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Is the Time Right for a Cisco/Ericsson Wedding?

Ray Le Maistre
2/17/2017
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Could "Ciscosson" become a single company rather than an evolving partnership?

The idea that Cisco Systems Inc. (Nasdaq: CSCO) and Ericsson AB (Nasdaq: ERIC), which forged their partnership in November 2015, might merge to create a giant, wide-ranging vendor was floated and shot down in July 2016 by Ericsson's then CEO Hans Vestberg, who said that a marriage of the two companies was "completely off the cards." (See Ericsson CEO: Cisco Merger Not On the Cards and Cisco + Ericsson: From Soup to Nuts.)

But seven months is a long time: Vestberg is no longer CEO, and Ericsson's year, in terms of market and financial performance, didn't improve much as 2017 approached. (See Ericsson Ejects CEO Vestberg, Beginning of the End for Ericsson? and Loss-Making Ericsson Still Short on Vision.)

In addition, and importantly, the Huawei juggernaut that has sent many companies off course in recent years, keeps picking up speed and business, though it may be heading for a few potholes this year. (See Another Bumper Year: Huawei Sales Soar 32% to $74.8B and Is Huawei in for a Bumpy 2017?)

Now Börje Ekholm is in the CEO seat at Ericsson and that changes things: Both Light Reading and our sister publication Telecoms.com have suggested Ekholm is going to be much more open to the prospect of maximizing shareholder value through M&A activity. (See Is Ekholm Ericsson's Savior or Seller?, 10 Key Tasks for Ericsson's New CEO and Cost Cutting Must Continue, Says Ericsson's New CEO.)

And it's only natural, given the ongoing relationship, that Cisco would be seen as being top of the list of companies to talk to about a merger. (See Ciscosson Scores Telco Cloud Deal Down Under and Ciscosson Looks to WiFi for 2017 Boost.)

That idea is not being confined to closed doors: Ahead of the MWC melting pot, where Ericsson builds an entire village to host customers, partners and assorted other visitors (including the media, of course) it's a talking point among those with an interest in Ericsson's future.

That talk won't go away. It will only intensify until such time that either Ekholm or Cisco CEO Chuck Robbins go on the record -- one way or the other.

In the meantime, Ericsson's share price is down nearly 32% compared to a year ago. But the share price is up nearly 19% since Ekholm was announced as the new CEO (in October last year) and is up 3% this month. It closed today on the Stockholm exchange at SEK 53.20.

If you're going to MWC later this month, expect Ciscosson to be on the industry chat menu.

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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brooks7
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brooks7,
User Rank: Light Sabre
2/21/2017 | 12:25:26 PM
Re: In the MWC the players will do the PR thing.
 

Your right the job is to produce Cheaply and Sell Expensively.  If costs go up, those are passed on 1 to 1 to consumers.  So, if you produce locally you spend more.  Take a look at agriculture where people spend more for the local (organic, artisnal, etc.) produce.  The grocers of such goods are NOT taking a margin hit.  The products are more expensive.   That is why Whole Foods costs more than Safeway.  

So, as long as you are happy to pay more than support tariffs.  This has worked well in the past (this is often quoted one of the primary cause of the Great Depression).

seven

 
mendyk
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mendyk,
User Rank: Light Sabre
2/21/2017 | 12:14:31 PM
Re: In the MWC the players will do the PR thing.
Why not just have governments run businesses, as long as they're telling them exactly how they should function? If there's logic to be followed in your post, that's where it leads.
jonh97767
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jonh97767,
User Rank: Light Beer
2/21/2017 | 11:32:53 AM
Re: In the MWC the players will do the PR thing.
Well no, of course not.

Let's just go back to absolute basics, what do the mega companies mean by "global economy"? They mean produce where it is dead cheap and sell where it is dead expensive.

Trump is 1100% right, want to sell local? You will have to produce local.

Prices will not go up, the same way they did not go down when the mega companies started producing in rogue countries under slave-like conditions. 

In fact legislation must be passed, which will force the countries break down any possible price increase, which they probably will resolve to initially, in order to scare people.
GregW333
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GregW333,
User Rank: Lightning
2/20/2017 | 8:10:51 AM
Re: Cisco comment
Dan...  don't for get their large investment in Altiostar...a V RAN play....
GregW333
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GregW333,
User Rank: Lightning
2/20/2017 | 8:09:19 AM
Who buys who?
Hearing Ericsson detail the Cisco relationship, it really sounds like a glorified OEM deal where Cisco sells BOXES to E and E re-sells them as part of a system.

E Strong in SP  - C strong in Enterprise

C sells boxes to E AND C introduces E to all their key enterprise accounts... Great for E...not so sure for C.

Both are part of the last wave ...think DEC and Wang   
Joe Stanganelli
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Joe Stanganelli,
User Rank: Light Sabre
2/20/2017 | 6:08:00 AM
Re: doubt that
@komatineni: Indeed.  In my experience, rumors and speculation about a merger without an actual offer or announcement = an near-guarantee that it won't happen.

Most actual confirmed announcements seem to come from out of the blue -- and the public announcements of the agreements tend to come fast.
Joe Stanganelli
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Joe Stanganelli,
User Rank: Light Sabre
2/20/2017 | 6:04:00 AM
Re: In the MWC the players will do the PR thing.
"All that will do is raise prices."

The theory is that the tariff-induced price-raising will be offset in cuts to domestic income taxes.

At least, that seems to be the thinking being floated.  And, ideally, that's how it should work.

So we'll see.
brooks7
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brooks7,
User Rank: Light Sabre
2/18/2017 | 10:48:41 PM
Re: In the MWC the players will do the PR thing.
What would Trump do?  That is why this whole repatriation of cash is a stupid idea.  Lots of companies operate in the US are HQed in other places.  Heck locate the HQ in the Bahamas or Cuba or anywhere.  It doesn't matter.  Which is the entire point.  We have a global economy.  Trump has absolutely no ability to do anything about it.  The only thing he can do is try to put tarriffs in place.  All that will do is raise prices.  The manufacturing jobs are gone, unless we want to change minimum wage into the pennies per hour range.  And with Cisco, I wouldn't even move a single job.  I would just make the Canadian sub the main company and poof it is now a Canadian company.

seven

 
Joe Stanganelli
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Joe Stanganelli,
User Rank: Light Sabre
2/18/2017 | 2:11:25 PM
Ciscosson
Personally, I prefer Erisco.

Alas, that name seems to be taken
brooks7
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50%
brooks7,
User Rank: Light Sabre
2/18/2017 | 1:42:07 AM
Re: In the MWC the players will do the PR thing.
I think the only question is:  Why would this be good for Cisco shareholders?  Cisco has avoided many of the core markets that Ericsson is strongest in.  Has the strategic situation for Cisco changed enough where adding those capabilities makes sense.  The reasoning for Ericsson does not matter.  They would be the weak sister of the relationship.

And if the US passes a law that would force US HQed companies to repatriotate cash, then it would be trivial for Cisco to move itself to Canada.  No actual employee moves, it just makes itself a Canadian company.  Will cost a few dollars, but that whole repatriation threat is humorous.

seven

 
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