Russo 'Tickled Pink' by Ericsson, Calix Deal

Calix Inc. (NYSE: CALX) and Ericsson AB (Nasdaq: ERIC) said Wednesday that they've signed two agreements and both seem to help Calix in a big way.

First, Calix has agreed to acquire Ericsson's fiber access assets, which include its Ericsson EDA 1500 GPON solution, which arrived at Ericsson when it acquired Entrisphere, Inc., in 2007. Calix will also get up to 61 Silicon Valley-based employees in the transaction.

Second, Calix is becoming a "preferred global partner" for broadband applications for Ericsson. That agreement lasts for three years and will allow Ericsson to resell Calix's gear, software and solutions. The reselling agreement also "allows both companies to focus on their respective strengths," according to Calix CEO Carl Russo, who spoke to Light Reading Wednesday.

Ericsson's broadband access business is, of course, bigger and older than what it has in its fiber access platforms, a hint that both sides were thinking strategically. "The copper assets that they had were declining in revenue and there was no sense in acquiring revenue that is declining," Russo says. But the products Calix is acquiring feature a GPON Optical Line Terminal (OLT) suitable for Tier 1 carriers. "We're just starting into the Tier 1s, they're already there. So it's a nice fit," Russo says, probably while adjusting his top hat and smiling winsomely into a mirror.

Financial details were not disclosed, but it was "not a material amount of cash," according to Calix executives.

Why this matters
Calix, arguably, has a more advanced multiservice access platform than what Ericsson is selling now. And with Ericsson's more widely accepted fiber access tech, Calix becomes a viable competitor to Adtran Inc. (Nasdaq: ADTN), with a bigger international sales channel.

Also, about half of Calix's revenues have historically come from Tier 3 operators in the U.S., and the government's broadband stimulus never resulted in the equipment and earnings boost that the company expected initially. While it has been expanding internationally for months, this deal puts Calix on a faster track.

The unknown here is how Ericsson actually positions Calix with global Tier 1 carriers. With margin pressure worldwide from vendors like Huawei Technologies Co. Ltd. , it could be challenging for Ericsson to resell gear, which implies a mark-up that helps two companies and could result in a more expensive overall solution.

"It's very exciting to be at a stage where the portfolio of products continues to get stronger [and where] the technologies that we're developing are more and more differentiated in the market and help our customers win in their markets ... I'm tickled pink," Russo says, while probably fogging and wiping off his monocle and tucking a pinch of snuff behind his lower lip.

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— Phil Harvey, Editor-in-Chief, Light Reading

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