February 4, 2008
While Ericsson AB (Nasdaq: ERIC) is cutting jobs, subsidiary Redback Networks Inc. is talking about expansion, armed with a pumped-up R&D budget that will help it take aim at Juniper Networks Inc. (NYSE: JNPR) or Alcatel-Lucent (NYSE: ALU) for Number 2 spot in the telecom IP market. (See Ericsson Cuts Jobs as H2 Bites and AlcaLu No. 2 in IP Edge.)
At the same time, former CEO Kevin DeNuccio is denying that he's been nudged aside, saying instead that his former job has taken on an R&D angle he's not equipped to handle. (See DeNuccio Replaced at Redback.)
DeNuccio tells Light Reading that, as non-executive vice chairman, he'll be in charge of the business side of Redback -- including possible acquisitions.
That's right: Ericsson, which became a startup vacuum cleaner last year, might still grab more properties, at least in the IP networking sector. (See Ericsson Invests in IPTV Smarts, Ericsson Offers $1.4B for Tandberg TV, Ericsson Snaps Up SDP Firm, and IPTV Drives Ericsson to Redback.)
Here's the deal: Redback is at the heart of Ericsson's new Product Area (PA) for packet networks, a Silicon Valley-based entity that will incorporate Ericsson's IP-based wireless equipment as well as gear from acquired companies Entrisphere Inc. and Tandberg Television . ("Product Area" is Ericsson's formal phrase for a product division.)
Ericsson is expected to announce the creation of the Product Area today.
"This PA is a bigger job than Redback standalone," says Georges Antoun, who's been named CEO of Redback and who will head up the new PA.
Redback's new PA is being created so Ericsson can build one IP strategy combining wireline and wireless products, Antoun says. To achieve that, the PA will get a research and development budget of around $300 million this year -– three times what Redback has been investing in R&D.
That's enough to "go head-to-head with Cisco Systems Inc. (Nasdaq: CSCO) and Juniper in their core markets, and with Alcatel-Lucent (NYSE: ALU) in France," DeNuccio says. "What we're going to do is ramp up to become number two in the IP space."
Redback isn't crazy enough to say it's going to oust Cisco yet, but you never know. "You have to become number two before you can become number one," DeNuccio says.
Note that $300 million would be half the $600 million Juniper spent on R&D last year -- and Juniper says it's increasing its budget. "But those R&D dollars are spread out across a lot of products that aren't necessarily related to telecom," DeNuccio counters.
As for the job change, DeNuccio says he requested the move, based on the creation of the new Product Area. That's because the PA's leading executives need a technology background, something DeNuccio admits he doesn't have. "Most product area heads have to be really technical guys, because they're competing for those R&D dollars," he says.
DeNuccio, meanwhile, will continue to help craft strategy for the Product Area, a task similar to what he's been doing for Redback. He'll also be scouting Silicon Valley for interesting startups. "We'll probably also make acquisitions as well," he says.
DeNuccio and Antoun -- who worked together at Cisco, later joining Redback separately -- claim that Ericsson is quite pleased with Redback so far.
As evidence, they cite that the new Product Area is being headquartered in Silicon Valley. Ericsson's wireless IP products, spread throughout Europe, will report into Antoun. Ericsson may create a single Valley headquarters combining Redback, Entrisphere, and the part of Tandberg TV that's out here. (See Redback Spreads Out, Ericsson Buys Entrisphere and Ericsson: Tandberg Is Key to IPTV.)
It's true that Redback's sales disappointed in 2007, Antoun says. That's only because prized customer BellSouth got swallowed up by AT&T Inc. (NYSE: T), interrupting some buildout plans, he says.
Redback claims it's picked up 85 new customers in the past year, including, says DeNuccio, two big-deal wins in Europe. (See Redback Beats AlcaLu to French Deal.)
"I know what the perception is. We're still growing," Antoun says. "Ericsson doesn't look at it as a one-year evaluation of the acquisition."
— Craig Matsumoto, West Coast Editor, Light Reading
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