Ericsson Snaps Up LG-Nortel Stake
Having already acquired the Canadian vendor's CDMA and Long Term Evolution (LTE) business for $1.13 billion in July 2009, and the North American part of Nortel's GSM business for $70 million in November last year, the Swedish giant is shelling out US$242 million for Nortel's 50 percent-plus-one-share stake in LG-Ericsson Co. Ltd. , the joint venture with LG Electronics Inc. (London: LGLD; Korea: 6657.KS) that has built its business mostly, but not exclusively, in the Republic of Korea (South Korea). (See Ericsson Buys Nortel's GSM Biz Too, Nortel Wireless Winner: It's Ericsson!, and Ericsson Delivers Knockout Blow to NSN.)
The move isn't unexpected -- the deal was rumored a month ago. (See Rumor: Ericsson to Buy LG-Nortel Stake.)
LG-Nortel, which will be renamed LG-Ericsson, generated revenues of $644 million in 2009. That means Ericsson, which says the business will "have a positive effect" on its earnings within a year of the deal closing, is picking up the business for less than the pro rata revenues.
The joint venture, which had about 1,300 staff at the end of 2009, markets a range of IP phones, unified communications platforms, VoIP systems, fiber-to-the-home gear (WDM PON), and wireless and optical infrastructure products to operators and enterprises of all sizes, and counts Korea's main carriers -- KT Corp. , LG Telecom , and SK Telecom (Nasdaq: SKM) -- among its customers.
Ericsson says the deal will "significantly expand [its] footprint in the Korean market and provide [it] with a well established sales channel and strong R&D capability in the country," as well as "an industrial base and the ability to build new customer relationships." It also expects the joint venture to contribute to the "green ecosystem" initiative it has created with the Korean government. (See Ericsson Touts LTE for Korea's Green Economy.)
The move also gives Ericsson a boost in the field of next-generation fixed broadband technology. LG-Nortel has been arguably the leading proponent of WDM PON (passive optical network) technology since it acquired Novera in 2008, and it's been plowing R&D and marketing resources into that part of its business, resulting in some small but potentially fruitful (and instructive) deployments. (See Nortel JV Buys WDM-PON Specialist, LG-Nortel Adds WDM-PON Partners, LG-Nortel Demos WDM-PON Ecosystem, BBWF: WDM PON? Bring It On!, CPE Vendors Join WDM-PON Ecosystem, Who Makes What: GPON & WDM-PON Equipment, LG-Nortel Wins Norway PON Deal, and Hancock Uses WDM-PON.)
"It gives Ericsson another avenue to explore and allows them to hedge their bets about where PONs are going," says Heavy Reading chief analyst Graham Finnie, an expert on the fiber access broadband market. (See FTTH in Europe and Fiber, Fiber Everywhere….)
"LG-Nortel is one of the leaders in WDM PON research, and there is definite interest in that technology among carriers," adds Finnie.
Ericsson has been touting its GPON gear globally, but, apart from landing a major gig with AT&T Inc. (NYSE: T) and some business in China, it has had limited success. (See BBWF: Ericsson Enters AT&T's GPON Domain, Ericsson Scores GPON Wins in China, and Ericsson Wins GPON, IPTV Deal.)
— Ray Le Maistre, International Managing Editor, Light Reading