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Cisco + Ericsson: Analyst Reactions

Ray Le Maistre
11/11/2015
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So Cisco and Ericsson are in a relationship that is "like a marriage," according to John Chambers. (See 'This Industry Will Be Won & Lost In the Next Three Years' – John Chambers and Cisco + Ericsson: Friends With Benefits.)

But what do others think?

Various industry commentators have shared their initial thoughts with the Light Reading team -- here's a selection of insights.

  • Patrick Donegan, Chief Analyst, Heavy Reading
    "Security will certainly have weighed heavily in Ericsson's consideration of its strategic options. Besides 3GPP encryption algorithms, security has never been much of a strength of Ericsson's. Cisco's security story wasn't all that powerful three years ago, but it has invested tremendously in this area during the past three years, both in dedicated security products and in the security features across their product and services portfolio. Security wasn't a stand-out differentiator for Cisco three years ago -- but it is today."

  • Michael Genovese, Managing Director, MKM Partners
    "The CEOs sound well aligned. However, it is difficult to predict the chance of success since there are very few details on important factors like the R&D commitment of each party, and the mechanisms to align incentives for sales and professional services resources... While there probably won't be much negative near-term impact on Juniper's business, there could be medium- and long-term impacts since Juniper will likely lack the solution set and scale of the Ericsson-Cisco and Nokia-Alcatel camps."

  • Caroline Chappell, Principal Analyst, Cloud and NFV, Heavy Reading
    "A Phase 2 that would involve joint development of a next-generation management and control layer has to be good news for operators. The industry needs multi-vendor, open management and control solutions and Ericsson/Cisco are making the right noises here. Although Cisco now owns the current market-leading service orchestration tool, its overall Evolved Services Platform vision hasn't made much headway -- partly because it needs the solutions sales and marketing capabilities and service organization that Ericsson can offer. Next-generation operations for virtualized networks are all about managing the network end-to-end, though, so Cisco brings to Ericsson management credibility in the IP layer."

  • Steve Saunders, CEO and Founder, Light Reading



  • Gabriel Brown, Senior Analyst, Heavy Reading
    "I'm positive on the deal. If you get down to brass tacks, this looks like a reseller relationship in which Ericsson will sell Cisco's IP product lines and act as a system integrator. This sounds less grandiose than an industry-changing strategic partnership, but should serve both parties well, and, most importantly, should work for their customers. Despite significant investment in IP over the past several years, Ericsson is still some way behind Cisco, Juniper, Alcatel-Lucent/Nokia and Huawei, and this deal solves that at a stroke. Cisco, meanwhile, is very motivated to make sure its channel partners make money on Cisco products, so with C-level support, and good governance, it should work out OK.

    "At the same time, Cisco has been pulled into a system integrator role -- in service provider generally, and especially in mobile -- that doesn't suit its business model. It is subscale and doesn't really want integrator margins on its books. Ericsson, of course, has a very strong, high-end, system integration business with the scale to be profitable. And it has massive global reach, so it's the ultimate channel partner for Cisco in the service provider market.

    "This is a simplistic view, no doubt, but what's wrong with that? The grander vision will evolve if both parties can make Phase I work for their customers."

  • Simon Leopold, Managing Director, Raymond James Financial Inc. (NYSE: RJF)
    "The arrangement offers promise to the partners, and we think the news bodes negatively for competitors and partners, including Alcatel-Lucent, Nokia, Juniper and Ciena. To be clear, we are optimistic about the partnership but have observed many such arrangements fizzle; however, with the changing market and competitive landscape, we think the two companies share many of the same challenges and objectives.

    "Juniper has partnered for many years with Ericsson; this partnership suffered after Ericsson acquired Redback, but we see the Cisco/Ericsson partnership as negative for Juniper. The new partnership likely will raise some questions about Ciena's existing partnership with Ericsson. We are not sure of the implications since Cisco offers products that directly compete with Ciena's."

    'And Then We'll Squeeze Huawei & NokAlu Like This...'
    Cisco executive chairman John Chambers presents the case for 'Ciscosson' at Ericsson's Capital Markets Day.
    Cisco executive chairman John Chambers presents the case for "Ciscosson" at Ericsson's Capital Markets Day.

  • Alan Breznick, Cable/Video Practice Leader, Light Reading
    "I'm surprised this partnership doesn't address video-related technologies in the initial stages, given how heavily both companies have been involved in the video space. But the video puzzle pieces from Cisco and Ericsson may not line up neatly just yet and there may be turf wars afoot. I think it's going to take a while for them to work out a coordinated video strategy. My guess is that Cisco hasn't quite figured out how it wants to play in video anymore, now that it's sold off its STB business to Technicolor. Cisco says it wants to be a big provide of cloud-based video software solutions, like Ericsson, but I'm not sure the comfort level is there yet."

