A day after announcing a 13% year-on-year decline in revenues from its Networks division, Ericsson has announced it is splitting that business unit into two separate units, called "Radio" and "Cloud & IP" respectively, to support its "growth strategy." (See Ericsson Looks to Future as Q1 Sales Slump.)
The Radio business unit will, naturally, include the vendor's radio access network (RAN) systems. Ericsson AB (Nasdaq: ERIC) is the global market leader in mobile access infrastructure, with a 38% share of the combined 3G and 4G RAN market in 2013, according to Dell'Oro Group , while Huawei Technologies Co. Ltd. had a 24% share, Nokia Networks a 17% share, and Alcatel-Lucent (NYSE: ALU) a 10% share. However, the 4G RAN market, which is fueling mobile access infrastructure growth, is more evenly split between the vendors, with the likes of Samsung Corp. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) (especially in the massive Chinese market) taking a greater share of the spoils.
In its official statement, Ericsson said that it is "committed to maintain [sic] our leadership as the market evolves with 5G," adding that the evolution towards 5G is dependent on cloud and IP capabilities. (See Ready or Not, Here Comes 5G, NGMN Kickstarts 5G Initiative and Ericsson Explores New Way to 5G.)
While the RAN unit will start its standalone life as a market leader, the Cloud & IP business unit, which will include the vendor's router, packet core, cloud platform, and SDN/NFV developments, will not. While Ericsson says it has "made significant progress" in the cloud and IP technology sectors, it admits that it is "still a challenger. In a transforming market we will now intensify our work to capture opportunities in virtualization and cloud, building on our leading position in core networks." (See Ericsson Commits to OpenStack With Mirantis , Ericsson's Network Slicing: It's Far Out, Man, Ericsson Pushes Blades Into the Data Center, and Ericsson Claims SDN Advantage.)
The two new units will come into effect on July 1, but the executives leading each business are not due to be named until some time in May.
Both units will be part of a new group in Ericsson called Segment Networks, which will try to ensure that the two units operate in the most efficient manner through "continued synergies in R&D, alignment of product portfolio as well as marketing across the segment." Johan Wibergh, currently head of Networks, will be the head of Segment Networks, and will retain his position on the Executive Leadership Team. The heads of the new units will report to Wibergh, who will also spend more time on "group-wide projects."
Why this matters
The key market sectors for any major telecom infrastructure vendor are mobile broadband, IP, packet-optical, video, Service Provider Information Technology (SPIT), and the cloud/telco data center (including SDN and NFV).
Ericsson has been the king of RAN for some time, and while rivals are challenging hard, especially as major 4G rollouts in markets such as China favor the likes of Huawei and ZTE, the Swedish giant is well placed to retain a leading position in mobile access for the foreseeable future.
And thanks to a number of strategic acquisitions, it's also strong in video and service provider IT, while its new partnership with Ciena gives it a healthy position in packet-optical. (See Ericsson's Ciena Tieup: It's a Migration Thing, Ciena, Ericsson Embark on SDN, Optical Love Affair, Ericsson Bags Azuki Systems, Ericsson Buys Microsoft's IPTV Unit, and Ericsson Buys More OSS Smarts.)
That leaves IP, cloud platforms, data center systems, SDN, and NFV as market sectors where Ericsson needs to strengthen its presence, which is precisely the focus of the Cloud & IP unit. The company has already been pouring resources into its virtualization efforts, is committed to boosting its market share in the IP router market (where it gained a foothold with the 2007 acquisition of Redback Networks for $2.1 billion), and has a Tier 1 engagement to boast about, having been named as a vendor partner for AT&T's "Domain 2.0" project. (See AT&T's Cloud Future Takes Shape.)
Now Ericsson needs to build on that engagement and develop a clear proposition for network operators that want to run their own data centers, introducing virtualized elements into their networks, and migrate to a secure, all-IP architecture. That's no small challenge for a company best known as a mobile network infrastructure vendor.
— Ray Le Maistre, , Editor-in-Chief, Light Reading