Ericsson: Every Vendor's Best Friend

Ericsson AB (Nasdaq: ERICY) has become one of the most popular kids on the router block these days, as networking equipment vendors scramble to partner with the wireless giant.

Today Axerra Networks Inc., which has built a switch that migrates so-called legacy services to an IP infrastructure through circuit emulation, announced it has signed a reseller agreement with Ericsson (see Axerra Teams With Ericsson). And rumors have floated around this week that Cisco Systems Inc. (Nasdaq: CSCO) is also looking to secure an agreement with them.

So what does all this mean for Juniper Networks Inc. (Nasdaq: JNPR), which has already had a successful OEM agreement with the leading wireless and voice technology provider?

The truth of the matter is that, at the edge, Axerra directly competes with Juniper’s M5 and M10 routers. But at the core, the two products could be complementary -- and that's what Juniper would lead us to believe.

“From a core perspective, [Axerra's switch] helps groom the legacy traffic onto the IP/MPLS backbone, which works well with the M40 and M160,” says Kevin Dillon, director of product marketing for Juniper. “But they seem to be positioned as an edge router replacement. There is a degree of similarity between the platforms. But there is always some overlap in these types of agreements.”

Steve Byars, Axerra's VP for marketing, claims that his firm has not positioned its products against edge routers. Instead, he says that the AXN technology complements edge and core routers by taking legacy, circuit-based traffic and mapping it onto an IP backbone using circuit emulation. The benefit is that carriers offering T1 services or Frame Relay services can migrate that traffic onto an IP backbone.

But it's possible that Axerra and Juniper are just being careful not to step on each other's toes -- there may be more overlap than they're willing to admit. Axerra’s product functionality may also be something that can be integrated with routers.

In general, routing companies appear to be moving into more multiservice applications, anyway. Unisphere Networks Inc. (Nasdaq: UNSP) and Laurel Networks Inc. have introduced products that handle both IP and ATM traffic, and even Juniper is trying to make its routers handle more kinds of traffic through upgrades to its software. In fact, Dillon says that the Juniper routers can also emulate circuit traffic using a technology called circuit crossconnect. Thie enables Layer 2 VPNs to adapt circuit-based Frame Relay and ATM services onto an IP/MPLS backbone.

But Byars argues that this is not the same as what Axerra is doing. "Circuit emulation requires specialized hardware,” he says. "I’m not saying these other companies couldn’t do it, but it takes time. It’s not simply a matter of downloading a new software release.”

Axerra isn’t the only company looking to get in on the Ericsson OEM action. On Monday, Ariane Mahler, an equities analyst with Dresdner Kleinwort Wasserstein published a research note speculating that Cisco is trying to muscle its way into an agreement with Ericsson.

”Our industry sources have suggested that Cisco is currently approaching Ericsson with a partnership proposal, which does not surprise us from a time perspective,” says the note.

Mahler says that a reseller agreement between the two companies would benefit Cisco most in 3G mobile network deployments, a market that is expected to explode over the next few years in Europe and then the U.S. Cisco already has a relationship with Ericsson’s competitor Nokia Corp. (NYSE: NOK), but Mahler believes Ericsson’s leading market share in wireless would be enough of an incentive for Cisco to drop Nokia.

What would Ericsson get out of a deal with Cisco? One major selling point is Cisco’s strong balance sheet, which could be leveraged to help win accounts with cash-strapped 3G operators.

But Mahler believes that the hurdles will be too great for Cisco to mount. For one, she says Cisco and Ericsson would clash culturally.

“According to DKW analyst Per Lindberg, Ericsson not only dislikes Cisco but also does not trust the company to strike exclusive partnerships,” says the report.

Secondly, an exclusive partnership would also create a lot of technical issues for Cisco. Juniper and Ericsson have already come a long way in integrating their products for the wireless market. And by the time Cisco is able to get its products up to speed there would be the need for massive forklift upgrades to networks already deploying the jointly developed J20 wireless router.

