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

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optical Mike 12/5/2012 | 3:17:20 PM
re: Ericsson's Svanberg Could 'Bolt On' Is it reasonable to assume that the difference is attributable to the OSI acquisition?

Yes, that would be a reasonable assumption
MorningWd 12/5/2012 | 3:31:46 AM
re: Ericsson's Svanberg Could 'Bolt On' Why would Ericsson want to buy this company? The article mentions that the Marconi acquisition did nothing to get them a foothold in North America. Entrisphere is going to deliver neither a Tier 1 carrier, nor a N. American foothold. Tellabs would get them plenty of face time with VZ, but given issues around rolling out BPON (and TLAB's GPON perpetually "around the corner"), I'm not sure that it is the type of face time anyone would want.
Mark Sebastyn 12/5/2012 | 3:31:45 AM
re: Ericsson's Svanberg Could 'Bolt On' I'll take long odds and put my money on that.
paolo.franzoi 12/5/2012 | 3:31:43 AM
re: Ericsson's Svanberg Could 'Bolt On'
Calix wants $2.1B and has 0 presence in the RBOCs. Now who in their right mind would pay that?

Nobody. Calix will not be acquired. They won't even go public, the market won't support the valuation they want.

OSXman 12/5/2012 | 3:31:39 AM
re: Ericsson's Svanberg Could 'Bolt On' oops... hit the return button too quickly.

Why not Occam which sells for about 2.8x revenues in the public market? They have done a terrific job growing revenues rapidly even though for much of that time they were severely hampered by a small balance sheet and large operating losses.

Calix entered the scene earlier, and has a bigger presence at some of the larger independents, but Occam has the better platform as well as an endorsement from Cisco. With a bigger company behind it, I tend to think that growth could acclerate.
OSXman 12/5/2012 | 3:31:39 AM
re: Ericsson's Svanberg Could 'Bolt On' It seems that Calix will have about $150mm in revenues in 2006, so a $2.1b price tag implies about 12-13x revenues which is a ludicrous price tag.

Why not Occam
etctedlx 12/5/2012 | 3:31:38 AM
re: Ericsson's Svanberg Could 'Bolt On' Ericsson interest will shift to other areas instead of access loop since they already have DSLAM/MSAN product line (fr Marconi acquisition). Note they also have GPON in their lab for demo. Thus I guess they will target next acquisitions for:
- P2P media software, SIP applications?
- IPTV middleware, i.e. Kasenna
- Service assurance/quality measurement tools, i.e. Agama
- residential gateway, video codec?
- metro WDM?
MorningWd 12/5/2012 | 3:31:38 AM
re: Ericsson's Svanberg Could 'Bolt On' What were the broadband assets that Ericsson picked up from Marconi, especially in the U.S.? I thought that all of the DISC*S equipment (aka Reltec) had been picked up by AFC (now TLAB). Ericsson is a wireless-only company in the U.S. as far as I've seen. The RBOC infrastruce from an access perspective is pretty much exclusively Alcatel, especially with the newly formed Alcatel-Lucent. I think that Ericsson should consider Adtran if they want any existing presence in the RBOC space. These guys have been used in some of the smaller applications, but at least it would be a beach head, and I don't believe that the associated "face time" would all be negative.

mocelet 12/5/2012 | 3:31:38 AM
re: Ericsson's Svanberg Could 'Bolt On'
The reasons that you have for Occam probably apply to Calix. Calix has probably have tighter connections with Cisco than Occam would have (see Carl Russo, Ajaib Bhadare). In terms of better platform, highly doubt it. I don't see how either Calix or Occam would have a major differentiation with an ethernet box, which is built with similar off-the-shelf products.

On the other hand, I agree with seven on the difficulty of going for a substantial exit in the tier-2 telecom network.

How will they ever get a tier-1 account among juggernauts such as alcatel-lucent, siemens, ericsson, cisco, etc???

Why would those companies (cisco, ericsson, etc.) buy Calix?
Product: probably not
Customer: major percent of spending is done by tier-1 accounts. Does it worth to pay that much to expand customer base to less-spending, tier-2 accounts?
Competitive: I haven't heard Calix being a major threat to those companies in tier-1 accounts. Hence, I don't see this as the reason.
OSXman 12/5/2012 | 3:31:37 AM
re: Ericsson's Svanberg Could 'Bolt On' Is it reasonable to assume that the difference is attributable to the OSI acquisition?
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