How Will Ciena + Ericsson Play Out?

So Ciena and Ericsson have fallen into each other's arms and are whispering sweet nothings about packet-optical transport and software-defined networking (SDN) into each other's ears. (See Ciena, Ericsson Embark on SDN, Optical Love Affair.)

But might this relationship start as a global partnership and end with wedding bells? Could we be talking about Ciericcson or Ericiena in a few years' time? (Obviously, if ever these two did merge, you would have to imagine that common sense would prevail and a decent name would be found. Stranger things have happened though...)

As you can imagine, the topic of potential M&A activity between the new partners is not something that Ciena Corp. (NYSE: CIEN) and Ericsson AB (Nasdaq: ERIC) are going to discuss, but it's obvious that even if it hasn't been tabled as an official agenda item at their partnership meetings, it will have been on everyone's minds, even if only as a fleeting possibility.

And why not? The global vendor market will inevitably shrink further as margins get squeezed in the infrastructure markets and as competition arrives in the SDN and network functions virtualization (NFV) world from IT firms that are not traditionally players in the telecom space. So consolidation is a given. It's a case of which companies will join forces and which will die.

For any mergers to make sense, there will need to be a sensible combination of products and services and an amiable cultural fit.

If you take a look at their core strengths, a marriage of the two vendors would seem to make sense on paper. Ericsson has the full set of mobile infrastructure offerings (radio access, packet core, IP routing), global services and Service Provider Information Technology (SPIT) systems (OSS, BSS, policy, IMS etc), while Ciena has an impressive lineup of optical and Carrier Ethernet capabilities.

But does Ericsson need a Ciena? Well, a number of Ericsson's main rivals have strong optical businesses: Alcatel-Lucent (NYSE: ALU), Cisco Systems Inc. (Nasdaq: CSCO) and Huawei Technologies Co. Ltd. spring most readily to mind. And while Ericsson does have an optical transport portfolio, it's far from being in the leading pack. So from a competitive point of view, strengthening the transport part of its business would be a good move.

Why? Because it's an increasingly critical part of the portfolio: Let's not forget that as SDN, NFV and telco datacenters become the de facto elements in any communications service provider (CSP) arsenal, the quality and reliability of the transport network becomes even more essential to the successful delivery of services and applications, and therefore, ultimately, a positive customer experience.

As for the cultural side of things, it's always hard to know how well (or badly) two companies might mix. For me, the only way to find out if the respective CEOs -- Ciena's Gary Smith and Ericsson's Hans Vestberg -- could help deliver a united, harmonious merged company is by setting an example from the top would be to send them out on a karaoke evening, and see what happens. Could they choose appropriate songs for each other? Would one hog the microphone? I'd be prepared to join them to find out -- maybe they'd both be free during Mobile World Congress to take a late night trip to Barcelona's Manchester Bar in the old town, sink a few cerveza and crank up the volume. I'm sure their PAs will let me know if they're free.

Figure 1: You Know You Want To!! Come on Gary, Hans... it could be fun, right?

So if this Valentine's Day relationship blossoms into an engagement and ultimately a marriage (shotgun or otherwise), don't be surprised. The next year or so will see if they are suitable bedfellows.

And don't even get me started on whether Nokia Networks and Juniper Networks Inc. (NYSE: JNPR) should be more than just close friends…

— Ray Le Maistre, Editor-in-Chief, Light Reading