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Ericsson Still Seeking M&A Targets

Ray Le Maistre
12/1/2015
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Ericsson's recently announced partnership with Cisco certainly caught the headlines and bolstered both companies' portfolios, but that relationship will not give the Swedish vendor everything it needs for its next-generation networking portfolio. (See Cisco + Ericsson: Friends With Benefits, Cisco + Ericsson: From Soup to Nuts and Jury Still Out on 'Ciscosson' – Reader Poll.)

That's why Chief Strategy Officer Rima Qureshi -- responsible for Ericsson AB (Nasdaq: ERIC)'s overall strategy, capital and resource allocation, portfolio management, partnering, new business development and M&A -- is always on the lookout for new acquisitions and startup investment opportunities. And according to Qureshi and her team, there are a few new investments set to be announced very soon.

Talking to Light Reading ahead of a strategy presentation in London last week, Qureshi noted that the relationship with Cisco Systems Inc. (Nasdaq: CSCO) does not mean an end to Ericsson's acquisition activity, which has been prolific during the past few years as the vendor has positioned itself for a video-centric future and bolstered its software and system integration capabilities. Here are just a few of the vendor's recent deals:

"The Cisco partnership allows us to be very focused on M&A," says Qureshi. "We always do what we call business unit bolt-on acquisitions to help fill in the gaps in our portfolio," particularly in the TV/media and OSS/BSS/systems integration markets.

There are four ways Ericsson can enhance its portfolio, she notes:

  • Organic R&D, which is mostly focused on Ericsson's "core" portfolio that comprises radio, core, transmission;
  • Acquisitions, which will mostly focus on what the company calls its "targeted areas" of IP, cloud, OSS/BSS, TV & Media and Industry & Society (vertical market sectors);
  • Strategic partnerships, such as the one with Cisco;
  • Strategic investments in startups.

    "As we look at specific gaps, we will determine whether it makes sense to make an acquisition or partner with Cisco or other partners," says the strategy head. For large engagements, partnerships make sense to Ericsson. "There is more and more consolidation [in the broader technology markets] and the industry is taking on larger and larger M&A … but look at the disruption, time and effort it takes to bring large companies together, for instance in the microprocessor and PC industries … it is very disruptive," says Qureshi. "There is a better way to do this and if the future is about ecosystems then let's create an ecosystem."

    With regards to the Cisco tie-up, "the jury is out and everyone is waiting to see how we will execute. That is definitely the focus now, but we believe this is where we need to go and we will prove it is the right thing to do, if I have anything to do with it," she adds with a determined laugh.

    Well, You Have to Sit Somewhere!
    Ericsson chief strategy officer Rima Qureshi finds a comfortable seat for the London interview.
    Ericsson chief strategy officer Rima Qureshi finds a comfortable seat for the London interview.

    In terms of acquisitions and investments, that activity is set to focus on cloud and vertical markets -- Qureshi says Ericsson is "getting to a place where we have most of what we need" in OSS/BSS and TV & Media – and in what she calls the "outer horizon, where we are assessing totally new opportunities that will take us further into the transformation."

    That's where strategic investments will also play a role. "We make sure that as we see disruptive technologies, we take a strategic position, as we have done with a number of companies," including Mirantis Inc. , Pluribus Networks , Guardtime and Apcera. (See Mirantis Secures OpenStack Kingpin Status With $100M Round, Intel Collaboration , Ericsson Commits to OpenStack With Mirantis , Pluribus: We're the Top-Funded Private SDN Company, Ericsson and Guardtime create secure cloud and big data and Ericsson Buys Majority Stake in Apcera.)

    Coming up is an investment in a startup that is focused on the "development of next-generation hardware, specifically for radio modules … we are in the process of investing in that company," says Qureshi. However, that investment is still at an early stage and Ericsson is not revealing any further details.

    There are other investments in the pipeline too. Ericsson says an announcement is forthcoming about an investment in a German IoT specialist, though it isn't MyOmega System Technologies, an IoT company with which Ericsson has already partnered to "support more effective wine production." What a noble cause!! (See Ericsson's secure IoT connectivity brings efficiency to winemakers.)

    In addition, there are "pipeline opportunities" in analytics and advertising, the vendor tells Light Reading.

    When those investments are made, you can be sure Qureshi will be pointing out how they fit into the Evolving Ericsson ecosystem.

    Down the line, though, the vendor's board and investors will want to see the partnerships, acquisitions and investments turn into revenue and margin growth: The company reported revenues on a constant currency basis down by 9% year-on-year in the third quarter of 2015 but, looking ahead during its recent Capital Markets Day, noted that it expects to increase its overall sales in the 2014-2018 period by slightly more than the expected market growth of 2-4%, with help, of course, from the Cisco partnership. (See Ericsson Slumps on China, Russia Weakness.)

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

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    MordyK
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    MordyK,
    User Rank: Light Sabre
    12/1/2015 | 3:07:19 PM
    Unlocking innovation opportunities for carriers
    Ray,

    While its great that carriers and their vendor partners are waking up to the opportunity presented by outside innovation, It is still a very fragmented and difficult. Which inherently still causes a relative dearth of startups and funding.

    I wonder if there's a place for LR to create an agency similar to The New IP Agency that can bring together all the telco resources for startups. SOmething like that would obviously be a boon for the carrier innovation startup ecosystem.
    mendyk
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    mendyk,
    User Rank: Light Sabre
    12/1/2015 | 1:42:21 PM
    Errr... uhhhh
    Ray -- That furniture. There's little you could say about it that won't get you in trouble.
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