Ericsson's Svanberg Could 'Bolt On'
As the dust settles from Ericsson AB (Nasdaq: ERIC)'s latest M&A announcement -- its $2.1 billion bid for edge router vendor Redback Networks Inc. -- the industry is wondering whether this marks the end of the Swedish vendor's current spending spree. (See Ericsson Offers $2.1B for Redback and IPTV Drives Ericsson to Redback.)
During Wednesday's press conference to announce the bid, Ericsson CEO Carl-Henric Svanberg said Ericsson would do "bolt-on acquisitions when it's good for the company... We are well covered in our technical abilities. If you are looking for where we will make other acquisitions, then look at multimedia and services."
That's a reference to two of the vendor's three new divisions -- Global Services and Multimedia -- and suggests that any M&A activity will come in those divisions and not Networks, which is where Redback fits in. (See Ericsson Revamps.)
He did seem happy about getting Redback done. "We are very happy where we are. If we can get this deal [Redback] together we are well placed."
One assumption is that he was referring to the company's positioning against Redback rival Juniper Networks Inc. (NYSE: JNPR), an IP router with which Ericsson has been linked previously. (See Ericsson, Juniper, Again and Analysts Dismiss Ericsson/Juniper Talk.)
But the company may not be completely done with infrastructure -- specifically, fiber access infrastructure.
Any PON Will Do
Industry sources say Ericsson has been engaged in talks with Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), and that those talks have been well developed. The attraction is twofold: Tellabs is a major provider of PON systems (since it acquired AFC) and other equipment to the U.S. Tier carriers, and would give Ericsson a foothold in the IPTV network infrastructure market, something the company covets; and it would give Ericsson a significant foothold in North America, something that last year's acquisition of Marconi didn't deliver. (See Ericsson Buys Bulk of Marconi, RBOCs Aim for 10M GPON Subs, Sources: Tellabs, Lucent Score ROADM Wins, Verizon Picks Tellabs, Tellabs Secures BellSouth Biz, and AFC Fesses Up, Defenders Pipe Up.)
Ericsson is just one of a number of companies linked with Tellabs this year. (See Who's Going to Buy Tellabs?)
Now, though, the Redback deal makes a Tellabs bid much less likely, believes Prudential Equity Group LLC analyst Inder Singh. "Tellabs has also been often identified as a prospective Ericsson acquisition because of [its] presence in routing and PON (passive optical network). We believe that Ericsson's acquisition of Redback will diminish some of this optimism, and lends support to our belief that Ericsson is unlikely to acquire Tellabs," he writes in a research note.
But that doesn't mean a PON acquisition is off the agenda. Ericsson has also been linked with another, smaller PON company, Entrisphere Inc. (See Ericsson to Buy Entrisphere?)
"Ericsson may still need other bolt-on acquisitions, such as a GPON company, perhaps Entrisphere, to more-fully round out its Internet TV portfolio," adds Singh.
Interestingly, Singh also noted that Ericsson's move for Redback, driven largely by the desire to flesh out its IPTV-related equipment portfolio, would "up the ante on Motorola Inc. (NYSE: MOT) to gain more critical mass in IPTV." Motorola today obliged, announcing a takeover of video head-end vendor Tut Systems Inc. (Nasdaq: TUTS) (See Moto Taps Tut for $39M.)
— Ray Le Maistre, International News Editor, Light Reading