Ericsson Mulling Marconi?

Sources inside Marconi believe Ericsson is planning a bid for the British vendor, but not everyone's convinced

September 27, 2005

3 Min Read
Ericsson Mulling Marconi?

Sources inside British equipment vendor Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) believe a bid for the company may come from wireless equipment giant Ericsson AB (Nasdaq: ERICY) rather than Huawei Technologies Co. Ltd., which has been named as the most likely suitor.

The buzz in London's capital markets in recent days has been of an impending bid from the Chinese vendor, and Marconi has stated officially that it's in talks with a third party regarding potential merger or acquisition activity. (See Marconi/Huawei Talk Reheated.)

But Light Reading has learned that Ericsson's name is being mentioned as the suitor by high-level management types at Marconi, and that the Swedish vendor needs Marconi's experience of BT Group plc's (NYSE: BT; London: BTA) legacy voice networks, and its U.K.-based manpower, to deliver the Intelligent Node section of the U.K. incumbent's next-generation network. Marconi was left out of BT's 21CN plans. (See BT Picks Ericsson for 21CN, Ericsson to Bring Partners to 21CN Party, and BT Shuns Marconi for 21CN.)

Why would Ericsson need Marconi? The view within Marconi is that, while Ericsson has long been a supplier of TDM voice equipment to BT, it still doesn't have the depth of knowledge of BT's network, where Ericsson has been named as a supplier in its Intelligent Node softswitch project.

BT's current TDM voice network is built around Marconi System X technology, and the view is that while Ericsson's softswitch technology is great for mobile and, eventually, an IMS architecture, what BT needs now is basic telephony features that will allow it to migrate its voice customer base from the TDM switches to IP.

But it's not all about BT. Ericsson is the world's leading vendor in mobile network technology and has a great early position in IMS, all of which BT wanted in a vendor partner. But the view is that Ericsson needs more depth in its fixed-line technology division to deliver what carriers will need as they build out converged fixed/mobile IP networks, despite its developments in IP DSLAMs and carrier Ethernet technology. Fixed-network systems currently account for just 3 percent of Ericsson's quarterly sales.

Marconi, with highly regarded access and next-gen optical products, would help the Swedish firm beef up its fixed-network capabilities.

Ericsson executives declined to comment and referred us to the firm's media relations team, which had not returned calls as this article was published. Marconi failed to return calls.

While industry executives close to the 21CN plans could see the logic in the move, at least one industry analyst who follows Ericsson closely, Richard Windsor at Nomura International, said he'd be shocked if Ericsson made such a move, although "it wasn't beyond the realms of possibility."

Windsor believes that Ericsson would have needed to prove to BT that it could deliver the core softswitching package before it was handed the 21CN deal. "I'd be surprised if they were coming up short on BT's requirements," says the analyst.

Huawei, meanwhile, is still regarded by financial analysts in London as the most likely company to emerge as Marconi's suitor, with Dow Jones reporting that a bid is expected this week at a per share price of anything between 325 pence and 385 pence.

Marconi's share price ended today at 305 pence on the London Stock Exchange, up by less than 1 percent.

— Ray Le Maistre, International News Editor, Light Reading

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