  • Jim Hodges, Senior Analyst, Heavy Reading
    "We are just starting to scratch the surface in terms of what this all means. There are discussions of phases of implementation that seem tied to the lower initial revenue generation projections. But the crucial question is -- where are the levels of cooperation in the first phase? Virtualization on some level must be a given, but which products? And what does a converged portfolio really look like? It also seems logical that managed services/professional services will be involved on some level. Ericsson is the clear leader in network domain managed services, but NFV changes the game to the IT domain, so having a partner with IT skills is of considerable value in the future evolution of managed services."

  • Bengt Nordström, CEO, Northstream
    "At a high level, this strategic partnership should be seen in light of the merger between Nokia/Alcatel-Lucent and the growth of Huawei, where both competitors have a fairly complete portfolio of products and services in fixed, mobile and IP. It can potentially address the current challenges Ericsson faces when it intends to enter the enterprise market -- it lacks the sales channel for that market segment, while Cisco's channel and partners program is one of the most extensive in the industry. There are a number of key questions that should be addressed. First, in September Ericsson announced HP as a mobile networking solutions partner for the enterprise market: To what extent are the two partnerships overlapping or conflicting? Second, what are Ericsson's own product ambitions in IP now that it has teamed up with the company that is market leader in that space?"

    What do you think? Have your say -- use the message boards below and vote in our poll, Will 'Ciscosson' Be a Success?

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

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    DHagar
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    DHagar,
    User Rank: Light Sabre
    11/18/2015 | 12:52:35 PM
    Re: Partnership focus
    Phil, great insights - thanks! 

    That is what I am seeing.  It seems like a very rocky proposition from this side.  It appears to be a boat that can tip to either side.  Acquisitions are tricky enough, let alone having a weak value proposition.  We will have to keep notes on this one.
    Phil Morrison
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    Phil Morrison,
    User Rank: Moderator
    11/18/2015 | 2:56:26 AM
    Re: Partnership Focus
    Mild relative to Chambers intentions as he outlined them in 2013. Did Cisco's startup fizzle away 12 months later? That would have coincided with the start of the Ericsson talks.

    Ericsson may want to watch their new partner very closely.

    http://blogs.barrons.com/techtraderdaily/2013/09/26/cisco-ceo-chambers-targeting-nokia-ericsson-big-time-white-box-the-big-threat/

    In 2013, Chambers said he planned to enter the cellular base station market that is the bread and butter of Ericsson, Nokia and Alcatel (ALU). "We do everything in wireless except for the radio," says Chambers. "Now, we have a creative idea there, and I've just funded our first startup to see if that works." He wouldn't name the startup. When asked whether there is a real chance to go after Nokia and Alcatel and Ericsson, he replied, "Oh, big time."

    WAIT Cisco would never target any of it's key Partners. Flashback to 2009 when Cisco introduced the UCS. Cisco UCS was a frontal on IBM's Server business. History seldom repeats itself right ;-).

    As far as partnerships go, the Cisco EMC, VCE partnership also comes to mind. That didn't end very well did it.
    danielcawrey
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    danielcawrey,
    User Rank: Light Sabre
    11/16/2015 | 2:14:26 PM
    Re: Additions to MKM's Genovese comment
    I think the security component is indeed important here. All larger technology companies are tightening up their security, and it sounds like analyst reactions are that Ericsson needs to juice up their security, among other partnership opportunities here. 
    DHagar
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    DHagar,
    User Rank: Light Sabre
    11/12/2015 | 11:13:08 PM
    Re: Partnership Focus
    Gabriel, thank you for that clarity.  That seems to reinforce some of the analysis that this represents a mildly aggressive market move.  It seems that they are just extending what they have already developed, rather than create a new dynamic alliance that will disrupt competitors?
    Gabriel Brown
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    Gabriel Brown,
    User Rank: Light Sabre
    11/12/2015 | 4:11:27 AM
    Partnership focus
    Cisco and Ericsson held an analyst call yesterday to provide a bit more information on the partnership. It became clear that there are four focus areas in Phase I.

    These are (not in priority order):
    • Cable IP networks
    • Mobile IP backhaul
    • Business VPN
    • IP core networks

    They had a lot of questions on existing partnerships, such as around Ciena, HP/Aruba, and SpiderCloud. The responses were pretty much: "we'll abide by our existing commitments, but as time goes on the emphasis will be to use each other's products where it make sense".
    baznyankee
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    baznyankee,
    User Rank: Light Sabre
    11/11/2015 | 11:35:43 PM
    Additions to MKM's Genovese comment
    "Investors are less concerned about Ciena ( CIEN ), which also has an Ericsson alliance. Ericsson said its existing partnerships will continue, but Cisco is the main priority. While Cisco has Metro Optical products, it does not compete in Longhaul Optical. Additionally, Cisco likely does not want to grow its Metro Optical business too large because of the dilutive gross-margin implications. We think Ericsson probably will continue selling Ciena products in many places.

    Longer-term, we can foresee the two Optical transport leaders, Ciena and Infinera ( INFN ), adding value to the two large converged Mobile and Data equipment entities (i.e. Ericsson-Cisco and Nokia)."

     

    These comments followed your posting of Genovese's musings and they offer a slightly different take from Leopold's concerns about CIEN.  
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