”I think it is a highly unlikely thing to happen,” says Juniper's Dillon, “especially since there is considerably more product overlap between Cisco and us than with Axerra.”

Considering that Juniper generates at least 10 percent of its revenue from the Ericsson agreement each quarter, it’s no wonder others want to get a piece of the pie, too.

— Marguerite Reardon, Senior Editor, Light Reading
hyperunner 12/4/2012 | 10:48:29 PM
re: Ericsson: Every Vendor's Best Friend Seven or eight years ago Ericsson was Cisco's biggest reseller in Europe. These deals come around and go around.

Remember that Ericsson signs these deals to get "pull through" on their SDH and DWDM business, as well as providing platforms for their 2.5G and 3G mobile solutions.

How do you think mobile data reacts to the Juniper packet-misordering problem? Juniper doesn't have a fix to this problem, and as packet loads begin to creep up it's becoming increasingly serious. Cisco seem to have avoided this one, although I still think their software is inferior to Juniper's (IOS is one big hack waiting to unravel).

Another factor to consider is that Juniper is over-distributed in Europe. Both Alcatel and Nortel have reseller agreements with them, as well as all those independent channels. In the "happy time" this might have meant greater market share, but when deals are thin on the ground it just means margin erosion.

edgecore 12/4/2012 | 10:48:26 PM
re: Ericsson: Every Vendor's Best Friend What products does Cisco have to take over ALL of Ericsson's business?

deepciscothroat 12/4/2012 | 10:48:26 PM
re: Ericsson: Every Vendor's Best Friend Nothing on the circuit side, of course, but Cisco has a vision of IP to the phone, to the PDA, to the PC, that over time will make the dominant provider of everything network.
They have invested in several IP radio vendors and want to extend their 802.11 as well
deepciscothroat 12/4/2012 | 10:48:26 PM
re: Ericsson: Every Vendor's Best Friend Cisco is trying to get into Ericsson's account, but Ericsson is too smart for this. They know long term their biggest competitor is Cisco, who essentially wants to take over all of Ericsson's business. Who has ever had a successful partnership with Cicso, who's jingle is what is mine is mine and what is yours is mine.

The Juniper partnership, which we hear is rocky, is a bulwark against the coming Cisco invasion!
kbkirchn 12/4/2012 | 10:48:21 PM
re: Ericsson: Every Vendor's Best Friend This is bogus speculation. Cisco doesn't have the wireless gear to directly compete with Ericsson (or Nortel for that matter) and has made no moves to change this.

If Ericsson only wants exclusive deals, they won't get that with Cisco. And the Juniper deal isn't exclusive either...
deepciscothroat 12/4/2012 | 10:48:20 PM
re: Ericsson: Every Vendor's Best Friend Think longer term. Cisco is a $20B company that needs BIG revenue streams to grow. If not its stock stays in the cellar forever. It's not going to come from LAN switches
cruiser 12/4/2012 | 10:48:19 PM
re: Ericsson: Every Vendor's Best Friend nokia is a factor here as well. they are financially sound and the company is very aggressive by comparison to ericsson which has a more conservative style as a company. it's not ericsson against cisco, it's cisco against everyone including nokia, seimens, alcatel, etc. it's just too bad that the only businesses lucent or nortel have that are doing ok are their wireless infrastructure businesses but both companies are in such dire straights that they'll be overlooked here long term, and over run.

my bets are on cisco with their $21B war chest. they're going to have to spend some of that money and get bold again though, especially in mobility because so far, they are nowhere with new products. all they have is old stratacom atm gear (for the backbone) and some gsrs. nothing at the edge at all, where the extension of ip to the handset really starts. nokia, if it gets its act together on the carrier infrastructure side of things (while keeping their nicely profitable handset business going) should be a formidable competitor. who will they partner with on the routing side of things? and don't say "amber."
metro_ether_man 12/4/2012 | 10:43:50 PM
re: Ericsson: Every Vendor's Best Friend They "Ericsson" also have there own,
remember "Torrent" Ie; Ericsson - Datacom.
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