4/24/2014 | 7:55:27 PM
Re: phones by Ericsson
@ Ray:

This is relevant for many reasons. At this time when Ericsson tries to re-invent itself its worth looking at what had happened at the previous attempts.

At the same time Huawei (operating in the same industry of telecom equipment) is highly successful in device market, which Ericsson had kissed good bye.
Yulot
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Yulot,
User Rank: Moderator
4/24/2014 | 1:07:19 PM
Re: "Digital" division
@Ray: the point you highlighted on bringing outside resource is very pertinent. Reorganizing a company and naming new units is one thing, but when the same people with the same profile trying to invent the future based on the same past is usually not very successful/disruptive.

I dont know the corporate culture at Ericsson, but from my own experience, corporate culture is one of the hardest thing to change in a company (especially with the size of an Ericsson). It takes time and motivation. Even for a newcomer, it will be a challenge and will require management back up, process change, empowerment and a real will to do things differently.
RitchBlasi
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RitchBlasi,
User Rank: Light Sabre
4/24/2014 | 12:47:27 PM
Ericsson
You are so correct on the Sony/Ericsson deal Ray.  This is an interesting move by Ericsson to move away from being a provider of boxes to software.  There seems to be a lot of carriers turning to smaller companies for their SDN and NFV solutions, like Affirmed, Wind River, etc., and this may have sent a signal to Ericsson that the world will be changing - how soon and how much you share with others is yet to be seen.
Ariella
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Ariella,
User Rank: Light Sabre
4/24/2014 | 12:39:30 PM
Re: "Digital" division
<In my mind, this would work best if the Cloud and IP unit was headed up by someone brought in from outside the existing company, to bring a new perspective, but my money is on an internal appointment.>

@Ray, do you mean to say the company is doomed to make the wrong selection and so not be as successful in this new direction as it could be?
Ray@LR
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Ray@LR,
User Rank: Blogger
4/24/2014 | 11:51:15 AM
Re: phones by Ericsson
I'm not sure what this has to do with this development..... BUT the Ericsson phones business didn't get closed, it was a joint venture with Sony that Sony took 100% ownership of in early 2012

http://www.lightreading.com/mobile/devices-smartphones/ericsson-completes-handset-stake-sale/d/d-id/693598

 

 

 
jabailo
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jabailo,
User Rank: Light Sabre
4/24/2014 | 10:17:13 AM
Re: "Digital" division
I was reading that Ericsson is upgrading some Sprint sites to Spark -- the LTE  broadband home service that can have speeds up to 120 Mpbs...a successor to the Clear home and mobile service...and then they will take over those sites.

 
nasimson
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nasimson,
User Rank: Light Sabre
4/24/2014 | 9:37:17 AM
phones by Ericsson
I remember there were phones by Ericsson. That business didn't go very well. I believe it got closed. However HUAWEI much later started its device business and is now #3 in a very competitive market. Two companies in the same industry but ending up in very different states.
Ray@LR
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Ray@LR,
User Rank: Blogger
4/24/2014 | 8:42:12 AM
"Digital" division
This looks like the equivalent of what some network operators have been doing in creating special "Digital" business units that have a different culture, staff and modus operandi.

The key for Ericsson will be to ensure that the unit can make non telco-like advances and introduce new ways of working and developing enabling technologies without losing touch with the core business -- a tough balancing act.

In my mind, this would work best if the Cloud and IP unit was headed up by someone brought in from outside the existing company, to bring a new perspective, but my money is on an internal appointment.
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