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Ericsson Offloads OSS Unit

Ray Le Maistre
LR Mobile News Analysis
Ray Le Maistre, Editor-in-chief
3/23/2009
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Ericsson AB (Nasdaq: ERIC) is selling its wireless optimization systems business, known as TEMS, to Swiss vendor Ascom Holding AG for 190 million Swiss francs (US$168 million), the two companies announced today.

Ericsson says the sale will help it "refine" its services business, noting that with its "strong focus on telecom services, it has become of limited strategic value to Ericsson to keep the TEMS products business within the company." Ascom says the move will boost its profitability and make it the leader in the mobile network optimization market. (See Ascom to Buy TEMS.)

And the timing of the move looks favorable for Ascom: Mobile operators around the world are planning HSPA and, eventually, LTE (Long-Term Evolution) infrastructure deployments, and figuring out how to manage and monitor their networks as data traffic volumes rise.

About 300 Ericsson staff, including 180 in Sweden, will transfer to Ascom, which currently employs about 2,000 workers. The TEMS business, which sells mobile network planning and monitoring tools, has two main locations -- Skelleftea in Sweden, and Reston, Va., in the U.S., though it has employees in 17 different countries in total.

The TEMS unit generated CHF165 million ($146.4 million) in revenues in 2008 -- a significant level of sales for an OSS (operations support systems) business –- and is, according to Ascom, "highly profitable." It has 450 customers, including the world's top 20 mobile operators, according to Ascom.

Adding TEMS to Ascom's existing business will boost its annual revenues by about one third: In 2008 Ascom reported revenues of CHF509.2 million ($453.3 million) from its Wireless Solutions and Security Solutions businesses, and earnings before interest and tax (EBIT) of CHF44 million ($39 million).

Ascom plans to create a third business division, called Network Testing, comprising TEMS and its current Mobile Test Solutions unit, which sells "drive and walk" test products to mobile operators.

The acquisition is set to complete in June this year, with Ascom expecting the resulting addition to boost its earnings in 2010. Ascom is financing the acquisition using CHF70 million of cash and a credit facility of CHF120 million secured from eight Swiss banks.

The news sent Ascom's share price up more than 10 percent to CHF8.90.

TEMS is not Ascom's first recent M&A foray, though is by far its largest. In March 2008 it acquired British network probe vendor Argogroup for an undisclosed (but small) sum, and then in September last year it bought the Wireless Testing Solutions business of Comarco for $12.75 million. (See Argogroup Acquired by Ascom and Comarco Tests HSUPA.)

Industry sources suggest those two small acquisitions have had far less impact than Ascom had hoped, but note that the TEMS deal will catapult Ascom into the clear market-leading position, well ahead of Anite Telecoms Ltd. (See Anite, Agilent Test LTE and Anite Demos LTE Tester.)

— Ray Le Maistre, International News Editor, Light Reading

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