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.

For more

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

digits 12/5/2012 | 5:23:05 PM
re: Russo 'Tickled Pink' by Ericsson, Calix Deal

If Ericsson paid $290 million for Entripshere in 2007 and Calix is using "not a material amount of cash" to buy Ericsson's GPON business, what does that tell us about Ericsson's fixed access broadband progress during the past 5 years and the GPON market in general?

paolo.franzoi 12/5/2012 | 5:23:05 PM
re: Russo 'Tickled Pink' by Ericsson, Calix Deal


I think a better question is did Ericsson lose more money on Raynet?

Second question:  How many man-hours do you think Ericsson will spend on training its sales team on an OEM in a low margin market against Huawei?



DCITDave 12/5/2012 | 5:23:04 PM
re: Russo 'Tickled Pink' by Ericsson, Calix Deal

I could never confirm the $290M price tag that everyone cited back at the time of the acquisition. I remember it came from a Swedish newspaper but I never saw anyone go on the record about it. 

My guess is that the fiber access stuff is making an increasing amount of revenues but it's profitable because of what surrounds it inside of Ericsson's access biz. Wish I understood that part better.

Still, brooks brings up a great point. The sales strategy will have to be really thought through if everyone else is selling low margin gear and it is marking up someone else's equipment. My guess is that in the types of deals they're involved in -- Tier 1s that are buying LOTS of stuff -- there will be other places to discount.

We'll see. Calix is a bigger company but not big enough to hide stuff in the numbers.

jayja 12/5/2012 | 5:23:01 PM
re: Russo 'Tickled Pink' by Ericsson, Calix Deal

Going back to Calix's old OSI days, Tier 1's (USA at least) routinely told them they needed to be acquired by an established supplier (Lucent was typically cited back in the day) in order for their products to be considered.  Now we'll see...

paolo.franzoi 12/5/2012 | 5:23:01 PM
re: Russo 'Tickled Pink' by Ericsson, Calix Deal


Calix was not acquired however.  Calix bought some assets not sold.  So, there is still no parent for them in US Tier 1s.  On top of that, there is no open spot for them at the moment.  DLCs, DSL, and FTTH all have incumbent vendors and there are no RFPs that they can go for.  

It would make more sense if Calix thought that this would expand their International business.  Interestingly, Calix calls this accretive.  Given that they are picking up 61 people according to the PR, this implies revenue probably exceeding $50M.  If that is so, then this would double or more Calix's international business.  The challenge is maintaining and expanding that business in competition against the Chinese.



[email protected] 12/5/2012 | 5:22:26 PM
re: Russo 'Tickled Pink' by Ericsson, Calix Deal I was with RayNet when Ericsson acquired it. Carl Russo knows how to run an access business.

Mark Reichenbach
paolo.franzoi 12/5/2012 | 5:22:25 PM
re: Russo 'Tickled Pink' by Ericsson, Calix Deal


It would be nice if he knew how to run one that made a profit.  :)




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